The A-Team: Rail freight on track
Mon, 12 Jul 2010
In the second of a two-part article, Tony Berkeley considers the future of UK infrastructure provider Network Rail
A case of the Emperor’s new cothes?
Customers need cost reduction – it is a fact most in the sector have come to agree on. Many believe that smaller companies would be more able to reduce costs than Network Rail (NR) has been able to, but how?
The capital cost of materials will be more for a smaller buyer without economies of scale, and large specialist kit, such as high-output ballasting machines, will be unaffordable unless rented when needed. But who would be investing in the state-of-the-art technology that NR has been able to over the years? Unless First Group or one of the other bus operators invest heavily in an infrastructure arm they will still need to outsource the work to one of the current contractors – more efficient procurement would help, but the core costs are going to be the same.
Can a regional infrastructure manager apply different, cheaper, standards? Not Railway Group standards, or European standards for sure. Yes, there is no doubt that there are significant costs bound up in the standards that we have, but there is no reason why NR cannot look to improve this rather than nine or more different companies each taking their own approach and creating a disparate framework of rules and regulations which nationwide operators have to understand and comply with.
NR also takes responsibility for strategic planning on the network. We can only presume this work would cease – which would generate a cost saving, of course – but leave the development of the rail network to ad-hoc decisions by each company, which, if vertically integrated, would be incentivised to improve its own services while keeping other out. At best, it would be a matter of good fortune if these added up to create a Strategic Freight Network or Thameslink upgrade.
There is no doubt that NR is far from perfect and that there is still much cost reduction to be had. These costs are build into the “sticky bits” – the laws, processes, standards and procedures that govern every action. NR needs a culture, and management team ready to tackle this. But creating more companies won’t fix that. Benchmarking is a helpful process, but is it worth the damage it will create particularly for nationwide operators? We are far from convinced.
Some suggest selling NR to the private sector; have they forgotten what happened when this was done to create Railtrack? Do we want that again? A much better alternative would be to improve what we have got in NR.
We should start by defining what kind of a company NR should be. NR says it should emulate the best of the private sector; it certainly has in bonus terms, but there is much still to do in its public face and efficiencies and, unlike private sector companies, it is effectively prevented from going bust. There is nothing to stop it, and much to be gained, from NR having a demonstrable public interest duty.
Unfortunately, it decided on its own that it should emulate public companies, quoting greater efficiencies achieved and, naturally, with bonuses appropriate to such a risk-taking company. But it does not take risks as such and is certainly not at risk of going bust, so that when the bonus environment gets tough, there is no shareholder pressure to get real and the board arrogantly ignores the “advice” from its main funder (the DfT) and its Regulator.
The membership, still effectively selected by the company, has so far failed to hold the company to account, and, unless some drastic action is taken over its numbers, structure and independence, that is unlikely to change. However, there are alternatives, such as asking members to hand over their membership to the government, if the government wants that tighter control.
A two-tier board has been proposed, with the higher one to ensure that the public interest in the railways is maintained. A third alternative is to create a mutual, with a smaller number of members elected by a range of stakeholder constituencies. That would certainly give members more legitimacy and clout, and they would have to answer to their electorate for their actions or inactions at election time.
Finally, the board and management needs to reflect its public interest role, as well as drive efficiencies, and change many attitudes within. There has been progress, and Iain Coucher deserves a lot of credit for what he has achieved in clearing up the mess and improving the network after the dark days of Railtrack.
This now needs to be taken forward with a new team dedicated to creating the most cost-efficient and least-bureaucratic infrastructure manager in the world – one which its stakeholders and customers, and even it is funders, learn to love and respect.
Tony Berkeley is Chairman of the Rail Freight Group www.rfg.org.uk
Customers need cost reduction – it is a fact most in the sector have come to agree on. Many believe that smaller companies would be more able to reduce costs than Network Rail (NR) has been able to, but how?
The capital cost of materials will be more for a smaller buyer without economies of scale, and large specialist kit, such as high-output ballasting machines, will be unaffordable unless rented when needed. But who would be investing in the state-of-the-art technology that NR has been able to over the years? Unless First Group or one of the other bus operators invest heavily in an infrastructure arm they will still need to outsource the work to one of the current contractors – more efficient procurement would help, but the core costs are going to be the same.
Can a regional infrastructure manager apply different, cheaper, standards? Not Railway Group standards, or European standards for sure. Yes, there is no doubt that there are significant costs bound up in the standards that we have, but there is no reason why NR cannot look to improve this rather than nine or more different companies each taking their own approach and creating a disparate framework of rules and regulations which nationwide operators have to understand and comply with.
NR also takes responsibility for strategic planning on the network. We can only presume this work would cease – which would generate a cost saving, of course – but leave the development of the rail network to ad-hoc decisions by each company, which, if vertically integrated, would be incentivised to improve its own services while keeping other out. At best, it would be a matter of good fortune if these added up to create a Strategic Freight Network or Thameslink upgrade.
There is no doubt that NR is far from perfect and that there is still much cost reduction to be had. These costs are build into the “sticky bits” – the laws, processes, standards and procedures that govern every action. NR needs a culture, and management team ready to tackle this. But creating more companies won’t fix that. Benchmarking is a helpful process, but is it worth the damage it will create particularly for nationwide operators? We are far from convinced.
Some suggest selling NR to the private sector; have they forgotten what happened when this was done to create Railtrack? Do we want that again? A much better alternative would be to improve what we have got in NR.
We should start by defining what kind of a company NR should be. NR says it should emulate the best of the private sector; it certainly has in bonus terms, but there is much still to do in its public face and efficiencies and, unlike private sector companies, it is effectively prevented from going bust. There is nothing to stop it, and much to be gained, from NR having a demonstrable public interest duty.
Unfortunately, it decided on its own that it should emulate public companies, quoting greater efficiencies achieved and, naturally, with bonuses appropriate to such a risk-taking company. But it does not take risks as such and is certainly not at risk of going bust, so that when the bonus environment gets tough, there is no shareholder pressure to get real and the board arrogantly ignores the “advice” from its main funder (the DfT) and its Regulator.
The membership, still effectively selected by the company, has so far failed to hold the company to account, and, unless some drastic action is taken over its numbers, structure and independence, that is unlikely to change. However, there are alternatives, such as asking members to hand over their membership to the government, if the government wants that tighter control.
A two-tier board has been proposed, with the higher one to ensure that the public interest in the railways is maintained. A third alternative is to create a mutual, with a smaller number of members elected by a range of stakeholder constituencies. That would certainly give members more legitimacy and clout, and they would have to answer to their electorate for their actions or inactions at election time.
Finally, the board and management needs to reflect its public interest role, as well as drive efficiencies, and change many attitudes within. There has been progress, and Iain Coucher deserves a lot of credit for what he has achieved in clearing up the mess and improving the network after the dark days of Railtrack.
This now needs to be taken forward with a new team dedicated to creating the most cost-efficient and least-bureaucratic infrastructure manager in the world – one which its stakeholders and customers, and even it is funders, learn to love and respect.
Tony Berkeley is Chairman of the Rail Freight Group www.rfg.org.uk
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