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£50bn of potential economic benefits from freight & logistics in the North

Transport for the North launched its report into how transport of freight and logistics across the North of England can play a vital role in rebalancing the UK’s economy in September 2016. The Northern Freight and Logistics Report highlighted the potential for the North’s freight and logistics sector to make a significant contribution to the overall economy, with forecast potential economic benefits of around £50 billion by 2060 including £35 billion of user and non-user benefits to the UK. The sector could also make a positive contribution to the sustainability agenda by encouraging more freight on rail and waterborne freight transport, and creating more employment in the North.

The report to help TfN to develop a transport strategy for the North of England was commissioned from MDS Transmodal and Mott MacDonald in September 2015. The object of the freight and logistics study was to define a plan for the public sector that would deliver measureable economic benefits to the North through improving the connectivity of the North of England both internally and externally.

The North of England, which accounts for 24% of the GB population, already handles 35% of the total port throughput of some 500 million tonnes p.a. in Great Britain and hosts 30% of the 40 million square metres of large distribution warehouses in the country. In addition, 35% of all road freight and 56% of all rail freight has an origin or destination in the North, all of which demonstrates its existing competitiveness for logistics.

Freight transport and logistics services are delivered almost exclusively by private sector companies which invest heavily in infrastructure such as ports, inland terminals and warehouses, and equipment such as trucks and vans, locomotives and railway wagons, ships and barges, cranes and forklift trucks. The private sector needs, however, to use road and rail infrastructure and is subject to the taxation and regulatory regimes that the public sector puts in place. It follows that a successful freight strategy for the public sector in the North will involve a combination of public investment in road and rail network infrastructure, the allocation of sufficient existing rail network capacity to meet demand for freight services, the application of appropriate planning policies, and changes to regulations to achieve the desired response from the market.  Extensive consultation exercises were undertaken with the freight industry during the study to identify an effective strategy, which allowed the consultancy team to develop the recommendations that are included in the Transport for the North report.

The study considered a wide range of options (organised into ‘bundles’), including investment in additional infrastructure capacity and allocating sites to develop rail- and water-linked logistics sites. Such logistics sites can also be the basis for urban logistics hubs using low or zero emission vehicles to make deliveries in areas of high residential density. Each bundle of options was modelled using MDS Transmodal’s GB Freight Model, which forms the freight component of the DfT’s National Transport Model.  The impacts of bundles of options were quantified and evaluated on the basis of user benefits (the level of financial cost savings to the real economy), non-user benefits (amenity savings based upon the net values the DfT employs to assess the impact of rail freight grants diverting traffic from the road network) and increases in Gross Value Added (GVA) and employment for the North.

The total Present Value of user and non-user benefits exceeded by a wide margin the likely incremental costs of the associated road works required. Rail and port based distribution parks, which are developed by the private sector, are effectively free to the public sector given suitable planning consents.

The main elements of the preferred strategy which the study identified were to:

  • concentrate a higher proportion of warehousing on rail and water connected logistics sites – which were called Multimodal Distribution Parks or MDPs in the report; 
  • upgrade road access to the ports of Hull and Liverpool;
  • provide more capacity on the M60/M62 corridor around Manchester and routes between the North East and North West;
  • upgrade rail loading gauge across the Pennines; and
  • expand the rail network capacity available for freight along the major north-south routes and across the Pennines. The volumes of rail capacity forecast for the TfN report were consistent with Network Rail’s Freight Market Study published in October 2013 (also based on outputs from the GB Freight Model) and its Freight Network Study (August 2016.

The main impact of the strategy would be to increase the proportion of goods to and from the North of England arriving directly by rail or by sea to northern ports; in either case this traffic would by-pass the road network in the south and the Midlands. Effectively this cuts user costs, saving money for existing users and attracts employment by making logistics locations in the North more competitive.  An important policy lever was the expansion in the North of the Government’s policy to promote Strategic Rail Freight Interchanges (SRFIs) or rail-connected Multi-modal Distribution Parks. Without such developments, rail freight volumes are forecast in the study to be 35% lower than would otherwise be the case.

Private sector interest in this direction of travel is reflected in a range of initiatives and investments, such as the much larger freight ferries now being ordered by the leading lines operating into the Humber estuary, the Port of Liverpool’s investment in its new deep-sea container terminal (Liverpool 2),  Teesport’s investment in a new rail terminal and services, the Port of Felixstowe’s new rail terminal which will serve locations in the North, new SRFIs being planned and built in the Midlands and the North, and the development of intermodal rail services for domestic consumer goods by Tesco and Sainsbury. Leaving aside coal traffic, over the last decade rail freight tonnages have grown 3% per annum faster than the overall UK freight market, and this growth has been focussed on the longer hauls available on north-south main lines. If the private sector is to continue to make the long term investments in terminals and equipment to sustain this growth, it must have confidence that adequate rail network capacity will be available.

The great majority of the extra rail capacity required is along the West and East Coast Main Line corridors and the Midland Main Line and amounts to an extra 6-7 paths per hour per direction on all the routes combined.  This can be compared with the extra 18 paths per hour which HS2 is expected to deliver, providing relief to the existing lines along which freight trains operate alongside passenger trains. The question facing policy makers is what proportion of the freed up paths on the existing network should be allocated to freight trains to the benefit of the northern and wider British economy or whether additional investment will be required to create the requisite capacity, as is implied in the Network Rail Freight Network Study.

Without the guarantee of additional future freight train paths being available to/from proposed rail freight generating sites, the private sector cannot be expected to make the long term investments in inland and port terminals and equipment and new distribution centres required to deliver the aforementioned benefits.

Freight and logistics employs some 9% of the GB population, principally in haulage and distribution centres. The location of these activities is highly sensitive to transport costs which can be minimised through the co-location of warehousing, port and rail terminals. It is such opportunities, developed near the major centres of population in the North of England, which provide the basis for sustainable economic growth in this sector, based upon the existing and dynamic freight industry already in place in the North of England. 

The study demonstrated that a carefully selected range of public sector interventions is capable of generating high economic returns for the North of England, particularly if targeted at improving the North’s connectivity with the rest of the global economy as well as within Great Britain and the North.