With the ending of UK Government subsidy to Channel Tunnel 'through-freight' there have been concerns that this this activity may come to a halt. Whilst it is to be hoped that the current through Channel freight services survive, these services have not captured a significant share of the UK-Continent freight market. This is in contrast to Eurotunnel's successful 30 mile lorry shuttle which carries around 1.3 million lorries per year. How does Central Railway's Business Model for capturing UK-Continent freight differ from the existing through freight model?
The company believes that the best models to copy were the Roll-on Roll-off (RoRo) lorry and car ferries and Eurotunnel's lorry shuttle, which is effectively a ferry on rails. An effective railway service needs to be able to handle hauliers' existing equipment, i.e. lorries, and has to have the capacity to offer frequent, direct journeys operated by highly reliable longer trains to new road rail transfer points on motorways and autoroutes. The services should be the responsibility of a single coordinating entity. Developing a rail system able to offer such services would need a significant investment in upgrading existing railway alignments and building new road rail transfer points. But it also offers faster and more reliable journey times, much higher rates of utilisation of rolling stock and much lower unit costs.
The conventional through freight services to the Continent were the exact opposite. Trains are short. There were frequently delays and losses because trains had to be broken up in rail yards and different wagons sent to different destinations. Bridges are too low on the railways so neither lorries nor the larger sizes of the new containers could be handled at all. Even continental wagons and bulk trains are too big to run in the UK. Freight services to the Continent have been a low priority user on congested passenger systems, frequently relegated to nightime movement and unable to match road journey times or reliability.
Crucially, the UK - Continent market is about lorries rather than containers. The UK-Continent road freight market comprises around 6 million units, only a small proportion of them carrying containers. But the railways can't carry lorries. Hauliers prefer lorries to containers for good operational reasons and few want to change over. So the railways have been trapped in a smaller containers sector of the market.
The company's market research, carried out from the 1990s and initially working with the Channel Tunnel and SNCF indicates that its proposed lorry shuttles could capture a 40% - 60% share of the UK - Continent market, depending on the length of the system, and the degree to which rail services are more reliable and less expensive than road movement.
In ten year's time when the RoRo market is forecast to have grown to over 8m units aually, such market shares could mean annual revenues to the UK and continental railways of between 1.2bn pounds and 2bn pounds anually. The cost structure of the proposed lorry shuttle service and the way Eurotunnel access charges incorporate a bulk discount make gross margins of around 50% achievable. That is to say that half these revenues could be available to meet overheads and route maintenance, and then financing costs of rolling stock and construction along the route.
The company is revising its economic case in tandem with the development of its revised route plan. In addition to the higher market shares made possible by developing a longer system, the company believes that the project's economics are likely to be further improved by the growing likelihood of green taxes and/or road pricing being introduced in the UK. These would create a level playing field between road and rail, especially if such pricing reflected the fact that lorries are responsible for essentially all damage to motorway and autoroute surfaces, not cars. The company may also develop cases for revenues from other rail businesses which could develop if the scheme went ahead. These could include long haul bulk freight, double stack container traffic to UK and to continental ports and new operators between Scotland and southern England.
Project Information Memorandum 2002 (PIM)Over the next year the company expects to issue a new Project Information Memorandum (PIM) containing financial projections derived from new market, operating cost and construction studies based on the revised project. For information and as background only, the company is making available the earlier 2002 PIM as a downloadable PDF. This document is of course out of date. It was circulated to banks and financial institutions in 2003 at the UK Government's request and led to big financial institutions writing letters of support for the project.