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10th Report, 2006 (Session 2)

Report on Inquiry into Freight Transport in Scotland

CONTENTS

VOLUME 1

REMIT AND MEMBERSHIP

REPORT

ANNEXE A:  EXTRACTS FROM MINUTES

8 September (22nd Meeting, Session 2 (2005))
3 October (26th Meeting, Session 2 (2005))
8 November (28th Meeting, Session 2 (2005))
31 January (3rd Meeting, Session 2 (2006))
28 February (6th Meeting, Session 2 (2006))   
7 March (7th Meeting, Session 2 (2006))
21 March (9th Meeting, Session 2 (2006))
28 March (10th Meeting, Session 2 (2006))
18 April (11th Meeting, Session 2 2006))
25 April (12th Meeting, Session 2 (2006))
9 May (13th Meeting, Session 2 (2006))
23 May (14th Meeting, Session 2 (2006))
20 June (18th Meeting, Session 2 (2006))
27 June (19th Meeting, Session 2 (2006))

VOLUME 2


Remit and membership

Remit:

To consider and report on matters relating to local government (including local government finance), cities and community planning and such other matters (excluding finance other than local government finance) which fall within the responsibility of the Minister for Finance and Public Services; and matters relating to transport which fall within the responsibility of the Minister for Transport.

 Membership:

Bristow Muldoon (Convener)
Fergus Ewing (Deputy Convener)
Dr Sylvia Jackson
Paul Martin
David McLetchie (Committee member from 16 February 2006)
Mr Michael McMahon
Mike Rumbles (Committee member from 23 May 2006)
Tommy Sheridan
Ms Maureen Watt (Committee member from 20 April 2006)
Mr Andrew Arbuckle (Committee member from 22 September 2005 to 11 May 2006)
Mr David Davidson (Committee member from 6 September 2005 to 16 February 2006)
Bruce Crawford (Deputy Convener from 29 September 2004 to 19 April 2006, Committee member from 23 September 2004 to 19 April 2006)
 
Committee Clerking Team:

Clerk to the Committee
Martin Verity

Senior Assistant Clerk
Alastair Macfie

Assistant Clerk
Rebecca Lamb

Report on Inquiry into Freight Transport in Scotland

The Committee reports to the Parliament as follows—

introduction

Introduction

1. The Local Government and Transport Committee decided to hold an inquiry into freight transport at its meeting of 8 September 2005. The Committee took into account a petition on the Scottish haulage industry which had been received by the Public Petitions Committee.

Petition PE876

2. Petition PE876 by Phil Flanders of the Road Haulage Association called on the Scottish Parliament to conduct an inquiry into the future prospects for the Scottish haulage industry and any knock-on impact on the Scottish economy.

3. The Public Petitions Committee took evidence from supporters of the petition at its meeting of 8 September 2005. It agreed to forward the petition to the Local Government and Transport Committee.

Terms of Reference

4. The following terms of reference for the inquiry were agreed by the Committee at its meeting of 3 October 2005—

To examine freight transport policy in Scotland and in particular:

  • the future prospects for the Scottish road haulage industry and the impact of changes affecting the road haulage industry on the Scottish economy;

  • the contribution of all modes of freight transport, including road, rail, water and air, including their environmental impact; and

  • the Scottish Executive’s targets in encouraging the transfer of freight from road to rail and water.

Adviser

5. The Committee appointed Professor Alan McKinnon, Director of the Logistics Research Centre and Director of Research for the School of Management and Languages at Heriot-Watt University to advise it on the inquiry. The Committee wishes to express its gratitude to Professor McKinnon for his invaluable advice and assistance throughout the course of the inquiry.

Evidence

6. The Committee issued a call for written evidence on the inquiry and received 61 responses which are listed at Annexe C and are available on the Committee’s pages of the Parliament’s website.

7. The Committee took oral evidence on the inquiry from witnesses at its meetings of 28 February 2006, 7 March 2006, 21 March 2006, 28 March 2006, 18 April 2006, 25 April 2006 and 9 May 2006. The minutes of these meetings are attached as Annexe A and extracts from the Official Report of those meetings, together with associated written submissions and other written evidence, comprise Annexe B.

8. The Committee wishes to express its thanks to all those who provided written and oral evidence on the inquiry.

9. The Committee’s evidence session on 7 March 2006 was held at the Civic Centre, Motherwell. The Committee is grateful to North Lanarkshire for the facilities which it provided for this meeting.

Visits

10. As part of the inquiry, members of the Committee undertook visits as follows:

  • 20 February 2006 – Port of Grangemouth. This port, which is owned and operated by Forth Ports, is Scotland’s main container port.  It handles over 100,000 containers each year on short-sea services, mainly to Rotterdam, and coastal services to Tilbury (which Forth Ports also owns).  Much of the container traffic is on ‘feeder services’ which connect with deep-sea vessels at Rotterdam or Tilbury. Most of the freight tonnage handled by Grangemouth takes the form of bulk liquids moving to and from the BP refinery and chemical complex (now operated by Innovene) by pipeline.  3.2 million tonnes of this ‘piped cargo’ went through the port in 2005, as opposed to the 1.2 million tonnes of ‘dry cargo’, which includes the freight moved in containers. Members of the Committee met the Port Manager and toured the facilities at the port.

  • 27 February 2006 – Prestwick Airport. Last year Prestwick was the seventh busiest airfreight airport in the UK. Prestwick is operated by Infratil Airports Europe Ltd. Passenger flights now substantially outnumber aircargo flights at Prestwick. While passenger volumes have been growing, freight traffic has been declining, mainly as a result of the contraction of the Scottish electronics industry.  Prestwick’s air freight tonnage peaked in 2001 (at just over 43,000 tonnes) and had dropped to 34,000 tonnes by 2004. Prestwick specialises in the movement of airfreight in large all-cargo aircraft mainly connecting with trans-continental networks. Members of the Committee met the Freight Manager and the Freight Development Manager and toured the freight facilities at the airport.
  • 7 March 2006 – Eurocentral Railfreight Terminal, Mossend. Euroterminal is the intermodal terminal operated by Britain’s main railfreight company, English Welsh Scottish (EWS). It opened in 1994 to coincide with the opening of the Channel Tunnel and is now part of the wider Eurocentral ‘freight village’ which comprises various warehouses and factories.    Companies, such as Argos and DHL have distribution facilities at the site which use railfreight services.  Members of the Committee met representatives of the operators of the terminal and Scottish Enterprise Lanarkshire and toured the facilities at the terminal.

  • 7 April 2006 – Superfast Ferries. Although it was not possible to arrange a visit to the facilities at Rosyth, members of the Committee were able to arrange a meeting with representatives of Superfast Ferries. The direct ferry service between Rosyth and Zeebrugge, operated by Superfast Ferries (part of the Greek Attica group), has been running since May 2002.  It received financial support of £12.4 million from the EU, £8 million of which went on upgrading Rosyth’s facilities and the remaining £4 million in a payment to Superfast. On November 8 2005 Superfast reduced the frequency of service from a daily sailing to three sailings per week.  One of the two vessels was transferred to a route between Germany and Finland. 

11. The Committee expresses its appreciation to all those who hosted the above visits and gave their time to talk to members of the Committee about freight transport issues.

EXECUTIVE SUMMARY

Road Freight

Volume of Road Freight

12. The road network handles approximately 70% of all freight tonnage and 62% of tonne-kms in Scotland.  It is therefore by far the dominant mode of freight transport and is likely to remain so.  In the past, road tonne-kms have generally increased in line with economic growth.   Since 1998, however, these two trends have decoupled. 

13. Several reasons can be offered for this divergence of road tonne-km and GDP trends.  Firstly, it partly reflects a restructuring of the Scottish economy.   Second, processes which in the past were responsible for much of the growth in road freight traffic, particularly the centralisation of economic activity and wider sourcing of supplies, have been weakening. Third, the decoupling is likely also to be due to the increased penetration of the Scottish road haulage market by foreign carriers.

14. The precise level of market penetration by non-UK registered hauliers operating in Scotland is not known, although the Burns inquiry would suggest that it is around 5%. It is important to establish an accurate measure of this activity to understand the divergence of lorry intensity in relation to GDP, as well as the overall environmental impact of freight transport.

15. The Committee recommends that the Scottish Executive commission research into the level of market penetration by foreign-registered hauliers operating in Scotland in order to evaluate its impact on Scotland’s economy and environment.

16. The movement of foreign trucks on Scottish roads is monitored by the road-side traffic counts used to estimate vehicle-kms.   Figures on the distances travelled by lorries are therefore more comprehensive.  Between 1994 and 2004, the amount of lorry traffic, measured in vehicle-kms, increased by 19%, only slightly below the 22% increase in GDP over this period.   Road freight traffic intensity, expressed as the ratio of lorry-kms to GDP, fell by 2.5%.   In England and Wales, the Department for Transport’s 10 year Transport Plan ‘aims to reduce lorry intensity, that is the extent to which economic growth generates additional lorry traffic’.   Although the Scottish Executive has not explicitly set a similar goal, lorry intensity appears to have been declining in Scotland, though only slightly.

17. The Committee notes the aim of the Department for Transport to reduce lorry intensity in England and Wales. It recommends that the Scottish Executive should consider whether such an aim would be appropriate for Scotland.

Inability to recover fuel price increases

18. Competitive conditions in the road haulage industry make it difficult for operators to pass on fuel price increases in full to their clients.

19. The Committee recognises the financial problems facing many Scottish road hauliers, particularly in times of increasing fuel prices.    Many of the possible options for addressing these problems are beyond the powers of the Scottish Executive: for example, influencing the world price of oil or UK levels of fuel duty and other taxation.

20. HM Treasury could vary the level of fuel duty to offset changes in the market price of diesel. This might help to stabilise the price of fuel, but this would cause wide fluctuations in tax revenue from fuel.  It would also provide only short-term relief if, as seems likely, the long term trend in fuel prices is upwards. 

21. The Committee, nevertheless, recommends that the Scottish Executive consider whether other policy options can be developed to ease the current pressures on the Scottish road haulage sector, in co-operation with the UK Government where appropriate.

22. Some users of diesel fuel currently enjoy a large tax concession.  The ‘red diesel’ used in agricultural and refrigeration equipment as well as domestic heating carries a duty of only 6.44p per litre as compared to 47.1p per litre for ordinary derv.

23. The Committee recommends that the Scottish Executive investigates the feasibility of a similar concession being made to companies operating trucks on forest roads in Scotland.   It recognises that enforcement may be a problem, especially as there is already significant illegal use of red diesel in Scotland. 

24. The Committee recommends that if it can be demonstrated that the schemes currently funded under the Scottish Road Haulage Modernisation Fund are yielding significant improvements in fuel efficiency, then the Fund should be extended and expanded. 

Foreign penetration of the Scottish road haulage market

25. Many hauliers who submitted written evidence to the Committee raised concerns about competition from overseas hauliers.  These concerns are in part based on differentials in fuel costs between the UK and Europe.

26. The Committee notes that various measures have been suggested to correct the fuel duty anomaly, all of which are outside the control of the Scottish Parliament and Executive:

  • bring UK diesel fuel duties into line with the EU average: In its 2001 Transport Policy White Paper, the European Commission proposed ‘harmonisation of fuel taxation for commercial users, particularly in road transport’.  Little progress has been made in implementing this proposal, however, as it would breach the principle of subsidiarity on domestic tax matters.  Harmonising fuel duty at the current EU15 mean would reduce diesel fuel in the UK to 23 pence per litre and cut fuel duty revenue to the UK Exchequer by around £2 bn per annum.

  • introduce road user charging for British and foreign vehicles (plus a fuel duty rebate system) to ‘level the playing field’:  this was the main objective of the UK government’s Lorry Road User Charging (LRUC) scheme, which was abandoned in July 2005.  In his statement to the House of Commons the Secretary of State for Transport announced that 'distance-based charging of lorries will be taken forward as part of the wider work on national road pricing…’   A national road pricing scheme for all categories of traffic is unlikely to be introduced, however, before 2015.

  • provide UK hauliers with an ‘essential user rebate’:  in the absence of a road user charging scheme, a fuel duty rebate system could be devised for British hauliers to bring their level of fuel taxation into line with the EU average.  The VAT system could be used for these purposes.   Like the first option, however, this would deprive HM Treasury of a substantial amount of revenue and, unlike the second option, it would fail to collect duty from foreign carriers.

27. It is beyond the remit of this Committee to discuss the relative merits of these proposals or to make recommendations to HM Treasury. 

28. The Committee notes that the level of penetration of freight movements in and out of Scotland by foreign operators is relatively low (around 95% is carried by domestic carriers). Nevertheless, it accepts that the UK’s fuel duty policy places its domestic hauliers at a disadvantage with respect to foreign carriers who fill their tanks with cheaper fuel before entering the UK, although it acknowledges that this is only one aspect of operational costs.  

Impact of the Road Transport Directive

29. The EU Working Time Directive was applied to road haulage operations in April 2005 (in this sector it is called the Road Transport Directive (RTD)).   Road transport is the only sector in which it is not possible for companies to opt out of the regulations by striking local agreements with staff.  Many companies have claimed that the RTD has significantly inflated their road transport costs. 

30. The Committee recognises that there is a delicate balance to be struck between the commercial interests of hauliers and shippers and the well-being of lorry drivers.   The condition of the driver also affects road safety and thus the welfare of the general public.  At minimum, therefore, the Vehicle and Operator Services Agency should be ensuring that the current Road Transport Directive rules are properly enforced in Scotland.   A means should also be found to ensure that foreign hauliers adhere to the UK’s RTD when operating vehicles in this country.

31. As the RTD involves the interpretation of an EU directive by the UK government, the Scottish Executive has no power to amend the regulations.  It could, nevertheless, commission research to establish its impact on the Scottish road haulage industry and liaise with the DfT on future modifications to the regulations.   The DfT is currently reviewing the RTD after its first full year of operation.  

32. The Committee recommends that the Scottish Executive should contribute to the Department for Transport’s review of the Road Transport Directive and ensure that the outcome of the review helps to establish the impact of the RTD on the Scottish haulage industry and on road safety.

Shortage of Lorry Drivers

33. Several witnesses argued that there is a significant shortage of drivers. However, information on vacancies contained in the Office of National Statistics Vacancy Survey, appears to indicate doubt as to whether there is still a driver shortage in the road haulage industry in Scotland.

34. The Committee recommends that the Scottish Executive should work with the road haulage industry to examine ways of making it less costly for new drivers to enter the haulage industry, particularly those in the younger age groups. 

Growing Traffic Congestion on the Scottish Road Network

35. In written evidence, concerns were raised by many respondents about the ability of Scotland’s road network to support fast and reliable distribution of freight to, from and within the country.  The Committee recognises that increasing traffic levels on Scotland’s roads pose an additional problem for the haulage industry.  The search for long-term solutions to the traffic congestion problem goes beyond the remit of the current inquiry and relates at least as much to personal as to freight movement.  New road construction schemes and road pricing proposals are essentially long term measures and would have to be appraised with respect to both freight and passenger traffic.  There are, nevertheless, several congestion-relief measures that could yield particular benefits to freight traffic and could possibly be given greater priority in the short to medium term.

36. The Committee recommends that the Scottish Executive should investigate the operation of ‘non-car’ lane schemes with a view to considering whether they might benefit the Scottish road freight industry and help to alleviate congestion.

37. The Committee recommends that the Scottish Executive encourage local authorities and regional transport partnerships to review existing restrictions on night delivery and, where appropriate, consider their relaxation.   It should also work with trade associations to develop a best-practice guide for night-time delivery in Scottish towns and cities.

38. The real-time Traffic Scotland driver information system (formerly known as NADICS) is already regarded by many fleet managers as being a useful tool, particularly for routing and scheduling lorries in congested parts of the central Scotland road network.

39. The Committee recommends that the Scottish Executive promotes the use of telematics to provide companies and lorry drivers with more information about traffic conditions and improve the management of traffic flows on the Scottish road network.  

40. Rapid response measures can be used to clear blockages on the road network more quickly and thus reduce the variability of transit times. They are  beneficial for all categories of traffic, but can yield significant economic advantages for time-sensitive freight deliveries. 

41. The Committee recommends that the Scottish Executive should consider whether more resources can be usefully allocated to ‘rapid response’ measures.

42. The Committee recognises that, while the measures outlined above will help to ease the congestion problem, they will not provide a complete solution.  Further capacity will have to be added to key links in the network to relieve congestion.  In the longer term, road pricing may also be used to manage road space in a way that prioritises the movement of freight. It is beyond the remit of this inquiry, however, to examine the wider issue of road pricing.

Speed Limits for Lorries

43. The Committee recommends that the Scottish Executive commission a cost-benefit analysis of an increase in lorry speed limits on strategic single-carriageway roads, particularly the A9 between Perth and Inverness. A thorough study of the impact on road safety must be an essential part of the analysis.

44. The Committee recommends that the Executive further reviews the  legal position in relation to speed limits on lorries operating on the Scottish road network. In its response to this report, the Executive should clarify the legal position on lorry speed limits in Scotland and where the relative legislative powers lie between the UK and Scottish Parliaments.

Forth Road Bridge

45. The Forth Estuary Transport Authority has indicated that there is a possibility that heavy lorries will be banned from the Forth Road Bridge in 2013 as a result of corrosion to the cabling. 

46. The Committee recognises the paramount economic importance of the Forth Road Bridge to the Scottish economy. It notes the position of the Scottish Executive on the consequences of Bridge corrosion and requests that, in its response to this report, the Executive outlines its proposed courses of action and timeframes to deal with this problem.

Bridge Checking and Strengthening Programme for 44 tonne Lorries

47. The maximum weight of lorries (with six axles) increased from 41 tonnes to 44 tonnes in February 2001.  A programme of bridge checking and strengthening has been underway for many years to prepare the road network for this maximum weight increase. 

48. The Committee recommends that both Transport Scotland and local authorities accelerate the programme of bridge checking and strengthening to allow as many parts of Scotland as possible to enjoy the economic benefits that accrue from the use of heavier trucks.  This applies particularly to rural areas likely to experience a sharp increase in timber traffic over the next few years. 

Provision of Road-side Facilities for Lorry Drivers

49. The FTA, RHA and trade unions have drawn attention to the fact that provision of road-side facilities for lorries is poor in many parts of Scotland.   These facilities include parking, toilets and washrooms, catering and overnight accommodation. 

50. The Committee believes that there is a case for greater public intervention to promote the development of road-side facilities for lorries in Scotland. 

Rail Freight

Management of Scottish Rail Infrastructure

51. Responsibility for regulating the rail network remains with the Office of Rail Regulation (ORR).  One of its major tasks is to set Network Rail’s charges and outputs.  The ORR explained how this system would work in oral evidence to the Committee.  During the summer of 2006 the Scottish Executive will tell ORR ‘what they want the railway to achieve in Scotland and how much money they have available’.  The ORR will then ‘have to determine what Network Rail will have to deliver to achieve that in the most efficient way and how much Network Rail should be paid in access charges’.  Scottish ministers have yet to ‘decide on the extent to which they want to make funds available specifically for freight and what mechanism they want to use’.

52. The Committee strongly encourages the Scottish Executive to take full account of the interests of the rail freight industry when outlining its expectations to the Office of Rail Regulation.

53. The Committee recommends that the Scottish Executive, Transport Scotland and the Office of Rail Regulation should take account of the interests of both rail freight and passenger transport in maximising the benefit of rail transport to Scotland.  In particular, attention should be given to infrastructural investments which benefit both categories of traffic. 

54. In its written evidence to the Committee, First Scotrail complained that the reliability of passenger train services was being impaired by rail freight services in Scotland.

55. The Committee commends the rail industry for working together to solve the problem of delays, but recognizes that, as the volumes of passenger and freight traffic on the Scottish rail network increase, this issue may arise again and may require fundamental changes to both timetabling procedures and the delay attribution system.

Glasgow South Western Rail Line

56. The Committee recognises that a number of witnesses expressed the view that upgrading the Glasgow South Western Line should be top priority for investment in the rail freight sector. It, however, reserves comment on the case for upgrading the GSW until Network Rail publishes its Route Utilisation Strategy documents and Ministers have had the opportunity to examine in detail the arguments and costs.

Forth Bridge

57. There is currently a shortage of capacity on the Forth Bridge. 

58. In the Committee’s view it is essential that the issue of rail line utilisation and charging is resolved in a manner which ensures that both rail passengers and freight users derive maximum benefit from the large public investment in the Stirling-Alloa-Kincardine line. The Committee recommends that the Scottish Executive, in its response to this report, indicates how this situation is being resolved. 

Channel Tunnel Rail Freight Traffic

59. As discussed at the start of the Rail section of this report, Scottish companies currently make relatively little use of international rail freight services. 

60. The Committee believes that there is good potential to develop rail freight services, particularly with increasing congestion on the English road network, higher fuel prices and the liberalisation of the European rail freight market. 

61. Although the renegotiation of Minimum Usage Charges is essentially a matter for the UK government, the Committee believes that the future of the Channel Tunnel is of sufficient relevance to the Scottish economy, that the Scottish Executive should work with the Department for Transport to try to ensure that rail freight services through the Tunnel are maintained and expanded.

Freight Facilities Grants

62. The Committee is supportive of the Freight Facilities Grant scheme for rail freight and believes that the Scottish Executive was right to maintain it despite its suspension south of the border.

63. While recognising that road haulage will remain the dominant mode of freight transport in Scotland, the Committee favours a modal shift to rail and believes that the Freight Facilities Grant offers an effective means of achieving this.

64. The Committee is, nevertheless, concerned that the Scottish Executive may not adequately assess the environmental and social benefits that actually accrue from developments financed by FFGs and recommends that the Scottish Executive undertake a review of the scheme to assess whether or not it remains a cost-effective means of securing environmental benefits in the transport sector. It may be timely to conduct such an audit as the most beneficial schemes have probably now been funded and as future applications may be likely to yield lower returns and prove more risky.

Water-borne Freight

Rosyth-Zeebrugge ferry

65. The Committee endorses the Scottish Executive’s  support for the ro-ro ferry service from Rosyth to Zeebrugge. It is encouraged by the positive efforts of Forth Ports to promote this service and notes that  EU initiatives to support ‘motorways of the sea’ may also prove beneficial.

66. The Committee also encourages the Scottish Executive to explore whether market opportunities exist to develop new maritime freight links with mainland Europe, particularly Scandinavia.

Container Shipping Links

67. The capacity of the ports system will have to be substantially expanded to accommodate the projected growth of container traffic.

68. The Committee believes that Scotland should be taking advantage of innovative strategies to develop logistics as an important sector in its own right.   By attracting a range of value-adding services, transport terminals, such as ports, can attract a range of ancillary activities and generate significant amounts of new employment.

Proposals for new ports

69. The Committee is encouraged that joint work by the Scottish Executive, Scottish Enterprise and Highlands and Islands Enterprise has found that there may be sufficient demand for deep-sea container facilities in northern Europe to support both the Hunterston and Scapa Flow developments.  The Committee requests that the Scottish Executive, in its response to this report, should provide a comprehensive update of progress in this area.

70. The Committee notes the evidence from the Director of the Hunterston Container Hub that there is a risk of under-utilisation of capacity and believes it is important that in developing a ports policy the Scottish Executive should take the market position into account. The Committee hopes that Scotland can realise the potential to expand its existing ports as well as developing new facilities. The Committee awaits a report from the Scottish Executive on new ports whilst noting the backdrop of challenging financial circumstances. 

Development of Port Policy

71. The Scottish Transport Minister has recently indicated that Scotland will not be participating in the development of a national ports policy for the UK as whole.

72. The Committee believes that Scotland urgently needs a port policy and accepts that it will be advantageous to tailor this policy to the specific needs of the country.  

73. The Committee notes that Waterborne Freight Grants were introduced by the Scottish Executive in March 2005. The Committee requests further information from the Scottish Executive on the level of applications for these grants, the number of grants which have been made, and an assessment from the Scottish Executive on the success of the grant scheme.

74. The Committee agrees that more could be done to integrate maritime transport more closely with other freight modes.  It welcomes the decision to incorporate the new ports policy into the forthcoming National Transport Strategy and hopes that this helps to overcome what Forth Ports called ‘a lack of joined-up thinking’.

Air Freight

Contraction of Direct Airfreighter Services

75. The Committee commends Prestwick Airport on its efforts to reverse the recent decline in aircargo services and tonnages, but recognizes that it will be difficult to replace the large volumes of electronics traffic now that much electronics manufacturing has relocated to Eastern Europe and the Far East. 

76. The Committee recommends that the Scottish Executive should explore the possibility of making route development grants available to dedicated airfreighter services. 

freight transport in Scotland

77. The movement of freight is fundamental to the process of economic development.  The average company may only spend 3-4% of sales revenue on freight transport1, but without it their operations would soon come to an abrupt halt.   To be able to compete effectively in national and international markets, businesses must be able to provide rapid, reliable and efficient delivery.  In recent years their dependence on the freight transport system has increased as globalisation has extended supply lines and as the adoption of the ‘just-in-time’ principle has greatly reduced inventory levels across the supply chain.  For a relatively geographically peripheral country with strong trading links, such as Scotland, these trends present a major challenge. 

78. In addition to being an integral part of every sector of the Scottish economy freight transport is a major industry and employer in its own right. It is a large and diverse industry, comprising the different transport modes (road, rail, sea and air) and companies distributing different types of product over varying distances.  Many of the companies that used to provide a basic transport service have now diversified into logistics, offering a broader range of warehousing, handling and IT services.  It was estimated that in 2003-4, companies in the logistics sector created 73,000 jobs in Scotland (3% of the workforce)2. When staff working on logistics-related activities in other sectors were included the total rose to 132,500 jobs.

79. Despite the obvious importance of freight transport to the Scottish economy and quality of life, it has received little mention in Scottish transport policy documents. Policy reviews have concentrated on the movement of people and given limited consideration to freight trends and issues. Some of these freight issues have become particularly contentious in recent years.  It is for this reason that the Committee decided to embark on the present Inquiry.  

Road Freight

80. Nearly all freight is transported by road at some point in the logistics chain, even where it is primarily transported by other modes.  Road haulage accounts for approximately 70% of Scotland’s freight tonnage, making it the most important mode of freight transport in Scotland.

81. In 2004 a total of 173.1 million tonnes of road freight originated in Scotland, 158.3 million tonnes of which stayed within the country.  A further 3.1 million tonnes of goods were moved into Scotland from elsewhere by road. 

82. In 2004-5 a total of 8611 companies were licensed in Scotland to operate goods vehicles with a gross weight of 3.5 tonnes or more.  45% of these licences only allowed the operators to carry own products.  The remaining licences were issued to ‘hire and reward’ operators who provide transport services on a ‘third-party’ basis to other companies.   Four-fifths of these hauliers had ‘standard national licences’ allowing them to trade in the UK.  870 hauliers (19%) had international licenses.  The Scottish road haulage industry is highly fragmented with 80% of hauliers running five or fewer vehicles.  

83. The Scottish Executive supports the development of the road haulage industry, particularly the training of HGV drivers, through the Scottish Road Haulage Modernisation Fund.

Rail Freight

84. Rail freight is particularly suited to the transport of heavy, bulk goods and long distance haulage.  The Scottish Executive encourages the transfer of freight from road to rail through its Freight Facility Grant scheme, which provides financial support for the use of rail where this yields environmental benefit.

85. In 2003/4 the Scottish rail network carried 8.33 million tonnes of freight.  Three-quarters of the tonnage lifted was minerals, mainly coal.  Indeed coal has accounted for almost all the growth in rail freight traffic over the past 10 years.  In recent years there has been a sharp increase in the amount of imported coal moved by rail from the Hunterston terminal to power stations in the English Midlands.  Rail has also been successful in capturing new retail traffic from companies such as ASDA, IKEA and Tesco for distribution to their warehouses and shops in Scotland.  This has been done in partnership with road-based logistics companies and, in some cases, with the assistance of Freight Facilities Grants awarded by the Scottish Executive.

86. The Scottish rail freight market is dominated by EWS, although services are also provided by smaller operators including Freightliner and Direct Rail Services.

Water-borne freight

87. Most of the UK’s imports arrive, and exports depart, by sea.  Although Scotland has several large ports on the east and west coasts, the UK’s deep-sea container ports are all located in England.  The Scottish Executive supports the transfer of freight from road to shipping through the Waterborne Freight Grant scheme.

88. In 2003 a total of approximately 80 million tonnes of freight were lifted by water borne transport in Scotland, of which 58.9 million tonnes were exported from the UK, 19.5 million tonnes were shipped to other UK ports and 1.5 million tonnes were shipped to offshore installations.  Imports totalled 9.5 million tonnes and a further 6.8 million tonnes were shipped into Scotland from other UK ports.  Offshore installations offloaded 12.8 million tonnes in Scotland.

89. Scotland has only one direct passenger/freight ferry link with mainland Europe, the thrice weekly Superfast ferry services between Rosyth and Zeebrugge.

Air Freight

90. Air freight accounts for a tiny fraction of the total freight tonnage moving to and from Scotland.  However, as air freight services cater for high value traffic it accounts for a much larger share of the value of Scotland’s trade.  The Scottish Executive does not directly support the development of air freight services.

91. Total airfreight tonnage passing through Scottish airports rose from 44,126 tonnes in 1994 and 77,572 tonnes in 2004. The nature of the freight carried and the airports used have changed considerably over that time.  There has been a reduction in large dedicated airfreight flights, mainly to Prestwick Airport, and an increase in express parcel and mail flights to Edinburgh Airport.  The amount of cargo carried in the holds of long haul passenger aircraft  declined in the early years of this decade but has recently recovered to its position of about 10 years ago due to the introduction of more transcontinental passenger flights.

Road FREIGHT

Volume of Road Freight

92. The road network handles approximately 70% of all freight tonnage and 62% of tonne-kms in Scotland.  It is therefore by far the dominant mode of freight transport and is likely to remain so.  In the past, road tonne-kms have generally increased in line with economic growth.   Since 1998, however, these two trends have decoupled.  Between 1998 and 2003, the Scottish economy grew by almost 20% while road tonne-kms declined by 3%.  As a consequence the road freight intensity of the Scottish economy declined by 7.3% over the period.   A similar trend has been observed across the UK as whole.

93. Several reasons can be offered for this divergence of road tonne-km and GDP trends.  Firstly, it partly reflects a restructuring of the Scottish economy.   The service sector, which generates less road freight per £1bn of sales than production sectors, has been expanding its share of national output. Second, processes which in the past were responsible for much of the growth in road freight traffic, particularly the centralisation of economic activity and wider sourcing of supplies, have been weakening.  These processes increased the average distance that each unit of freight was moved on the road network.  Between 1990 and 1999 this average length of haul for road freight journeys originating in Scotland increased by 26%, from 46km to 58km.  Since 1999 it has remained fairly stable.   Third, the decoupling is likely also to be due to the increased penetration of the Scottish road haulage market by foreign carriers.   Tonne-kms handled by these carriers are not recorded by the main government survey of road haulage operations in the UK.  At a UK level, it is estimated that around a third of the decoupling can be attributed to foreign penetration of the domestic road haulage market.

94. The precise level of market penetration by non-UK registered hauliers operating in Scotland is not known, although the Burns Inquiry3would suggest that it is around 5%. It is important to establish an accurate measure of this activity to understand the divergence of lorry intensity in relation to GDP, as well as the overall environmental impact of freight transport.

95. The Committee recommends that the Scottish Executive commission research into the level of market penetration by foreign-registered hauliers operating in Scotland in order to evaluate its impact on Scotland’s economy and environment.

96. The movement of foreign trucks on Scottish roads is monitored by the road-side traffic counts used to estimate vehicle-kms. Figures on the distances travelled by lorries are therefore more comprehensive.  Between 1994 and 2004, the amount of lorry traffic, measured in vehicle-kms, increased by 19%, only slightly below the 22% increase in GDP over this period.   Road freight traffic intensity, expressed as the ratio of lorry-kms to GDP, fell by 2.5%.   In England and Wales, the Department for Transport’s 10 year Transport Plan ‘aims to reduce lorry intensity, that is the extent to which economic growth generates additional lorry traffic’ 4.   Although the Scottish Executive has not explicitly set a similar goal, lorry intensity appears to have been declining in Scotland, though only slightly.

97. The Committee notes the aim of the Department for Transport to reduce lorry intensity in England and Wales. It recommends that the Scottish Executive should consider whether such an aim would be appropriate for Scotland.

98. The environmental impact of trucks per-km travelled has been steadily declining, mainly as a result of tightening Euro emission standards.  As the Freight Transport Association pointed out, ‘By 2008 when Euro 5 engines are introduced, emissions of hydrocarbons, carbon monoxide, nitrogen oxides and particulates will have been reduced by between 86% and 96% of what was judged to be a tight standard in 1990’5. They observed that, ‘One goods vehicle in 1991, with the tight standard, was producing the same emissions as 10 goods vehicles do now.’6  Improvements in fuel efficiency and increased backloading of trucks have been cutting CO2 emissions per road tonne-km. Modern trucks are an order-of-magnitude quieter than their predecessors of twenty years ago. So the traditional public view of a lorry as being something dirty, polluting and  noisy needs to be revised in the light of these major environmental improvements.

Nature of Road Freight Operations

99. The Scottish road haulage industry, like that of most other developed countries, is highly fragmented.  The average ‘hire and reward’ haulier operated only 6 vehicles in 2004-5.  Roughly 80% of hauliers ran five or fewer vehicles.   At the opposite end of the scale, less than 1% have more than 50 vehicles.   Barriers to entry into the road haulage industry are relatively low.   Limited amounts of capital are needed to acquire a truck and most hauliers find it quite easy to obtain the Certificate of Professional Competence required to operate a haulage business. The general road haulage industry has long been characterised by small profit margins and high rates of entry and exit.

100. Between 1999 and 2004-5, the total number of road freight licences issued in Scotland declined by 10%.   The number of international haulage licences showed an even greater decline (14%).   This can be largely attributed to the decline in the volume of Scottish exports over this period.   Greater import penetration into the country also brings an increasing number of foreign hauliers into Scotland who can offer low backhaul rates to Scottish-based companies exporting goods to other European countries. Many of these foreign operators are also able to undercut Scottish hauliers because of their lower vehicle operating costs.

101. The number of ‘standard national’ licences issued to domestic hauliers based in Scotland fell by 7.7%.  As the number of lorries operated by these hauliers declined by a much smaller margin over this period (0.6%), the reduction in licence numbers is the result mainly of a concentration of capacity within this sector of the market.

Condition of the Scottish Road Haulage Industry

102. A substantial volume of written and oral evidence was received from the Scottish road haulage industry claiming that it is currently in a state of crisis.  Individual operators provided details of their particular financial and operational problems while the main trade associations submitted the results of a wider survey of the industry’s concerns (the Burns Inquiry).   The industry’s main problems can be summarised as follows:

  • Sharp increase in fuel prices in recent years
  • Difficulty in recovering fuel price rises in higher rates
  • Increased penetration of the Scottish haulage market by foreign operators
  • Introduction of the Road Transport Directive
  • Shortage of lorry drivers
  • Growing traffic congestion on the road network

103. Each of these problems will be examined in turn.

Increase in fuel prices

104. Sixty percent of respondents to the Committee’s call for evidence raised concerns about high fuel prices. For example, Hebrides Haulage was concerned that ‘With the price of fuel escalating on a daily basis we wonder how much longer we can keep going.  At this moment we are paying £1.049 per litre in Lewis, this time last year we were only paying £0.839 per litre in Lewis, that is an increase of 25%’.7

105. In oral evidence, Gavin Scott of the Freight Transport Association said—

‘We are all aware that the absolute cost of and tax on fuel are pretty horrendous. Our main problem is the level of taxation and the differential that that causes between operators in this country and those from other parts of Europe and, indeed, the world.’8

106. Witnesses from environmental pressure groups, on the other hand, argued that even the relatively high levels of fuel duty in the UK do not recover the full external costs of road haulage.  Colin Howden of TRANSform Scotland  referred to a report by the Institute of Transport Studies at Leeds University which examined this issue using 1998 data9. He said that the report—

‘concluded that the road sector covered between 36 and 50 per cent of external costs. We take from that that road use does not cover the external costs of environmental damage, congestion and accidents.’10

107. He went on to conclude—

‘That does not mean that we recommend that transport prices should be increased by the commensurate amount immediately, or even at any point, or that there should be full-cost pricing; rather, it means that there should be increasing transport prices, so that the sector covers its external costs.’11

108. The Committee has examined this evidence and found that the % figures quoted for the recovery of external costs relate to all categories of road traffic and not simply lorries.  Furthermore, over the past eight years there have been significant improvements in both the fuel efficiency and emission standards of lorries.  A much larger proportion of heavier trucks now run on six-axles with air suspension doing much less damage to the road surface.  In written evidence to the Committee, the Society of Chief Officers of Transportation in Scotland (SCOTS) stated that ‘There is no strong evidence that modern trucks have a particularly severe effect on road condition’12.  We do not believe, therefore, that the figures quoted from the Leeds ITS study reflect the current level of environmental and road track costs imposed by lorries.  Further research is required to provide accurate and up-to-date estimates of these costs and the extent to which they are covered by road haulage taxation.   If this research were to show that external costs continue to exceed these taxes by a significant margin, a case would still have to be made for closing this gap.   If the UK were to adopt a unilateral policy of fully internalising the environmental and track costs of road freight transport, it would place its road hauliers at an even greater competitive disadvantage relative to foreign operators.

109. Average diesel fuel prices in the UK rose by 21.4% between January 2004 and March 2006, albeit fairly erratically13.   This rise was due to the increase in the market price of oil and therefore also to the duty levied on it. Indeed, since January 2000 diesel fuel duties in the UK have actually declined in real terms14.

110. As Ken Russell of John G Russell (Transport) explained, ‘The cost of fuel amounts to between 25 and 30 per cent of running costs.’15An increase in fuel prices of 20% or more over a short period therefore has a major impact on the economics of road haulage. According to UK government statistics, the average fuel efficiency of road haulage operations has been improving16(Figure 1) though at a much slower rate than the recent increase in fuel prices.  Hauliers are therefore having to pay substantially more in real terms for one of their key inputs.

image1

Inability to recover fuel price increases

111. Competitive conditions in the road haulage industry make it difficult for operators to pass on fuel price increases in full to their clients.  According to the Burns report, undertaken for the RHA and FTA, around 60% of UK hauliers were ‘able to substantially recover fuel costs’ in 2005. (No separate figures are available for Scottish hauliers.)  The ability to recover fuel costs depends on the size of the operator.  Only 50% of hauliers with five or fewer vehicles managed to ‘substantially recover fuel costs’, while the corresponding percentage of operators with 26 or more vehicles was almost 80%.  Many of the larger operators have contracts with clients which allow them to recover cost increases.   The vast majority of hauliers, however, are small, lack these contractual relationships and are exposed to intense competition.  The FTA explained that—

‘smaller operators…suffer from resistance to claims for haulage rate increases on the back of increases in the cost of derv’17.

112. They often have to absorb at least a proportion of the higher fuel costs in their profit margins.  With profit margins averaging around 3% in the UK haulage industry, opportunities for absorbing higher costs are very limited   Recent increases in fuel prices have therefore left some hauliers in a financially precarious position.

113. Many of the companies that use road haulage services in Scotland are also under intense competitive pressure and would find it difficult to pay the higher rates required to compensate hauliers for fuel price increases.  This point was made by witnesses giving oral evidence to the Public Petitions Committee’s consideration of petition PE876 by Phil Flanders, on behalf of the Road Haulage Association. Paying higher road haulage rates might cause some companies to relocate their operations to other parts of the UK.  For example, Hamish Morrison of Stewart Milne Timber Systems Ltd told the Public petitions Committee that:

‘The question is whether it is viable for us to make that investment in Aberdeen or whether the investment should be made outwith Scotland, down in England, where our market is. The competitiveness of our products has been seriously affected by the difficulties that the haulage industry is going through. We do not see the situation getting any better; it is all going in the wrong direction for those decisions to be made.’

114. The Committee recognises the financial problems facing many Scottish road hauliers, particularly in times of increasing fuel prices.    Many of the possible options for addressing these problems are beyond the powers of the Scottish Executive: for example, influencing the world price of oil or UK levels of fuel duty and other taxation.

115. HM Treasury could vary the level of fuel duty to offset changes in the market price of diesel. This might help to stabilise the price of fuel, but would cause wide fluctuations in tax revenue from fuel.  It would also provide only short-term relief if, as seems likely, the long term trend in fuel prices is upwards. 

116. The Committee, nevertheless, recommends that the Scottish Executive consider whether other policy options can be developed to ease the current pressures on the Scottish road haulage sector, in co-operation with the UK Government where appropriate.

117. Some users of diesel fuel currently enjoy a large tax concession.  The ‘red diesel’ used in agricultural and refrigeration equipment as well as domestic heating carries a duty of only 6.44p per litre as compared to 47.1p per litre for ordinary derv.18The Confederation of Forest Industries in its written evidence makes a persuasive case for extending this concession to lorries operating on forest roads.  Vehicle running costs are estimated to be ‘5 times higher for in-forest roads’. In some other countries with large forestry sectors, hauliers are allowed to operate a ‘dual-fuel’ system, with low-duty diesel used on forest roads and lorries fuelled by fully-taxed derv on the public road network. 

118. The Committee recommends that the Scottish Executive investigates the feasibility of a similar concession being made to companies operating trucks on forest roads in Scotland.   It recognises that enforcement may be a problem, especially as there is already significant illegal use of red diesel in Scotland. 

119. The European Commission, in its 2001 White Paper on transport19, proposed  the introduction of legislation to require shippers to compensate hauliers for fuel price increases.  It envisaged ‘legislation allowing harmonisation of certain clauses in contracts in order to protect carriers from consignors and enable them to revise their tariffs in the event of a sharp rise in fuel prices’. Questions have been raised about the practicality of this proposal. It would also be unlikely to benefit the majority of small hauliers, most of whose business is conducted on a spot hire basis .

120. As noted above, fuel efficiency has been improving.  It may be possible to reinforce this trend.  The Scottish Executive and DfT already have advisory schemes and driver training programmes in place to promote greater fuel efficiency in the haulage industry. Over the past year, the Executive’s “Scotsim” truck simulator project has piloted the training of around 700 drivers in the principles of safe and fuel efficient driver using two state-of-the-art truck simulators.  Over the period 2003/4 to 2007/8 the Scottish Executive is committed to spending a further £11.8 million on the Scottish Road Haulage Modernisation Fund, much of which is targeted on improving the fuel efficiency of road freight operations.

121. The Committee recommends that if it can be demonstrated that the schemes currently funded under the Scottish Road Haulage Modernisation Fund are yielding significant improvements in fuel efficiency, then the Fund should be extended and expanded. 

122. Improving fuel efficiency will reduce hauliers’ exposure to fuel price rises, though will not correct the underlying problem of shippers failing to compensate them for cost increases.  This is an inevitable consequence of the high degree of competition in the road haulage industry and is not a phenomenon confined to the haulage industry. In many other sectors, companies frequently complain about the difficulty of recovering price increases from clients.  Where costs are not fully recovered, companies are put under pressure to improve efficiency and this has the general effect of increasing productivity.  If, during periods of high cost inflation, the inability to recover cost increases causes some businesses to fail, the supply of services will contract, prices will rise and new entrants will be attracted into the industry.  Such market readjustment occurs regularly in open and highly competitive sectors like road haulage.  While this readjustment may be painful to some operators, the longer term survival of the industry is assured given the high demand for road haulage services in Scotland.

Foreign penetration of the Scottish road haulage market

123. Many hauliers who submitted written evidence to the Committee raised concerns about competition from overseas hauliers.  These concerns are in part based on differentials in fuel costs between the UK and Europe.

124. Cabotage is the term used to describe domestic haulage work undertaken by foreign-register carriers.   It has been fully liberalised in the EU since 1998.   Since then there has been a sharp increase in the proportion of domestic road haulage work undertaken by foreign hauliers in the UK, though from a very low base.  The most recent Eurostat data suggests that just over 1% of domestic road tonne-kms in the UK were handled by foreign operators in 2003, roughly double the 1999 figure.20  No separate statistics are available for Scotland. The Eurostat estimate expresses cabotage penetration as a percentage of total road tonne-kms in lorries with a gross weight of over 3.5 tonnes.  This definition includes local deliveries by smaller rigid vehicles, a market in which foreign carriers seldom compete.  As the vast majority of foreign trucks are articulated vehicles with a gross weight of 40 tonnes, it is more realistic to measure cabotage with respect to this heavier end of the haulage market.   At a UK level, this substantially raises the level of cabotage penetration. Using this narrower definition of the UK haulage market, the RHA—

‘figures show that cabotage penetration of that sector could be as high as 25 per cent’.21 

125. The RHA notes that­­—

‘The Treasury's figure is a little lower than that, but we and the FTA are working with the Treasury to get more accurate figures’.22    

126. An attempt was made by the Burns Inquiry to estimate the degree of cabotage penetration on Scotland’s links with other UK regions23.  It found that in 2003 an average of 6.2% of inbound freight and 4.5% of outbound road freight were carried by foreign hauliers.  Although quite small, these proportions were higher than for peripheral regions in England.  By comparison ‘the foreign operator market share on North East England routes (was) 5.5% inbound, 3.3% outbound and South West England 2.5% inbound and 2.2% outbound.’

127. It is argued that foreign hauliers have not only captured traffic from Scottish-based hauliers.  Their presence in the market has also depressed haulage rates on particular routes, further squeezing the margins of domestic operators.    This would not be a problem if domestic and foreign hauliers were competing on a similar basis.    The evidence presented to the Committee, however, argues that the competition is perceived to be unfair in several respects.

128. The main source of perceived unfairness is the variable rate of diesel fuel duty across the EU.  The UK imposes the highest duty and taxes on diesel fuel, set at a level 75% above the average for the EU25 (Figure 2).   The market price of fuel in the UK before duty and taxes is actually the lowest in the EU15.  So the relative fuel price additional cost that British hauliers incur is entirely due to the level of duty and taxes.

image2

129. As fuel prices are much higher in the UK than in neighbouring countries, foreign operators fill their tanks before entering the country, gaining a significant cost advantage over British hauliers. For example, Duncan Adams Ltd stated that ‘foreign hauliers draw little or no fuel in the UK and pay fuel rates in Europe which are 30 – 40% cheaper than the UK.’ Gavin Scott of the Freight Transport Association said ‘There is definitely a problem with foreign operators because their vehicles have fuel tanks that allow them to come over from the continent, do the best part of a week's work and then go back over to the continent without ever having to fill up with fuel.’24

130. In March 2006, diesel fuel could be purchased, respectively, 20% and 24% cheaper in France and Belgium than in the UK25.   Other things being equal, this would give the typical French or Belgium haulier a 5-6% cost advantage over their Scottish counterpart.  On a full tank of fuel bought outside the country a foreign truck can travel 2000 miles, equivalent to two return journeys between Dover and Glasgow.

131. The fuel duty differential impacts mainly on domestic road haulage operations.  Scotland’s international road hauliers are able to buy all or most of their fuel in other countries at the same prices as foreign carriers.  

132. The current fuel duty anomaly may cause an unfair distortion of the Scottish haulage market and it may also result in a substantial loss of potential revenue to the UK Exchequer from fuel purchases by foreign operators.  Moreover, as foreign hauliers pay neither fuel duty nor vehicle excise duty in the UK, they make no contribution to the development and maintenance of our road infrastructure or to the policing of the network.26Nor do they provide any compensation for the environmental damage that they impose.

133. The Committee notes that various measures have been suggested to correct the fuel duty anomaly, all of which are outside the control of the Scottish Parliament and Executive:

  • bring UK diesel fuel duties into line with the EU average: In its 2001 Transport Policy White Paper, the European Commission proposed ‘harmonisation of fuel taxation for commercial users, particularly in road transport’.  Little progress has been made in implementing this proposal, however, as it would breach the principle of subsidiarity on domestic tax matters.  Harmonising fuel duty at the current EU15 mean would reduce diesel fuel in the UK to 23 pence per litre and cut fuel duty revenue to the UK Exchequer by around £2 bn per annum.
  • introduce road user charging for British and foreign vehicles (plus a fuel duty rebate system) to ‘level the playing field’:  this was the main objective of the UK government’s Lorry Road User Charging (LRUC) scheme, which was abandoned in July 2005.  In his statement to the House of Commons the Secretary of State for Transport announced that 'distance-based charging of lorries will be taken forward as part of the wider work on national road pricing…’   A national road pricing scheme for all categories of traffic is unlikely to be introduced, however, before 201527.
  • provide UK hauliers with an ‘essential user rebate’:  in the absence of a road user charging scheme, a fuel duty rebate system could be devised for British hauliers to bring their level of fuel taxation into line with the EU average.  The VAT system could be used for this purposes.   Like the first option, however, this would deprive HM Treasury of a substantial amount of revenue and, unlike the second option, it would fail to collect duty from foreign carriers.

134. It is beyond the remit of this Committee to discuss the relative merits of these proposals or to make recommendations to HM Treasury. 

135. The Committee notes that the level of penetration of freight movements in and out of Scotland by foreign operators is relatively low (around 95% is carried by domestic carriers)28. Nevertheless, it accepts that the UK’s fuel duty policy places its domestic hauliers at a disadvantage with respect to foreign carriers who  fill their tanks with cheaper fuel before entering the UK, although it acknowledges that this is only one aspect of operational costs.  

136. Research undertaken for the European Conference of Ministers of Transport in 2001-2 compared the levels of taxation incurred by road hauliers registered in different EU countries29.  It observed that ‘Tax differences are largely offset, and in some eliminated, by variations in other cost elements, particularly labour’. At that time drivers’ wages and the social costs of employment were significantly higher in other EU countries, such as Germany, France, Belgium and the Netherlands.   This point was referred to, in oral evidence to the Committee, by Colin Howden of TRANSform30

137. Over the past few years, however, two factors have altered the relative costs of foreign-registered hauliers operating in the UK.

138. First, it was claimed in oral evidence from the TGWU that many foreign operators now employ eastern European drivers at minimum wage levels.31. According to the Burns Inquiry, driver costs in Hungary and Bulgaria are, respectively, 45% and 27% of those in the UK. As operators need only comply with minimum wage regulations in the country in which the driver is employed, foreign trucks can be driven on UK roads by drivers employed at these low wage rates. The Committee did not take detailed evidence on the extent to which foreign lorry drivers are employed in the UK at rates below UK rates or on the extent of competition from operators from eastern European countries and is unable to confirm these findings.    

139. Second, it is claimed that many foreign operators do not fully observe the Road Transport Directive which, as discussed below, restricts working hours in the road haulage industry.   While operating in the UK, foreign drivers are covered by Britain’s RTD regulations.   It is very difficult for the UK enforcement authority, VOSA, to check compliance, however, as company records relating to working time will be held at the foreign operator’s base outside the UK.  As discussed later, many of the EU member states in which foreign operators are based have so far failed to apply the RTD. Overall, these two factors can give foreign hauliers an additional cost advantage.

140. The Burns Inquiry compiled comparative data on the costs of operating a 40 tonne 5-axle truck in six European countries.  This indicated that operating costs were, respectively, 4%, 8%, 21%, 37% and 69% higher in the UK than in Germany, Belgium, the Czech Republic, Hungary and Bulgaria. This cost comparison is suspect, however, because the same values were used for some cost elements (e.g. vehicle depreciation and tyres), some costs were excluded (e.g. German road tolls on trucks) and no allowance made for the fact that the majority of heavy lorries in the UK are 44 tonne 6-axle vehicles which pay much less vehicle excise duty than the 40 tonne 5-axle truck.  The comparison also relates to the road haulage operations within domestic markets.  It does not, therefore, provide a reliable basis for comparing the relative costs of British- and foreign-registered hauliers operating in this country.

141. If, however, as the Burns Inquiry claims, the level of cabotage penetration is relatively high on routes to and from Scotland, Scottish hauliers may be more seriously affected by international differentials in fuel duties and labour costs than those based in other parts of the UK.  This matter needs further investigation.

142. There is also evidence that foreign hauliers gain a competitive advantage by infringing UK regulations to a greater extent than domestic operators.  The FTA argued, with respect to foreign operators that—

‘their adherence to other rules and regulations, such as overloading, drivers' hours regulations, speed limits and speed limiter regulations, leaves a lot to be desired.’32

143. Written evidence supplied to the Committee by the Traffic Commissioner for Scotland indicated that roadside prohibitions issued by the Vehicle and Operator Services Agency (VOSA) are significantly higher for non-UK registered vehicles than for UK registered vehicles in the offence categories of drivers’ hours, overloading, vehicle roadworthiness and trailer roadworthiness.33

144. The Commissioner went on to state that ‘The Road Safety Bill going through Westminster includes roadside deposits and graduated fixed penalties requiring payment rather than later court proceedings. These provisions are designed to close loopholes exploited by foreign registered vehicle operators. Such provisions are essential not only to road safety but also to fair competition.’34

145. Another factor which is likely to influence competition between Scottish and foreign hauliers on Anglo-Scottish routes is the imbalance in traffic flows. In 2003, for every 1 tonne of freight that went south from Scotland by road 1.31 tonnes moved in the opposite direction.  The FTA has calculated that—

‘this is the equivalent of some 130,000 fully laden lorries coming to Scotland with nothing to take back’.35 

146. As Julia Williams of Diageo explained. ‘Often when a driver from continental Europe brings imports to Scotland they take ... a load back from Scotland. When they do that they rob an indigenous haulier of a route, which might also be an inbound route’36. This also depresses road freight rates out of Scotland.   Foreign hauliers, who earn their main revenue on the ‘prime move’ into Scotland, are prepared to offer low backhaul rates to secure a return load for delivery in England or continental Europe. 

147. While the growth of cabotage poses a threat to the Scottish road haulage industry, it need not have an adverse effect on the Scottish economy as a whole.  After all, increased penetration of the Scottish haulage market by foreign hauliers intensifies competition and can lower transport costs for Scottish businesses.   If foreign operators are able to undercut the rates charged by Scottish hauliers, this should make it cheaper for Scottish exporters to distribute their products.  The Committee questioned witnesses representing Scottish industry on this point.   The CBI stated that —

‘It would not be in Scotland’s interests to be overly reliant on EU registered firms to support our industrial base.  Potentially there will be less competition, which could drive up prices and undermine manufacturing cost-competitiveness’.37

It expressed:

‘concern about whether companies that move into Scotland from outwith the UK will have the same long-term commitment that the indigenous industry has demonstrated.  Such firms may enable short-term cost advantage to be secured, but the worry about the long-term sustainability of manufacturing cannot be discounted’.38 

148. The FTA argued that—

‘although the use of a foreign operator offers the potential for short-term advantage, such an operator will not necessarily be there the next time he is needed and the quality of his service is unlikely to be as high as that which will be obtained from haulier with which one has built up a relationship over the years.  Eventually, foreign operators will become expensive as they tumble to the fact that they can increase their prices and make even more profit, provided that their prices are just a bit below those of domestic operators.  I do not think that the vast majority of my members regard the arrival of foreign operators as a good thing.  They would rather deal with domestic operators with which they can build up long-term relationships that are founded on trust between parties’. 39

149. The Committee is unconvinced by these arguments.  If Scottish businesses wish to remain loyal to the indigenous road haulage industry and cultivate longer term relationships with local hauliers they can do so.  If this were the prevailing view across Scottish industry, very little use would be made of foreign operators and the issue of cabotage penetration would not arise.   The fact that the Committee’s attention has been drawn to the issue and it has been highlighted as a problem, suggests that some Scottish firms aim to minimise their transport costs regardless of the haulier used.  This is perfectly reasonable behaviour.  If it is true that foreign operators provide poorer service quality and are unlikely to provide longer term support, these are factors that companies should be taking into account in selecting carriers.  This is a matter of commercial judgement and does not warrant public intervention.  Furthermore the alarmist claims that foreign operators will undermine the Scottish haulage industry and then exploit this situation by raising their rates seem very naive.  These operators currently hold a small share of this market and given the highly competitive conditions and low entry barriers in the road haulage industry, the market would quickly adjust to any changes in the availability or price of foreign haulage services.

 

 

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Footnotes:


1European Logistics Association’ Differentiation for Performance - Excellence in Logistics’ Brussels 2004

2Skills for Logistics ‘Scotland Logistics Sector: Labour Market Profile’ 2003

3Burns Freight Taxes Inquiry into fuel costs, foreign competition and freight taxes

4Department for Transport ‘Ten-year Plan Progress Report’ London 2003.

5Freight Transport Association: written evidence

6OR Col 3440

7Hebrides Haulage written evidence dated 22 November 2005

8OR Col 3434

9Institute of Transport Studies ‘Surface Transport Costs and Charges: Great Britain 1998’ University of Leeds.

10OR Col 3421

11OR Col 3422

12OR Col 3715

13EU Oil Bulletin: http://ec.europa.eu/energy/oil/bulletin/2006_en.htm

14Leicester, A. ‘Fuel Taxation’ Briefing Note 55, Institute of Fiscal Studies, London 2006

15OR Col 3457

16Department for Transport ‘Transport of Goods by Road in Great Britain’ London 2005.

17OR Col 3434

18OR Col 3441

19Commission of the European Communities ‘European transport policy for 2010 : time to decide’ Brussels, 2001.

20Eurostat ‘Trends in Road Freight Transport up to 2003’  Statistics in Focus 7/2005, Luxembourg

21OR Col 3446

22Ibid

23The Burns Freight Taxes Inquiry. 2005 (commissioned by the Road Haulage Association and Freight Transport Association)

24OR Col 3435

25European Commission ‘Oil Bulletin’

26OR Col 3435

27Department for Transport ‘Road Pricing Feasibility Study’ July 2004

28The Burns Freight Taxes Inquiry. 2005 (commissioned by the Road Haulage Association and Freight Transport Association)

29European Conference of Ministers of Transport ‘Reforming Transport Taxes’  Paris, 2003.

30OR Col 3421

31OR Col 3549

32OR Col 3437

33Traffic Commissioner for Scotland, written submission

34Ibid

35Freight Transport Association written evidence

36OR Col 3403

37CBI written evidence

38OR Col 3401

39OR Col 3435