Review of the Waterways Freight Facilities Grant Scheme

The main purpose of the study has been to review the workings of the Waterways Freight Facilities Grant Scheme (Section 36 Grant). Views of industry and institutions regarding the use of canals for the movement of freight were obtained in a series of interviews, together with information on the workings of the Grant Scheme. Case studies were used to test the effect of possible changes to the Grant Scheme. During the period of the study the ramifications of the progress of the Rail Privatisation Bill through Parliament meant that the situation regarding the Section 8 Grant (the equivalent grant for rail freight facilities) has become somewhat fluid. Major revisions, extending the scheme to cover lorry miles saved on motorways, have been announced; an additional grant to cover track costs is also proposed for rail, but the method of application or assessment is not yet clear. In order to encourage more traffic to switch to using waterway in the medium term, we recommend that: -Section 36 Grants should be extended to cover the high quality road network (including motorways), and that a higher valuation should be placed on the benefits than in the case of Section 8 grants, reflecting the higher benefits of water transport relative to rail. -That a new "waterways operating grant" should be available to operators of waterway craft, also at a higher rate per tonne kilometre than the proposed rail track costs grant. -That the reduction in road accidents and congestion be taken into account when valuing the benefits of inland waterway transport. Even with these revisions, however, we conclude the Section 36 grants will have a modest effect, in general only diverting traffic to water where this does not involve transhipment. Also, few waterway flows offer the sort of long run contracts necessary to justify a grant. As a result, we conclude that, Section 36 Grants will have limited success in satisfying the Department of Transport's overall objective of causing goods to be moved by inland waterway as opposed to road "where this would be in the interest of any locality or of some or all of its inhabitants". In our view a more successful method of achieving the Department's objective in the long term would be to encourage firms receiving or despatching commodities suitable for carriage by inland waterway to locate in premises alongside the canal network. This is even more important where the company is engaged in the import of raw materials. Such a method would require changes to the guidelines on planning and industrial development

Measuring the Benefits Gained by Industry from Road Network Improvements

Over the last twenty years, physical distribution has gone through a revolution (McKinnon 1989). Changes in industrial structure, the power structure within the supply chain, service quality standards, marketing and production methods, heavy goods vehicle productivity and capacity, and road network quality have all played a part. External factors such as high real interest rates have made firms acutely sensitive to the costs of holding inventory and to the scope for inventory rationalisation. The purpose of this study is to examine the contribution of road network improvement to the restructuring of physical distribution. There is a particular policy context to this. At a political level, the Government attaches prime importance to the effects of road investment on economic growth (DTp 1989). But at the level of economic appraisal, it is questionable whether the Department of Transport's (DoT) procedures give adequate weight to the benefits to industry of road network improvements. The D.o.T. currently take account of the direct savings which accrue from road improvement schemes (Dawson and Vass 1974)(DTp 1981). This allows for changes in mileage related and time related operating costs, including depreciation, based on the simple assumption that time savings are translated fully into proportionate increases in utilisation of vehicles and crews (Nash 1974). Although at first sight, the existence of scheduling indivisibilities and delivery time constraints might be thought to make this assumption unrealistic, such evidence as there is suggests that it is not an unreasonable rule of thumb (Mackie and Simon 1986). Economic theory suggests that in addition to the direct transport cost savings from road improvements, some indirect "reorganisation" or "restructuring" benefits should also be expected (Mohring and Williamson 1969)(Dodgson 1973). As real transport costs fall, firms should respond by substituting within the production and distribution process so as to arrive at a more transport-intensive, but lower cost solution. The restructuring of the brewery industry into an operation with a few large plants is often attributed, at least in part, to improvements in the road network. A number of restructuring responses to strategic road investment may be listed:- - Centralisation of manufacturing or production - Concentration of distribution into fewer depots - Changes to inter-depot boundaries - Increases in market areas served by regional firms - Improvements in service quality (24 hour delivery, etc.) - Changes in distribution methods (e.g. satellite distribution) This list suggests that the indirect benefits are likely to be some mixture of economies of scale in production or warehousing, inventory savings, and added value to products. A number of studies have been undertaken in the past into the benefits from road network improvements. It is claim they played a part in the decline of road haulage rates between 1974 and 1984 of 27% (Turner 1987). Their effect on transit times and reliability has been demonstrated (Cooper and Tweddle 1988), as well as on the cost of quality of service enhancement (Walker 1988). Benefits gained in terms of larger trading areas have been revealed by studies of the major estuary crossings, such as the Severn and Humber Bridges (Cleary and Thomas 1973) (Mackie and Simon 1986). Quarmby's studies of a major retail grocery operation are of particular interest in this context (Quarmby 1989). He examines the effect of reducing the number of depots in a distribution system following improvements to the strategic road network so that each depot now serves a larger area. He finds that the total systems benefits from restructuring the distribution and depot network could exceed the direct transport benefits by 30-50%. He does not demonstrate that either his initial or final depot configuration is optimally balanced with the road network conditions. However, his study provided the stimulus for the research proposal to ESRC and to partner industrial sponsors

Taxation of Road Goods Vehicles – An Economic Assessment

This paper reviews the current position, recent research and potential future areas of research relating to road track costs, with particular reference to Heavy Goods Vehicles. It opens with a theoretical discussion, which concludes that the appropriate basis for changing is long run marginal social cost, but casts some doubt on whether the existing cost allocation procedure achieves this. The main reason for this is the likelihood that the marginal capital cost per unit of traffic of coping with an increase in traffic volumes greatly exceeds the average capital cost per unit of traffic at the present time. The DTp method of allocating track costs is then outlined, and the sensitivity of the results to variations in a number of the key assumptions is tested. The results show that the DTp method may only be allocating HGVfs as little as half of their costs. Hence instead of covering their allocated costs by some 30% to allow for environmental effects, as the DTp. claim, it may be that these lorries are only meeting 65% of their allocated cost. The sensitivity tests that yield the above results reflect the following concerns: (1) FUEL CONSUMPTION DTp measures lorry mileage and deduces fuel used and hence fuel tax paid. However, their fuel consumption figures look implausibly high. We have used FTA figures instead. (2) TRAFFIC FLOW DTp currently allocate many costs to vehicle kilometres (e.g. drainage, winter maintenance, traffic signs etc.), but accepts that the demand for a new road arises in proportion to PCUs (passenger car units), i.e. giving more weight to lorries. Our view is that once a road is opened any general costs involved in its continued use should also be allocated by PCUs. (3) LORRY WEIGHTS DTp use lorry weights as reported on a self completion questionnaire, which naturally omit any overloading. We have used observed values from a large study in Cheshire. (4) CAPITAL EXPENDITURE DTp charge only what is currently being spent. Following cutbacks in all government expenditure, this amount is now some 50% lower than in the early 1970s. Since capital expenditure was roughly 60% of total road expenditure, this implies that cost allocations have fallen by 30% on this account. Our view is that even this understates the true long run marginal cost of road traffic. Although the precise figures are subject to much doubt, in every case there seems good reason to suppose that the proposition is broadly correct. Taken cumulatively, they would be sufficient to convert the existing overpayment by HGVs (which presumably is intended to reflect unquantified environmental costs) into a substantial underpayment. If the increase in road haulage taxation which these figures would imply is politically unacceptable, then there is a good case for corresponding action to relieve the rail and water modes of part of their infrastructure costs

Valuing the Attributes of Freight Transport Quality: Results of the Stated Preference Survey

This paper presents the results of a survey of fifty firms transporting ten commodity groups, using an interactive stated preference game to obtain values of the rate reduction necessary to compensate for longer transit times, poorer reliability and the use of intermodal systems. Generally, the pattern of results is as expected, with the quality of the transport service being less important for low value products in industries with high levels of stockholding, and vice versa. Quality requirements are also generally less stringent when products are moving to depots than to customers. In a critique of the method, some reservations are expressed both about the reliability of the results, andabout the high cost and time of the survey method. Nevertheless, we conclude that overall the approach has worked reasonably well, and yielded much valuable data; we know of no alternative method which could have yielded quantitative valuations in these circumstances

The track and external costs of road transport

1.1.1 The purpose of this study is to review: i) Developments in methodology and data regarding issues such as vehicle delay, accidents, overloading and valuation of environmental effects. ii) The likely effect of harmonisation of taxes within the European Community. iii) Future prospects regarding the level of spending on roads. iv) Alternative methods of dealing with social costs, including lorry routing, regulation and subsidy. v) Experience elsewhere in Western Europe and in North America. 1.1.2 We review the theory behind the allocation of road infrastructure costs, finding a number of items on which the current British approach can be criticised, in particular the treatment of capital costs on a pay-as-you-go basis. Comparisons with other countries suggest that the British system is relatively sophisticated, but this and other evidence suggests that the proportion of capital costs of new roads allocated to heavy vehicles is too low. 1.1.3 A spreadsheet model of the current British track costs allocation system is constructed, and the effects tested of proposed increases in road spending, of overloading, of the allocation those items of cost currently allocated on a vehicle km basis in accordance with pcu km and of the allocation of the external costs of accidents. It is found that, even without adjusting the treatment of capital costs, an increase in taxes on the heaviest lorries of some 30 % is justified, and on buses 60%. Evidence on the values of vehicle delay and environmental costs is examined but it is considered that these factors are not yet sufficiently well quantified to test the adequacy of the current 30% margin to allow for them. More work in this area is recommended. 1.1.4 The possibilities for harmonisation of vehicle taxation within the European Community are considered. Since Britain has a far higher level of taxation than most other European countries, any move towards harmonising tax levels would reduce taxes in Britain at a time when they should be increasing. Such moves should be resisted, but if they come then there would be a case for compensating action to relieve competing modes of part of their infrastructure costs

New Inter-Modal Freight Technology and Cost Comparisons

Freight carried by rail has traditionally been mainly low value bulk commodities. As Western economies advance the market for such freight services is at best static, and forms a smaller proportion of the total demand for freight transport. There is thus an urgent need for British Rail and other rail systems to develop practical and cost effective inter-modal systems, which offer high quality services to consignors of consumer goods whose premises are not usually connected to the rail network. The new developments are of two types. Either they involve transferring the body of a road vehicle from road to rail, or moving the complete semi-trailer of an articulated outfit by rail. Each system has disadvantages in terms of volume or tare weight when compared to road, but each system may attract different commodities. Though the costs of inter-modal systems vary, their cost structures have similarities, consisting of collection and delivery costs, terminal, and rail movement elements. The break- even distance of each system depends on the extent to which low rail haulage charges offset the other costs incurred. However, traffic will only be attracted to inter-modal in sufficient quantities to enable viable services to be provided over a limited number of long distance routes. These services must also approach, if not equal the competition in terms of quality of service attributes, particularly reliability, if they are to overcome customer resistance. To assess the distances over which these new inter-modal systems will be cost competitive a cost model has been developed. The paper decribes how the model works, and the sources from which data was obtained. A separate paper (Working Paper 276) reports on a study to find the value placed by shippers on quality of service attributes, and a third paper (Working Paper 286) brings the two together to reach conclusions on the future role of inter-modal systems

Transport in the Trans-Pennine Corridor: Present Conditions and Future Options. Interregional Study Working Paper 3.

This paper reports on a desk study carried out by the Institute for Transport Studies as part of a wider study of opportunities for inter-regional working in the trans-Pennine corridor, considering economic, environmental and transport issues. It draws together available information on transport and movement flows in the trans-Pennine corridor. These patterns of movement are examined from a broad perspective which considers intra-regional, inter- regional and international movements within and across the study area. The report proposes a regional package approach to transport, based on demand management and modal transfer

Disaggregated Approaches to Freight Analysis: A Feasibility Study.

Forecasting the demand for freight transport is notoriously difficult. Although ever more advanced modelling techniques are becoming available, there is little data available for calibration. Compared to passenger travel, there are many fewer decision makers in freight, especially for the main bulk commodities, so the decisions of a relatively small number of principal players greatly influence the outcome. Moreover, freight comes in various shapes, sizes and physical states, which require different handling methods and suit the various modes (and sub-modes) of transport differently. In the face of these difficulties, present DTp practice is to forecast Britain's freight traffic using a very simple aggregate approach which assumes that tonne kilometres will rise in proportion to GDP. Although this simple model fits historical data quite well, there is a clear danger that this relationship will not hold good in the future. The relationship between tonne kilometres and GDP depends on the mix of products produced, their value to weight ratios, number of times lifted and lengths of haul. In the past, a declining ratio of tonnes to GDP has been offset by increasing lengths of haul. This has come about through a complicated set of changes in product mix, industrial structure and distribution systems. A more disaggregate approach which studies changes in all these factors by industrial sector seems likely to provide a better understanding of the relationship between tonne kilometres and GDP. However, there are also problems with disaggregation. As we disaggregate we get more understanding of what might change in the future, but are less able to project trends forward. This can be seen if we consider the future amounts of coal movements. Theoretically there is clearly scope for better forecasting by allowing for past trends to be overturned by a movement towards gas powered electricity generation and more imports of coal direct to coastal power stations. However, making such a sectoral forecast is extremely difficult, and inaccuracy here may more than offset the theoretical gain referred to earlier. This is because it is usually easier to forecast to a given percentage accuracy an aggregate rather than its components. For example, the percentage error on sales forecasts of Hotpoint washing machines will be greater than that for the sales of all washing machines taken together. This occurs because different makes of washing machines are substitutes for each other, so forecasts for Hotpoint washing machines must take into account uncertainty over Hotpoint's market share as well as uncertainty over the future total sales of washing machines. Nevertheless, a disaggregate investigation of the market could spot trends which were `buried' in the aggregate figures. For example, rapidly declining sales for one manufacturer might indicate their leaving the market, which with less competition would then price up and so reduce the total future sales. We have assumed above that the use of the term disaggregate in the brief refers to disaggregation by industrial sector. An alternative usage of the word disaggregate in this context is when referring to modelling at the level of the individual decision making unit. Disaggregate freight modelling in this sense would involve analysing decisions in order to determine the utility weight attached to different attributes of available transport options. Because data on suitable decisions is not readily available in this country, due to commercial confidentiality, we have recently undertaken research in which we have presented decision makers with hypothetical choices, and obtained the necessary utility weights from their responses. Whilst initial scepticism is understandable, this method has produced results acceptable for use in major projects. ITS itself has provided algorithms (known as Leeds Adaptive Stated Preference) which have been used to derive utility weights for use by British Rail in forecasting cross-channel freight, by DTp in evaluating the reaction of commercial vehicles to toll roads, and by the Dutch Ministry of Transport in modelling freight in the Netherlands. In the light of the above, the following objectives were set for the feasibility study: (1)To determine if a forecasting approach disaggregated by industrial sectors, as under the first definition above, can be used to explain recent trends in freight transport; (2)To test the feasibility of the disaggregated approach for improving the understanding of likely future developments in freight markets, this being informed by current best understanding of the disaggregate decision-making process as under the second definition above

How highly does the freight transport industry value journey time reliability - and for what reasons?

Delays to road freight vehicles impose a very high cost on the nation. Delayed arrival time can occur for a variety of reasons. This paper presents the findings of a Highways Agency funded study, which has investigated the user valuations of three different kinds of delay: • A delay resulting from an increased journey time, with fixed departure time • An increase in the spread (or range) of arrival times for a fixed departure time • A schedule delay where the departure time is effectively put back. The paper summarises the findings of the study, which centred on an interview survey of forty shippers, hauliers and third party logistics operators. Respondents were asked to consider one of their freight flows on the trunk road network in detail. Various reasons why respondents value a high degree of predictability of journey times on the trunk road network are identified and discussed. The paper then moves on to present and discuss user valuations of each kind of delay, estimated using the Leeds Adaptive Stated Preference (LASP) methodology

Amenities for Travellers

This paper reviews the policy and practice regarding the provision of amenities such as petrol filling stations, refreshments, toilets and telephones on trunk and other arterial roads off the motorway network in the UK. Following a review of policy, and of existing levels of provision, a brief comparison is made with other countries. An account is given of interviews with motoring organisations and providers of facilities, and a small survey of road users is described. Finally conclusions are drawn and recommendations made as to necessary policy changes. The basic policy of providing fuel, refreshments, toilets and parking facilities every 25 miles appears reasonable. However, we were unable to find any systematic source of information on the extent to which this is achieved, and indeed neither the Department of Transport nor in general local authorities showed any great interest in or willingness to discuss this subject. The comments of motoring organisations and casual observation both suggest that actual facilities fall a long way short of this ideal, whilst where facilities were available, hours of opening, quality and value for money were all seen as problems. Providers of facilities pointed to the fact that a minimum level of long distance traffic was needed to provide the potential for commercially viable provision of facilities, and that the costs of the planning system and the widespread presence of illegal fringe operators further limited the market for legal commercial operations. There was some evidence that many other countries secure the provision of more adequate facilities by means of more active measures by the government. Mostly, the evidence was anecdotal, but in the case of Germany, details were obtained of a publicly owned company which is responsible for developing appropriate facilities and leasing them to the private sector for operation. The survey of road users produced a disappointingly low response, but did indicate that whilst most road users were able to find the facilities they need most of the time, a significant minority cannot; this appeared to be a particular problem in respect of toilets, where 12% of respondents were unable to find one when needed. To what extent does this add up to a situation where lack of amenities for travellers amount to a problem requiring government action? We believe that it does. Basically our argument is that the market is failing to provide adequately for the needs of travellers for the following reasons: (a)The cost and uncertainty of the planning process restricts the supply of facilities. The risks are too great for small companies to be interested, whilst large companies will only pursue more favourable sites. (b)The potential for adequate commercial provision of facilities is further restricted by the presence of widespread illegal operations from converted buses or caravans. Whilst these offer some minimal level of refreshment facilities, their evasion of public health and planning legislation, and their failure to provide facilities such as toilets and telephones, means that they can undercut and still further reduce the market for more adequate facilities. (c)There are substantial economies of scale in the provision of facilities, which mean that only busier sites can be exploited commercially. Yet there may be benefits from provision of facilities at other sites which cannot be recouped in the form of revenue to operators but which make provision of facilities economically worthwhile. In addition to the presence of consumers surplus, it is likely that consumers would be willing to pay a premium in order to ensure that facilities such as toilets and telephone are available if they should need them. The technical term for such a premium is an option value. (d)There is a failure in the provision of information in that no comprehensive maps exist which provide adequate information on the location of facilities; nor is there adequate signposting or information on whether facilities are open. In the light of these problems, we recommend the following action: 1.Local authorities should be obliged to gather and publish comprehensive information on the availability of facilities in their area; where facilities fall below centrally stipulated guidelines, they should be required to designate sites for facilities in local plans on which there would be a presumption in favour of development. 2.Where facilities are deemed to be necessary but cannot be provided commercially, a grant towards the provision and - if necessary - operation of the facilities should be made available. This should be seen as part of the basic provision of the road transport infrastructure of the country, and paid for out of road user taxation. It is likely that the most efficient way of securing facilities will be by competitive tendering, with garages or other roadside operations for whom the facilities are complementary likely to offer the most competitive bids. 3.Alongside the provision of more adequate facilities, stringent action should be taken to eliminate illegal snack bars from the roadside. To the extent that one goes further and only grants planning permission to establishments that offer a full range of facilities, including toilets and telephones, one is of course introducing an element of cross-subsidy in that these are likely to be paid for in part in the cost of refreshments. Nevertheless, to the extent that road users in general want such facilities provided, a modest degree of cross subsidy may in this case be reasonable