How will oil prices affect rail freight?
Network Rail, the UK infrastructure agency, has taken lower fuel prices into account, and revised its own projections for the medium term. In fact Chris Polack of Bootham Network Solutions consultants, said: “short term reductions in oil prices favour the road haulage industry”.
He added: “A significant part of the fuel price they pay is tax and duty. Rail is effectively using ‘red diesel’, which is exempted from much of that tax burden. However, the short-term issue is how much of any reduction in fuel price is passed on to the consumer”.
The latest Freight Market Study from Network Rail said: “Lower growth in intermodal traffics due to the less favourable revised input assumptions for rail costs versus road costs (particularly lower fuel costs), and a lower extent to which we assume rail-served distribution parks will be developed.”
One significant rail freight operator took a pragmatic view of the fluctuations in fuel costs: “As moving goods by rail uses seventy-six percent less fuel per tonne mile of freight moved, the cost of fuel makes up a smaller percentage of a rail freight operator’s costs.”
He added: “This means that a very low oil price favours moving freight by road rather than rail. Whilst the world’s focus is currently on COVID-19, in a few months we will all need to refocus on the carbon-saving agenda, and the role of rail freight companies all over the world is important in achieving this aim”.
Polack added: “Longer term, these things tend to even out, and the effects on electrification programmes are really marginal.”
He said that given the volatility of the market, he “confidently predicts” that, at time of reading, the price of Brent Crude and West Texas Intermediate will be trading between USD8 a barrel … and 80 US Dollars. Some 1973 diesel locomotives will still be refuelling – at greater cost to fill the tanks than it cost to build them in the first place. However, by 2073, the certainty is that the rail freight landscape will have radically changed in ways we cannot predict right now.”
For more information visit www.networkrail.co.uk/industry-and-commercial/rail-freight
7th April 2020
