Project B7: RAIL INDUSTRY SYSTEM COST ANALYSIS

1. Project B7: RAIL INDUSTRY SYSTEM COST ANALYSIS Named investigators: Prof Chris Nash, Leeds; Prof Rod Smith, Imperial, Clive Roberts, Birmingham  Researchers: Chris Bouch, Birmingham Kat Lovell, Imperial, Pedro Abrantes, Andrew Smith, and Phill Wheat, Leeds,

2. Objectives • to develop a methodology to test the whole system cost impact of selected proposed technological developments in the industry; • to investigate the institutional arrangements in the fragmented rail industry, assess the extent to which these arrangements provide appropriate incentives for whole system cost minimisation, and develop alternative options for improving the current arrangements; • to examine the efficiency of Britain’s rail industry and constituent parts using national and/or international benchmarks

3. Technology-cost Modelling:

4. Technology-cost Modelling:

5. Technology-cost Modelling:

6. Technology-cost Modelling:

7. Approaches to innovation • Innovation processes in the industry can be categorised into two types. • Proportionally there has been a noticeable move towards collective approaches to innovation

8. Competitive Environment • Results from industry interviews show overlap in the fields of interest and a complex web of organisational drivers. Why do these elements appear together? Passenger DfT • TOC • Passenger environment • Reliability • Costs • (Capacity/demand) • ROSCO • Reliability • Costs • Vehicle Manufacturer • Manufacture/development costs • Reliability • Costs • Mass (& track damage) • Network Rail • Reliability • Infrastructure costs • Capacity • Suppliers • Reliability • Mass

9. Benchmarking Infrastructure • International Benchmarking of Network Rail against other infrastructure managers • Data from UIC and also from a bespoke dataset • State-of-the-art econometric frontier methods used • Analysis found Network Rail approximately 35-45% away from best practice frontier • Impact: • High profile work for the Office of Rail Regulation  2008 Periodic Review • ORR undertook supplementary analysis to understand the reason for the gap between Network Rail and the Frontier • Network Rail set a target of 21% efficiency saving between 2009-2014

10. Benchmarking Passenger Train Operations • Key Research Question: Why did franchising fail to bring down costs in passenger rail sector in Britain? • Train operating company (TOC) own costs (excluding Access Charges) 35% growth since 2000 = £1.5bn annual cost • We explored the reasons behind TOC cost trends in Britain since privatisation • What has been happening to TOC productivity and efficiency • Impact of the government’s policy towards failing operators • Key findings • TFP gains of 18% in first 4 years – and some convergence • BUT… Post-2000 TFP deteriorates sharply – ends up in 2006 where it was at privatisation • Unit cost of a given set of services 12% higher in real terms than at privatisation – and 29% higher than in 2000 • Failing TOCs on management contracts fared much worse – on average costs 19% higher after 2001. Suggests management contracts bad for efficiency, particularly if allowed to persist for long time periods

11. Conclusions • Have developed a methodology to examine the changes in processes required and resulting costs when new technology is introduced – to test further in the context of lightweighting of trains ( and specifically bogies) • Have examined the key drivers behind rolling stock innovations – to consider further the adequacy of current incentives and alternative options • Have identified areas of inefficiency in the current rail network – to update results and consider further policy implications