Vivid Economics

The value of freight

Report prepared for the National Infrastructure

Commission

Final report

April 2019

FUTUREOFFREIGHT

EvidenceBase

ThisreportbyVividEconomicswascommissionedaspartoftheevidencebaseforthe

NationalInfrastructureCommission’sstudyonthefutureoffreight.

AswithallsupportingevidencecommissionedbytheNationalInfrastructure

Commission,theviewsexpressedandrecommendationssetoutinthisreportarethe

authors’ownanddono

tnecessarilyreflectthepositionoftheCommission.

April2019

The value of freight

Contents

1 Introduction .................................................................................... 9

2 Efficiency of the UK freight system ................................................. 12

3 Drivers of efficiency ....................................................................... 32

4 Potential step-change technologies ................................................ 63

5 Value of freight efficiency .............................................................. 78

6 Conclusions ................................................................................... 86

References ............................................................... ..............................89

Annex ....................................................................... ..............................95

3 
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List of tables  
Table 1.  Impact of new technologies on freight efficiency .............................. 76 
 
 
List of figures  
Figure 1.  GDP has risen faster than the cost of freight over the last two 
decades ............................................................................................... 13 
Figure 2.  Road freight costs have risen over time ............................................. 14 
Figure 3.  Rising fuel and wage costs explain the increase in freight costs ........ 15 
Figure 4.  Road congestion in the UK is among the highest across European 
countries ............................................................................................. 16 
Figure 5.  Congestion is worsening across the road network ............................. 17 
Figure 6.  Delays in rail freight have fallen by half over the last decade ............ 20 
Figure 7.  Freight transport emissions have remained broadly constant over the 
last decade .......................................................................................... 21 
Figure 8.  If unaddressed, CO2 emissions from freight transport could increase 
by around 20% by 2050 ...................................................................... 22 
Figure 9.  Recent decreases in UK NOx emissions are expected to continue..... 24 
Figure 10. Recent decreases in UK PM10 emissions are expected to continue .. 24 
Figure 11. Euro Standards have driven significant reductions in NOx and PM 
emissions since 1992. ......................................................................... 25 
Figure 12. The UK’s transport infrastructure is of high quality ........................... 27 
Figure 13. The UK has very low energy security risks .......................................... 28 
Figure 14. Weather-related incidents account for 11% of delays on the road 
network ............................................................................................... 29 
Figure 15. Weather-related incidents account for 24% of delays to rail services
 ............................................................................................................ 29 
Figure 16. The average length of haul has increased around 25% between 1990 
and 2017 ............................................................................................. 34 

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Figure 17. The average length of haul in the UK is one of the highest among 
European countries ............................................................................. 34 
Figure 18. Mode choice is highly dependent on length of haul .......................... 38 
Figure 19. Mode choice is highly dependent on the type of product moved ..... 39 
Figure 20. There may be an opportunity to shift from road to rail in some freight 
market segments ................................................................................ 40 
Figure 21. The UK motorway network is small relative to freight and passenger 
transport demand ............................................................................... 41 
Figure 22. Utilisation of the UK motorway network is moderate for freight, but 
high in Europe for passenger transport .............................................. 42 
Figure 23. The UK rail network is extensive relative to freight transport demand, 
but small relative to passenger transport demand ............................ 44 
Figure 24. Utilisation of the UK rail network is low for freight, but very high for 
passenger transport ............................................................................ 45 
Figure 25. HGVs account for the minority of traffic, and predominantly use less 
congested roads .................................................................................. 47 
Figure 26. HGVs contribute less to peak traffic than other modes ..................... 47 
Figure 27. There has been no discernible improvement in the fuel efficiency of 
HGVs over the last decade .................................................................. 49 
Figure 28. The UK has one of the lowest shares of electrified rail among 
European countries ............................................................................. 50 
Figure 29. By 2017 44 tonne trucks made up 22% of the HGV fleet ................... 51 
Figure 30. The share of freight carried in large vehicles has increased 
significantly since 2000 ....................................................................... 52 
Figure 31. Load factors decreased across the majority of truck size classes over 
the period 2000-17 ............................................................................. 53 
Figure 32. UK levels of empty running are moderate by European standards ... 56 
Figure 33. Empty running has increased slightly over the period 2000-2017. .... 57 
Figure 34. UK load factors are moderate by European standards ...................... 59 
Figure 35. Load factors have been broadly constant over time .......................... 60 
Figure 36. Road freight costs make up a small share of UK business costs ......... 81 

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Figure 37. A small number of sectors with moderate to high exposure to freight

costs also have above average trade intensity and labour productivity

............................................................................................................ 82

Figure 38. The English regions, Scotland and Wales are well connected by the

road freight system ............................................................................. 85

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Executive Summary

The UK freight system plays a vital role in supporting economic activity. The freight system helps meet the

UK’s most essential needs: it supplies food to supermarkets and fuel to petrol stations, carries medical

products to hospitals, and delivers letters and parcels to homes and businesses. The freight system also

plays a vital role in supporting economic activity: it transports raw materials and intermediate products to

factories, goods to ports and products to retailers, supporting manufacturing, exports and consumers.

However, a set of important challenges remain. Freight both contributes to and is exposed to road

congestion; it is responsible for 6% of total CO2 emissions; and is a labour intensive industry, with costs

rising as wages increase in line with economic growth.

This study investigates and assesses the efficiency of the UK freight system, identifies the technologies

most likely to drive a ‘step change’ in the efficiency of freight, and considers the economic and other

benefits that improved efficiency could deliver.

This study finds that the freight system must continue to evolve. The freight system must improve

outcomes in all key areas of efficiency: it must remain cost-competitive; minimise its impact on congestion;

reduce its greenhouse gas emissions in line with the UK’s climate targets; and remain resilient to future

stresses. A summary of study findings on each of these issues is set out below.

Cost

The cost of UK freight system is equivalent to around 4% of GDP. While diesel and wage costs have

driven freight costs up, they have fallen as a share of GDP. We estimate that the UK spends up to £80

billion per year on road freight, rail freight and warehousing. Of this, road freight accounts for around £38

billion; rail freight for around £1 billion; and warehousing for £20-38 billion. Labour costs make up around

one third of road freight and warehousing costs. As labour costs rise with incomes, road freight costs have

risen over time. However, exposure to freight costs is declining and freight costs as a share of GDP have

fallen over time.

New technologies - particularly, connected and autonomous vehicles, and robotics and automation -

could significantly reduce freight costs. In the near-term, there may be some opportunities to reduce costs

through incremental improvements in freight efficiency (for example, by reducing empty running and part-

loading). The cost of freight can also be reduced by reducing congestion. In the longer-term, new

technologies could deliver more significant cost reductions. Connected and autonomous vehicles could

decrease the cost of road freight by around one third; robotics and automation could decrease the cost of

warehousing by a similar amount. Together these technologies could reduce the cost of the UK freight

system by £26 billion, equivalent to around 1.3% of GDP. Digitalisation and data science could offer further

cost savings, though the magnitude of potential savings is very difficult to quantify.

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A cheaper freight system will provide direct economic benefits. A reduction in the cost of freight, whether

this is achieved through improving efficiency, reducing congestion or through automation, will free up

resources (such as labour) for more productive uses and increase economic output. The reduced cost of

freight will be reflected in lower production costs, benefiting both producers and consumers.

Speed and reliability

UK road freight suffers severe and worsening congestion problems, and addressing congestion is a high

priority. Congestion could account for over 16% of the cost of road freight, equivalent to around £6

billion per year. Road congestion in the UK is among the highest across European countries, and is

worsening. Congestion imposes economic costs; while estimates of the cost of congestion typically only

account for lost time, congestion also increases expenditure on vehicles and fuel. The impact of congestion

on of delays to freight journeys is currently poorly understood. Based on the available evidence, we

estimate a range for the impact of congestion on delays. At the higher end of the range, we estimate that

congestion could delay HGV journeys by around 23% today, potentially rising to 35% by 2050. Overall, we

estimate that the total cost of congestion to the UK freight system today could be more than £6 billion, or

0.3% of GDP.

A number of factors contribute to congestion and its impact on the freight system. First, the UK’s road

and rail network capacity is strained by high levels of transport demand. Second, utilisation of the road

network, particularly by passenger transport, is highly inefficient. Third, freight is typically consolidated in

regional distribution centres located outside the urban areas that they serve, which increases the number

of vehicle movements to retailers and other customers to, from and within urban areas. Fourth, van use is

growing significantly; while the role of vans in freight transport is uncertain, growth in the use of vans to

deliver freight would increase the volume of freight traffic.

The causes of congestion are complex, and a number of solutions could contribute to reducing

congestion levels in future. Some infrastructure investment may be needed to mitigate congestion, though

overall demand management is likely to provide a more cost-effective solution than a large-scale

infrastructure investment programme. Road pricing could be an effective policy instrument to manage

congestion. Location of freight distribution centres inside urban areas would reduce freight’s contribution,

and exposure, to congestion. Finally, further work is needed to understand the role of policy in driving

efficient use of vans within the freight system.

Environmental impact

Freight transport is responsible for 6% of total greenhouse gas emissions today but if unabated, could

make up around 20% of allowed emissions in 2050. Near- or full-decarbonization of freight transport is

The value of freight

likely to be needed to meet the UK’s climate targets. We estimate that freight transport as a whole

emitted around 27 MtCO2 in 2016. If CO2 emissions from freight transport are not addressed, they could

increase a further 20% to 2050 given increasing demand for travel. The Climate Change Act requires that

greenhouse gas emissions in 2050 to decrease from 468 MtCO2e in 2016 to 160 MtCO2e in 2050. If freight

transport emissions continue unabated, they would make up around 20% of this total. However, due to the

challenges of reducing emissions in other sectors it is unlikely that unabated freight emissions can be

accommodated over the long term.

The fundamental cause of freight transport emissions is the use of diesel fuel. However, a range of

secondary factors contribute to the level of freight emissions. The highly centralised nature of the freight

system increases travel distances as freight is diverted to consolidation centres between origins and

destinations. The majority of freight is carried by road, which is less energy-efficient than rail. There are

limitations to the size of freight vehicles, which could increase the number of vehicles and trips needed to

meet freight demand. And moderate levels of empty running and part-loading might indicate a degree of

inefficiency in freight operations.

A shift to alternative fuelled vehicles is urgently needed to decarbonise freight. Given such a shift, wider

reforms to the freight system are less urgent. A complete shift to alternative fuelled vehicles would

eliminate tailpipe greenhouse gas and air quality pollutant emissions in road freight. Prospects for

deployment of alternative fuelled freight vehicles are strong: while these currently lag behind passenger

vehicles, development of the technology is underway, and large cost reductions are expected in the near

term. In contrast, the scope to decarbonise freight through alternative solutions such as moving to a more

decentralised freight system, shifting significant freight volumes to rail, increasing the size of freight

vehicles and reducing empty running and part-loading, highly uncertain and likely to be very limited. A shift

to alternative fuelled vehicles is therefore an urgent policy priority.

Resilience

The risks faced by the UK freight system are changing as a result of climate change and digitalisation. A

comprehensive review of freight resilience is needed to secure the freight system against future risks. A

shift to alternative-fuelled vehicles will reduce the risks of fuel supply shocks, and a shift to connected and

autonomous vehicles could reduce the vulnerability of the freight system to labour action. However, other

risks are emerging. First, risks of infrastructure failure and extreme weather events could increase with

climate change, and risks associated with information failures could increase as digitalisation increases

reliance on complex information networks and exposure to failures in IT systems or cyber-attacks. Second,

improvements in freight efficiency are likely to have reduced the resilience of the freight system. Firms

increasingly hold fewer inventories in order to minimise the cost of warehouse space in urban areas. As a

result, firms are increasingly exposed to disruptions in the reliability of the freight system. Given the new

risks facing the freight system, and the need to make the right trade-off between efficiency and resilience, a

comprehensive review of freight system resilience is needed to ensure that the freight system remains

efficient while securing it against future risks.

The value of freight

1 Introduction

1.1 Background

The freight system plays a vital role in supporting economic activity. Freight transports raw materials and

intermediate products to factories, to support manufacturing; it transports finished products to retailers, to

meet consumer demand; and it transports goods to ports, to support exports. By enabling goods to be

moved long distances at low cost, freight allows products to be manufactured at large scale in the most

suitable locations in the UK and overseas.

The freight system is extensive, sophisticated and efficient. The freight system has evolved considerably,

and continues to do so. In the early 19th century the development of Britain’s canal network enabled the

industrial revolution. Later that century development of the rail network substantially expanded coverage

and speed of the freight. In the 20th century development of the road network, including the motorway

network, again offered a a step change in coverage and speed. By 2017 the freight system transported

1,397 million tonnes of freight, supporting almost £400 billion in manufacturing sales and transporting 140

million tonnes of goods to ports for export. Faced with significant commercial pressures the freight system

has innovated, responding to increasingly challenging customer requirements for smaller, faster deliveries

and developing centralised distribution systems to reduce the costs of warehousing on increasingly

expensive urban land.

However, a set of important challenges remain. The majority of UK freight is carried by road; as a result,

freight both contributes to and is exposed to road congestion, and is responsible for 6% of total CO2

emissions. In 2006 the Department for Transport estimated that the cost of congestion to the UK business

sector could amount to £12 billion by 2025, and the wider social costs could amount to double this amount.

Further diesel is the dominant fuel in road freight, and unlike passenger vehicles, there has been no

significant improvement in fuel efficiency over time. The Climate Change Act target for an 80% reduction in

greenhouse gas emissions relative to 1990 levels is likely to require substantial decarbonisation of the

freight sector. Further, freight is a labour intensive industry, and costs are increasing as wages rise in line

with economic growth.

New technologies could offer solutions to these challenges, though are at an early stage. Alternative

fuelled vehicles are beginning to emerge in passenger transport, and are under development in freight

transport. Connected and Autonomous Vehicles (CAV) are under development, and could allow vehicles to

function without a driver; key elements of this technology (satellite navigation, mobile communications and

information processing technologies) are already in widespread use in freight transport. Robotics and

automation are a common feature of industrial production, and could begin to play an important role in

logistics and warehousing. Digitalisation has opened up new opportunities in route optimisation, inventory

management and collaboration, and these opportunities will increase as digitalisation continues. And new

delivery technologies such as unmanned aerial vehicles (drones) and delivery droids are delivering goods

directly to consumers in a number of trials. And 3D printing could transform the pattern and content of

freight flows.

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Further evolution of the freight system will be needed to continue to deliver major economic benefits. To

deliver the greatest value, the freight system must remain cost-competitive while minimising its impact on

congestion and reducing its greenhouse gas emissions in line with the UK’s climate targets. Adoption of

new technologies, in combination with effective regulation, are likely to be needed to achieve this

outcome.

1.2 Objectives

In this context, the National Infrastructure Commission has commissioned Vivid Economics to

identify and evaluate the opportunities to improve the UK freight system. Specifically, the National

Infrastructure Commission are seeking to understand:

⎯ The efficiency of the UK freight system, how this compares with other countries, and how it could

be improved in future;

⎯ The potential for new technologies to deliver a ‘step change’ in the efficiency of the freight system;

⎯ The mechanisms by which improved freight efficiency can deliver economic value, and the

potential economic value of the improvement in freight efficiency which new technologies could

deliver.

1.3 Approach

We adopt a multidimensional definition of freight efficiency. The freight system must balance multiple,

sometimes competing, objectives. It must deliver products to customers when needed, and do so at low

cost to maintain the competitiveness of UK businesses and affordability for consumers. It must reduce its

environmental impact, and in particular, contribute to meeting the UK’s climate targets. And it must

continue to fulfil its function in response to stresses. We therefore define freight efficiency as in terms of

cost, speed and reliability, environmental impact, and resilience of the freight system.

We first assess the efficiency of the UK freight system in terms of its performance on dimension. For cost,

speed and, reliability, as well as environmental impact, we develop quantitative estimates of UK

performance. For resilience, our analysis is more qualitative. Where data is available, we also compare

performance in the UK and other European countries using the Eurostat database, which provides the most

detailed comparative dataset of economic and technical characteristics across the freight system.

We then identify and assess the underlying factors driving freight efficiency. These factors include the

spatial organisation of the freight system, its modal share, the quantity and quality of its physical

infrastructure, the efficiency with which the road and rail networks are used, the vehicle technologies and

fuels it uses, the capacity of its vehicle stock, and its operational efficiency. As with the dimensions of

overall efficiency, we develop quantitative estimates of these factors in the UK, and compare performance

in the UK with other European countries where possible. Where quantitative data is not available, we

provide a qualitative assessment.

We then assess a range of technologies likely to emerge in the freight system in future. We identify a

range of technologies likely to emerge in the freight system in future, and assess the potential for each

technology to deliver ‘step-change’ improvements to freight efficiency. Technologies assessed comprise

The value of freight

alternative fuelled vehicles, connected and autonomous vehicles, robotics and automation, digitalisation

and data science, unmanned aerial vehicles (drones), delivery droids and 3D printing. We separately

consider the potential for each technology to deliver a significant improvement in the cost, speed and

reliability, environmental impact, and resilience of the freight system. We then assess the likely severity of

any barriers to deploying that technology and the prospects for that technology to emerge at scale.

Finally, we identify the potential for improved freight efficiency to deliver economic benefits to the UK.

Through a literature review and drawing on economic theory, we identify the mechanisms through which

an improvement in the cost, speed and reliability, environmental impact and resilience of the freight

system could deliver economic benefits to the UK. Based on our assessment of the potential for future

technologies to deliver ‘step-change’ improvements to freight efficiency we then evaluate and provide

broad estimate of the likelihood and potential magnitude of the economic benefits that would arise from a

more efficient freight system in the UK.

1.4 Structure of this report

This report sets out the findings of this analysis:

1. Section 2: Efficiency of the UK freight system assesses the efficiency of the UK freight system, in

terms of its cost, speed and reliability, environmental impact and resilience.

2. Section 3: Drivers of efficiency identifies the drivers of freight efficiency, assesses the performance

of the UK freight system with respect to these drivers, and identifies the opportunities for policy to

improve the cost, speed and reliability, environmental impact and resilience of the freight system.

3. Section 4: Potential step-change technologies identifies the emerging technologies that have the

potential to deliver step-change improvements to the cost, speed and reliability, environmental

impact and resilience of the freight system.

4. Section 5: Value of freight efficiency identifies the economic benefits which improved performance

of the UK freight system with respect to the drivers of freight efficiency could deliver, and assesses

the magnitude of the benefits that could be realised, given appropriate regulation and innovation

in the emerging technologies.

The value of freight

2 Efficiency of the UK freight system

Key messages

⎯ The cost of UK freight system is equivalent to around 4% of GDP. While freight costs have

risen, driven by higher diesel and wage costs, they have fallen as a share of GDP.

⎯ UK road freight suffers severe and worsening congestion problems, and addressing congestion

is a high priority. Congestion could account for over 16% of the cost of road freight, equivalent

to around £6 billion per year.

⎯ Freight transport is responsible for 6% of total greenhouse gas emissions today but if

unabated, could make up around 20% of allowed emissions in 2050. Therefore, near- or full-

decarbonization of freight transport is likely to be needed to meet the UK’s climate targets.

⎯ The risks faced by the UK freight system are changing as a result of climate change and

digitalisation. A comprehensive review of freight resilience is needed to secure the freight

system against future risks.

2.1 Cost of the UK freight system

The total cost of the UK freight system is equivalent to around 4% of GDP. In 2016:

− Total expenditure on warehousing amounted to £38 billion, equivalent to 2% of GDP

− Total expenditure on freight transport amounted to around £40 billion, equivalent to 2% of GDP.

Within this, road freight costs made up at least 95% of freight transport costs, totalling around £38

billion and equivalent to 2% of GDP; while rail freight costs made up less than 5% of freight

transport costs, totalling around £2 billion and equivalent to 0.1% of GDP.

Our approach to estimating the cost of the UK freight system is set out in Annex 1.

The cost of the whole UK freight system as a share of GDP has decreased over time. Figure 1 shows the

historical data on the cost of the freight system; UK GDP; and the cost of the UK freight system as a share of

GDP. Costs are in real terms, i.e. adjusted for inflation. Overall, the cost of the freight system has increased

from around £65 billion in 1997 to around £80 billion in 2016, a 20% increase over this period. At the same

time, GDP has increased by around 50%. As a result, the cost of the freight system as a share of GDP has

decreased slightly, from around 5% of GDP in 1997 to around 4% of GDP in 2016.

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Figure 1. GDP has risen faster than the cost of freight over the last two decades

Note: Values expressed in real (2017) prices

Source: Vivid Economics; Office for National Statistics

Road freight costs have risen over time, but the volume of freight has fallen. Figure 2 shows the historical

data on total costs of road freight, road freight activity and the resulting cost per unit of road freight. The

cost of road freight system has increased from around £34 billion in 1997 to around £38 billion in 2016, a

12% increase over this period. Over the same period, the total volume of freight lifted has decreased 13%

from around 1.6 billion tonnes in 1997 to around 1.4 billion tonnes in 2016. However, freight is now

shipped for increasingly longer distances, such that the total volume of freight moved has remained broadly

constant over this period, at around 150 billion tonnes km. As a result, the total cost of each tonne of road

freight has risen 29% over this period. This increase is the result of two factors. First, the cost of moving

road freight has increased around 13%. Second, the average distance freight is moved has increased around

14%.

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Figure 2. Road freight costs have risen over time

Note: Values expressed in real (2017) prices

Source: Vivid Economics; Office for National Statistics; Department for Transport

The rising cost of moving a tonne of freight have been driven by rising fuel and wage costs. Figure 3

shows the change in the cost of road freight, and the cost of fuel and wages over time. Over the period

1997-2016, Diesel costs rose 24%, and wages of HGV drivers rose 20%. The particularly pronounced rise in

desel costs over the period 2009-12 does not appear to have driven freight costs up over that period; it is

possible that the industry absorbed these costs to remain competitive during the economic downturn over

that period. Data on vehicle costs is not available, though unlike diesel or wages there is no empirical

evidence or theoretical rationale suggesting that vehicle costs have increased over this time frame. Given

freight costs have increased by less than diesel and wage costs, it is also possible that that vehicle costs

have decreased as a result of innovation in manufacturing (for example, car costs decreased around 30%

between 1997 and 2013).

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Road freight costs (£/tonne)

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Figure 3. Rising fuel and wage costs explain the increase in freight costs

Note: Values expressed in real (2017) prices

Source: Vivid Economics; Office for National Statistics; Department for Transport; Department for Business, Energy & Industrial

Strategy

2.2 Speed and reliability of the UK freight system

2.2.1 Road freight

Road congestion in the UK is among the highest across European countries. Figure 4 shows the average

delay on the road network on different types of road. The UK performs poorly across all types of road. On

roads with average speeds of less than 50 km per hour in free-flow conditions, the UK has the second

longest delays; and on roads with average free-flow speeds of more than 100 km per hour, the UK has the

fourth longest delays.

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Index (1997=100)

Change in freight costs over time

Diesel Wages Overall (£/t)

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Figure 4. Road congestion in the UK is among the highest across European countries

Source: European Commission Joint Research Centre

Delays due to congestion on the strategic road network and major rural roads are generally smaller than

on urban roads. The average delay in England is around 15 seconds per vehicle per mile on the strategic

road network, and 35 seconds per vehicle per mile on rural A roads; this compares to an average delay of

128 seconds per vehicle per mile on urban A roads (Department for Transport, 2018).

Congestion is worsening across all types of road. Figure 5 shows that between 2014 and 2018, the average

delay has increased by around 4% on the strategic road network, 11% on rural A roads and 13% on urban A

roads. The variation in the increase in delay can be explained by the difference in average speeds on each

type of road, with the highest average speeds on the strategic road network, followed by rural and urban A

roads, respectively.

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EU weighted avg.

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Average delay for roads with free flow speed

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Figure 5. Congestion is worsening across the road network

Source: Department for Transport

The economic costs of congestion are considered to be large. In 2006 the Department for Transport

estimated the cost of congestion to business alone was around £7 billion in 2003, and could rise to £18

billion to 2025. Further, DfT estimated that the cost to all road users (including commuters and those

travelling for non-work purposes) could reach £24 billion by 2025.

Previous estimates of the cost of congestion only account for lost time. For example, the Department for

Transport in 2007 estimated that the cost of congestion to freight transport alone under £0.5 billion in

2003, with the hours lost due to delays valued at the wage rate of freight vehicle drivers.

However, congestion also increases expenditure on vehicles and fuel. By increasing the time taken on

freight journeys, delays reduce the number of trips a vehicle and driver can make, and the volume of freight

they are able to move. As a result, more vehicles and drivers are needed to meet freight transport demand.

Delays also increase the amount of fuel needed on a journey, as there is a fuel efficiency penalty associated

with lower than optimal speeds, frequent acceleration and deceleration and engine idling. However, this

penalty has been estimated at around 5% (Palmer and Piecyk, 2010), and is therefore significantly smaller

than the impact on congestion on journey times and associated expenditure on vehicles and drivers.

A small increase in delays could drive a large increase in freight costs. In principle, to meet overall freight

transport demand, an increase in average journey times due to congestion would require a comparable

increase in the number of vehicles and drivers. In practice, freight operators might respond to small

increases in journey times by improving the efficiency of their operations; however, once opportunities to

improve efficiency have been exhausted freight operators would need to invest in vehicles and drivers.

However, freight operators are required to meet freight transport demand with a high degree of reliability.

Dec-14 Apr-15 Aug-15 Dec-15 Apr-16 Aug-16 Dec-16 Apr-17 Aug-17 Dec-17 Apr-18

Delays (seconds per vehicle per mile)

Strategic Road Network All local 'A' roads Rural 'A' roads

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Therefore the required increase in the number of vehicles and drivers could actually be significantly greater

than the increase in average journey times. This is because the increase in journey times due to congestion

is highly variable. On some journeys, delays will be shorter than average, while on others, delays will be

longer than average. Freight operators must ensure that they deliver goods to customers on time even

when delays are significantly longer than average. As it is not possible to predict when this will occur,

freight operators must schedule start and end times for all journeys to account for the possibility of longer

than average delays. The resulting increase in scheduled journey times further reduces the number of trips

vehicles and drivers can make, and the volume of freight they are able to move; and increases the number

of vehicles and drivers needed.

The magnitude of delays to freight journeys is currently poorly understood. The impact of congestion on

HGV journey times can be estimated using data on average speeds and average delays on different types of

road. The Department for Transport publishes two estimates of speeds and delays. As these do not appear

consistent with each other, we estimate the impact of congestion on HGV journey times using each

estimate, and present the overall impact as a range. The estimates comprise:

− DfT Road Traffic Forecasts. The Department for Transport’s produces regular forecasts for traffic

demand, congestion and emissions to 2050 in England and Wales. Road Traffic Forecasts are

produced using the Department for Transport’s National Transport Model (NTM). Forecasts for

traffic demand are based on observed levels of traffic demand in 2015, and expectations of how

the demand for travel will grow between 2015 and 2050.

− DfT Road Congestion Statistics. The Department for Transport separately publishes statistics on

road congestion and journey time reliability. These statistics are compiled from journey time data

from in-vehicle global positioning systems (GPS) and flows estimated using both automatic traffic

counters and DfT’s manual traffic count data.

While both sources imply similar congestion levels on the motorway network, congestion levels on A roads

estimated in Road Traffic Forecasts are significantly lower than those reported in Road Congestion

Statistics. Road Traffic Forecasts estimates an average speed on A roads for all vehicle types of around 37

miles per hour, and an average delay of around 18 seconds per mile in 2015; this implies congestion delays

journey times by an average of 23%. In contrast, Road Congestion Statistics reports an average speed on A

roads for all vehicle types of around 26 miles per hour, and an average delay of around 45 seconds per mile

in 2015; this implies congestion delays journey times by an average of 48% - more than double the increase

in journey times.

At the lower end of the range, we estimate that congestion could delay HGV journeys by around 12%

today, potentially rising to 18% by 2050. We draw our low estimate of the impacts of congestion directly

from Road Traffic Forecasts. Road Traffic Forecasts estimates of average speeds and delays for HGVs imply

that congestion delayed journey times by 2% on motorways, 14% on Trunk A roads; 23% on Principal A

roads; and 15% on minor roads in 2015; based on levels of HGV travel on each type of road, these

estimates imply that overall congestion delayed HGV journey times by 12% in that year. This is considerably

lower than the impact of congestion on all traffic reported above, as HGV traffic is less concentrated

around peak times (see Section 3.4). Road Traffic Forecasts also projects average speeds and delays for

HGVs over the period to 2050, based on the projected increase in traffic growth. While projections suggest

only a slight increase in HGV traffic (a 1% increase to 2030 and 9% increase to 2050), they suggest a very

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significant increase in car and van traffic (by 17% to 2030 and 34% to 2050 for cars; and 22% to 2030 and

52% to 2050 for vans). DfT projections of average HGV speeds and delays associated with these greater

traffic levels imply that the increase in journey times due to congestion could reach 14% by 2030, and 18%

by 2050.

At the higher end of the range, we estimate that congestion could delay HGV journeys by around 23%

today, potentially rising to 35% by 2050. To develop our high estimate of the impacts of congestion, we

adjust our low estimate to account for the difference between congestion levels estimated in Road Traffic

Forecasts and those reported in Road Congestion Statistics. This results in a doubling of the increase in

journey times on Trunk and Principal A roads and minor roads (there is no change in the increase in journey

times on motorways, as both sources imply similar congestion levels). The adjusted estimate suggests that

congestion could have delayed journey times by 2% on motorways, 25% on Trunk A roads; 45% on Principal

A roads; and 27% on minor roads in 2015; with an overall increase in journey times of 23%. Applying the

same adjustments to the increases in journey times implied by DfT projections of average HGV speeds and

delays in future years imply that the increase in journey times due to congestion could reach 27% by 2030,

and 35% by 2050

Overall, we estimate that the total cost of congestion to the UK freight system today could be more than

£6 billion, or 0.3% of GDP. Based on two separate estimates of speeds and delays published by the

Department for Transport, we estimate that congestion could delay HGV journeys by 12-23% today. As a

result of this increase in delays, a comparable increase in the number of vehicles and drivers is needed to

meet freight transport demand. However, the impact of delays on fuel consumption is small, and a 12-23%

delay would not result in a comparable increase in fuel consumption. As the cost of drivers, vehicles and

fuel each make up around one third of the costs of road freight, congestion increases the cost of the road

freight system by at least 2/3 of the increase in journey times. Based on the 12-23% increase in HGV

journey times due to congestion, and a comparable increase in the number of drivers and vehicles needed

to meet freight demand, we estimate that congestion could increase the cost of road freight by 8-16%.

Given the £38 billion cost of road freight estimated in Section 2.1. this implies that the total cost of

congestion to the UK freight system could be £3-6 billion, or up to 0.3% of GDP.

2.2.2 Rail

Rail freight has comparable reliability to the strategic road network. Average delays of UK freight trains

were around 12 minutes per 100 train-kilometres, or around 7.5 seconds per km in 2018. This is

comparable to the average delay of around 6 seconds per km on the strategic road network (while delays

on smaller and urban roads are longer, this is a poor comparison as the rail network is not a substitute for

the use of smaller and urban roads). As a result of these relatively small delays, 94% of trains arrive within

15 minutes of the scheduled time (Office of Rail and Road, 2018).

This upwards adjustment does not take into account that congestion may not reach such levels, if increasing congestion costs

decrease the demand for freight.

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Unlike road freight, the reliability of rail freight is improving. There has been a significant improvement in

the reliability of freight trains over the last decade; annual average freight trains delays have fallen from

23.4 minutes per 100 train km in 2007/08 to 12.4 minutes/100 train-kilometres in 2018/19.

Figure 6. Delays in rail freight have fallen by half over the last decade

Source: Office of Rail and Road

The reasons for the improved reliability of rail freight are not fully understood. It is difficult to identify the

reasons for the improved reliability of rail freight based on available evidence:

− There has been no measurable reduction in reduced disruption from engineering and maintenance

works; this has remained roughly constant over the period 2005/06 to 2018/19, as measured by

the Possession Disruption Index for freight.

− There has been no overall improvement of rail transport services; this has worsened in recent

years, with the percentage of passenger trains which were cancelled or ‘significantly’ (over 30

minutes) late increasing from 2.5% in 2006/07 to 4.6% in 2018/19.

− It is possible that the improved reliability of rail freight is due to improved operational efficiency, or

perhaps greater automation, though there is not sufficient evidence to substantiate this

hypothesis.

The speed and reliability of rail freight is constrained by the prioritisation of passenger trains. Passenger

trains are prioritised on the rail network; when delays result in scheduling clashes between passenger and

freight trains, freight trains are typically held in passing loops to reduce the extent of delay to the

passenger trains. While prioritisation of passenger trains does result in greater delays to freight trains, this

is likely to be an efficient outcome given the high value of passenger travel time.

Delays (minutes per 100 train km)

Quarterly average Moving annual average

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2.3 Environmental impact of the UK freight system

2.3.1 CO2 emissions

We estimate that freight transport as a whole emitted around 27 MtCO2 in 2016. This is equivalent to

22% of total UK transport CO2 emissions (126 Mt in 2016) and 6% of total CO2 emissions (468 Mt in 2016).

− HGVs emitted around 20 MtCO2 in 2016.

− While data on emissions from van freight is not available, vans emitted around 19 MtCO2 in 2016;

assuming that the share of freight in van traffic has remained relatively constant over time, we

estimate that vans used in freight emitted a further 6 MtCO2, though there is a high degree of

uncertainty around the true value.

− Finally, rail freight powered by diesel locomotives emitted around 0.6 MtCO2 in FY 2017-18, or

around 28% of total 2 MtCO2 of direct rail emissions.

Freight transport CO2 emissions have remained broadly constant over the last decade. Figure 7 shows

freight transport emissions for HGVs, vans (estimated) and rail over the period 2006-2016. Over this period,

HGV emissions decreased slightly from 21 MtCO2 in 2006 to a low of 18 MtCO2 in 2011, before returning to

broadly their 2006 levels by 2016. The decrease is due to the reduction in freight volumes driven by the

contraction in economic output following the 2008 financial crisis.

Figure 7. Freight transport emissions have remained broadly constant over the last decade

Source: Vivid Economics; Department for Business, Energy & Industrial Strategy; Department for Transport

If CO2 emissions from freight transport are not addressed, they could increase a further 20% to 2050.

Department for Transport projections suggest that over the period to 2050, HGV traffic could increase by

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

MtCO2

HGVs Van freight Rail freight

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around 10% (from 15 billion vehicle miles in 2015 to 16.5 billion in 2050) and van traffic could increase by

around 50% (from 43 billion vehicle miles in 2015 to 65 billion in 2050). Projections for volumes of rail

freight are not available, but in the absence of a significant change in the share of freight carried by mode,

it is plausible that rail freight transport could increase at broadly the same rate as HGV transport, driven by

the overall projected increase in freight demand. Given this projected increase, if the CO2 intensity of

freight vehicles were to remain at the same level as today’s level (implying minimal improvements in the

fuel efficiency of transport technology, and no significant shift to alternative fueled vehicles), CO2

emissions from freight transport could increase by around 20%, from 27 Mt in 2016 to 31 Mt by 2050.

Figure 8. If unaddressed, CO2 emissions from freight transport could increase by around 20% by 2050

Source: Vivid Economics; Department for Business, Energy & Industrial Strategy

If unabated, CO2 emissions from freight transport could make up around 20% of allowed emissions in

2050. The Climate Change Act specifies that the UK’s greenhouse gas emissions should decrease by 80%

relative to 1990 levels by 2050. Greenhouse gas emissions in 2016 were 468 MtCO2e, a 41% reduction on

1990 levels of 794 Mt; the remaining 39% reduction would require emissions in 2050 160 MtCO2e. If freight

transport emissions continue unabated and rise to 31 MtCO2 in 2050, they would make up around 20% of

this total.

Near- or full-decarbonization of freight transport is likely to be needed to meet the UK’s climate targets.

It is unlikely that unabated freight emissions can be accommodated over the long term, due to the

challenges of reducing emissions in other sectors. To identify pathways to achieving this target, the

Committee on Climate Change developed three scenarios for emissions reductions in each sector, each

reflecting the range of potential cost and technical challenges of reducing GHG emissions specific to each

sector.

− Given extensive deployment of all but the most uncertain and challenging decarbonisation

measures (represented by the Stretch scenario), emissions in the power, buildings, transport,

2015 2020 2025 2030 2035 2040 2045 2050

MtCO2

HGVs Van freight Rail freight

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industry and non-CO2 sectors make up 185 Mt, and negative emissions technologies such as

bioenergy with carbon capture and storage would be needed to reduce emissions by a further 26

Mt to meet the 2050 target.

− Should barriers to decarbonization measures prove severe (represented by the Barriers scenario),

sectoral emissions could make up 244 Mt, requiring negative emissions technologies to deliver up

to 85 Mt of abatement.

− Only in the event of full take up of the most uncertain and challenging decarbonisation measures

(represented by the Max scenario) could emissions in the power, buildings, transport, industry and

non-CO2 sectors be low enough not to require negative emissions technologies.

Given the need for negative emissions technologies in all but the most ambitious scenario, it is highly

unlikely to be possible to meet the 2050 target at manageable cost without near- or full-decarbonization of

freight transport is likely to be needed to meet the UK’s climate targets.

2.3.2 Other pollutant emissions

Poor air quality is a serious risk in the UK. According to the UK Government, poor air quality is the largest

environmental risk to public health in the UK (Defra 2017). The Royal College of Physicians estimate that

around 40,000 deaths per year can be attributed to outdoor air pollution in the UK. Specific health

challenges linked to air pollution include cancer, asthma, stroke, heart disease, diabetes, obesity, and

dementia with the cost to individuals, business and the health services valued at over £20 billion per year

(Royal College of Physicians 2016).

Road traffic is a leading source of poor air quality. In 2016 total emissions of nitrogen oxides (NOx) were

around 920 kilotonnes (kt), of which road transport made up 430 kt (47%). NOx includes nitrogen dioxide

(NO2) and produces additional NO2 through subsequent chemical reactions. Total emissions of large

particulate matter (PM10) were around 145 kt, of which road transport made up 20 kt (14%).

However, nitrogen oxide and particulate matter from HGVs have decreased significantly, and further

decreases are expected. Figure 9 and Figure 10 show historical and projected NOx and PM10 emissions

from HGVs in the UK. This decrease in pollutant emissions has been achieved through improved vehicle

standards, and future standards are expected to decrease emissions further. Figure 11 shows the emissions

limits prescribed by the European emission standards (‘Euro Standards’) for heavy trucks between 1992

and 2013. The Euro Standards have required a 95% reduction in NOx emissions and a 97% reduction in PM

emissions over this period.

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Figure 9. Recent decreases in UK NOx emissions are expected to continue

Source: Department for Transport

Figure 10. Recent decreases in UK PM10 emissions are expected to continue

Source: Department for Transport

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120

140

160

180

200

2003 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050

NOx emissions from HGVs (kt)

Historical Projections

2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050

PM10 emissions from HGVs (kt)

Historical Projections

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Figure 11. Euro Standards have driven significant reductions in NOx and PM emissions since 1992.

Source: Vivid Economics, European Commission, International Council on Clean Transportation

2.4 Resilience of the UK freight system

We define freight system resilience is the ability to minimize the impact of a disruption to the freight

system. This is in line with a characterisation of supply chain resilience by McKinnon in a report for The

OECD International Transport Forum (McKinnon, 2014).

Resilience therefore has a number of dimensions. The resilience of a freight system will depend on the

probability of disruptions, the severity of those disruptions when they occur; ability to limit the short-term

impact of the disruption by exploiting alternative solutions, and ultimately the ability to resolve the

disruption and return to normal function.

There is a fundamental trade-off between efficiency and resilience. The efficiency of the freight system

under normal conditions can be improved by minimising redundancy. Therefore, freight efficiency implies

making maximal use of transport infrastructure, vehicles and drivers, so that unnecessary expenditure on

new infrastructure, vehicles and drivers can be minimised. However, resilience generally improved by

increasing redundancy, and having a degree of spare capacity across these resources to increase the range

of solutions to meeting freight transport demand in the event of a stress event affecting infrastructure,

vehicles or drivers.

Freight systems are exposed to a number of risks. Risks include infrastructure failures, fuel supply shocks,

extreme weather events, labour strikes and information failures. This section qualitatively examines the

resilience of the freight system with respect to each of these risks; and then considers the overall resilience

of the freight system in the context of improved efficiency and reduced redundancy.

8.0

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(1992)

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(1996)

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(2000)

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(2005)

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(2008)

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(2013)

g/kWh

NOx emissions limit

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2.4.1 Infrastructure failures

Infrastructure failures can have a significant economic impact. A number of failures in major infrastructure

assets have been reported in recent years. For example:

− The collapse of a bridge in Genoa, Italy in 2018 forced trucks to take longer routes, and affected

14,500 businesses including a major container port.

− Following the identification of cracks in the Leverkusen Bridge, Germany in 2012, heavy vehicles

were banned from the bridge; the disruption was severe given 14,000 trucks used the bridge each

day. The closure resulted in a 30km increase in the average journey length, and a 40 minute

increase in the average journey time, with commensurate impacts on fuel expenditure.

− In August 2017 the collapse of a new tunnel at Rastatt, Germany, resulted in the closure of the

Rhine Valley rail line. A study into the impact of the incident estimated that the total losses

incurred by rail freight operators, logistics companies and their customers as a result of the incident

amounted to more than €2bn. The figure includes losses of around €1 billion for the freight

operators, around €800 million for manufacturing industries (Hanseatic Transport Consultancy,

2018).

The high quality of UK transport infrastructure reduces but does not eliminate the probability of

infrastructure failures. Figure 12 below shows how the UK ranks relative to other European countries for

the Infrastructure component of the Logistics Performance Index compiled by the World Bank. The quality

of the UK transport infrastructure is one of the highest among European countries; only Germany, Sweden,

the Netherlands and Austria are considered to have higher quality infrastructure, and the UK performs

better than France, Italy and Spain on this measure. Nevertheless, two of the examples of infrastructure

failure cited above occurred in countries considered to have high quality infrastructure. Therefore, it is

important that the UK freight system should be capable of adapting to the failure of a key piece of

transport infrastructure should this occur.

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Figure 12. The UK’s transport infrastructure is of high quality

Source: World Bank

Infrastructure failures could increase in future due to the impacts of climate change. Climate change is

expected to increase the number and severity of extreme weather events in the UK. The direct impact of

these events on the freight system are discussed in section 2.4.3, below; in addition to these, extreme

weather events could also cause damage to infrastructure assets, increasing their probability of failure.

Sources of damage include damage to railway tracks and road surfaces from high levels of precipitation and

flooding; deterioration of road surfaces from extreme heat; and increases in freeze-thaw damage from

more frequent cold snaps.

2.4.2 Fuel supply shocks

Fuel supply shocks are uncommon, but can have severe economic consequences. Two oil supply shocks

occurred in the 1970s; in the 1973 oil crisis, prices increased 400% in a single year; in the second, prices

increased 100% in a year. The economic consequences of these crises for the UK were severe, though the

specific impact on the freight sector is unclear. While comparable oil price rises have occurred since the

1970s (most recently in the 2000s), these were not caused by supply shocks, and did not have comparable

economic consequences.

The UK has access to a diverse range of fuel sources, reducing the probability of fuel supply shocks. Figure

13 assesses the energy security of a range of countries based on their reliance on fuel imports, reliability

and diversity of fuel suppliers, magnitude of energy costs as a share of economic activity, and intensity of

energy use. The UK is assessed as having very low energy security risks, as a result of a high level of

diversity in its fuel supply, and low energy intensity.

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–infrastructure score

Highest quality

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Figure 13. The UK has very low energy security risks

Source: Global Energy Institute

In the event of a fuel supply shock, alternative solutions to deliver freight would be limited. As set out in

Section 3.4, diesel is the dominant fuel in road freight; 96% of vans and 99% of trucks are diesel vehicles.

Therefore, in the event of a fuel supply shock, alternative solutions to deliver freight would be limited. A

price spike could therefore result in some combination of an increase in product prices, and a reduction in

demand for freight and freight-intensive products. Some modal shift to rail (where fuel is a less important

component of overall costs) or efforts to improve operational efficiency could mitigate some of the impact

of the price spike on freight costs. Over a longer period of time, some structural transformation of the

freight system could reduce diesel consumption. Some decentralisation could take place, with less use of

large national consolidation centres and a greater role for consolidation and warehousing within urban

areas.

2.4.3 Extreme weather events

The UK road and rail networks are currently vulnerable to weather-related incidents. Weather-related

incidents are common in the UK. For example, the 2013/14 winter floods affected transport infrastructure

with many roads underwater, several villages only accessible by boat, and the South West railway disrupted

by flooding on the Somerset Levels. The contribution of weather-related events to delays on the road and

rail networks are shown in Figure 14 and Figure 15. On the road network, weather-related events currently

account for 11% of delays; of these, flooding is the most common cause of weather-related delays. On the

rail network, weather-related events currently account for 24% of delays; of these, snow and ice is the most

common cause of weather-related delays.

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Figure 14. Weather-related incidents account for 11% of delays on the road network

Note: Data based on incidents in England between 2006 and 2014

Source: UKCCRA 2017, RSSB (2015), Network Rail (2014), ASC (2014), CCC (2014)

Figure 15. Weather-related incidents account for 24% of delays to rail services

Note: Data based on incidents in England between 2006 and 2014

Source: UKCCRA 2017, RSSB (2015), Network Rail (2014), ASC (2014), CCC (2014)

Non

weather

incidents

89%

Weather

incidents

11%

Contribution of weather-related

incidents to delays on the road network

Heavy rain

(2%)

Snow and

ice (16%)

Wind

(25%)

Flooding

(57%)

Heat (2%)

Lightning

(5%)

Flood

(20%)

Wind

(22%)

Snow and

ice (30%)

Non weather

incidents

76%

Weather

incidents

24%

Contribution of weather-related incidents to

delays on the rail network

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Vulnerability to weather-related incidents could increase with climate change. Climate change is expected

to increase the number and severity of extreme weather events in the UK. The impact of these events on

infrastructure assets are discussed in section 2.4.1, above; in addition to these, extreme weather events

could also directly disrupt the operation of the freight system. Incidence of flooding, buckling of rail lines

due to heat stress, and hazardous conditions due to winter storms could all increase.

2.4.4 Labour strikes

If drivers exercise market power, the impact on the freight system can be severe. In the UK, labour action

has caused severe disruption to the UK freight system on two occasions: the 1979 truck drivers’ strike, and

the September 2000 fuel protest.

− 1979 UK truck drivers’ strike. In 1979 a large number of truck drivers carried out a labour strike

and disrupted freight flows in an attempt to secure a wage increase. This action severely

constrained food movements at the upper levels of the supply chain, though retailers held

sufficient inventories to limit the extent of disruption to consumers (McKinnon, 2006).

− 2000 UK fuel protest. In 2000, groups of hauliers and farmers blockaded oil refineries and fuel

distribution depots and blocked major roads in protest at increases diesel prices. Disruption was

severe: within two days, around half the UK’s petrol stations ran out of fuel and within five days (as

the protests were ending), much of the manufacturing sector was about to close-down, serious

food shortages were developing and hospitals were beginning to offer only emergency service. It is

estimated that around 10% of industrial output, valued at (£250 million per day), was lost over this

period (McKinnon, 2006).

− 2018 France rail labour strike. In Spring 2018 a large number of rail workers carried out a strike

over a 36 day period in protest at the Government’s plans to implement cost cutting measures at

the state-run SNCF rail company. The total cost of the strike to SCNF is estimated at €790m overall,

including a reduction in turnover for freight transport of €60m, and estimates of wider costs

include a €5-20 per tonne increase in cereal prices due to the higher costs of alternative freight

transport options.

History demonstrates that the UK freight system is vulnerable to labour action, though union

membership has declined over the past two decades. Precise figures for overall membership of trade

unions in the freight sector are not available. In the UK as a whole, around 24% of the labour force is a

member of one or more unions, close to the average level for OECD countries. Membership of trade unions

in the transportation and storage sector is higher than the UK average, though has fallen significantly over

the last two decades. Over the period 1995 and 2017, membership of trade unions in the transportation

and storage sector has fallen from 51% in 1995 to 36% in 2017. However, the UK fuel protest occurred

without union involvement.

2.4.5 Information failures

Growing digitalisation in the freight sector is increasing vulnerability to failures in information systems.

Cyber-attacks are one cause of information system failure. In June 2017 a major ‘ransomware’ cyber-attack

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dubbed ‘NotPetya’ crippled IT systems of thousands of large businesses around the world. A number of

freight companies were affected:

− The attack disabled the IT systems of parcel firm TNT, which began processing shipments by hand.

It is estimated that the attack cost TNT $300m in lost earnings, and the share price of TNT’s parent

company FedEx fell 3% following the attack.

− The attack also forced Danish shipping group Maersk to halt operations at 76 port terminals, and to

redirect ships to alternative locations, at a similar estimated cost of $300m.

The increasing use of telematics in vehicle technology could heighten vulnerability of the freight system

to cyber-attacks. Telematics is the use of satellite navigation, mobile communications and information

processing technologies in road vehicles. Telematics is underpinning the development of connected and

autonomous vehicles, an emerging technology that could allow vehicles to function without a driver.

Telematics raises the prospect that freight vehicles themselves could be subject to cyber-attacks, causing

major disruptions to the freight system. While no organisation could be free from the risk of such cyber-

attacks, small and medium-sized freight firms are considered to be the most vulnerable as they as are less

likely to have the specialise IT staff needed to manage these risks.

2.4.6 Overall resilience

The risks faced by the UK freight system are changing. Some risks are likely to decrease in future. A shift to

alternative-fuelled vehicles will reduce the risks of fuel supply shocks, and a shift to connected and

autonomous vehicles could reduce the vulnerability of the freight system to labour action. However, other

risks are likely to increase. Risks of infrastructure failure and extreme weather events could increase with

climate change, and risks associated with information failures could increase as the digitalisation increases

the reliance of the freight system on complex information networks and exposes it to vulnerability from

failures in IT systems or cyber-attacks.

Improvements in freight efficiency are likely to have reduced the resilience of the freight system. As

described in Section 3, the freight system has evolved under commercial pressures to minimise

unnecessary cost. An important trend has been the reduction in inventories held by firms, driven by high

cost of warehouse space in urban areas. The average number of firms rotated their inventories in the

manufacturing, wholesale and retail sectors has increased from 7.2 times per year in 1986 to around 12

times per year by 2004 (McKinnon, 2006). As a result the reduction in inventories, firms are increasingly

reliant on the reliability of the freight transport system to deliver goods when needed, and therefore

increasingly exposed to disruptions in the reliability of that system.

A comprehensive review of freight system resilience is needed to identify the appropriate balance

between efficiency and resilience. As resilience requires a degree of redundancy in freight system assets

(warehousing, infrastructure, vehicles and drivers) there is a trade-off between efficiency and resilience.

Given the importance of the freight system in the economy, a careful judgment must be made about what

trade-off is appropriate. Further, the risks to the UK freight system are difficult to quantify, and are

constantly evolving. Therefore, a comprehensive review of freight system resilience is needed to ensure

that the freight system remains efficient while securing it against future risks.

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3 Drivers of efficiency

Key messages:

⎯ In response to cost pressures, the UK freight system has evolved a centralised structure,

resulting in increased travel distances and CO2 emissions. However, given the urgent priority

of shifting to alternative fuelled vehicles, there is no clear environmental case to move to a

more decentralised model.

⎯ At the regional level, freight distribution centres are typically located far from customers in

urban areas, resulting in greater vehicle movements and associated congestion. Location of

freight distribution centres inside urban areas would reduce freight’s contribution, and

exposure, to congestion.

⎯ While the majority of UK freight is carried by road, rail is inherently more energy-efficient and

lower-emitting. However, given the urgent priority of shifting to alternative fuelled vehicles,

there is no clear environmental case to incur the costs of delivering a higher share of rail

freight.

⎯ The UK’s road and rail network capacity is strained by high levels of transport demand, giving

rise to congestion. While some infrastructure investment may be needed to mitigate

congestion, overall demand management is likely to provide a more cost-effective solution

than a large-scale infrastructure investment programme.

⎯ UK road and rail freight are predominantly powered by diesel; a shift to alternative fuel

vehicles will be needed over the long-term.

⎯ Key message: the UK freight system has taken advantage of the cost and environmental

benefits offered by larger HGVs. The efficiency benefits of reducing restrictions in vehicle size

are highly uncertain, and this is not an urgent policy priority.

⎯ Van use is growing significantly and contributing to congestion, and its role in freight is poorly

understood. Further work is needed to understand the role of policy in driving efficient use of

vans within the freight system.

⎯ UK levels of empty running and part-loading are moderate; initiatives to reduce empty running

and part-loading to date suggest some limited opportunities to improve performance.

⎯ Utilisation of the road network is highly inefficient, leading to high levels of congestion. Road

pricing could be an effective policy instrument to manage congestion.

3.1 Spatial organisation

The UK freight system is relatively centralised. Goods are often not shipped directly from the origin (point

of production or import) to the destination (retailer or customer). Rather, goods are typically taken to large

centralised consolidation centres, sometimes distant from both origin and destination, where they are

stored and sorted to enable efficient onward distribution. The typical sequence of freight distribution

involves three phases (DfT, 2008):

⎯ Primary distribution, in which freight is moved from its point of production or import to a primary

consolidation centre;

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⎯ Secondary distribution, in which freight is moved from the primary consolidation centre to a

regional distribution centre; and

⎯ Tertiary distribution, in which freight is moved from the regional distribution centre to a retailer or

customer.

Centralisation therefore occurs at both the inter-regional and regional levels: at the inter-regional level,

centralisation occurs through the use of national primary distribution centres rather than transporting

freight directly to its destination regions; and at the regional level, centralisation occurs through the use of

regional distribution centres rather than more decentralised consolidation closer to customers. This section

discusses the implications of centralised consolidation at the inter-regional and regional levels for freight

efficiency.

3.1.1 Centralisation of freight at the inter-regional level

At the inter-regional level, centralisation occurs through the use of national primary distribution centres

rather than transporting freight directly to its destination regions. The East and West Midlands is the most

important region for freight consolidation in the UK. These regions account for the largest share of inter-

regional road freight transport: 27% of inter-regional freight is transported to these regions, and 29% of

inter-regional freight originates in these regions (Department for Transport, 2017). They also account for

around 30% of the UK’s total warehouse space (United Kingdom Warehousing Association, 2015), and

include very large warehouse developments, typically 30,000m

and as large as 75,000m

suitable for large-

scale freight consolidation (Chartered Institute of Logistics and Transport, 2014).

It is likely that the UK’s system of centralised freight has resulted in longer travel distances and higher

CO2 emissions. Transporting freight to national consolidation centres before onward distribution to its final

destination increases the distance freight is moved. Figure 16 shows that between 1990 and 2017 the

average length of haul has increased around 25%, from around 80 km in 1990 to around 105 km in 2017.

Figure 17 shows that average length of haul in the UK is one of the highest among European countries, and

is significantly higher than in other countries of comparable size (in Spain, which has twice the land area of

the UK, average length of haul is only around 5% higher). Given transport CO2 emissions are driven by

distance travelled, it is likely that the UK’s system of centralised freight has resulted in higher CO2

emissions. It is less likely to have resulted in significantly higher levels of congestion, as these occur

predominantly in urban areas.

The value of freight

Figure 16. The average length of haul has increased around 25% between 1990 and 2017

Source: Vivid Economics, Department for Transport

Figure 17. The average length of haul in the UK is one of the highest among European countries

Source: Vivid Economics, Eurostat

100

120

1990 2000 2010 2017

Average length of haul (km)

Belgium

Czech Republic

Denmark

Germany

Ireland

Greece

Spain

France

Italy

Netherlands

Austria

Poland

Portugal

Sweden

United Kingdom

Norway

100

120

140

0 100 200 300 400 500 600 700

Average length of haul (km)

Total area (million km

)

The value of freight

There is some evidence that the trend towards increasing centralisation has slowed or reversed. The

dominance of the Midlands as a location for warehousing has declined: in the period 1996-2000, 44% of

new warehousing developments (by floor area) were located in the Midlands; while by 2006-2010 this

figure had dropped to 33% (Baker and Sleeman, 2011). The drivers of this shift are not clear, but may

include shortages of suitable sites or skilled labour or rising fuel prices. They may also include the emerging

trend of port-centric logistics, which involves locating warehousing at or close to major ports to reduce

overall transport costs. The port-centric logistics model has gained favour in recent years; for example,

Asda and Tesco have both opened large import centres at Teesside (Baker and Sleeman, 2011), and in 2013

DP World has completed development of the London Gateway port, comprising a deep-sea container

terminal and warehousing and distribution facilities.

Although centralised freight increases travel distances and CO2 emissions, it may contribute to

minimising the total market costs of the freight system. The driving force behind centralisation has been

the lower cost of small numbers of large warehouses in a centralised system, relative to the costs of large

numbers of small warehouses in urban areas, as a result of both lower land prices and economies of scale

in consolidation activities. Offsetting this cost saving is an increase in the costs of transportation arising

from the greater travel distances in a centralised freight system. It is likely that decisions driving the current

centralised spatial organisation of the freight system were made in order to minimise the total market cost

of transporting, consolidating and distributing freight to customers.

Given the urgent priority of deep decarbonisation of road freight by shifting to alternative fuelled

vehicles, the case for reducing centralised freight consolidation is not clear. Section 3.3 explains the need

for near- or full-decarbonization of freight transport to meet the UK’s climate targets, and identifies

alternative fuelled vehicles as the key solution to achieve this outcome. Given that reducing centralised

freight consolidation in order to reduce volumes of freight transport cannot achieve near- or full-

decarbonization of freight transport; and that achieving near- or full-decarbonization through a shift to

alternative fuelled vehicles would erode the environmental benefits of reducing centralised freight

consolidation, the case for incurring the additional costs of a more decentralised system is not clear.

3.1.2 Centralisation of freight at the regional level

The freight system is also relatively centralised at the regional level. Typically, following primary

distribution in which freight is moved from its point of production or import to a primary consolidation

centre, it is then moved to a regional distribution centre, usually located outside the urban areas that it

serves, where it is further consolidated before being distributed to retailers and other customers within the

urban areas.

Regional centralisation increases the number of vehicle movements, increasing CO2 emissions and

contributing to congestion.

− Due to the difficulties of operating large freight vehicles in urban areas, freight distribution to

customers in urban areas is typically carried out in smaller vehicles, requiring a larger number of

vehicles for freight delivery.

The value of freight

− If the freight were consolidated within the urban area, the distances travelled by these vehicles

would be small.

− Consolidation of freight at regional distribution centres outside the urban area therefore results in

small vehicles travelling longer distances.

− The result of this pattern of freight distribution is an increase in transport costs, in CO2 emissions,

and in urban congestion.

Urban consolidation centres are an alternative approach to final distribution. An urban consolidation

centre (UCC) is a consolidation and distribution centre situated close to the urban area that it serves. The

use of an urban consolidation centre allows freight from national or regional distribution centres to be

transported close to the customer in large vehicles before final distribution in smaller vehicles over short

distances. Consolidating freight within urban areas significantly reduces the distances travelled by small

freight vehicles, relative to consolidating freight at regional distribution centres outside urban areas. Urban

consolidation centres are therefore expected to reduce transport costs, greenhouse gas emissions, and

congestion.

However, the costs and benefits of urban consolidation centres are poorly understood. The Transport

Systems Catapult reviewed four successful implementations of UCCs in the UK (Heathrow; Regent St; Bristol

Broadmead; Bristol-Bath Freight) and concluded that all four UCCs have delivered significant reductions in

freight travel. In two UCC schemes (Heathrow and Regent St) participation was mandatory, and enforced by

the customer. In the other two (Broadmead and Bristol-Bath) participation was limited, suggesting that

costs to the freight operators outweigh the benefits of scheme participation. Further work is needed to

understand the barriers to voluntary use of urban consolidation centres, and determine the prospects for

UCCs to reduce the contribution to and exposure of freight to congestion.

The current pattern of regional centralisation may be driven by a combination of market forces and

market failures, both of which need to be considered when comparing alternatives. Regional

consolidation may represent an efficient trade-off of transport, and rural and urban warehousing land costs

by freight operators and customers. However, regional consolidation may also be driven by inadequate

allocation of urban land, and the failure to account for the wider social costs of congestion in making

location decisions for distribution centres, and commercial and cultural barriers to load consolidation.

A shift to freight consolidation within urban areas would require reforms to the land use planning

system. Land use in the UK is governed by the National Planning Policy Framework (NPPF), which governs

planning new development at the at the local planning authority level. Currently, the NPPF does not

provide for the strategic planning of freight sites or other infrastructure, including the allocation of land for

freight distribution inside urban areas.

Allocating land for freight distribution inside urban areas could reduce the contribution to and exposure

of freight to congestion, though further work is needed to understand the costs and benefits of

intervention. Allocating land for freight distribution inside urban areas has both costs and benefits. The

costs include the opportunity cost of urban land, and in particular housing land whose scarcity and value is

signalled by the very high house prices prevailing in London and the South-East of England. The benefits

The value of freight

include a reduction in the contribution to and exposure of freight to congestion. A comprehensive impact

assessment would identify the costs and benefits of allocating urban land to freight uses would be needed

is needed to establish the case for strong action on modal shift.

3.2 Modal share

The majority of UK freight is carried by road. In 2015, 88% of freight was carried by road, and 12% by rail.

Minimal volumes of freight are carried by inland waterway. Road plays a more dominant role in the UK

freight system than in other European countries; across the EU as a whole, 75% of freight was carried by

road, 18% by rail and 6% by inland waterway. In some European countries, rail plays a much more

significant role, with a modal share of 52% in Estonia, 66% in Lithuania and 80% in Latvia (Eurostat, 2018).

Road and rail freight are suited to different types of load. Road and rail freight possess different

characteristics, which determine the costs and benefits of their use in moving different types of load. First,

rail freight involves significantly larger investments than road freight: The average train load is around 300

tonnes, and trains can cost several millions of pounds, while the largest road freight vehicle has a carrying

capacity of 44 tonnes, and costs around £100,000 (University of Westminster, 2010). Second, rail is highly

capital-intensive, with the locomotive and carriages making up much of the cost, while road freight is less

capital-intensive, with fuel costs typically making up a significant (one third) share of total costs. Third, rail

vehicles are also highly modular such that the cost of additional capacity (the addition of an extra carriage)

is relatively low, while with road freight additional capacity requires the costly investment in additional

vehicles and drivers.

As a result, rail is ideally suited to carrying longer distances, and road to shorter distances. Over short

distances, where variable costs are limited, road freight has an advantage due to its low capital costs. Over

long distances, where variable costs can be significant, rail freight has an advantage due to its high energy

efficiency and low fuel costs. Figure 18 shows the average length of haul of road and rail freight in the UK,

and in other European countries. In the UK, the average length of haul of rail freight (around 225km) is

around twice that of road freight (around 110km). In other European countries, the difference is even

greater, with the average length of haul of rail freight around three times that of road freight in Germany,

France, Spain and in the EU as a whole.

The value of freight

Figure 18. Mode choice is highly dependent on length of haul

Source: Vivid Economics, Eurostat

Rail has also historically been suited to large volumes of homogenous loads, while road has been suited

to a wider range of loads. Due to the high capital costs of rail freight vehicles, their large capacity and the

low cost of increasing capacity by increasing the number of carriages, rail freight has historically been

better suited to goods that can be transported in large volumes. Historically such goods have been

commodities (such as coal, aggregates, and metals), though other homogenous products such as

automobiles and containerised loads are also suited to rail freight, and the rail freight market for these

products has grown in recent years. In contrast, road freight is better suited to a wider range of goods that

are transported in smaller volumes. Road is therefore better suited to finished goods. Figure 19 illustrates

how the share of rail freight varies by type of product carried, with goods for which rail has a significant

mode share tending to be commodities (and likely containerised loads, described in the Eurostat data as

‘other’ and ‘unidentifiable’).

100

150

200

250

300

350

400

Germany France United Kingdom Spain EU-27

Average length of haul (km)

Road freight Rail freight

The value of freight

Figure 19. Mode choice is highly dependent on the type of product moved

Source: Vivid Economics, Eurostat

However, rail freight is inherently more energy-efficient and lower-emitting. In 2017, CO2 emissions from

HGVs were around 138 gCO2 per tonne km, while CO2 emissions from rail freight were around 33 gCO2 per

tonne km (The Office of Rail and Road, 2018). CO2 emissions from road freight are therefore only a quarter

those of road freight.

At moderate distances, road and rail may offer comparable cost and quality. Although road freight is

generally more competitive at short distances and rail freight at long distances, at moderate distances road

and rail may offer comparable cost and quality. The distance at which such a shift may be possible will

depend on multiple factors including the goods to be moved, congestion levels, infrastructure quality and

availability, and availability of backhaul flows (University of Westminster, 2010). Harris & McIntosh (2003)

estimate that ‘rail generally has difficulties competing for distances of less than 160 kilometres’, though

they emphasise that there are instances where rail is competitive at much shorter distances, and where it is

not competitive at longer distances.

There may be some opportunities to shift freight from road to rail. Figure 20 shows the composition of

road freight, by distance moved. Around 35% of road freight tonne km is accounted for by distances shorter

than 150km, and is unlikely to offer significant opportunities to shift from road to rail. A further 25% of road

freight tonne km is accounted for by product categories for which rail has a less than 1% mode share, and

that may be fundamentally poorly suited to transportation by rail. The remaining 40% of road freight tonne

km is accounted for by distances greater than 150km, and product categories for which rail has at least a

1% mode share, suggesting some potential to shift from road to rail. A more conservative assessment,

considering only road freight carried distances greater than 300km and product categories for which rail

10%

20%

30%

40%

50%

60%

70%

80%

Rail mode share (%)

Finished products Commodities

The value of freight

has at least a 5% mode share, suggests that there may be some potential to shift from road to rail for

around 16% of road freight.

Figure 20. There may be an opportunity to shift from road to rail in some freight market segments

Source: Vivid Economics, Eurostat

Investment in rail infrastructure could shift freight from road to rail, though the cost is uncertain. In a

study commissioned by the Department for Transport, Arup/AECOM investigated the policy measures

required to realise potential for modal shift from road to rail. Arup/AECOM identified a range of measures

to increase the modal share of rail, and selected from these a package of the leading interventions thought

most valuable in the views of the expert team. These measures include a programme of capacity and gauge

enhancements, building new rail terminals; a series of network enhancements targeted at commodities for

which demand for rail freight is expected to grow; a programme of investment in new rail terminals and a

programme of financial assistance for the rail freight sector. Arup/AECOM estimated that these measures

have the potential to shift around 20% of road freight to rail, reducing the share of road freight to 70% and

increasing the share of rail freight to 30%. However, while some information of the costs of these projects

is given, full lifetime costs are not provided, so further work is needed to estimate the cost-effectiveness of

the measures needed to drive such levels of modal shift.

Given the urgent priority of deep decarbonisation of road freight by shifting to alternative fuelled

vehicles, the case for incurring the costs of delivering a higher share of rail freight is not clear. As it is

highly unlikely that the share of rail in freight transport could be increased to levels that deliver deep

decarbonisation of freight transport, a shift to alternative fuelled vehicles is therefore an urgent priority for

the road freight sector. Under such an outcome, the advantages of a higher share of rail freight are not

clear. A comprehensive impact assessment, identifying the costs and benefits of delivering a higher share of

Less than 50

From 50 to

149 km

From 150 to

299 km

From 300 to

499 km

Over 500km

Freight moved (million tkm)

Length of haul

Legend Rail share Product categories

10-30% Unidentifiable goods; grouped goods

>20% Non metallic minerals; coal, petroleum, natural gas

10-20%

Coke and refined petroleum; metals and metal

products

5-10%

Secondary raw materials; wastes; mining and

quarrying; chemicals; nuclear fuel

1-5%

Mail, parcels; agriculture, forestry, fishing; machinery

and equipment; transport equipment

<1%

Textiles and leather; wood, paper, media; furniture

and other manufactured; transport equipment and

material; removals and vehicles for repair; food,

beverages, tobacco

More likely to be

suitable for shift

to rail

The value of freight

rail freight in the context of a shift to alternative fuelled vehicles is needed to establish the case for strong

action on modal shift.

3.3 Physical infrastructure

3.3.1 Road infrastructure

Given the volume of UK freight and passenger transport, the UK’s road network is relatively small. Figure

21 shows the length of the motorway network in the UK and other European countries. Overall, countries

with large levels of freight and passenger demand have large motorway networks to accommodate this

demand. For both freight and passenger transport, the UK motorway network is relatively small compared

to countries with comparable levels of transport demand. For example, the UK has roughly similar levels of

freight transport demand to France (around 150 billion tonne km per year), but only around one third of

the motorway network (around 4000 motorway km in the UK, relative to around 12,000 in France).

Similarly, the UK has higher levels of passenger transport demand than Spain (around 700 billion passenger

km per year in the UK, relative to around 400 billion in Spain), but only around one quarter of the

motorway network (Spain’s motorway network is around 15,000 motorway km).

Figure 21. The UK motorway network is small relative to freight and passenger transport demand

Source: Vivid Economics, Eurostat

Furthermore, road freight must compete with high levels of passenger demand for use of the network.

Figure 22 shows the level of road freight and passenger transport which the motorway network must

accommodate in the UK and other European countries. For both freight and passenger transport, there is

considerable variation in utilisation of the network. For freight transport, the UK motorway network has

moderate levels of utilisation – significantly higher than Spain, France and Germany, but lower than Poland,

Czech Republic

Germany

Spain

France

Netherlands

Poland

Portugal

Sweden

United

Kingdom

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

0 100,000 200,000 300,000

Length of motorway (km)

Freight transport (Million tonne-km)

Freight transport

Czech Republic

Germany

Spain

France

Croatia

Italy

Austria

Poland

United

Kingdom

Turkey

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

0 200,000 400,000 600,000 800,000 1,000,000

Length of motorway (km)

Passenger transport (Million passenger-km)

Passenger transport

The value of freight

for example. However for passenger transport, the UK has the highest level of motorway network

utilisation in Europe, and more than double levels in France and Germany.

Figure 22. Utilisation of the UK motorway network is moderate for freight, but high in Europe for passenger

transport

Source: Vivid Economics, Eurostat

It is likely that the UK’s high levels of road congestion is determined in large part by its limited road

capacity relative to traffic levels. Congestion is partly determined by the capacity of the road network and

the overall quantity of traffic. As set out in Section 2.2, road congestion in the UK is among the highest

across European countries; and the UK road network is relatively small given the volumes of freight and

passenger transport it must accommodate.

However, investment in new road capacity alone is a poor solution to congestion. Investment in new road

capacity alone is unlikely to represent a cost-effective solution to road freight congestion, for several

reasons.

⎯ First, as described above and in section 3.3, congestion is primarily driven by passenger transport.

Therefore, passenger transport is likely to be the primary beneficiary of investment in new road

capacity.

⎯ Second, there is strong evidence that the impacts of new road capacity on congestion is limited by

induced demand. Induced demand occurs when investment in new road capacity results in an

increase in overall traffic, as new sources of travel demand take advantage of the greater

convenience delivered by the new capacity. The existence of induced demand has been widely

accepted since a review by the Department for Transport Standing Advisory Committee on Trunk

Road Assessment (SACTRA) in 1994 (Department for Transport, 1994), and more recent evidence

has continued to validate its impact (WSP, 2018).

100

150

200

250

Switzerland

Croatia

Portugal

Ireland

France

Spain

Austria

Italy

Sweden

Slovenia

Germany

Netherlands

Hungary

Finland

United Kingdom

Norway

Estonia

Luxembourg

Bulgaria

Czech Rep.

Slovakia

Romania

Lithuania

Poland

Road freight per km motorway (million tonne

-km)

Freight transport

100

120

140

160

180

200

Macedonia FYR

Slovakia

Bulgaria

Croatia

Spain

Romania

Austria

Switzerland

France

Germany

Finland

Czech Rep.

Italy

Lithuania

Turkey

Norway

Poland

United Kingdom

Passenger travel per km motorway (million passenger

-km)

Passenger transport

The value of freight

⎯ Third, congestion is also partly determined by efficiency with which traffic uses the network, in

terms of the time of day and specific routes. Frequently, opportunities to vary these factors

represent a more cost-effective way to address congestion than new transport infrastructure

investments that are only needed at peak times.

There may be a case for new investment in discrete transport schemes as part of a wider package of

measures to reduce congestion. While an overall increase in new road capacity is unlikely to be cost-

effective due to induced demand and the high cost of investing in infrastructure that is only needed at peak

times, it is possible that there are specific sections of the road network where congestion is severe, occurs

over a wide time window, and where opportunities to reduce demand are limited. In such cases,

investments in new capacity may be cost-effective.

3.3.2 Rail infrastructure

The UK’s rail network is fairly extensive for the volume of freight transport, but relatively small for the

volume of passenger transport. Figure 23 shows the length of the rail network and the level of freight and

passenger demand in the UK and other European countries. For freight transport, the UK rail network is

fairly extensive compared to countries with comparable levels of transport demand. For example, the UK

demand for rail freight is around half that of France (around 17 billion tonne km per year in the UK, relative

to around 33 billion in France), but the rail network in both countries is of comparable size (around 30,000

track km). However, for passenger transport, the UK rail network is relatively small. For example, UK

demand for passenger transport is around 70% that of Germany (67 billion passenger km per year in the

UK, relative to 95 billion in Germany), but the rail network is less than half the size (31 billion track km in

the UK, relative to around 68 billion in Germany).

The value of freight

Figure 23. The UK rail network is extensive relative to freight transport demand, but small relative to passenger

transport demand

Source: Vivid Economics, Eurostat

Therefore as with road freight, rail freight must compete with high levels of passenger demand for use of

the network. Figure 24 shows the level of road freight and passenger transport which the rail network must

accommodate in the UK and other European countries. For freight transport, the UK rail network has

relatively low levels of utilisation – significantly lower than Germany, but higher than Spain and France.

However for passenger transport, the UK rail network has very high levels of utilisation, though the rail

network in other countries (for example, Denmark, Netherlands and Switzerland) have higher levels.

France

Germany

Italy

Poland

Spain

Sweden

United

Kingdom

10,000

20,000

30,000

40,000

50,000

60,000

70,000

0 20,000 40,000 60,000 80,000 100,000 120,000

Length of rail tracks (km)

Freight transport (Million tonne-km)

Freight transport

Czech Republic

Germany

Spain

France

Italy

Poland

Portugal

Sweden

United

Kingdom

Norway

10,000

20,000

30,000

40,000

50,000

60,000

70,000

0 20,000 40,000 60,000 80,000 100,000

Length of rail tracks (km)

Passenger transport (Million passenger-km)

Passenger transport

The value of freight

Figure 24. Utilisation of the UK rail network is low for freight, but very high for passenger transport

Source: Vivid Economics, Eurostat

Much of the UK rail network is relatively poorly suited to freight. The Department for Transport sets an

objective that the Strategic Freight Network (the portion of the UK rail network comprising the most

important freight routes) should a have a loading gauge of at least W10 standard, i.e. capable of

accommodating deep sea containers (Department for Transport, 2009). At present, only 16% of the current

network meets this standard; and loading gauges are low by international standards (McKinnon, 2018).

However, the UK network performs well with respect to axle loads: 85% of the current network is capable

of accommodating axle loads of 22.5 tonnes, and therefore meets the European Commission’s objective

Trans-European Transport Network (TEN-T) objectives that all of the Core Freight Network (the portion of

the complete European rail network comprising the most important nodes for freight) should be capable of

accommodating axle loads of 22.5 tonnes by 2030 (Network rail, 2017).

Rail offers poorer connectivity than road. Road has a major advantage relative to rail in that the road

network connects individual premises and the rail network does not. In order to use the rail network,

freight operators must transport freight by road from its origin to the closest rail terminal where it begins

its rail journey, and then from the terminal where it ends its rail journey to its final destination. The process

of unloading and loading involves transaction costs that are not faced by road. Intermodal terminals

provide one solution to reducing these transaction costs (though do not eliminate them entirely); however,

in the UK the number of intermodal terminals is small (excluding ports, there were only 36 intermodal

terminals in 2017; McKinnon, 2018).

Some population centres have no access to rail, though their number is small. Some commentators argue

that the UK’s rail network is inadequate. For example, Arup/AECOM argue that following closure of sections

of the rail network between the 1960s and 1980s, the UK rail network currently ‘has a significantly impaired

Lithuania

Estonia

Croatia

Romania

Slovenia

Latvia

Bulgaria

Greece

Turkey

Poland

Finland

Czech Rep.

Hungary

Slovakia

Sweden

Norway

Germany

Luxembourg

Portugal

Spain

Belgium

France

United Kingdom

Italy

Austria

Denmark

Netherlands

Switzerland

Road freight per rail track km (million passenger

-km)

Passenger transport

Greece

Croatia

Bulgaria

Spain

France

Romania

United Kingdom

Hungary

Italy

Luxembourg

Norway

Turkey

Czech Rep.

Portugal

Denmark

Finland

Belgium

Sweden

Poland

Germany

Slovenia

Netherlands

Estonia

Slovakia

Switzerland

Austria

Lithuania

Latvia

Road freight per rail track km (million tonne

-km)

Freight transport

The value of freight

capability compared to many developed European countries’, and point out that the town of Washington in

County Durham, a major automotive manufacturing location with a population over 50,000, has no direct

rail access. However, the number of large towns with no direct rail access is small, comprising Oldham

(Greater Manchester), Gosport (Hampshire), Dudley (West Midlands) and Newcastle-under-Lyme

(Staffordshire); of these towns, only Washington, Oldham and Newcastle-under-Lyme are located in areas

that generate or receive substantial freight volumes. It is therefore unlikely that absence of rail stations in

some towns could the account for the failure of the rail network to achieve a higher share of freight

transport.

3.4 Network utilisation

Network utilisation is an important determinant of congestion. While congestion is partly determined by

the capacity of the road network and the overall quantity of traffic, it is also partly determined by efficiency

with which traffic uses the network, in terms of the time of day and specific routes.

It is likely that passenger transport is the primary driver of congestion. Passenger transport is responsible

for the majority of network use, and predominantly uses more congested roads. Figure 25 shows the share

of traffic by mode on motorways, major roads and minor roads. Cars account for the majority of traffic on

all types of road (73% of the traffic on motorways, 76% on major roads and 81% on minor roads). Further,

travel on motorways (where congestion is lowest) accounts for only 32% of car traffic, while travel on other

major and minor roads (where congestion is highest) accounts for 68% of car traffic. Passenger transport is

also more concentrated around peak times. Figure 26 shows the share of traffic for all modes, and for cars,

vans, and HGVs, in each hour during weekdays. On weekdays, there is minimal traffic during the night; peak

times for all traffic (when congestion is at its highest) occurs in the morning between 8am and 10am, and

again in the evening between 5pm and 6pm; and there is a lull in the middle of the day between the two

peaks. The profile of car traffic closely matches that for all traffic, with minimal traffic during the night; and

similar peaks and mid-day lull. The evening peak for car traffic is more pronounced than for overall traffic,

indicating that car traffic contributes disproportionately to congestion at these times.

Freight transport contributes less to congestion, and is less exposed to its impacts. In contrast to

passenger transport, freight transport is responsible for only a small share of network use, and

predominantly uses less congested roads. Figure 25 shows that HGVs account for the minority of traffic on

all types of road (11% of the traffic on motorways, 7% on major roads and only 1% on minor roads); and

that a greater share of HGV travel occurs on less congested motorways, and a smaller share on more

congested major and minor roads. Freight transport is also less concentrated around peak times. Figure 26

shows that relative to other modes, HGVs have greater levels of traffic during the night, and no morning or

evening peaks or mid-day lull; instead, traffic levels are relatively uniform between 8am and 5pm. It is clear

that HGV traffic contributes disproportionately less to congestion during the morning and evening peak.

Vans contributes significantly to congestion, though their role in freight is unclear. Vans are responsible

for a significant share of network use, and predominantly use more congested roads. Vans account for

around a 15% of traffic on motorways, and around 30% on major and minor roads; and van transport, like

cars, is concentrated around peak times; indeed, the morning peak in van traffic is more pronounced than

the peak for cars.

The value of freight

Figure 25. HGVs account for the minority of traffic, and predominantly use less congested roads

Source: Vivid Economics, Department for Transport

Figure 26. HGVs contribute less to peak traffic than other modes

Source: Vivid Economics, Department for Transport

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Motorways All major roads All minor roads

Share of traffic

Cars Vans HGVs Other

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

% of daily traffic in each hour

Hour

All traffic Cars Vans HGVs

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In passenger transport, a range of options are available to reduce congestion. In passenger transport,

congestion could be reduced through some degree of shift to public transport or active travel (walking and

cycling); varying travel times to avoid the most congested periods; selecting less congested routes; or

selecting alternatives to travel. Analysis by the Department for Transport in 2004 based on the National

Travel Survey indicated that around 20% commuters who travel by car or motorcycle in peak hours would

find it relatively easy to change either mode or time of travel because alternatives to their current travel

are capable of fitting in with their lifestyle needs (Department for Transport, 2004; unfortunately, more

recent National Travel Survey figures are not available). There is also likely to be scope to increase car

occupancy; currently 71% of cars and vans in the morning peak period in cities have a single occupant,

suggesting that efforts to increase car occupancy (for example, through car-sharing) could have a material

impact on congestion.

In freight transport, options to reduce congestion are more limited, but include modal shift to rail and

varying travel times. The potential to shift some road freight to rail is discussed in Section 3.2.

Arup/AECOM (2016) estimated that a package of measures could shift around 20% of road freight to rail,

though the costs of achieving such a shift are poorly understood. In principle, there is also scope to

reschedule deliveries to allow a higher level of night-time HGV traffic. Figure 26 shows that 18% of HGV

travel already occurs during the least congested period between 8pm and 6am. This level reflects a

significant shift in scheduling over the period 1985-2005, when the share of HGV travel occurring during

this window doubled from around 9% (McKinnon, 2018). However, this share has not increased further

over the last decade, suggesting that the barriers to greater shift in travel times are more significant.

Barriers such as noise associated with night-time deliveries in urban areas are likely to be a limiting factor.

Utilisation of the road network is highly inefficient, leading to high levels of congestion. Road pricing

could be an effective policy instrument to manage congestion. Road user charging is an economic

instrument to encourage drivers to make more efficient use of the existing road network by imposing a

charge that reflects the full social costs of their travel choices. Road pricing has the potential to reduce

congestion by encouraging alternative travel choices; these may include a change in the time of travel, the

mode of travel, the route selected or the level of vehicle occupancy. A modelling study on the impact of a

road pricing scheme in the UK found that road pricing could reduce congestion by 50%, with only a 2%

reduction in car travel (Department for Transport, 2006). However, empirical evidence on the impact of

road pricing schemes is limited and mixed. The London Congestion Charge initially reduced congestion by

30% following its introduction in 2002, but congestion subsequently rose, and by 2006 was only 8% lower

than pre-2002 levels. Other schemes have had a greater impact: Singapore’s Electronic Road Pricing

scheme reduced car traffic in the central business district by 73%; Stockholm’s trial congestion tax reduced

traffic by 22%, and was subsequently made permanent. To date, no country has a national road pricing

scheme in place.

A 50% reduction in congestion could deliver over £3 billion per year in freight cost savings. Section 2.3

estimated the cost of the road freight system at around £38 billion per year, or 2% of GDP, and estimated

that the costs of freight congestion could account for over £6 billion of this value (or around 0.3% of GDP).

A 50% reduction in congestion could therefore reduce the cost of road freight by over £3 billion per year.

The value of freight

Recently, technology has begun to improve the efficiency of road network utilisation. Active traffic

management is an approach to increase the effective capacity or the road network at peak times. It does

this by temporarily allowing use of hard shoulders for traffic, and the use of variable speed limits to smooth

traffic flows, and ‘ramp metering’ to regulate the entry of traffic onto congested roads. Active traffic

management uses technology to monitor traffic levels and identify the speed limit that will deliver the

smoothest traffic flow to reduce the severity of delays. Active traffic management has been in place in the

UK since 2006 (the M42 motorway); following an evaluation of this scheme several subsequent schemes

have been implemented under the ‘Smart Motorway’ system, and several new schemes are currently under

development.

3.4.1 Transport fuel and powertrain technology

Diesel is the dominant fuel in road freight. In the UK, and in all other European countries, almost 100% of

road freight vehicles are fuelled by fossil fuels. Of these, the most common vehicle type is diesel; in the UK

96% of vans and 99% of trucks are diesel vehicles.

There has been no discernible improvement in the fuel efficiency of HGVs over the last decade. Figure

shows the fuel consumption of rigid and articulated and HGVs in the UK over the period 2004-2016. Fuel

consumption of rigid vehicles appears to have decreased slightly over this period, while fuel consumption

of articulated trucks remains unchanged.

Figure 27. There has been no discernible improvement in the fuel efficiency of HGVs over the last decade

Source: Vivid Economics, Department for Transport

Diesel is also the dominant fuel in rail freight. Figure 28 demonstrates that the UK has one of the lowest

shares of electrified rail among European countries: only 34% of the UK rail network is electrified,

compared to 54% in Germany, 57% in France, 72% in Italy, and 95% in Luxembourg. Furthermore, the share

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Fuel consumption (miles per gallon)

Rigid Articulated

The value of freight

of rail freight that is carried on electric lines appears to be significantly lower than this figure. The Office of

Rail Regulation provides estimates of petrol and diesel consumption for passenger and freight rail

transport; adjusting for the greater efficiency off electric locomotives relative to their diesel counterparts,

the data suggest that while 64% of passenger rail transport occurs on the electrified share of the network,

the equivalent share is only 9%. Other estimates are consistent with this figure (for example,

AECOM/ARUP, 2016).

Figure 28. The UK has one of the lowest shares of electrified rail among European countries

Source: Vivid Economics, Eurostat

Deep decarbonisation of road and freight by shifting to alternative fuelled vehicles is an urgent priority.

Section 3.3 argues that if unabated, CO2 emissions from freight transport could make up around 20% of

allowed emissions in 2050, and that near- or full-decarbonization of freight transport is likely to be needed

to meet the UK’s Climate Change Act. In this context, a shift to alternative fuelled vehicles in both road and

rail freight is an urgent priority.

3.5 Vehicle sizes

Provided they are fully utilised, larger vehicles offer cost and environmental advantages. While larger

vehicles consume more fuel per kilometre, they can consume less fuel per tonne of freight carried,

provided they are adequately loaded.

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Share of electrified rail

The value of freight

An overall trend in the average size of UK freight vehicles is difficult to establish. At the larger end of the

fleet there is a trend towards larger HGVs. However, at the smaller end of the fleet there appears to be a

trend towards vans, though this is poorly understood.

3.5.1 HGVs

The UK freight system has taken advantage of the cost and environmental benefits offered by larger

vehicles. Very large HGVs (with a gross vehicle weight between 40-44t) were introduced in 2001. Figure 29

shows that these vehicles made up 22% of the vehicle fleet by 2017.

Figure 29. By 2017 44 tonne trucks made up 22% of the HGV fleet

Note: Smaller HGVs include vehicles not used for freight, such as refuse disposal, street cleaning, concrete mixing vehicles.

Source: Vivid Economics, Department for Transport

As a result, freight is increasingly carried in larger HGVs. Figure 30 shows how the share of freight moved

in different types of HGV has changed over the period 2000-2017. Overall, freight tends to be carried in

larger vehicles. The share of freight carried in smaller rigid HGVs (under 17 tonne) decreased from 11% in

2000 to only 2% in 2017; while the share of freight carried in larger rigid HGVs increased from 13% to 18%

over the same period. The share of freight carried in smaller articulated HGVs (under 33 tonne) decreased

from 9% in 2000 to only 3% in 2017; while the share of freight carried in larger articulated HGVs increased

from 67% to 77% over the same period. As a shift to larger HGVs can be observed across all vehicle types,

this shift is not entirely due to the introduction of 44 tonne trucks. However, the largest increase in the

volume of freight carried occurred in larger articulate HGVs, which includes the suggesting that the

introduction of 44 tonne trucks had a significant impact on the growth of freight carried in this size class.

100

200

300

400

500

600

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

HGVs (thousands)

Up to 7t 7t to 18t 18t to 31t 31t to 41t Over 41t

The value of freight

Figure 30. The share of freight carried in large vehicles has increased significantly since 2000

Source: Vivid Economics, Department for Transport

Increases in HGV size do not seem to have reduced the operational efficiency of the HGV fleet. Some

commentators are concerned that increases in HGV size could actually increase energy consumption and

CO2 emissions, given their greater fuel consumption, if the increase in HGV size results in higher levels of

part-loading. However, analysis of the utilization of larger HGVs in the UK suggests that this has not been

the case. Figure 31 shows the level of empty running and the average load factors for six types of HGV (four

types of rigid HGVs, and small and large articulated HGVs). Over the period 2000-17, during which 44 tonne

trucks were introduced, load factors for large articulated HGVs (including the 44 tonne trucks) did decrease

around 2%. However, over the same period load factors for smaller HGVs decreased much more

significantly: among rigid vehicles load factors decreased 20% in the 7.5-17t size class, 15% in the 17-25t

size class, and 6% in the over 25t size class; and load factors for small (3.5-33t) articulated trucks decreased

4%. The only size class with a rise in load factors was small rigid trucks in the 3.5-7.5t size class (a 1% rise).

The smaller reduction in load factors in large articulated trucks than across the majority of other size

classes does not support the hypothesis that increases in HGV size has resulted in higher levels of part-

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Shrare of freight moved

Rigid Over 3.5t to 7.5t Rigid Over 7.5t to 17t Rigid Over 17t to 25t

Rigid Over 25t Articulated Over 3.5t to 33t Articulated Over 33t

The value of freight

Figure 31. Load factors decreased across the majority of truck size classes over the period 2000-17

Source: Vivid Economics, Department for Transport

Our overall assessment is that the impact of further increasing the size of HGVs is highly uncertain. There

is good theoretical and empirical evidence that larger HGVs can offer cost and environmental advantages.

However, beyond a certain size, or certain market share, it is likely that opportunities to consolidate loads

into larger HGVs will be limited. Infrastructure constraints, such as the dimensions of tunnels, bridges and

other elements of road network infrastructure, present a barrier to the widespread take up of larger HGVs.

Further, it is possible that increasing the size of HGVs could result in a diversion of freight from rail to road,

reducing the efficiency of rail freight and therefore the overall efficiency of the freight system. The cost and

environmental advantages will depend on the extent to which freight delivery needs offer continued scope

for greater load consolidation, and to which larger vehicles can be accommodated without significantly

upgrading or replacing current infrastructure; and to which this can be achieved without increasing costs of

rail freight.

Reducing restrictions in the size of HGVs is not an urgent policy priority. A shift to alternative fuelled

vehicles is an urgent priority and this would erode the environmental benefits of larger HGVs. Current

regulations on the maximum size of HGVs have been motivated by concerns about infrastructure, safety

and public disapproval. The economic benefits of larger HGVs are highly uncertain and it is far from clear

that the benefits would outweigh these concerns.

3.5.2 Vans

Van use is growing very rapidly in the UK. Van traffic grew 20.7% between 2007-17 compared to a 6.4%

decline in HGV traffic over the same period. Over the last twenty years growth in van kilometres (71%) has

outpaced growth in cars (13%) and HGVs (2%). Van traffic accounts for 15% of total motor vehicle traffic

10%

20%

30%

40%

50%

60%

70%

80%

Over 3.5t to 7.5t Over 7.5t to 17t Over 17t to 25t Over 25t Over 3.5t to 33t Over 33t

Rigid vehicles Articulated vehicles

Load factor (%)

2000-03 2015-17

The value of freight

compared to 9% in 1997. Unfortunately, current statistics do not provide enough detail to estimate the

contribution of vans to overall freight traffic.

Vans may disproportionately contribute to congestion. Section 3.4 describes the use of the road network

by vans. Vans are responsible for a significant share of network use, and predominantly use more

congested roads, and van transport is concentrated around peak times.

However, trends in the use of vans for freight are poorly understood. Data on the share of freight in van

traffic is not available. DfT collected data on van use until 2008; the results of the last survey indicated that

in 2008 the delivery and collection of goods accounted for only 26% of van mileage, with transport of

equipment accounting for the majority (53%) of mileage and other uses (private and domestic use, and

providing transportation services) accounting for the remaining 27%. While van traffic has grown around

20% since the survey was carried out, it is not known whether this growth has been driven by increasing

use of vans for freight, or by other uses. While the increase in van use is commonly attributed to the

growth in online retail deliveries, analysis indicates that this is not the case. The Committee on Climate

Change estimated delivery of online purchases account for 8% of total van traffic; this is consistent with a

study for the RAC foundation, which estimated that 8% of the total vans on the road are engaged in parcel

and packet delivery (Braithwaite, 2017).

Further work is needed to understand the role of policy in driving efficient use of vans within the freight

system. It is possible that the increase in van use in recent years is due to a shift in freight from HGVs to

vans, and is therefore driving an unnecessary increase in vehicle km. If this is the case then there may be a

role for policy to align incentives to manage van use and limit its impacts of freight costs, CO2 emissions

and congestion. Further work is therefore needed to understand the drivers of van use; a new Department

for Transport survey, with the results expected to be published in 2019, may improve understanding in this

area (Committee on Climate Change, 2018).

3.5.3 Trains

Increasing the capacity of freight trains could also offer cost and environmental benefits. As with road

vehicles, an increase in the size of freight trains can reduce the number vehicle movements and quantity of

fuel needed to transport freight. KPMG suggest that the biggest rail freight efficiency gain to date has come

from more efficient utilisation of the rail network driven by longer and heavier trains (Rail Delivery Group,

2009), though it is difficult to substantiate this claim. At present, limits to train capacity are driven by legal

restrictions on the maximum length of trains, and maximum axle weight. For lower density products, such

as containerised shipments, train length is the limiting factor. Train length is itself limited by station

lengths; the Department for Transport has sets an objective that 775 metre train length should be the

design standard for new freight terminal developments and enhancement of existing terminals on the

Strategic Freight Network (the portion of the UK rail network comprising the most important freight routes)

(Department for Transport, 2009). For dense products, such as metals, metal products and construction

materials, the maximum axle weight that the track can accommodate is the limiting factor. At present, 85%

of the current network is capable of accommodating axle weights of up to 22.5 tonnes. Increasing train

The value of freight

capacity for dense products would require substantial investments in new infrastructure to accommodate

greater axle weights.

Much of the UK rail network is relatively poorly suited to freight. The Department for Transport sets an

objective that the Strategic Freight Network (the portion of the UK rail network comprising the most

important freight routes) should a have a loading gauge of at least W10 standard, i.e. capable of

accommodating deep sea containers (Department for Transport, 2009). At present, only 16% of the current

network meets this standard; and loading gauges are low by international standards (McKinnon, 2018).

However, the UK network performs well with respect to axle loads:, and therefore meets the European

Commission’s objective Trans-European Transport Network (TEN-T) objectives that all of the Core Freight

Network (the portion of the complete European rail network comprising the most important nodes for

freight) should be capable of accommodating axle loads of 22.5 tonnes by 2030 (Network rail, 2017).

3.6 Operational efficiency

3.6.1 Empty running

UK levels of empty running are moderate by European standards. Figure 32 shows the level of length

empty running in road freight in the UK and other European countries. The highest level of empty running is

observed in Cyrpus (44%) and the lowest in Belgium (6%). While there does not seem to be a simple

explanation for levels of empty running, the countries with the smallest levels tend to be small: after

Belgium, Denmark, and Luxembourg have the lowest levels of empty running among European countries.

Levels of empty running in the UK are around 20%; this is lower than in the majority of European countries,

including Spain and Germany; but higher than some others, including France and Sweden.

The value of freight

Figure 32. UK levels of empty running are moderate by European standards

Source: Vivid Economics, Department for Transport

Empty running in the UK appears to be increasing slightly. Figure 33 shows the level of empty running in

UK HGVs over the period 2000-2017. Empty running has increased slightly over this period; around 27% of

HGV km were driven by empty HGVs in 2000, and 30% by 2017, though there has been significant variation

in empty running over this period and there is not a clear upward trend.

10%

20%

30%

40%

50%

Share of vehicle km driven empty (%)

The value of freight

Figure 33. Empty running has increased slightly over the period 2000-2017.

Source: Vivid Economics, Department for Transport

It is likely that some level of empty running is efficient, and even inevitable. Empty running occurs for a

number of reasons; for example:

− Geographical mismatch of freight supply and demand. In some areas, such as manufacturing

locations, the volume of outbound freight is greater than the volume of inbound freight, while in

others (such as retail locations) the reverse is true.

− Time constraints: in the event that an outbound load is matched by a comparable inbound load,

the delivery and pickup times of the two loads may not allow backhauling. If the pickup time of the

inbound load is scheduled before the delivery time of the outbound load then the backhaul is not

possible; and if the pickup time of the inbound load is scheduled significantly later than the delivery

time of the inbound load then vehicle and driver must wait, and the cost of the idle vehicle and

driver time may outweigh any benefits in reduced empty running.

− ‘Own account’ freight. While around 70% of road freight is moved by public haulage operators,

who carry goods for other companies, the remaining 30% moved is ‘own account’, i.e. moved by

the owner of the shipment (for example, a manufacturer or retailer). The potential backhauling

opportunities available to ‘own account’ operators are restricted to the firm’s own shipments, and

are therefore likely to be significantly more limited than those available to public haulage

operators.

However, evidence suggests there are opportunities to reduce empty running. ‘Backhauling’ refers to the

loading of a vehicle on the return journey to reduce empty running. Two studies of backhauling in the UK

indicated that there are some small opportunities to reduce empty running:

− McKinnon and Ge (2006) analysed over 20,000 HGV trips in the grocery distribution sector, of

which 9,000 were empty, to identify empty trips that were potentially suitable for backhauling. The

10%

15%

20%

25%

30%

35%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Share of vehicle km driven empty (%)

The value of freight

analysis excluded journeys that were under 100km long (given evidence that backhauling

opportunities on short journeys are harder to justify), journeys where the where the vehicle used

for the outbound journey did not have the required weight or volume for the backhaul, or where it

was a specialised vehicle not suited to the backhaul. The study concluded that of the 9,000 empty

journeys analysed, around 2% could have been eliminated with backhauling.

− In the ‘Starfish’ project Palmer and McKinnon (2011) analysed trips in the retail sector and

identified a potential opportunity to reduce vehicle km by 8% through backhauling. However,

achieving these backhauling opportunities required a relaxation of time constraints to allow

coordination of delivery and pickup windows.

Our overall assessment is that efforts to reduce empty running are unlikely to deliver a step change in

freight efficiency. The barriers to further reducing levels of empty running and the limited opportunities for

backhauling identified to date suggest that at present it would be very challenging to reduce empty running

significantly below current levels of around 30%. This assessment is consistent with a scenario developed

by the Centre for Sustainable Road Freight (CfSRF) to inform the Committee on Climate Change’s advice on

reducing CO2 emissions to the fifth carbon budget (2028-2032); the (CfSRF) scenario included a 5%

reduction in CO2 emissions (and therefore a comparable reduction in vehicle kilometres) due to

backhauling and its resulting reduction in empty running.

3.6.2 Part-loading

UK load factors appear moderate by European standards. Unfortunately, comprehensive data on load

factors in European road freight is not available; the European Commission did collect data for a small

number of countries, but ceased collection in 2008. The data available is therefore of poor quality, and

covers 2008 for some countries, and earlier years for others. Based on this data, the lowest average load

factor (highest level of part-loading) is observed in Portugal (29% load factor) and the highest load factor

(lowest level of part-loading) in Spain (81%). The drivers of the variation in load factors are not clear. Load

factors in the UK in 2007 were around 57%; this is lower than in Spain and Germany; but higher than

others, including Netherlands and Denmark.

The value of freight

Figure 34. UK load factors are moderate by European standards

Note: Data is for 2008

Source: Vivid Economics, Eurostat

Load factors in the UK has been broadly constant over time. Figure 35 shows the load factors level of UK

HGVs over the period 2000-2017. Load factors have remained broadly constant over this period, at around

60%; a small drop in load factors was observed in the early 2000s, but load factors were back to their 2000

level by 2011, and have remained close to this level since.

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40%

50%

60%

70%

80%

90%

Average road freight load factors

The value of freight

Figure 35. Load factors have been broadly constant over time

Source: Vivid Economics, Department for Transport

As with empty running, it is likely that some level of part-loading is efficient, and even inevitable. Part-

loading occurs for several reasons; for example:

− Information and analytical requirements. The information gathering and analytical requirements

of matching loads arising from multiple origins to freight vehicles, particularly given variation in

required delivery times, are substantial. Information needed to facilitate widespread collaboration

across companies includes a set of weight, volume and delivery time data, and analytical needs

include the ability to calculate an set of freight journeys that could minimise the total cost of

transporting the loads (and therefore reducing part-loading to more efficient levels) while

maintaining reliability in deliveries.

− Cultural barriers and competition concerns. Evidence suggests businesses are generally averse to

sharing vehicles with competitors, due to the risk of revealing intelligence about their products or

operations. More broadly, businesses are simply unused to collaborating with others in freight

transport, and may be unlikely to seek these opportunities without a shift in business culture, and

potentially larger cost savings than the majority of collaborative opportunities present.

− ‘Own account’ freight. This barrier was discussed in the context of empty running, above. The

potential collaboration opportunities available to ‘own account’ operators is restricted to the firm’s

own shipments, and are therefore likely to be significantly more limited than those available to

public haulage operators.

− Just-in-time delivery. Over time, retailers have increasingly demanded smaller deliveries with

shorter lead-times and more stringent delivery times (just-in-time delivery). The impact of this

trend has been to reduce loads, and therefore reduce vehicle loading. While in principle the

reduction in loading could be mitigated by combining part loads into a single load (‘synchronised

consolidation’), in practice this can be difficult due to the stringency of delivery times, the challenge

10%

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40%

50%

60%

70%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Average HGV load factors (%)

The value of freight

of matching part-loads with similar delivery times, and the time taken to load and unload part-

loads at multiple premises. In the context of just-in-time delivery, congestion is also a barrier to

consolidation, as it increases the time taken to travel between multiple premises for loading or

unloading.

− Demand fluctuations. In principle, a freight operator faces strong incentives to invest in vehicles

that are appropriately sized for the loads it will carry, as part-loading implies greater expenditure

on the vehicle and the fuel relative to carrying the same load in a smaller vehicle. However, where

demand fluctuates and there is variation in the size of load that must be carried, it may not be cost-

effective for a freight operator to invest in a range of vehicles to address different load sizes. In this

case, the operator will invest in a vehicle stock that is most appropriate for the majority of

journeys, such that there will be some spare capacity on the average journey.

− Density of loads. Load factors are measured by the weight of the load, rather than volume.

However, there is evidence that the density of many loads is low, such that freight vehicles are

more fully loaded (in terms of volume) than their load factors would suggest. According to data

from the Continuing Survey of Road Goods Transport (CSRGT) on the proportion of HGV tonne-kms

subject to weight and/or volume constraints in 2010, although only around 37% of freight

(measured in tonne km) was carried in fully laden vehicles when measured by weight, a further

25% was carried in fully laden vehicles when measured by volume. These figures suggest that fully

eliminating part-loading (i.e. increasing load factors to 100%) is physically impossible as around 25%

of loads will ‘cube out’ before they ‘weigh out’.

− Geographical mismatch of freight supply and demand. Even if an outbound journey is fully loaded,

it may be difficult to fully load the vehicle on the backhaul.

However, evidence suggests there are some limited opportunities to reduce part-loading. ‘Synchronised

consolidation’ refers to combining part loads moving between origin and destination zones into a single

load with a higher load factor. A number of studies of synchronised consolidation in the UK indicate that

there are some limited opportunities to reduce part-loading:

− A number of successful bilateral collaboration initiatives have yielded a reduction in freight

transport demand; a collaboration initiative by Kimberly-Clark and Kelloggs resulted in a reduction

in CO2 emissions by 270 tonnes per year; while an initiative by Nestle and United Biscuits resulted

in a 250 tonne per year reduction (McKinnon, 2018).

− Palmer and McKinnon (2010) analysed transport data collected from 27 large fast-moving

consumer goods (FMCG) companies to identify opportunities for collaboration. The analysis

identified opportunities for collaboration to increase load factors and offer CO2 savings of up to

20%. Following the study, a number of participating companies developed collaborative

arrangements, suggesting that opportunities existed to realise cost savings

− In the ‘Starfish’ project Palmer and McKinnon (2011) identified opportunities for synchronised

consolidation capable of reducing total freight vehicle km by roughly 1%.

3.6.3 Implications for policy

Empty running and part-loading are imperfect indicators of operational efficiency. Very high levels of

empty running and part-loading are indicators that operational efficiency is poor, and vice-versa. However,

The value of freight

levels of empty running and part-loading are partly determined by geographical differences in supply and

demand for freight, challenging delivery schedules and a range of other factors unrelated to operational

efficiency. It is not possible to determine from today’s levels of empty running and part-loading whether a

significant improvement in operational efficiency is needed.

Our overall assessment is that efforts to reduce part loading are unlikely to deliver a step change in

freight efficiency. As with empty-running, the barriers to further reducing part loading the limited

opportunities for increased collaboration identified to date suggest that a significant improvement in

improve load factors would be very challenging to achieve. This assessment is consistent with the CfSRF

scenario for the Committee on Climate Change, which included a 1% reduction in CO2 emissions (and

therefore a comparable reduction in vehicle kilometres) due to synchronised consolidation and its resulting

reduction in part-loading.

Further, it is not clear that Government intervention is needed. There is little evidence of major market

failures preventing freight operators from reorganising their operations to reduce levels of empty running

and part-loading. The freight sector is subject to intense commercial pressures, and incentives to achieve

high levels of operational efficiency and minimise freight costs are strong. Further, given the urgent priority

a shift to alternative fuelled vehicles, the benefits of Government intervention are likely to be limited.

Reducing levels of empty running and part-loading cannot achieve near- or full-decarbonization of freight

transport; and a shift to alternative fuelled vehicles would erode the environmental benefits of

intervention.

The value of freight

4 Potential step-change technologies

Key messages

⎯ A complete shift to alternative fuelled vehicles would eliminate tailpipe greenhouse gas and

air quality pollutant emissions in road freight.

⎯ Connected and autonomous vehicles could substantially reduce road freight costs by

eliminating the need for a driver.

⎯ Robotics and automation could substantially reduce warehousing costs by automating

currently labour-intensive tasks.

⎯ Unmanned aerial vehicles (drones), digitalisation and data science, delivery droids and 3D

printing are less likely to deliver a step change in freight efficiency

A range of technologies are likely to emerge in the freight system in future. This section identifies the

technologies likely to emerge in the freight system, and assesses the potential for each technology to

deliver ‘step-change’ improvements to freight efficiency. Technologies assessed comprise alternative

fuelled vehicles, unmanned aerial vehicles (drones), connected and autonomous vehicles, robotics and

automation, digitalisation and data science, delivery droids and 3D printing. We separately consider the

potential for each technology to deliver a significant improvement in the cost, speed and reliability,

environmental impact, and resilience of the freight system. We then assess the likely severity of any

barriers to deploying that technology and the prospects for that technology to emerge at scale.

4.1 Alternative fuelled vehicles

Alternative fuels for freight vehicles include electricity and hydrogen. Both battery electric vehicles and

hydrogen fuel cell vehicles are electric in the sense that motive power is provided by an electric motor. In

battery electric vehicles, the motor is supplied with electricity by a battery. Overhead (catenary) electric

wiring could also be used to provide electricity, and reduce the need for long-distance trucks to carry large

batteries. In hydrogen fuel cell vehicles, the motor is supplied with electricity by a fuel cell, which converts

hydrogen into electricity. Low-carbon routes to hydrogen production include electrolysis from renewables;

or steam methane reforming of natural gas combined with carbon capture and storage.

Electric vehicles are beginning to emerge in passenger transport. Over the last decade, an early adopter

market in electric cars and vans has emerged in passenger transport in the UK. Sales have increased from

under 1,000 in 2010 to 48,000 in 2017, and electric vehicles now have a market share of almost 2% of new

cars and vans. In a number of other countries, take up is stronger; in Norway, new electric cars have a

market share around 40% (IEA, 2018).

While alternative fuel freight vehicles are lagging behind passenger vehicles, developments are

underway. Product are being launched for both battery electric and hydrogen fuel cell vehicles, and pilot-

scale fuelling infrastructure is also under development:

− Electric vehicles. A number of product launches are underway or planned. US electric vehicle

manufacturer Tesla has announced the launch of its long-haul truck Semi in 2020, with a shorter-

range (480km) and a longer-range (800km) model; UPS, PepsiCo and others have reportedly placed

The value of freight

340 orders to date. Germany manufacturer Mercedes-Benz launched a 200 km range electric truck

in 2018; to date, at least 10 have been delivered to logistics firm Hermes. Further product launches

have been announced by BYD, Freightliner, VDL Groep/DAF and Renault.

− Catenary electric truck infrastructure. If major roads were equipped with catenary overhead

wiring, battery electric vehicles could travel long distances without the need for a very large

battery. Trials of catenary electric trucks have been carried out in Germany and California. In

Germany, the eHighway field trial involves 6 km of overhead catenary infrastructure supported by a

€14 million subsidy from BMU, the German Federal Minister for the Environment, Nature

Conservation, and Nuclear Safety. In California, the South Coast Air Quality Management District, in

collaboration with Siemens and Volvo, is trialling a one-mile highway catenary system at two ports

in Los Angeles and Long Beach.

− Hydrogen fuel cell vehicles. US truck manufacturer Nikola Motor Company has announced the

launch of a large hydrogen truck on the US market in 2021; US Xpress and Budweiser have placed

800 orders to date. Nikola is also launching a hydrogen-powered semitrailer truck on the European

market (Energy Transitions Commission, 2018). Hyundai has announced the launch of a large truck

in 2019; Swiss retailed Coop has reportedly placed 1,000 orders to date. Demonstrator vehicles

have also been trialled by Toyota and Renault.

− Hydrogen fuelling infrastructure. Although not targeted at freight vehicles, a hydrogen fuelling

infrastructure is emerging in a number of European countries, with 52 fuelling stations deployed to

date in Germany and smaller numbers elsewhere.

While currently expensive, strong cost reductions are expected strong over the long term. Electric

vehicles are inherently energy-efficient, and battery costs are decreasing rapidly:

− Efficiency. Electric motors (used in both battery electric vehicles and hydrogen fuel cell vehicles)

possess a significant efficiency advantage relative to the internal combustion engine; electric

motors are around 95% efficient, while internal combustion engines are only around 40% efficient,

with much of the fuel wasted in production of heat or sound.

− Rapid battery cost reductions. Battery costs have decreased by around 20% per year in recent

years, from around $1,000/kWh in 2010 to around $200/kWh in 2020 (BNEF, 2018), as batteries are

produced in ever greater volumes and new innovations in battery production reach the market.

Volumes are projected to increase significantly, driven by both market uptake in the passenger

section and large-scale state initiatives; China, for example, plans to deploy a million electric buses

by 2025. Over US$14 billion of battery-related investments are currently targeting improved energy

density, through the development of new battery chemistries such as silicon-based anodes, solid-

state electrolysis and advanced-cathode chemistries. As a result of further deployment and

innovation, the Energy Transitions Commission estimate that the cost of lithium ion batteries will

continue to fall, decreasing below US$100/kWh by 2025.

Given the inherent efficiency advantages of electric vehicles and the strong prospects for further battery

cost reductions, electric freight vehicles are expected to reach cost parity with internal combustion engine

vehicles over the next decade. For example, the Energy Transitions Commission estimate that the full cost

of BEV purchase and lifetime operation will be less than the cost of diesel ICEs by 2030, even if no excise

duty (such as fuel duty) is imposed on the diesel fuel.

The value of freight

Alternative fuelled vehicles could substantially reduce the environmental impact of the freight system,

and improve resilience. Improvements in cost and speed and reliability are likely to be limited.

− Cost. With further innovation, alternative fuelled trucks are expected to be broadly cost-neutral

relative to diesel trucks.

− Speed and reliability. Alternative fuelled vehicles are not expected to reduce congestion.

− Environmental impact. A complete shift to alternative fuelled vehicles would eliminate tailpipe

greenhouse gas and air quality pollutant emissions in road freight (though PM10 from tyre abrasion

will remain). Such a shift could take place over a relatively short space of time. In the UK, average

HGV lifetimes are around ten years. Therefore, once alternative fuelled freight vehicles have

achieved mass market dominance, a shift to alternative fuelled freight vehicles for the entire HGV

fleet could occur within a decade. If alternative fuel vehicles dominate the new truck market by the

2030s, a full transition could be achieved by 2040.

− Resilience. Alternative fuelled vehicles would reduce the exposure of the freight system to fuel

supply shocks as the scope for energy self-sufficiency in electricity or hydrogen is greater than for

oil products. However, this would only slightly improve resilience, given the UK’s low energy

security risks.

Alternative fuelled vehicles have the potential to achieve mass market deployment. Alternative fuelled

vehicles will be suited to all segments of the freight market. Current electric vehicle technology is already

adequate for vans and small-trucks, and short- to medium-distance journeys. Further innovation could be

needed to deliver cost-effective solutions for large trucks and long-distance journeys.

Provided cost reductions are achieved, barriers to deployment are low. Battery electric and hydrogen

vehicles do not face significant operational or public acceptability barriers.

Alternative fuelled vehicles are likely to need large investments in new infrastructure. Infrastructure

needs will depend on the mix of vehicle technologies, but could include fast charging infrastructure and

catenary overhead wiring for electric vehicles, or hydrogen fuelling infrastructure for hydrogen fuel cell

vehicles. Major upgrades to electricity networks could also be needed.

Our assessment is that alternative fuelled vehicles are could deliver a step change in the efficiency of the

freight system. Alternative fuelled vehicles could improve environmental impact and resilience across the

freight system. They would be suited to the mass-market, and prospects for large-scale deployment are

strong given the scope for further cost reductions, and lack of public acceptability barriers.

4.2 Unmanned aerial vehicles

Drones or Unmanned Aircraft Vehicles (UAV) are aircrafts that do not need a pilot. Drones were initially

used in military applications but advances in engineering and manufacturing technologies have expanded

their uses. Drones are used in place of manual inspections to monitor the quality of infrastructure and

equipment, or to record spatial data such as land cover, or soil or crop quality.

Small freight drones are undergoing extensive trials in a number of countries to deliver goods directly to

consumers. Most trials have taken in place in rural areas or in areas with poor connectivity. Drones are

The value of freight

delivering food in Reykjavik, Iceland, improving connectivity between two parts of the city separated by a

river; and are being used to deliver goods in remote areas in China. More recently, the use of delivery

drones has expanded to urban areas. Drone delivery startup Matternet transports blood and pathology

samples between hospitals in Switzerland. In the UK, Amazon is testing its drone delivery technology in

rural Cambridgeshire and successfully delivered its first package in 2016.

Drones could reduce costs and improve speed and reliability in some parts of the freight system.

Improvements in resilience and environmental outcomes are likely to be limited.

— Cost: Drones could reduce costs in some market segments. First, drones could offer cost

advantages relative to road freight in areas with low population or poor road infrastructure, where

road freight vehicles may be unable to achieve high loading factors, or may need to take long

detours to reach a customer. Second, like connected and autonomous vehicles, delivering by drone

avoids incurring driver costs.

— Speed and reliability: Drones could offer fast deliveries, similar to courier services today. Amazon is

working towards delivering small packages within 30 minutes of an order being placed (McKinnon,

2016). Drones could also contribute to reducing road congestion, if they are able to displace road

vehicles in some market segments..

— Environmental impact: Unlike today’s diesel road freight vehicles, drones are powered by

electricity and produce CO2 emissions. However, drones would not offer environmental

advantages relative to alternative fuelled road vehicles.

— Resilience: By not relying on roads and eliminating the need for drivers, drones could increase

resilience against infrastructure failures and labour strikes. However, drones are likely to increase

the vulnerability to other risks. Current drones do not have the capability to handle challenging

weather conditions and are likely to be vulnerable to extreme weather events, for example heavy

snow or storms. Drones will also make the freight system more vulnerable to failures in information

systems, such as cyber attacks.

Drones are likely to add value in some segments of the freight market but are unlikely to reach mass-

market deployment. The small payload capacities and lack of economies of scale are likely to limit the

scope of drones to rural and high value urban deliveries.

− Rural areas: Drones are more likely to offer speed and cost savings when delivering goods to rural

areas with relatively poor infrastructure. While the UK has good quality infrastructure, there may

be certain remote areas that could benefit from drone deliveries. Drones could be a cost-effective

option in rural areas where the number of parcels to be delivered are too small to justify using a

delivery van.

− Premium segment of the freight market: 10% of the nearly 7 billion packages delivered annually in

the EU are for same day delivery, and 60% of these are light enough (<2.5kg) to be carried by drone

(Single European Sky ATM Research Joint Undertaking, 2016). SESAR JU (2016) estimate that

around 10% of the same-day, premium lightweight parcel market has the potential to be delivered

by drone.

− Mass-market deliveries: Drones do not offer the economies of scale of road freight. Current drones

can deliver only a small number of packages at a time, with a weight of between 2-5kg, compared

to a delivery van in the UK that can deliver 120 non-food items over an 8-hour shift (McKinnon,

The value of freight

2016). 15-16 drones would be needed to replace a single van, suggesting that drones are unlikely to

offer a plausible alternative to road vehicles for mass market deliveries.

Drones face a number of technological and public acceptability barriers. Drones would require technology

improvements to handle extreme weather conditions and need to overcome public acceptability barriers.

— Technological: Current drones have been tested under calm weather conditions. Further

development of drone technology is likely to be needed to ensure they can deliver reliably and

safely in challenging weather conditions, such as snow, heavy winds, or storms.

— Public acceptability: Public acceptability of drone deliveries is low. A poll by the Royal Aeronautical

Society (2016) found that only 32% of respondents approved of the use of drones for parcel

delivery. Surveys (NESTA, 2017) have shown that the public are concerned about privacy, noise and

safety issues. According to the UK Airprox Board (2019), the specialist body responsible for

assessing airspace conflicts, near-misses involving drones have increased from 29 in 2015 to 126 in

2018.

Infrastructure investments will be needed to support the rollout of drones, particularly in urban areas.

Current trials have bene limited, and have not needed new infrastructure so far. The widespread rollout of

drones would require homes and offices to have the necessary infrastructure to receive drone deliveries in

a safe and secure manner. Rural deliveries could be possible without major infrastructure investments as

houses tend to have driveways or gardens, and there is more open space. However, urban areas would

require investments in new landing facilities. Compared to vans, drones travel shorter distances before

they need to be recharged or reloaded with goods. This would require new investments to support the

expansion of decentralised stockholding points that are closer to customers. Urban landing facilities and

decentralised stockholding points are likely to be costly, given the high value of urban land.

Our assessment is that unmanned aerial vehicles are unlikely to deliver a step change in the efficiency of

the freight system. Drones could improve cost, and speed and reliability, for a small segment of the freight

market. They are unlikely to be suited to the mass-market, and prospects for large-scale deployment are

poor given technological and public acceptability barriers.

4.3 Connected and autonomous vehicles

Connected and Autonomous Vehicles (CAV) are an emerging technology that could allow vehicles to

function without a driver. Connected vehicles communicate with each other and the world around them,

while autonomous vehicles can perform all driving functions without a driver. There are different levels of

automation. The US National Highway Traffic Safety Administration (2019) defines five levels of

automation: at levels 1 and 2 (‘Driver assistance’ and ‘Partial automation’) the vehicle may perform

functions such as acceleration and steering without driver involvement under certain conditions; at levels 3

and 4 (‘Conditional automation’ and ‘High automation’) a driver is not needed under normal driving

conditions but must be able to take control if necessary; and at level 5 (‘Full automation’) the vehicle is

capable of performing all driving functions under all conditions. The Society for Motor Manufacturers and

Traders, the trade association for the United Kingdom motor industry, suggests that fully autonomous

vehicles (Level 5) could enter UK production in 2025, and achieve approximately 25% market penetration

by 2030 (SMMT, 2017).

The value of freight

Some features of CAV technologies are already being deployed commercially. A number of driver

assistance and partial automation technologies are in use today, including self-parking, lane control (to

prevent drivers from drifting into adjacent lanes), and automatic emergency breaking. eCall (emergency

call) is used to report accidents. If a car is involved in an accident, it will detect what happened,

automatically connect to the call centre and use GPS to share the vehicle’s location. The EU made this

technology a legal requirement for all new models of cars and light vans from April 2018. It would reduce

response times by 50% in rural areas and 40% in urban areas, and is estimated to save 2,500 lives a year

(EU Press Release, March 2018).

Advanced CAV technologies are currently undergoing trials in several countries under a range of driving

scenarios. Governments, technology firms and traditional car manufacturers have taken a strong interest in

demonstrating CAV technology.

⎯ The UK Centre for Connected and Autonomous Vehicles, a joint BEIS-DfT initiative, is currently

trialling automated passenger shuttles, automated urban delivery vehicles, and remote

teleoperation demonstrations where a human operator can manoeuvre or recover a fully

autonomous vehicle into safe mode.

⎯ Waymo, the company setup by Google to develop self-driving cars, has already trialled autonomous

vehicles (with a driver behind the wheel) in California, Arizona and Georgia, and is currently

developing a fully autonomous truck technology.

⎯ In passenger transport, Uber has introduced CAVs with a driver ready to take control in an

emergency as part of its ride-hailing fleet in Pittsburgh and Tempe, although a similar move in San

Francisco faced legal challenge.

CAVs can reduce road freight costs by a third. CAVs would also reduce fuel consumptionand ease

congestion.

⎯ Cost: CAVs could reduce both the labour and fuel costs of road freight. CAVs could reduce labour

costs by eliminating the need for a driver. As labour costs account for a third of road freight costs,

CAVs could deliver very substantial cost savings. CAVs could reduce fuel costs through platooning

to reduce air resistance. While conventional vehicles must drive at a significant distance from each

other to account for reaction times of human drivers, in principle, CAVs would be able to drive

much closer together (‘platooning’). This reduces air resistance and reduces fuel consumption

emissions. The New Energy and Industrial Technology Development Organisation (NEDO), Japan

carried out a trial of a four-truck platoon with one human driver and three autonomous vehicles

that showed a 15% reduction in fuel consumption (SAE International, 2014). A two-truck platooning

trial in the Netherlands in 2014 by truck manufacturer DAF and a Dutch research institute, TNO,

showed that fuel consumption improved by 8% for the first truck, and 13% for the second truck

(Paris Process on Mobility and Climate Change, 2019). In the UK, a £8.1 million government funded

trial is currently underway.

⎯ Speed and reliability: In principle, CAVs have the potential to free up road space and reduce

congestion by driving close together. Modelling for the Department for Transport suggests that the

congestion benefits will increase with adoption of CAVs, with a 50% penetration of CAVs on urban

The value of freight

roads delivering a 17% reduction in congestion and a 100% penetration delivering a 30% reduction

(Atkins, 2016). This will improve the speed and reliability of road freight.

⎯ Environmental impact: CAVs could enable platooning, which would reduce fuel consumption. If

CAVs technology were used in diesel trucks, platooning could offer moderate reductions in tailpipe

CO2 emissions. Platooning would not reduce tailpipe CO2 emissions in alternative fuelled vehicles,

but could reduce any CO2 emissions associated with electricity generation or hydrogen production.

⎯ Resilience: CAVs could improve resilience by reducing its exposure to labour action. However, CAVs

could reduce resilience in other areas. Connected and autonomous vehicles are more vulnerable to

cyber-attacks. CAVs also require road markings, signs and signals to be maintained to a higher

standard compared to manned-vehicles. This is likely to reduce their resilience to infrastructure

failures, and extreme weather events that may affect road signs and markings.

CAVs would also improve safety. 94% of serious car crashes are due to human error (NHTSA, 2019). By

removing the scope for human error, autonomous vehicles could in principle improve road safety. Current

vehicles equipped with partial autonomous features have demonstrated the safety benefits of CAVs. For

example, a study by the EU on Automated Emergency Brake Systems, found that that the technology was

effective in reducing the number of casualties (Grover et al, 2008).

CAVs have the potential to achieve mass market deployment. CAVs are likely to offer significant benefits

and in principle can replace the entire existing road freight fleet. In practice, deployment will depend on

progress made in addressing technology and public acceptability barriers, and progress made in upgrading

existing infrastructure.

CAVs face a number of technological and public acceptability barriers. The prospects for CAVs in the long-

term are strong, although existing barriers suggest that adoption is likely to be gradual.

⎯ Technology: CAVs have been proven under simple driving conditions but further trials are required

to assess the viability and risks of fully autonomous vehicles under complex environments, such as

a large number of roundabouts, rural roads or heavy snow.

⎯ Public acceptability: Public acceptability of CAVs is improving but remains a barrier. A Deloitte

market survey in 2016 found that 73% of UK respondents thought fully self-driving cars will not be

safe, and 59% do not want the government to allow fully self-driving cars to be sold in the next five

years. However, public acceptability appears to be improving; the 2018 survey found that only 49%

of respondents thought that self-driving cars would not be safe. A SMMT survey showed a more

positive result. 56% of participants said they felt positive about CAVs, with young people and those

facing disabilities feeling the most positive.

CAVs would require a range of infrastructure upgrades to support adoption. The ability of CAVs to

communicate with each other and the wider transport infrastructure is critical to realise their full benefits.

This will require upgrades to transport infrastructure, as well as information communications infrastructure

more widely.

⎯ Transport infrastructure and sensors: Transport infrastructure would need to be redesigned to

accommodate the rollout of CAVs. Sensors and other infrastructure upgrades would allow CAVs to

communicate with the wider transport infrastructure, for instance traffic signals. Road markings,

The value of freight

signs and signals would need to be maintained to a higher standard than is currently the case (RAC

Foundation, 2017).

⎯ Information and communications infrastructure: Investments in fast, secure and reliable wireless

communication technologies will help maximise the benefits of CAVs. The UK performs poorly on

infrastructure capability in KPMG’s Autonomous Vehicles Readiness Index because it has one of the

lowest scores for 4G coverage. In the future, 5G connectivity could significantly enhance the

capabilities of CAVs by improving communication flows between vehicles and the infrastructure.

The current regulatory framework would need to be updated to support the commercial rollout of CAVs.

Under the current regulatory framework, liability issues are dealt with on a case by case basis by the courts

(DfT, 2015). A clearer regulatory framework is needed to deal with the liability and insurance issues

associated with CAVs. In some cases, existing legislation may need to be updated, for example legislation

associated with the way vehicles are used and maintained to ensure they are fit to travel on the road.

Our assessment is that connected and autonomous vehicles could deliver a step change in the efficiency

of the freight system. CAVs could reduce road freight costs by a third, and contribute to reducing

congestion. CAVs have the potential to achieve mass market deployment, as they could in principle replace

the entire road freight fleet. Provided technological and public acceptability barriers exist at present, but

could be overcome.

4.4 Robotics and automation

Robotics and automation involve the use of machines to carry out a complex series of tasks

automatically. Advances in computing, software and hardware development and network technologies

have created a sophisticated range of robots that can integrate information from multiple sensors and

adapt their behaviour in real time. The costs of robotics and automation have fallen by half over the last

thirty years, and even further when compared to labour costs (McKinsey, 2017).

The use of robotics and automation is dramatically improving the efficiency of large warehouse

operations. Case study evidence has shown that robotics and automation have reduced costs, enabled

faster delivery and increased the productivity of large warehouse operations. Online retailer Amazon

deployed 45,000 robots across 20 warehouses, which reduced operating costs by 20% and allowed

warehouses to hold 50% more inventory per square foot (Business Insider, 2017; Quartz, 2016). Retailer

Uniqlo replaced 90% of their staff at a Tokyo warehouse with robots to help reduce storage costs and

improve delivery times (WEF, 2018).

Several companies are developing more sophisticated robotics solutions for the freight sector. In spite of

advances in robotics and automation technologies, there remain a range of tasks that existing robots are

unable to perform. For example, there are some technical challenges around the ability of existing robots

to handle goods of different shapes and sizes, and work out the optimal loading/unloading sequence to

ensure goods are not damaged. Companies are investing in robotics and automation solutions to improve

the efficiency and speed of loading and unloading items from a trailer/container, and picking items off

warehouse shelves with limited human input.

The value of freight

Robotics and automation could substantially reduce warehousing costs, and improve the efficiency of

warehousing operations.. Robotics and automation are less likely to deliver improvement in environmental

outcomes or resilience.

— Cost: UK National Accounts indicate that labour costs account for around one third of warehousing

costs. Fully automating warehouse operations could therefore reduce costs by up to one third.

— Speed and reliability: Existing warehouses operations, such as loading/unloading, sorting and

picking items off shelves for delivery are labour-intensive and time consuming. Robotics and

automation would improve the speed at which these tasks are carried out and reduce the number

of errors.

— Environment: Robotics and automation are not expected to deliver environmental benefits.

— Resilience: Robotics and automation are not expected to deliver improved resilience.

In principle, robotics and automation could be deployed across all warehousing facilities, and there are

no major barriers to deployment. Wide scale adoption of robotics and automation in the logistics industry

has been limited; for example, 80% of current US warehouses are manually operated with no supporting

automation, 15% are mechanised and only 5% are fully automated (Robo Global, 2017). The low level of

deployment to date is due in part to technological challenges specific to the freight sector (efficiently

loading and unloading goods of different shapes and sizes). If these challenges are addressed, robotics and

automation could be deployed very widely, though high capital costs could initially restrict deployment to

large firms with low borrowing costs.

Our assessment is that robotics and automation could deliver a step change in the efficiency of the

freight system. Robotics and automation could reduce warehousing costs by over third, and potentially

improve the speed and reliability of warehouse operations. The technology has the potential to achieve

mass market deployment. Further technological improvements are needed, but there are no other

significant barriers to adoption.

4.5 Digitalisation and data science

Digitalisation is the use of technologies to enhance the transfer of information either between devices or

between companies. Digitalisation underpins other technologies such as connected and autonomous

vehicles, and robotics and automation. In the logistics sector, digitalisation enables more detailed analysis

and gathering of insights from data, sensors and connected devices to increase efficiency and reduce costs.

Data science is the analysis of data to solve problems. Data science includes the development and use of

large datasets, various statistical techniques, and machine learning. Artificial intelligence, a related concept,

is the ability of computer systems to perform tasks that normally require human intelligence. Progress in

computing power and the generation and storage of large volumes of data has accelerated the

development of data science. It is being used by the manufacturing sector to improve the efficiency of

equipment and maintenance operations and to provide a more accurate forecast of the demand for goods

and services (Autodesk, 2019; DHL, 2018; WEF, 2019).

Digitalisation has enabled freight exchanges, which have expanded the scope for freight operators to

collaborate to and improve operational efficiency. A freight exchange is an online service which records

The value of freight

customer delivery needs, and allows freight operators to identify deliveries that are suited to their available

vehicle capacity. Freight exchanges can improve vehicle utilisation by sharing information on assets, routes

and fill rates. For example, Cayote, a company recently taken over by UPS, specialises in scheduling

shipments for return trips to reduce empty running. DP Schenker, a global logistics company, signed a five-

year contract with an online freight exchange company, uShip, to develop a platform to connect truck

drivers and shipments more efficiently.

There has been some application of digitalisation and data science in freight. Digitalisation and data

science are now used to optimise routing, predict and avoid delays..

⎯ Intelligent Route Optimisation: Deutsche Post DHL Group pioneered the SmartTruck optimised

routing pilot in 2010 to develop routes for its fleet operators and drivers. The initiative is able to

calculate the ideal sequence of shipments, and the optimal routing patterns to avoid congestion,

and re-calculate these in real-time in response to new information. The pilot reduced the number

of miles travelled by 15% and the length of the average route by 8% (DHL, 2011).

⎯ Predictive analysis: DHL has developed a machine-learning tool to predict air freight transit time

delays. The programme draws on 58 different parameters to predict transit delays up to a week in

advance, and identify the reasons behind the delay.

In future, data science could deliver larger gains in operational efficiency. As set out in section 4.5, part-

loading of freight vehicles occurs in part because of the challenges of efficiently matching freight vehicles to

loads. Efficiently matching freight vehicles to loads would require detailed information on all delivery

needs, including origins, destinations, payloads and specified delivery times; and sufficient information

processing ability to calculate the optimal pattern of deliveries given delivery needs and available

vehicles.In principle, it is possible that advances in digitalisation and data science could meet these

information and analytical needs. If all freight loads were logged on freight exchange platforms, and

systems were developed to share information across multiple platforms then a large, real-time database of

all freight loads could be developed. It could then be possible to analyse the database and identify a set of

vehicle journeys which could meet freight demand across multiple origins and destinations much more

efficiently than can be achieved today.

Digitalisation and data science could reduce costs and congestion.

Improvements in environmental outcomes and resilience are likely to be limited.

— Cost: Advances in digitalisation and data science could improve the matching of loads arising from

multiple origins to freight vehicles, which could reduce costs.

— Speed and reliability: Improved matching of loads to freight vehicles could reduce the number of

vehicles needed to meet freight demand, and help ease congestion.

— Environment: Improved matching of loads to freight vehicles could reduce total freight vehicle

travel. If diesel trucks continue to be used for freight, this reduction in vehicle travel could reduce

GHG emissions. However, if a shift to alternative fuelled vehicles is achieved, reducing vehicle

travel would not offer substantial environmental advantages.

— Resilience: By reducing vehicle travel, digitalisation and data science could improve freight

resilience by predicting and mitigating supply chain delays, and reducing exposure to infrastructure

The value of freight

failures and fuel supply shocks. However, increased digitalisation could increase the freight

system’s vulnerability to cyber attacks.

Barriers to collaboration would also need to be addressed before substantially greater collaboration

could be achieved. As set out in section 4.5, barriers to collaboration include cultural barriers and

competition concerns, as well as fundamental constraints such as geographical mismatches of freight

supply and demand, demand fluctuations or the requirements of just-in-time delivery.

Our assessment is that digitalisation and data science are unlikely to deliver a step change in the

efficiency of the freight system.

— Impact on cost: Digitalisation and data science could reduce costs by improving operational

efficiency, though the scale of this opportunity is uncertain.

— Impact on speed and reliability: Digitalisation and data science could identify routing and

scheduling patterns to minimise congestion, though impact on congestion could be limited if road

users do not face congestion pricing.

— Environmental impact: By reducing the volume of freight through increased collaboration and

decentralised consolidation, digitalisation and AI could reduce but not eliminate GHG emissions.

— Impact on resilience: Digitalisation and data science could improve freight resilience by reducing its

exposure to infrastructure failures and fuel supply shocks, but could reduce resilience given

vulnerability to cyber-attacks.

— Prospects for deployment: Cultural barriers may slow the pace of adoption but prospects remain

strong.

4.6 Delivery droids

Delivery droids are autonomous, self-driving robots that currently travel on footpaths. Droids can

navigate road crossings and zebra crossings using a combination of GPS, cameras, sensors and radar to

avoid oncoming traffic.

Trials are currently taking place in several cities to deliver small parcels over short distances. Starship

Technologies has run trials of its delivery droids in 12 countries. In 2016, the company launched a more

detailed test programme in London, Dusseldorf, and Bern in partnership with local food and parcel delivery

companies. In London, Starship is working with Southwark Council to operate a fleet of 10-15 delivery

droids to deliver food orders, and increasingly parcels, over a distance of 2 miles. Dominos has also used

droids for a small proportion of its deliveries in Germany and the Netherlands.

Delivery droids could reduce costs and reduce congestion in the urban delivery segment of the freight

system. Improvements in resilience and environmental outcomes are likely to be limited.

⎯ Costs: By eliminating the need for delivery drivers, droids have the potential to reduce delivery

costs in urban areas.

⎯ Speed and reliability: In principle, droids could reduce the impact of urban congestion on deliveries

by shifting deliveries from congested roads to pedestrian routes. However, travel speeds would

need to be low for safety, and a large shift towards droids could merely transfer congestion from

roads to pedestrian routes.

The value of freight

⎯ Environment: Delivery droids would not offer environmental advantages relative to alternative

fuelled road vehicles.

⎯ Resilience: Delivery droids are not expected to deliver improved resilience.

Delivery droids are unlikely to be deployed widely. Droids are currently used to deliver small packages

over short distances in urban areas. Given the small payload capacity and the distance that droids can

travel, they will not offer the economies of scale and delivery costs are likely to be higher than those of

larger road vehicles. Delivery droids are likely to be restricted to delivering a small range of goods to

segments of the urban freight market it is difficult to achieve high utilisation of larger vehicles .

Public and political acceptability could limit the deployment of droids. Droids currently travel on

footpaths and risk displacing pedestrians or lead to overcrowding of footpaths. This could restrict the

rollout of droids and limit their use to particular segments of the freight market. This concern has already

led to restrictions on the use of droids. For example, the San Francisco municipal government considered

banning delivery droids, before deciding to restrict their use by issuing a limited number of permits.

CAVs could reduce road freight costs by a third, and contribute to reducing congestion. CAVs have the

potential to achieve mass market deployment, as they could in principle replace the entire road freight

fleet. Provided technological and public acceptability barriers exist at present, but could be overcome.

Our assessment is that delivery droids are unlikely to deliver a step change in the efficiency of the freight

system. Drones could improve cost, and speed and reliability, for a small segment of the freight market.

They are unlikely to be suited to the mass-market, and prospects for large-scale deployment are poor given

public acceptability barriers.

4.7 3D printing

3D printing or ‘Additive Manufacturing’ creates three-dimensional solid objects using digital files. 3D

printing involves the development of model object using a computer-aided design, and the reproduction of

that object by the 3D printer. The printer layers material one on top of another until the object is ready.

Once the object is ready, finishing activities or secondary processing may be required, for example

polishing, sanding or painting.

Advances in 3D printing have greatly expanded the range of potential applications. 3D printing

technology has been under development for the last three decades. In its early stages manufacturers used

3D printing to prototype products. Technological advances, falling costs and improved accuracy have made

3D printing more widespread. Until the mid-2000s 3D printers could only use soft plastic for a limited range

of applications. However, current models can use a range of materials including glass, ceramics, liquids,

organic materials, cement, bituminous concrete or metal powders.

3D printing is relatively established in the manufacturing sector. A range of industries are increasingly

employing 3D printing in their manufacturing processes. Aerospace firms are using 3D printed parts in

aircraft production, automotive firms are using 3D printed parts to make personalised, small-batch

replacement parts and the healthcare sector is using 3D printers to produce customised implants,

prosthetics and medical devices.

The value of freight

3D printing offers some advantages over conventional manufacturing processes. 3D printing is more

efficient than conventional manufacturing at producing products at small volumes; and is better suited to

decentralised production.

− Small volume production. Many products are mass produced. Mass production offers economies

of scale as manufacturing processes such as injection moulding or casting can produce of large

quantities at low cost. Mass production is efficient for mass-market products with high market

demand. However, manufacturers must also produce for niche products with low market demand.

For example, service agreements between component suppliers and companies require spare parts

to be on the inventory for several decades, even when models are no longer in production (Ernst &

Young, 2016). For such products, mass production implies either low utilisation of the

manufacturing plant; or over-production and increased stockholding costs. In contrast, 3D printing

can produce small or variable quantities with low fixed investment costs; designs can be changed

digitally and printed, without any additional investments in plant or machinery.

− Decentralised production. Because conventional mass production processes offer economies of

scale, they are best suited to large-scale, centralised production. As centralised production

increases delivery times, it is less efficient for products that are needed urgently. In contrast, 3D

printing of niche products can be closer to the customer, to shorten delivery times.

In principle, 3D printing could encourage more decentralised manufacturing of some products. Products

which have low market demand, but where consumers place high value on short delivery times, may be

ideally suited to small volume, decentralised production using 3D printing. Such products could include

spare parts for essential equipment. For example, Mercedes-Benz Trucks has started to offer 3D printed

spare parts on demand, at any quantity, helping reduce lead times, and storage and shipping costs (SMMT,

2016). Another example is medical products such as customised dental implants (HBR, 2015).

In turn, decentralised manufacturing could reduce the total volume of freight moved. At present, many

manufactured products are produced in bulk and stored in large central warehouses, and transported long

distances to retailers and consumers. If manufacturing were more decentralised, goods could be produced

closer to consumers and transported much shorter distances. The freight system could shift from

transporting primarily parts and finished goods to transporting raw materials needed for 3D printing, which

could be delivered in bulk with limited packaging. As the mass of raw materials transported would be

comparable to the mass of final products manufactured with 3D printing, decentralised manufacturing is

not expected to result in major changes to the mass (in tonnes) of freight lifted. However, by improving

load factors in freight vehicles which currently carry low-density goods, decentralised manufacturing could

result in a reduction in total freight moved (tonne km).

By decentralising some manufacturing, 3D printing could reduce costs and congestion, and improve

resilience in some parts of the freight system. Improvements in environmental outcomes are likely to be

limited.

⎯ Costs: A reduction in total freight moved (tonne km), and in the volume of warehousing space used

to store items with low turnover, would reduce the costs of freight.

The value of freight

⎯ Speed and reliability: By reducing the volume of freight moved, 3D printers could reduce

congestion.

⎯ Environment: Decentralised manufacturing would result in production taking place closer to

customers and reducing the volume of freight moved. If road vehicles continued to run on diesel, a

reduction in freight moved could reduce CO2 emissions. However, a shift to decentralised

manufacturing would not offer environmental advantages if a shift to alternative fuelled road

vehicles is achieved.

⎯ Resilience: If 3D printing were to encourage some decentralised manufacturing, it could reduce the

distances over which some goods are transported, , and decrease the vulnerability of the freight

system to infrastructure failures and extreme weather events.

However, a large part of the manufacturing sector is likely to continue to use conventional processes.

Only a minority of products are characterised by both low market demand and consumers placing high

value on short delivery times. As a result, the majority of products are likely to continue to be

manufactured using large-scale, centralised processes.

Our assessment is that 3D printing is unlikely to deliver a step change in the efficiency of the freight

system. 3D printing could deliver some reductions in cost and improvements in speed and reliability, but is

unlikely to displace conventional production processes in the majority of manufacturing activity.

4.8 Conclusion

Table 1 summarises the assessment of the technologies considered in this section. Our assessment is that

Alternative Fuelled Vehicles, Connected and Autonomous Vehicles and Robotics and Automation could

deliver a step change in the efficiency of the freight system. Unmanned aerial vehicles (drones),

digitalisation and data science, delivery droids and 3D are likely to play some role in the freight system, but

are less likely to deliver a step change in the cost, speed and reliability, environmental impact and resilience

of the freight system.

Table 1. Impact of new technologies on freight efficiency

Technology

Cost

Speed and

reliability

Environmental

impact

Resilience

Scale

Barriers

Step

change

Alternative fuel

vehicles

No impact

Strong impact

Moderate

impact

Mass-

market

Weak

Yes

Unmanned aerial

vehicles (drones)

Moderate

impact

Moderate

impact

Moderate

impact

Mixed

impact

Niche

Strong

barriers

Connected and

autonomous vehicles

Strong

impact

Moderate

impact

Moderate

impact

Mixed

impact

Mass-

market

Uncertain

Yes

Robotics and

Automation

Strong

impact

Moderate

impact

No impact

Mass-

market

Weak

Yes

Digitalisation and

data science

Strong

impact

Moderate

impact

Moderate

impact

Mixed

impact

Mass-

market

Weak

Yes

The value of freight

Technology

Cost

Speed and

reliability

Environmental

impact

Resilience

Scale

Barriers

Step

change

Delivery droids

Moderate

impact

Moderate

impact

Moderate

impact

No impact

Niche

Uncertain

3D Printing

Moderate

impact

Moderate

impact

Moderate

impact

Moderate

impact

Niche

Weak

Source: Vivid Economics

The value of freight

5 Value of freight efficiency

Key messages

− The freight system plays a vital role in supporting economic activity.

− New technologies could reduce the cost of the freight system by around one third, delivering

cost savings equivalent to around 1.3% of GDP.

− The benefits of attracting new international businesses through an improvement in UK freight

efficiency are likely to be limited.

− Improved freight efficiency is unlikely to improve productivity by accelerating the

development of industrial clusters

− The freight system is now extensive and regional economic benefits from integration with the

wider manufacturing economy are likely to be very limited.

There are multiple channels through which a more efficient freight system could generate economic

benefits.

− Enabling economic growth. All economic activity depends directly or indirectly on the freight

system, and failure to meet freight demand would constrain output

− Delivering cost savings. A reduction in freight costs directly translates into increased output

− Encouraging inward investment. A reduction in the cost of the UK freight system could encourage

global manufacturing industries to locate production in the UK

− Driving agglomeration. Greater freight efficiency could encourage clustering of manufacturing,

resulting in diffusion of innovations and higher productivity.

− Integrating new regions with the wider economy. Connecting new regions to the freight network

could enable a shift to manufacturing and raise regional productivity.

This section identifies the economic benefits which improved performance of the UK freight system with

respect to the drivers of freight efficiency could deliver, and assesses the magnitude of the benefits that

could be realised, given appropriate regulation and innovation in the emerging technologies.

5.1 Enabling economic activity

Freight transport is needed to meet the UK’s most essential needs. For example, freight is critical to

maintaining food and fuel supplies. Freight supplies food to supermarkets, where the majority of

consumers buy their food. Like most retailers, supermarkets hold minimal inventory, and no inventory of

fresh produce; instead, food retailers order products on a daily basis for delivery within 24 hours. Freight

also supplies fuel to petrol stations. Again, petrol stations hold very small inventories, sufficient for 3-4 days

of sales; instead, petrol stations receive several deliveries per week to maintain sufficient supply. Other

critical functions of freight include carrying medical products to hospitals, cash between banks and to

ATMs, letters and parcels to homes and businesses.

The freight system plays a vital role in supporting economic activity. Freight transports raw materials and

intermediate products to factories, to support manufacturing; it transports finished products to retailers, to

meet consumer demand; and it transports goods to ports, to support exports. By enabling goods to be

The value of freight

moved long distances at low cost, freight allows products to be manufactured at large scale in the most

suitable locations in the UK and overseas.

The UK’s exposure to freight costs is declining. Section 2.1 shows how the cost of the freight system as a

share of GDP is decreasing as GDP rises faster than freight costs. As a result, the UK’s exposure to freight

costs is also decreasing.

However, the UK remains highly dependent on freight. While the UK economy is becoming less exposed to

the cost of freight over time, its dependence on freight to support economic activity is unchanged. Section

0 describes how disruption to the freight system resulted in economic disruption during the 1979 truck

drivers’ strike and the 2000 fuel protests. In both cases, these crises disrupted food transportation; and the

2000 fuel protests severely disrupted fuel supply and risked the imminent shutdown of the manufacturing

sector.

Maintaining a functional freight system is of primary importance. Improving the cost and reliability of the

freight system will deliver economic benefits, as described in the remainder of this section. However, given

the UK’s low and declining exposure to freight costs, the overall economic impact of even large relative

changes in cost and reliability could be limited. Nevertheless, the economic impact of a serious disruption

to the freight system would be severe, and addressing the risks of such a disruption remains a policy

priority.

5.2 Delivering cost savings

The cost of the UK freight system is around £80 billion, equivalent to around 4% of GDP. As described in

Section 2.1, the major cost components of the freight system are the cost of freight transport, and the cost

of warehousing. We estimate the cost of freight transport is around £40 billion (of which road freight

makes up around £38 billion and rail freight up to £2 billion); and the cost of warehousing at around £38

billion. Rounded to the nearest £10 billion, this implies that the cost of the UK freight system is around £80

billion, equivalent to around 4% of GDP.

New technologies could offer cost savings of around £26 billion, equivalent to around 1.3% of GDP.

Connected and autonomous vehicles could decrease the cost of road freight by around one third; robotics

and automation could decrease the cost of warehousing by a similar amount. Together these technologies

could reduce the cost of the UK freight system by £26 billion, equivalent to around 1.3% of GDP.

Digitalisation and data science could offer further cost savings, though the magnitude of potential savings is

very difficult to quantify.

5.3 Attracting inward investment

In principle, a more efficient freight system could attract new business investment in the UK. Large

businesses serving an international market must make decisions about where to locate their operations. If

the cost and quality of the freight system influences such location decisions, an improvement in the cost

and quality of the UK freight system could attract new business investment in the UK.

The value of freight

The economic benefits of attracting international businesses to the UK could be substantial. International

businesses offer access to large overseas markets. They also operate in some of the most productive

sectors, such as the pharmaceutical, chemicals and petrochemicals sectors, and could therefore offer large

productivity gains.

The evidence base on the importance of transport infrastructure in attracting international business is

poor. A small number of studies have looked at the role of transport infrastructure in attracting

international business. Kumar (2006) shows that the quality and availability of overall infrastructure,

including transport infrastructure, does contribute to the relative attractiveness for investment by

international businesses, though it does not consider the specific contribution of transport infrastructure

within this. Survey evidence confirms that transport infrastructure is a material factor. EY’s European

Attractiveness Survey (2015) showed that transport infrastructure was an the third most important factor

in shaping location decisions after policy and regulatory stability and domestic market characteristics.

However, while such surveys demonstrate that the availability and quality of transport infrastructure does

influence business location decisions in general, it is not clear that further improvements in the availability

and quality of transport infrastructure will continue to influence business location decisions once a certain

threshold of availability and quality has been achieved.

Improved freight efficiency is more likely to attract valuable inward investment in sectors with high

exposure to freight costs, high trade intensity and high productivity. First, improved freight efficiency is

more likely to influence investment decisions in sectors where dependence on freight and exposure to

freight costs have a material impact on profitability. Second, an improvement in freight efficiency is more

likely to attract international businesses in sectors where the goods and services produced are highly

traded internationally. Third, new business investment driven by improved freight efficiency is more likely

to deliver substantial economic benefits in sectors with high productivity.

Many sectors are exposed to minimal freight costs. Figure 36 shows the economic activity of UK business

sectors (expressed in GVA), organised by the share of freight cost within the total cost structure in these

sectors. Much of UK economic activity is concentrated in sectors in which freight costs make up only a very

small share of the total cost structure. 75% of economic activity is concentrated in sectors in which freight

costs make up less than 1% of total costs; and a further 18% of activity is concentrated in sectors in which

freight costs make up less than 2% of total costs. Sectors in which freight costs make up less than 2% of

total costs include:

− Almost all of the service sector. Freight costs make up less than 2% of total costs in over 95% of the

service sector (by GVA). Much of this sector consists of activities that do not make use of the freight

system (for example, information and communication services, financial services, real estate), or

relatively little use (hospitality, healthcare).

− Much of the resources sector. Freight costs make up less than 2% of total costs in around 90% of

the resources sector (by GVA). Sectors with low freight costs include fishing, forestry, agriculture

and petroleum. While these sectors are highly dependent on freight transport, other costs make up

a far greater share of the cost structure. For example, in the agriculture sector, expenditure on

animal feeds, fuel, and fertiliser is each several times greater than expenditure on freight.

The value of freight

− Much of the utilities sector. Freight costs make up less than 2% of total costs in around 85% of the

utilities sector (by GVA). Sectors with low freight costs include electricity and gas supply, water

supply and treatment sectors.

− Much of the manufacturing sector. Freight costs make up less than 2% of total costs in around 85%

of the manufacturing sector (by GVA). Sectors with low freight costs include the shipbuilding,

aerospace, pharmaceuticals and automotive sectors.

Only 7% of economic activity is concentrated in sectors in which freight costs make up more than 2% of

total costs.

Figure 36. Road freight costs make up a small share of UK business costs

Source: Vivid Economics, Office for National Statistics

Several sectors have relatively high exposure to freight costs, but are not highly traded. Of the 7% of

economic activity accounted for by sectors in which freight costs make up a moderate to high (>2%) share

of the cost structure, only 3% of activity is accounted for by sectors that produce highly traded goods and

services. Sectors with moderate to high freight costs that do not produce highly traded goods and services

include sectors that are inherently domestic (wholesale and retail sectors, veterinary activities; remediation

services, printing services); sectors that produce highly homogenous goods (such as animal feeds); and

sectors that produce goods that are not suitable for international freight (such as cement and concrete; or

bakery products).

Finally, a number of sectors have relatively low productivity. Sectors with moderate to high freight costs

that have low productivity include some food product sectors (meat products, dairy products);

commodities (wood products, glass and ceramics, iron and steel); and the waste management sector.

0 200 400 600 800 1000 1200 1400

>10%

9-10%

8-9%

7-8%

6-7%

5-6%

4-5%

3-4%

2-3%

1-2%

<1%

Sector output (£billion GVA)

Share of road freight costs in total costs (%)

The value of freight

Only a small number of sectors offer attractive opportunities for improved freight efficiency to attract

valuable inward investment. Figure 37 shows the UK business sectors which have moderate exposure to

freight costs, trade intensity and labour productivity. In total, these sectors account for 2% of economic

activity.

Figure 37. A small number of sectors with moderate to high exposure to freight costs also have above average

trade intensity and labour productivity

Source: Vivid Economics, Office for National Statistics

5.4 Developing clusters of innovation

Agglomeration is the concentration of economic activity. The concentration of economic activity has led to

the development of the UK’s large cities, and its major industrial locations, such as the ceramics industry in

the West Midlands; the science and technology cluster centred at Cambridge; and clustering of European

headquarters along the M4 corridor.

Agglomeration has been shown to deliver significant productivity benefits. There are several ways in

which agglomeration brings economic benefits. First, it increases the opportunities for firms and individuals

to share knowledge and ideas. Second, it gives firms better access to skills as clusters of firms attract

specialised workers from a wider area. Third, it creates economies of scale in transport infrastructure and

services to key suppliers and markets. Fourth, it provides access to greater diversity of labour and materials

needed to produce goods and services. Evidence suggests the impacts of agglomeration on productivity can

be large. For example, larger cities are associated with higher productivity levels. Eddington and DfT (2006)

found that a doubling of a city size is associated with an increase in productivity of between 3-8%, while

Graham (2006) found that in the UK, a 10% increase in agglomeration is associated with a 1.25% increase in

productivity.

Inorganic chemicals

Other mining

Petrochemicals

Alcohol and tobacco

Wearing Apparel

Vegetable and animal oils

and fats

Grain and starch products

Non-alcoholic beverages

Paints, varnishes, inks

Coal

Other chemicals

Paper products

Leather products

Fish and shellfish, fruit and

vegetables

20%

40%

60%

80%

100%

120%

140%

0% 1% 2% 3% 4% 5% 6% 7% 8% 9%

Trade intensity (%)

Share of freight transport costs in total costs (%)

The value of freight

In turn, these productivity benefits drive further agglomeration. The productivity benefits of location

within agglomerations provides incentives for other firms and workers to locate there as well. Furthermore,

agglomerations may attract workers for other reasons, such as the greater range of goods and services

available in large agglomerations.

Improving passenger transport could deliver agglomeration benefits. Passenger transport could drive

agglomeration in two ways. First improving the speed and cost of travel within an urban area could attract

more workers and increase city size. Second, improving the speed and cost of travel between an urban area

and its surroundings could widen its catchment area, increasing opportunities for exchange of knowledge

and access to skilled labour. There is some evidence that this has improvement has occurred in practice.

For example, Graham (2004) and Rice and Venables (2005) estimate that a 10% reduction in travel time has

the potential to increase productivity by between 0.4% to 1.1%, respectively.

However, the scope to deliver agglomeration benefits by improving freight transport is more limited.

Improving passenger transport could delivers agglomeration benefits by facilitating the movement of

people. Improving freight transport to facilitate the movement of goods would not offer comparable

opportunities for exchange of knowledge and access to skilled labour.

Improving freight transport in specific locations could potentially encourage clustering in manufacturing

sectors, though the resulting productivity benefits are highly uncertain. It is possible that improving

freight transport in some areas could encourage major freight users to cluster in those areas.

Manufacturing sectors are the most likely to cluster in response to better freight transport. Agglomeration

in manufacturing sectors is driven partly by proximity to suppliers and to customers (Eddington, 2006),

while retailers must locate where their customers are, and other service sectors are not major freight users.

Therefore, it is possible improvements to the freight system connecting industrial clusters to suppliers and

customers could encourage greater agglomeration and increases in sector productivity. However, current

evidence does not suggest that the agglomeration has a large impact on manufacturing sector productivity

For example Graham (2007) examined impact of agglomeration on firm level productivity across eight

industry groups and found that the returns to the manufacturing industry is less than half as large as those

for the service sector (particularly banking finance & insurance, business services and real estate). Finally,

increased clustering in manufacturing sectors could displace manufacturing activity from regions with

relatively poorer freight transport, reducing employment opportunities there.

In contrast, improving freight transport overall would not encourage clustering in manufacturing sectors.

While improving the freight system connecting manufacturing clusters to suppliers and customers could

increase the advantages of locating in those cluster, improving the freight system overall could reduce

these advantages, and limit the extent of manufacturing sector agglomeration.

5.5 Integrating new regions to the economy

By integrating markets, the freight system benefits both producers and consumers. The freight system

provides access to import markets, allowing manufactures to source low-cost raw materials and

intermediate products, and consumers to purchase low-cost finished products. It also provides access to

export markets, allowing manufacturers to developing efficient scale in production. A region that is poorly

The value of freight

connected to the freight system will face constrained access to markets, and the competitiveness of its

manufacturing sector and welfare of its consumers would be severely impaired.

Freight transport has driven over two centuries of regional integration. Initially limited to coastal shipping,

successive development of canals, railways and the road network have integrated Britain’s regions into a

national market for manufactured goods.

• Coastal shipping. The first form of long-distance transport in the UK was coastal shipping. By the

eighteenth century, coastal shipping transported goods, including coal and grain, up and down the

East coast between London and coastal ports of Newcastle, Sunderland, and Scarborough (Bogart,

2013).

• Canals. Development of the canals began in the mid-18th century and by 1800 was largely

complete, with a total length of over 2,400 miles (extending further than current motorway

network). The canal system provided the freight infrastructure needed for the industrial revolution,

and was an important determinant of the location of industry.

• Railways. Development of the railways began in the mid-19th century, as the industrial revolution

was drawing to a close. Over the period 1830-1870 investment in the UK rail network averaged

around 1.5 per cent of GDP per year. The railway network quickly eclipsed the canal network; by

1850 it extended for 6,000 miles of track, by 1900 was several times larger at almost 20,000 miles,

and by 1920 was largely complete. While the railways opened up new possibilities for passenger

transport, they had little impact on the location of industry over this time period (Crafts and

Mulatu, 2005), suggesting that integration of manufacturing markets was already highly developed

following the earlier development of the canals.

• Road network. While the UK had a road network before the 1930s, the development of the trunk

road network in the 1930s and subsequent development of the motorway network in the 1960s

enabled a massive expansion of motor vehicle traffic (Lowson, 1998). The road network quickly

became the dominant transport choice in both passenger and freight transport. It also drove a shift

in the location of industry, with the South East of England emerging as an important new

manufacturing centre (Crafts and Leunig, 2005)

The freight system is extensive and connectivity is unlikely to be a major barrier to regional

manufacturing activity. If improvements in freight infrastructure could improve regional integration, we

would expect to see areas with less extensive road infrastructure suffering from lower freight trade.

However, this is not the case. Figure 38 shows the extensiveness of major road infrastructure capacity and

the volume of freight exported from eight English regions (excluding London), Wales and Scotland. As the

volume of freight exported from a region could be limited by either its road capacity or the size of its

population (and resulting ability to support a large manufacturing sector), both road capacity and outbound

freight are expressed on a per capita basis. Figure 38 shows that areas which produce low volumes of

outbound freight (Scotland, and South West and South East England) do not generally have significantly less

extensive road capacity than regions which produce high volumes (the East Midlands, West Midlands and

Yorkshire and the Humber). In fact, Scotland and South West England have considerably more extensive

road capacity than do the East Midlands, West Midlands and Yorkshire and the Humber, suggesting that

road capacity is not a barrier to producing higher volumes of outbound freight from these regions. All

The value of freight

regions of Great Britain are therefore well connected by the road freight system, and it highly unlikely that

there remain large opportunities to increase regional integration into the freight system.

Figure 38. The English regions, Scotland and Wales are well connected by the road freight system

Source: Vivid Economics, Department for Transport

North East

North West

Yorkshire and The Humber

East Midlands

West Midlands

East of England

South East

South West

Wales

Scotland

200

400

600

800

1000

1200

1400

0 2 4 6 8 10 12 14 16 18

Extensiveness of road infrastructure (miles of road

per million people)

Outbound freight (million tonne km per person)

The value of freight

6 Conclusions

The primary economic benefit of freight is supporting economic activity in other sectors. The freight

system plays a vital role in supporting economic activity: it transports raw materials and intermediate

products to factories, goods to ports and products to retailers, supporting manufacturing, exports and

consumers. We have examined the theoretical and empirical evidence on the link between freight

efficiency and economic activity, and found that wider economic benefits beyond a reduction in cost are

likely to be small. Freight costs make up a small share of total costs in most highly traded and productive

sectors, and are unlikely to be a material factor in attracting inward investment. While improving the

quality of passenger transport facilitates the spreading of knowledge and is associated with higher levels of

innovation, comparable benefits are unlikely to result in the case of freight transport. And the freight

system is now extensive and regional economic benefits from integration with the wider manufacturing

economy are likely to be very limited.

For freight to continue to play its vital role, it must continue to evolve. The freight system must improve

outcomes in all key areas of efficiency: it must remain cost-competitive; minimise its impact on congestion;

reduce its greenhouse gas emissions in line with the UK’s climate targets; and remain resilient to future

stresses. The conclusions of this study on these issues are set out below.

6.1 Cost