Safeway and Asda have led the way in using rail freight to distribute goods to stores, and with legislation set to raise road transport costs, others may be tempted to follow.

They said it would never work. But despite its numerous critics, a select band of operators are starting to make rail freight use a successful distribution strategy. The leaders of this trend are the big supermarket chains, which are on a mission to drive cost out of their supply chain.

Safeway has led the pack, operating a rail freight service from the Midlands to Scotland since 1997. ASDA followed, with its service from Daventry to Grangemouth, and now Tesco is about to get in on the action by trialing a link to Scotland, which it eventually hopes to push out across the Highlands.

The next few years could be a watershed for rail freight, as road transport costs are set to increase. In its drive to get freight on to rail by 2010, the government is preparing to raise fuel tax and introduce more congestion charging zones and toll roads.

The working time directive (WTD) that comes into place in 2005 will significantly increase the cost of road transport. Two drivers are required to complete a round trip from London to Glasgow, while under the WTD an additional driver will be needed.

Also, in 2006 the government is set to introduce road pricing on all heavy goods vehicle (HGV) movement, which means lorries will be charged by mileage. These factors have prompted supermarkets to investigate more cost-effective transport models.

'Pretty much all the big-name retailers have trialed the use of rail for goods and it is a sector that is going to grow,' says Jeff Jones, director of Daventry International Rail Freight Terminal (DIRFT) . 'Retailers are at the sharp end of new initiatives and if they are convinced that using rail is a realistic alternative to congested roads then there is a future for rail-connected warehousing.'

This was one of the factors behind the application for a further 2m sq ft (185,800 sq m) at the 2.3m sq ft (213,675 sq m) scheme late last year. Only three units in the development's first phase were rail-connected, whereas on the second phase, which Jones hopes will be approved by the end of this year, 90% of warehousing will have rail capabilities. Although he concedes that rail connectivity is not attracting a price premium on the space at the moment, he is confident this will change.

'There are limited sites of this quality around at the moment,' he says. 'By having the added ingredient of rail, we can attract major logistics companies and retailers to the site, which is well located and has excellent road links. Even if they don't want to use it now, then if they take space at least they will have the opportunity in the future.'

DIRFT already has a successful rail freight infrastructure that has been used by Safeway since 1997, when it launched its rail freight strategy.

As well as moving goods from DIRFT to its regional distribution centre in Bellshill, near Glasgow, the company also moves food, mineral water, soft drinks, chilled and frozen products, and household goods on a daily basis from central Scotland to the Highlands, an area difficult to reach by a poorly maintained road system.

Safeway gained an award in 2001 in recognition of its rail freight strategy. The company has committed to the project even though, compared with road use, the scheme was at best cost-neutral.

Station to station
The system employed is simple. Refrigerated swap body trailers, loading units that can be used for both road and rail freight, are taken from Bellshill to local intermodal terminals and loaded on to rail wagons. They are then moved on trains travelling up to 75mph, 15mph faster than HGVs are allowed to travel on motorways, to locations such as Inverness, where they are lifted on to a skeletal road trailer for final delivery to stores. So successful has the scheme become that the company is looking to push out its model in other parts of the UK.

Safeway's strategy has been aided by more than £1.5m of Freight Facility grants from the Scottish Executive, which also provided valuable grant assistance to help Asda get its rail freight scheme off the ground. Asda transports mixed cargoes of 'ambient' food goods and clothing six days a week from Daventry to its regional distribution centre in Grangemouth, in partnership with WH Malcolms and DRS Rail Services.

Now the once-a-night service takes a minimum of 13 containers loaded with general merchandise, clothing and food to the Grangemouth depot, and trains arrive within 30 minutes of scheduled arrival time in 90% of the cases – 'much better than road transport', according to an Asda spokesman.

The company is also about to trial a second train from the Grangemouth depot to Aberdeen to service its four stores in the area, and the next step could be for the Asda train to service ports such as Felixstowe and Southampton to accommodate the increasing amount of stock shipped in by sea.

Tesco is also piloting two new rail freight delivery programmes: one from the docks to DIRFT, and one from DIRFT to Scotland, with the eventual aim of moving all goods within Scotland by rail. Although the cost effectiveness of implementing such a scheme has been questioned, the supermarkets argue that if deliveries are frequent enough and in sufficient volumes, it will be financially viable.

'It all comes down to what kind of product is being moved and in what type of volumes,' says NAI Fuller Peiser's Howard Penstone. 'It is only ever really economical for slower-moving goods.

Many distribution centre users see them as an insurance policy for the future. By taking space now they can protect themselves against the government increasing taxes on anyone moving heavy goods around in the future.'

Heavy role
However, opinion is divided as to how big a role rail freight will play in the future movement of heavy goods. 'At the end of the day it comes down to location, location, location,' says Lambert Smith Hampton's head of corporate services Nigel Philp. 'You are unlikely to see any rail freight development take place unless you also have excellent road links.'

However, Michael Hughes, Helios director and co-founder of the lobby group Rail Infrastructure Investment Group (RIIG), which he set up with ProLogis, Burford and Intermodality, is more upbeat about rail freight's prospects. 'It only has to take a 3-5% shift to rail and that will have a huge impact on the roads,' he says. 'It is hard for anyone to be anti-rail freight, and all of the large third-party logistics companies and large retailers are talking about using rail.'

Other operators appear to be heeding these words of advice. Tate & Lyle is using rail freight to distribute its products, while Superdrug recently started using intermodal express rail services from the port of Felixstowe to a unit at Wakefield.

Hughes thinks that RIIG's message is being heard. 'Food retailers are and will lead the way in terms of rail freight and I can see DIY retailers and bulky goods following on from there. It makes good economic and environmental sense, and if you use rail you are sending out a strong message.'

Article by Simon Creasey Property Week 24 October 2003