THE much-publicised events between Christmas 2014 and New Year 2015 at King’s Cross, Finsbury Park and Paddington have served to highlight once again major deficiencies in the way that Britain’s rail industry was restructured 20 years ago for privatisation, adopting substantial fragmentation and a horizontal (rather than a vertically integrated) structure.
The situation in the last week of December 2014 demonstrated the faults in a system that means Network Rail has no contractual relationship with train passengers (or freight customers). Instead, its contracts are with the Train Operating Companies (TOCs).
Passengers, in turn, have contractual relationships with the TOCs – whose title, in my view, is quite wrong; their role, first and foremost, is to provide a SERVICE to their customers. But the title ‘train operating company’ suggests their primary role is to run trains – but that is only a part of their function.
Before privatisation, British Rail had made changes in its culture and moved from focusing on running trains to serving customers. And through its ‘sectorisation’ – including InterCity, Network SouthEast and Regional Railways, and their sub-sectors – BR recognised that there are different markets with different needs. Indeed, even now, after 20 years of privatisation, performance data is still recorded by the Office of Rail Regulation and Network Rail for these same sectors and sub-sectors. We may have Virgin’s name on the side of trains in and out of London Euston and, soon, on trains in and out of King’s Cross – but let us not forget that the real titles of each of those franchises is InterCity West Coast and InterCity East Coast! There are many question arising from what happened last Christmas. For example, what controls have the TOCs over Network Rail – or, more significantly, Network Rail over the TOCs?
How was it decided that, during the vast programme of engineering works across the rail network at Christmas 2014, TWO of the three principal routes north from London would be closed – meaning that if anything went wrong (as it did) there was no escape route; for while the Midland Main Line out of St Pancras did remain in operation it, too, was subject to major engineering works and was of little use . . . even if trains could have been diverted this way.
What were the contingency arrangements (indeed, were there any at all?) to cope with a longer-than-expected closure of King’s Cross station (or, indeed, an emergency closure at any time, such as what may be caused by a bomb threat or a derailment in the station’s ‘throat’)?
The reality, of course, is that whatever relationships there are between Network Rail and TOCs they are tied up in the red tape of complex legal contracts, resulting from the 1993 Railways Act!
There is little doubt that the railways are now going to be a major issue at the forthcoming general election, including growing demands for re-nationalisation. But the structure of the industry is, in my view, much more important than ownership.
SO COULD THERE BE A BETTER WAY OF DOING THINGS?
I think so – and I set out some of the principles as long ago as September 2006, in the Railnews Opinion column then.
At that time, the Conservatives were in still in Opposition and their shadow Transport Secretary was Chris Grayling (now in today’s Cabinet as Justice Secretary). He had set up a ‘Rail Review’ because, he said, his party had made a mistake in separating track and trains when British Rail was privatised.
Chris Grayling said the split – an arrangement that subsequent Labour governments had done nothing to change after taking power in 1997 –had inflicted costs on both passengers and the taxpayer, as well as hindering expansion. With official figures predicting that rail passengers would grow by more than a third by 2014, but with no matching increase in capacity on the network, Mr Grayling warned in 2006 that, without firm action, train overcrowding would get much worse. [He was right about that, wasn’t he?]
He explained: “We think that an important part of the problem lies in the structure of the industry that exists today. We think, with hindsight, that the complete separation of track and train into separate businesses at the time of privatisation was not right for our railways.
“We think that the separation has helped push up the cost of running the railways — and hence fares — and is now slowing decisions about capacity improvements. Too many people and organisations are now involved in getting things done — so nothing happens. As a result, the industry lacks clarity about who is in charge and accountable for decisions.”
He said a review, leading to a strategy paper in 2007, would be carried out “with a view to securing a much greater degree of integration between track and train” if the Conservatives were returned to power at the next UK general election .
Despite this, Conservative policy did not change, however – and since the Conservatives became the lead member of the Coalition Government in 2010 the separation of track and trains has continued under a succession of Conservative Transport Secretaries.
Nevertheless, this is how I responded to Chris Grayling in the September 2006 edition of Railnews. I think my comments are still relevant today. . . .
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Building computers? You could run a train service
SEPTEMBER, 2006 – Some professional logistics and transport people claim our railways could be operated more efficiently if the principles of ‘supply chain management’ were adopted. After visiting a major computer manufacturing plant I think there may be something in this. You might ask: ‘What is the similarity between a railway network and a computer assembly plant?’ Let me try to explain. On the day of my visit to the factory — Dell Computers’ production line in Limerick, Mid West Ireland — it was producing more than 18,000 computers, all of them potentially different, as Dell specialises in making every computer to order. For me, there was a striking similarity with the British rail network, which also has to ‘produce’ around 18,000 train services a day [now, in 2014, around 24,000 a day] — and, potentially, every one can be different; certainly a huge variety is ‘produced’ each day. In the computer factory, every component in every computer is manufactured and supplied by contractors. At its Limerick production plant, Dell employs around 7,000 people who assemble computers for customers throughout Europe, Africa and the Middle East. But Dell also supports the jobs of around 37,000 other people — more than FIVE TIMES as many as it directly employs — in its suppliers throughout Ireland and Northern Ireland. Dell’s contracts with these companies require components to be made and supplied to the very highest standards, and to be delivered within just two hours of manufacturing commencing. The components are ordered day-by-day, and there are severe financial penalties if the contractual terms, including quality and reliability, are not met. Under these contracts, any faulty component is easily traceable back to the supplier’s processes and the employee(s) concerned. The entire process of ordering supplies and assembling them into finished products is overseen not by humans but by computers, thus eliminating the ‘human error’ factor. The components are assembled into personal computers as they travel down the track – which is owned and managed by Dell – and operated and maintained by Dell employees. Failure rates of finished computers at the Dell factory in Limerick are much less than one per cent and frequently zero.
COMPARE this with the way British rail services are currently produced and delivered to passengers and freight customers every day. The first and most noticeable difference is that, at Dell’s production line, all the suppliers of components work under contract for the one producer — which not only owns the production line but also manages the whole supply chain to the distributors. Yet in Britain’s privatised railway system, Network Rail is counted as a supplier itself … to the train operators. But the train operators don’t own, or operate, or maintain the production line (that’s Network Rail’s). In fact, the train operators — who are the distributors of the end products to their customers — are actually SUPPLIERS themselves to the production line, being required to put safe, serviceable and reliable trains on the production line (the rail network) at specified times (the Working Timetable) — rather like Dell requires particular types of micro-processors or hard drives to be delivered to tightly-specified times, and to contracted quality standards. By comparison, on our British railway production line the quality of trains delivered daily is not always what it should be, and sometimes they either fail to get to the production line at all — or subsequently fail on the production line with dire consequences for following production units (other trains) and their customers. [This is a much more serious problem in 2015 than in 2006, because so many more trains have been squeezed onto the network, and the knock-on effects of any failures and delays are much greater.] Likewise, infrastructure maintenance and renewal contractors are also suppliers to Network Rail and if they can deliver their work on the network with the same precision and quality as Dell’s computer component suppliers we might have an even more reliable, not to mention even safer, system. Network Rail has already done a good deal in this area, including taking much maintenance back ‘in house’ — and we now  see punctuality at near pre-Hatfield levels — but one only has to observe, for example, the over-runs of weekend engineering works on Monday mornings to see the scope for improvement.
APPLYING ‘supply chain management’ and ‘production line’ techniques to Britain’s rail system indicates how the rail industry’s structure created by the 1993 Railways Act is, I believe — and evidently so does Mr Grayling and the Tory front bench — a major cause of our industry’s continuing problems. Ownership — public or private — is not the issue; nor is having contracts between suppliers and producers. The problem is the present structure. A question the Tory Rail Review might care to ask is: how would things work if Network Rail was able to manage the entire production process, including product specification in response to market demand, and have appropriate contracts with its suppliers, INCLUDING THE TRAIN OPERATING COMPANIES? This would end the concept of Network Rail being treated as a supplier (of train paths) to the train companies, and passengers and freight forwarders being customers only of the TOCs. They are Network Rail’s customers, too. Network Rail is a huge logistics management organisation, not just an engineering company. It has recognised this in the way it has restructured itself and now manages its engineering operations. But the present industry structure stymies its ability to properly manage the supply chain that delivers services to passengers and freight customers. In future, the TOCs’ role could be redefined, twofold — that of suppliers to Network Rail (of traction and rolling stock and the human resources necessary to allow these to function reliably on the production line) and, secondly, that of retail deliverers of franchised services to customers. But while the train operators would be the retailers who distribute and deliver customer service, and create added value for customers — for example, with on-board services to passengers, or special cheap fares, or provision of specialist wagons, say, for different types of freight traffic — it is Network Rail that would manufacture the core products by owning, controlling and managing the whole production line. These comments [in 2006] may seem heretical in the context of our railways since privatisation. But the techniques of ‘supply chain management’ point to at least one alternative way forward.
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I HAVE just shown my 2006 article to a colleague . . . whose response was that it “is probably far more relevant now than it was when you wrote it.”
If he is right, maybe there is a way forward.
Network Rail is now a government-owned company (no one, it seems, likes to use the word ‘nationalised’ – but that’s what it is!).
In the 1980s British Rail’s then chairman Sir Peter Parker succeeded in persuading government ministers to accept that they had a ‘contract’ with BR to provided public services.
Thirty years on, maybe it is time to return to that concept.
The Department for Transport’s new Rail Executive organisation (which specifies franchise requirements and broad service levels) could be combined with publicly-owned Network Rail, which in turn would have contracts with TOCs (which I would re-title Rail Service Providers, with those serving passengers being appointed either as franchisees or concessionaires) to provide customer service AND to supply specified, dependable train operating resources.
In this way, we might start to see a much more customer-focused, more reliable and more cost-effective railway.
And if we need to continue with a body such as the Rail Delivery Group, it should be re-titled the Rail SERVICE Delivery Group. The job must be to focus on delivering service to customers, not just on running trains or operating ticket machines.