Scotland’s Rail Freight Strategy – Consultation response of the Scotch Whisky Association 21st January 2016

Introduction

The Scotch Whisky Association1 welcomes this consultation on the development of a refreshed rail freight strategy for Scotland. Scotch Whisky is Scotland’s biggest manufactured export. Each year £4bn of Scotch Whisky is exported to 200 markets around the World. This equates to around 40 bottles every second. In addition to transporting bottles to market, the industry requires large volumes of raw materials, packaging goods, by-products, fuel and other materials to be transported to and from the production facilities in Scotland. Freight transport is therefore crucial to the success of the Scotch Whisky industry.

The industry requires transport to meet strict health and safety standards, ensure the product quality is maintained, is secure and compliant with HM Revenue & Customs regulations (Scotch is an excisable product and the movement is tightly controlled), is reliable and is not dependent on long-term government finance.

The strategy aims to increase the use of rail freight. However, it is not clear that the modal shift the Strategy seeks to encourage is from road to rail. This should be clarified. Most exports of Scotch Whisky leave Scotland either by rail or by ship. It is not clear how the rail freight strategy fits within a broader freight strategy for Scotland which includes all modes of transport. This is important as all export movements of Scotch Whisky (and presumably many other goods) involve at least one road journey to either the rail terminal or the port. There are obvious benefits of establishing direct ship-to-rail connections at Scotland’s two main container ports (Greenock and Grangemouth). We believe that a broader freight strategy should be developed to address the issues affecting each mode type and how they interact with each other. A good starting point would be the report of the Scottish Parliament’s Infrastructure and Capital Investment Committee’s inquiry into freight transport in Scotland.

The use of rail

1. Exports

Bottled Scotch Whisky accounts for over 80% of all exports. Most of this is moved in intermodal shipping containers. Generally speaking, rail is well suited for transporting that type of freight. The industry already makes good use of the rail and shipping services from Scotland. For example over 95%2 of exports to the USA

1 The Scotch Whisky Association (SWA) is the trade association representing 95% of the Scotch Whisky industry. SWA members are distillers, blenders, bottlers and those engaged in the wholesale and export trade in Scotch Whisky. 2 Scotch Whisky Industry Environmental Strategy: 2012 distribution data

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left Scotland on either feeder services from Scottish ports or Anglo-Scottish rail services to connect with deep sea vessels in either England or the near continent. 29%3 of movements to France – Scotch Whisky’s largest export market - used rail to reach the port of departure from the UK. That might increase following the opening of the rail terminal at Teesport. We may also see the increased use of the Channel Tunnel following the introduction of connecting rail freight services from Scotland.

Paragraph 52 of the consultation paper suggests that improvements to the Highland Mainline (Perth to Inverness) and the East Coast Mainline to Aberdeen may increase rail’s market share of containerised exports of Highland exports such as Scotch Whisky. However, the vast majority of Scotch is actually exported from the blending and bottling facilities located in the Central belt and not from the distilleries. Improving those lines will therefore not lead to a noticeable increase in exports of Scotch Whisky from, for example, Speyside.

2. Internal movements

Containerised shipments of bottled Scotch to the export markets are one type movement. The other, perhaps less well defined, type involves movements of goods to and from the industry’s production facilities (e.g. distilleries, maturation warehousing sites, cooperages, and blending and bottling operations). For example, movements of raw materials and casks to distilleries and warehousing sites, packaging materials to bottling sites, fuel (e.g. oil or biomass) to production sites and movements of spirit within Scotland (e.g. newly distilled spirit from distilleries to maturation sites and mature spirit (Scotch Whisky) to blending and bottling sites). Currently all of these goods are moved by road.

The consultation refers to the Lifting the Spirit trial which began in September 2013 to test the feasibility of transporting bulk spirit from distilleries and warehouses in Speyside to the central belt by rail. There was a real willingness by distillers to be involved in the collaborative demonstration project. A number of challenges were revealed during the trial – some of which will require strong collaboration to overcome in the long term for modal shift to take place. To help, the industry has presented its broad requirements to the rail freight industry. The Association’s paper – Road to rail modal shift: Distillers’ requirements – ‘criteria for success - for rail freight – is attached.

Consultation questions

1. What are your views on the vision for rail freight in Scotland?

We agree with the Strategy’s broad vision although as mentioned earlier, we believe that there should be an over-arching vision or strategy for freight transport which includes all modes and how they interact.

2. What are your views on the market opportunities identified in the document?

The industry is working hard to improve access to markets around the world. Exports of Scotch Whisky have increased by almost 30% over the last 10 years. We envisage further growth. There is therefore scope for increased volumes of containers to be

3 Scotch Whisky Industry Environmental Strategy: 2012 distribution data

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transported by rail, either to the port of departure or more directly through the Channel Tunnel.

There is scope for rail to play a part in the ‘internal movements’ for example transporting supplies of glass bottles from glass manufacturers and possibly cereals as well as bulk spirits (which were part of the Lifting the Spirit trial). We are keen to work with the rail industry to investigate opportunities for modal shift in this area.

3. What are the 3 biggest opportunities for growth in the rail freight sector in Scotland?

Anglo-Scottish intermodal (containerised) freight perhaps presents the biggest opportunity. For the Scotch Whisky industry, rail may play a bigger role in transporting finished product to market by connecting to ports in England or via the Channel Tunnel. One opportunity for the rail freight industry might be to investigate further the practicality of putting on additional Anglo-Scottish services during the industry’s busiest exporting period (September to December).

Innovation might create an opportunity for growth. Low-bed waggons which allow ‘high-cube’ shipping containers to travel on lower gauge lines and possibly ‘rolling roads’ which allow HGVs to be driven onto specialised rail waggons. This might allow cereals in bulk carriers and spirit in road tankers to be transported.

4. What are the 3 biggest challenges to growth in the sector?

Investment is possibly the biggest challenge. Some rail operators have identified the need to invest in rail terminals in order to increase efficiency and capacity. Investment is also needed across the network. Routes need to be gauge cleared to allow rail to handle containerised traffic. Although work is progressing on gauge clearing the East Coast Mainline, flooding (and closure) of the West Coast Mainline in December 2015 and January 2016 (possibly throughout February too) in northern England and southern Scotland highlighted the fragility of Scotland’s rail freight connectivity to England. We understand that the success of gauge enhancements on the East Coast Mainline for intermodal rail freight to/from Scotland is dependent upon gauge clearance work that would be achieved by electrifying the Edinburgh South Suburban Line, which is used as a diversion route to avoid Waverley which has restricted train paths and routes for rail freight.

In terms of the internal movements, the challenges identified during the Lifting the Spirit trial will need to be addressed if rail is to play a part in the industry’s internal movements.

5. What are your views on the role of the Scottish Government, as outlined in the document?

The Scottish Government and Transport Scotland has a role to play in providing funding to enable the industry to invest but also to act as a central body in promoting rail freight and possibly coordinating action. The Strategy identifies a need for the rail freight industry to improve the way it communicates its offering to business and how business can access information about rail freight services.

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6. What are your views on the steps necessary to create a stable environment for growth?

No comment.

7. Should targets be set in the final strategy and if so, what areas should these cover?

We are not convinced that setting targets in this area will be necessary. Targets will require accountability and may drive policy decisions with unintended consequences. For example, a policy which seeks to increase rail freight volumes might lead to a reduction in the use of short-sea feeder services from Scottish ports. This may jeopardise the future of some feeder services and ultimately delay investment in Scotland’s container ports.

8. What are your views on the actions identified in the document and who should take the lead role in delivering these?

No comment.

9. Any other views?

No comment.

The Scotch Whisky Association 21st January 2016

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Road to rail modal shift: Distillers’ requirements – ‘criteria for success’ 1 April 2015

Introduction

Scotch Whisky industry investment and subsequent increases in spirit production is driving the need for ever better and flexible modes of transport for all the industry’s input needs, by-products and spirit (bulk and cased goods).

In 2013 the Scotch Whisky Industry participated in the Highlands and Islands Transport Partnership (HITRANS)-led demonstration project on modal shift (the so-called ‘Lifting the Spirit’ project). The project, was due to formally report in late-2014, tested the feasibility of switching the transport of some bulk spirit from road to rail for the journey from Speyside to the Scottish central belt.

The industry supports the use of rail for transporting cased goods to export markets, for example around 29% of bottled exports to France were moved by rail in 2012.

Rail transportation of bulk spirit has the potential to cut road journeys and emissions and offer flexibility in transport options for a growing industry. The Lifting the Spirit trial was a complex project with broad support, involving distillers, HITRANS, Highlands and Islands Enterprise, Network Rail, Moray Council, the Scottish Government and the EU FoodPort Programme. There was a real willingness by distillers to be involved in this collaborative demonstration project. Many challenges were revealed during the trial – some of which will require strong collaboration to overcome in the long term.

While the programme showed it was physically possible to move spirit by rail, it revealed many practical, health and safety, compliance and contractual matters that need attention before rail transportation of spirit can become a long-term option for distillers. The trial demonstrated real appetite across the supply chain for change and we hope the commitment can be maintained to make the logistical and commercial aspects of rail transport work to become a permanent option.

This paper, building on the learnings from the Lifting the Spirit project aims to signal to the wider downstream supply chain, the Scotch Whisky industry’s broad requirements. It should be read as ‘criteria for success’. The paper covers the essential criteria that must be met in order to satisfy distillers and give them the required confidence to consider transport by rail in the future. These requirements are not exclusive and individual Scotch Whisky companies may have company-specific prerequisites.

Background to the key criteria for modal shift

1. Health and safety

1.1. The protection of Whisky industry staff, visitors to sites, contractors and communities is a priority for the Scotch Whisky industry.

1.2. Members of the Scotch Whisky Association are committed to voluntarily moving to the bottom-loading of tankers by 31 December 2024. This aims to remove, as far as possible, the requirement for our teams and those in the supply chain to work at height. Many distillers have invested significantly in bottom loading facilities including the removal of gantries and the installation of equipment to facilitate bottom loading. We are delighted at the response from our supply chain partners to this commitment. A number of key road hauliers have made substantial investment in hybrid road tankers, designed in collaboration with the Scotch Whisky industry to service the sector as it transitions to 2024. We are optimistic that rail providers will be able to offer similar opportunities in order to fulfil an important Scotch Whisky industry goal and that intermodal (i.e. ISO-type) bulk tanks will also meet that requirement.

2. Quality

2.1. Ensuring spirit quality and maintaining spirit character are essential and neither must be compromised. By law, Scotch Whisky must be distilled and matured for a minimum of three years (although in reality maturation periods often exceed that minimum requirement). Because of this long production process, the importance of maintaining spirit character and quality must be fully understood and respected.

2.2. Tanks must be cleaned and a cleaning certificate is required prior to each filling. Some distillers may require dedicated tanks to ensure that only one spirit type is filled into certain tanks. For example a tank used to transport a ‘peated’ whisky might affect the flavour of a ‘non-peated’ whisky.

3. Security and revenue control

3.1. Security of high-value excise goods such as Scotch Whisky and new-make spirit is essential. There are a number of business and regulatory requirements to take into account.

3.2. Business physical security requirements include the use of heavy gauge wire seals and approved padlocks to restrict access to discharge valves. In addition, rail terminals must be secure – this includes physical security (fences and gates), full- time permanent security, and other measures such as CCTV. The ‘Lifting the Spirit’ trial demonstrated the need to have a clear understanding of liability (including insurance) between all parties involved with, and at all steps in, a movement. It is essential that the transport provider offers sufficient and appropriate cover, not only to cover losses to the physical containers and train but also for the contents of the tanks and the excise liability in case of spirit losses.

3.3. Compliance with Her Majesties Revenue and Customs (HMRC) regulatory requirements is fundamental and the requirements must be met at all times. Goods must be held and moved using the correct procedures and documentation. A rail terminal might need to be approved (by HMRC) as an excise warehouse although this depends on the length of time goods might be stored. Failure to comply with HMRC requirements may result in very significant Excise Wrongdoing Penalties4. All

4 http://www.hmrc.gov.uk/compliance/cc-fs12.pdf

parties which handle the goods must be fully aware of, and ensure compliance with, all of HMRC’s requirements.

3.4. All operators must have in place procedures to follow in the event of any incidents to protect the revenue.

4. Financial

4.1. Distillers may require rail to be competitively priced with road transport. It is preferable that rail is self-financing and not dependent on government financial support. If government financial support is necessary, it should be guaranteed for a minimum of ten years.

5. Reliability

5.1. Trains must run to schedule.

5.2. Distillers require products to be delivered within tight timeframes. It is therefore important that tanks are delivered (at either end) on time. Individual companies will have their own delivery schedule requirements.

5.3. To help ensure reliability, back-up arrangements should be in place. For example in the event of locomotive failure, a stand-by locomotive should be available (within a reasonable journey time).

6. Environmental benefits

6.1. The Scotch Whisky Industry takes its environmental responsibilities seriously. The industry's Environmental Strategy5, published in 2009, sets stretching targets for the sector's performance and includes commitments to work in partnership with the supply chain across a number of areas, including transport.

6.2. Rail transport would be expected to deliver environmental as well as commercial benefits. When estimating greenhouse gas emission savings (compared to road), these should be estimated on end-to-end journeys – including emissions associated with road transport to and from the rail depots. To maximise environmental benefits, full trains should run (these might include other products) and return loads should be used where possible.

7. Feasibility

7.1. Before the ‘Lifting the Spirit’ trial commenced, ‘dry runs’ took place. Empty ISO tanks were taken to each potential participating distillery. It was found that some sites could not accommodate ISO tanks due to their greater height (compared to road tankers). Site limitations must be considered. Some companies might need to make costly and permanent modifications to their loading/un-loading bays (or other parts of their sites) accommodate ISO tanks. Modifications must not compromise the moves to facilitating the bottom loading of tankers (see 1.2).

5 http://www.scotch-whisky.org.uk/what-we-do/environmental-strategy/

Detailed criteria and requirements

Criteria Requirements 1. No RIDDOR (Reporting of Injuries, Diseases and Dangerous Occurrences Regulations 2013) accidents and incidents. 2. Ability to bottom load tankers where distillers have removed working at height. The industry’s commitment to bottom loading by 31 December

safety 2024 must be recognised.

Health and and Health 3. Transport of dangerous goods requirements must be met, including affixing appropriate signage to tanks. 1. Tanks must not compromise spirit quality or character. 2. Tanks must be cleaned and a cleaning certificate must be provided prior to each filling.

Quality 3. Some distillers may require dedicated tanks to ensure that only one spirit type is filled into certain tanks.

1. Goods must be secure at all times, whether they are in transit or are

stationary. Physical security extends beyond the vessels containing the spirit and includes rail terminals and other yards/locations. 2. Insurance cover must be sufficient and appropriate. This not only includes cover for any losses to the tanks/containers and train but also for the contents of the tanks and the excise liability in case of spirit losses. Insurance cover is usually provided by the transport provider (i.e. the train operator). 3. HMRC holding and movement requirements must be met at all times. Goods must be held and moved using the correct procedures and documentation.

4. All operators must have in place procedures to follow in the event of any Security and revenue control revenue and Security incidents to protect the revenue.

1. Distillers may require rail to be competitively priced with road transport. 2. It is preferable that rail is self-financing and not dependent on

government financial support. Financial

1. Tanks must be delivered (at either end) on time.

2. Back-up arrangements should be in place. Reliability 1. Rail must deliver environmental benefits. Greenhouse gas emission

savings (compared to road) should be based on end-to-end journeys – this will include emissions associated with road transport to and from the rail depots.

benefits Environmental Environmental

1. Site limitations must be considered. Some sites cannot accommodate ISO

tanks due to their greater height (compared to road tankers). Feasibility