Director, National Valuationt: +44 207 182 2663 Ben.Thomas@cbre.com
Senior Analyst, National Valuationt: +44 207 182 2683 Judy.Zhu@cbre.com
This is the final issue in the “Location, Location, Location” blog series. Throughout the series, we have looked at the rationale behind the decision-making process faced by occupiers when choosing locations for their logistics network. We have considered four key factors so far, namely Workforce Supply, Workforce Demand & Labour Cost, Road Network and Access to Port.
This time we are going to discuss the importance of access to rail.
Every year, rail freight contributes £870 million directly to Britain’s economy, and transports goods worth approximately £30 billion. As the most cost-effective method to move freight, Rail plays a vital role in the logistics network. On average, a gallon of fuel can move a tonne of goods for 246 miles by rail as opposed to 88 miles by road. (Data source: Network Rail, April 2013)
Intermodal Rail Terminals
Rail is the third piece in the intermodal logistics puzzle, linking the road and port networks together.
As we can see from the map above, intermodal rail terminals are densely located in few areas.
The South East has the most terminals due to its easy access to a variety of transportation networks. Almost half of the intermodal rail terminals in the region are dotted alongside the east River Themes, where high volume of shipping traffic happens daily to and from Continental Europe and rest of the world.
For intermodal rail terminals, the top three operators, by number of terminals operated, are Freightliner, DB Schenker and Associated British Ports with most terminals having rail access directly from the national network. Those terminals that sit outside the national rail network are usually accessed via third party facility.
In the graph above, we can see the top freight train operators, by distance traveled, are DB Cargo UK, Freightliner, Freightliner Heavy Haul and GB Railfreight. In the last 7 years, GB Railfreight had the biggest growing trend, with an average quarterly growth of 2.2%. Freightliner Heavy Haul had the biggest decline, with an average quarterly decline of -2.5%. The steep fall began in 2015 and was primarily due to the decline of coal demand in the UK. This resulted in Freightliner Heavy Haul axing 145 jobs at the beginning of 2016. Before 2015, coal was the biggest commodity transported by rail, which took up around a third of the total commodity volume moved by rail freight in the UK.
Rail Freight Trend
- Rail Freight Volume
As discussed above, coal was the biggest commodity transported by rail before 2015. In the last two years (from 2015 Q2 to 2017 Q1), coal took up only around 9% of total commodity rail freight volume.
In last 15 years, across all commodity categories, Construction and Domestic Intermodal had the biggest growth, with average annual growth of 4.1% and 5.2% respectively.
In terms of the total goods excluding coal, the total amount increased by 27.2% to 67.4 billion net tonne kilometers, with an average annual growth of 1.6%. We can see the quarterly trend from the graph above.
- Rail Freight Performance
As we can see from the graph above, the Rail Freight Delay has cut down to less than half in the last decade, with an average decrease of -7.8% annually. The top 3 causes for train delays are: train fault or failure, train staff issue and train strike or trespass.
The improved technology, service and reliability from rail operators has seen an increasingly favorable transportation environment for goods.
- Rail Freight Market Share
Across the three major goods transportation methods, road (HGV), rail and water, rail freight has been growing its market share. From 2000 to 2014, rail freight market share has seen a total growth of 54.7% and an average annual growth of 3.3%. During the same period, goods moved by rail (billion net tonne kilometers) grew by 1.5% annually, whereas market share for road decreased by -0.5% and water by -4.5%.
The increase in goods moved has been the result of two drivers: increased total goods lifted (tonnes) and increased distance of goods transported (kilometers). For rail freight, in the period between 2000 and 2014, both metrics had an upward trend and together drove up the total goods moved. Across the three transportation methods, rail was the only one had positive average annual growth for all three metrics, while road and water had negative for all three.
In the UK, intermodal logistics has been increasingly adopted by the market mainly due to its efficiency and flexibility. In the intermodal logistics system, all three transportation methods are equally important.
However, the rail freight sector is outperforming the other two sectors in the UK as a result of the improvement on overall rail facilities and services. In the 5-year period between 2010 and 2015, the total investment in rail facilities (including all types of rail services, i.e. passenger train, rail freight, etc.) more than doubled from £376 million to £801 million. For example, investments in rolling stock and stations saw an increase of 126.7% and 103.8% respectively.
This wave of investment has been encouraged and supported as part of a wider drive to cut road congestion and reduce harmful emissions with total government support over the last 15 years (2010-2015) growing fourfold, from £1.2 billion to £4.8 billion.
This has seen demonstrable positive results in an increase in goods moved, goods lifted and transport distance, as well as improvement of performance and reliability in rail transportation.
If you are interested in more details of this report or our other logistics reports, please contact Ben Thomas, Director of CBRE National Valuation – Logistics & Distribution, or Judy Zhu, Senior Analyst of CBRE National Valuation.