Rail freight: the benefits and costs of vertical separation and open access.

This paper reviews and analyses the benefits and costs of the principal models for introducing competition into the rail freight sector: (1) the vertical separation of infrastructure from operations; and (2) the introduction of competition through third party access, whilst retaining vertical integration. The focus of the analysis is on freight as freight is less influenced by other factors, such as subsidies and franchising, which are liable to distort any analysis of passenger services. The paper compares railwith other network industries in terms of economic characteristics. It reviews academic research on rail on both sides of the Atlantic and concludes that the evidence in support of any form of rail competition is inconclusive and contradictory. It then compares the impact of reform on rail freight in three reforming countries in Europe: Sweden, Germany and Great Britain (GB). This indicates that the benefits of reform, in terms of the impact on rail freight traffic growth since 1993, are considerable only in theUK. In contrast, in Sweden and Germany, traffic growth has been below theEuropean average, although wider objectives appear to have been met and there have not been the disruption and transaction costs that have occurredin GB. A Case Study on GB then examines in more detail the experience andbenefits of restructuring for rail freight in terms of the development ofcompetition, average rates and traffic growth. It concludes that verticalseparation model adopted in the UK has produced substantial benefits for shippers and that these exceed those benefits that would gave been obtained through third party access. For the covering abstract see ITRD E135582.