Freight and the UK economy
The UK’s freight sector differs from passenger transport in that it is privately funded. There are no government bail outs or special funds available. This means that the profit margins in freight are totally dependent on the functioning of the UK economy as a whole, and very volatile. If a particular sector changes in an unexpected way, freight’s profit margins can become non-existent. Those working in the sector sometimes joke that ‘it’s only the last three wagons of a freight train that make the train profitable’ but there’s a more than grain of truth in this joke. 80% of freight costs are fixed.
When the UK started moving away from coal-fired power stations in 2008 this started to become clear. Fewer wagons containing coal made some previously viable journeys uneconomic. Sadly, there have been other examples since then as well. For instance, if a large construction project gets put on hold, the commercial viability of the whole train can be destroyed even if there are still other freight customers for the journey. Similarly, if there are fewer containers imported into the UK that has a knock-on effect on other freight customers for a train too. This is the case whether the cause is disrupted supply chains post-pandemic or changed trading patterns following EU-exit.
Perhaps the most frustrating example of this is the Scunthorpe-Hyange freight service. Before Eu-exit, DB Cargo UK had a freight train that ran from Scunthorpe in Lincolnshire to Hyange, 350km north-east of Paris, France. It ran between 5 and 6 times a week for 46 weeks of the year and was the most profitable service DB Cargo UK ran. Its cargo was British Steel products that were manufactured into high-speed rails in France. Unfortunately, since 2019 the decision was made to procure the steel from another EU country rather than use British Steel products, and this has left a £9million gap in DB Cargo (UK)’s business.
However, if freight margins are very volatile in response to unexpected changes, this could also mean that margins increase if new opportunities are successfully exploited. This isn’t always easy because due to technical constraints, but there are certainly new opportunities that freight is exploiting well. The drive to net zero is bringing increasing numbers of customers to the freight sector. The unexpected volatility in fuel prices and fuel availability highlights the importance of freight’s greater fuel efficiency compared to HGVs. There is a positive drive towards a modal shift in freight, so much so that even some old customers like Royal Mail are returning. In addition, the Great British Railways Transition Team is considering options including a growth target for freight which would encourage further growth in the sector. Overall this means that although freight is not yet the size it wants to be, its ambitions for growth are on the way to being achieved.
