Should a private rail industry be vertically integrated or vertically separated?

[eldomtom2]

I have recently been reading some of the economics literature on vertically integrated vs. vertically separated private rail systems (being economists, they of course dismiss nationalised systems out of hand). A vertically integrated system is one like in the US where both infrastructure and operations are handled by the same company. Vertical separation is the EU model, as executed to one of its fullest extents in the UK, where infrastructure and operations are handled by separate entities, with infrastructure perhaps being in public ownership.

Economists tend to be in favour of vertical integration instead of vertical separation, though some do advocate for the latter. Considering how many of these economists have ties to vertically integrated rail systems (be they private freight railroads in the US or legacy European operators opposing EU market reform), I'm interested to hear what this forum thinks on the topic. Assuming nationalisation of operations is off the table, do you think a vertically integrated or vertically separated model is better for the industry and its customers?

 

[furnessvale]

I have recently been reading some of the economics literature on vertically integrated vs. vertically separated private rail systems (being economists, they of course dismiss nationalised systems out of hand). A vertically integrated system is one like in the US where both infrastructure and operations are handled by the same company. Vertical separation is the EU model, as executed to one of its fullest extents in the UK, where infrastructure and operations are handled by separate entities, with infrastructure perhaps being in public ownership.

Economists tend to be in favour of vertical integration instead of vertical separation, though some do advocate for the latter. Considering how many of these economists have ties to vertically integrated rail systems (be they private freight railroads in the US or legacy European operators opposing EU market reform), I'm interested to hear what this forum thinks on the topic. Assuming nationalisation of operations is off the table, do you think a vertically integrated or vertically separated model is better for the industry and its customers?

Problems occur with vertical integration when more than one operator uses the track. As a bare minimum, in the UK one operator would provide passenger services and another one would provide freight. In reality, there would probably be two or three in each sector.

Which of those operators owns the track? With the best will in the world, and no matter what safeguards are put in place, there will be a tendency to favour your own trains.

 

[Gloster]

Avoid the dilemma of which type of private rail industry you have: have a publicly-owned rail industry.

 

[eldomtom2]

Problems occur with vertical integration when more than one operator uses the track. As a bare minimum, in the UK one operator would provide passenger services and another one would provide freight. In reality, there would probably be two or three in each sector.

Which of those operators owns the track? With the best will in the world, and no matter what safeguards are put in place, there will be a tendency to favour your own trains.

The idea of vertical integration is that more than one operator doesn't use the track. Think the UK pre-nationalisation.

 

[Bletchleyite]

I'd say "BR plc" was the way to do it if it had to be done. The privatisations done in that way e.g. BT were generally quite successful. On-rail competition has always been a bit of a niche pursuit; one bigger, stronger organisation would have competed better with car and air.

That would have been best vertically integrated.

If we had to have a mishmash of TOCs, then VI wouldn't' work.

(BT has of course since been vertically split for some nice fallacious competition, of course...)

 

[Gloster]

The idea of vertical integration is that more than one operator doesn't use the track. Think the UK pre-nationalisation.

But there were many cases of running powers, where one company owned and operated the track and another company (or even companies) could use it. And then there were the various different types of joint lines. A lawyers’ paradise.

 

[eldomtom2]

But there were many cases of running powers, where one company owned and operated the track and another company (or even companies) could use it.

Yes, but those were voluntarily agreed upon, not enforced by the government.

 

[Sorcerer]

I feel like vertical separation works better when there is more than one operator. An example of private vertical integration would be Japan Railways Group where you have both the infrastructure and train operations split between seven companies. As far as I know they hold a monopoly on all of their operations with no competing open access operators (I could be wrong). But obviously as we see in Europe you have vertical separation, and a prime example is on the Madrid to Barcelona route where you have four operators running the same route. If this was vertically integrated I can't imagine it would be as competitive since RENFE would own both track and train operations and would favour itself in the same way US freight companies favour their own trains over Amtrak passenger services using their routes.

 

[Tetchytyke]

A vertically integrated system is one like in the US where both infrastructure and operations are handled by the same company

I wouldn’t say the US is vertically integrated, as the infrastructure owners don’t run Amtrak. Which is why the New Orleans-Jacksonville Amtrak service has been suspended for over 15 years now, with no sign of any agreement to resume services.

But there were many cases of running powers, where one company owned and operated the track and another company (or even companies) could use it.

And most companies relying on running powers ended up building their own lines in the end, because the owner of the infrastructure obviously never gave the lessee the best paths. Which is why the UK ended up with so much wasteful duplication.

As you say, a lawyers paradise.

 

[RT4038]

I wouldn’t say the US is vertically integrated, as the infrastructure owners don’t run Amtrak. Which is why the New Orleans-Jacksonville Amtrak service has been suspended for over 15 years now, with no sign of any agreement to resume services.

I think Amtrak's most important line (NE Corridor Boston-NY-Washington) is, plus some bits of others. But there is no 'open access' in the US - Amtrak happen to have legal rights historically to run on lines run by other railroads - no one else has that right. This does make the US railroads effectively vertically integrated, with this exception.

 

[WestAnglian]

Yes, but those were voluntarily agreed upon, not enforced by the government.

Not always, sometimes they were in the Act that created the railway.

 

[RT4038]

Yes, but those were voluntarily agreed upon, not enforced by the government.

Well yes, but this was for a specific company and usually in exchange for permission to build. It was not what is currently known as 'open access'.

 

[Clarence Yard]

Having started in Regional structured BR, gone through Sectorisation and into the private TOC scene, my strong advice is to go VI with joint services for the cross boundary services, effectively how the BR regions managed them.

The separation of track and train has not worked and this is from someone who originally thought it could work but experience has taught me otherwise. The incentives for the various organisations have diverged and commonality of purpose faded away. The engineering functions in NR have lost the discipline of working towards wider commercial or social objectives and total railway cost/benefit decisions and inter function trade offs are now largely absent.

The TOC/NR interfaces (and duplications) will presumably done away with in a Labour Government GBR but until we put track and train back together for the majority of services running in the UK, the network will not reach its potential, or be able to control costs properly.

 

[eldomtom2]

Well yes, but this was for a specific company and usually in exchange for permission to build. It was not what is currently known as 'open access'.

Which was my point.

 

[RobShipway]

I'd say "BR plc" was the way to do it if it had to be done. The privatisations done in that way e.g. BT were generally quite successful. On-rail competition has always been a bit of a niche pursuit; one bigger, stronger organisation would have competed better with car and air.

That would have been best vertically integrated.

If we had to have a mishmash of TOCs, then VI wouldn't' work.

(BT has of course since been vertically split for some nice fallacious competition, of course...)

BT was split up as they seemed to be favouring their owns customers broadband speed to the customers of the competition. That is why you have Openreach now as the infrastructure owner of the landlines etc... used by BT, Sky and other broadband companies. This is also the same reasoning that the rail infrastructure was setup initially to be owned by Railtrack, then later on by Network Rail, as it allows competition to enable prices to be kept low. Not that it has done that over the years though!

If we had the same system as in the US, you would not have TOC's like Grand Central, Hull Trains and Lumo. You would also find that there is many less services provided by the other operators where they currently share tracks on their routes. Whilst you could have as an example GTR own the Brighton mainline as an example, you would not easily be able to have other operators running services to Brighton as there has been in the past with GWR service to Brighton. Or tours taking place from train tour operators.

 

[Meerkat]

I'd say "BR plc" was the way to do it if it had to be done. The privatisations done in that way e.g. BT were generally quite successful. On-rail competition has always been a bit of a niche pursuit; one bigger, stronger organisation would have competed better with car and air.

That would have been best vertically integrated.

If we had to have a mishmash of TOCs, then VI wouldn't' work.

(BT has of course since been vertically split for some nice fallacious competition, of course...)

BT isn’t a suitable comparison as the market was opened up at the same time.
Horses for courses.
For subsidised networks only used by a subsidised operator then vertically integrated makes sense - ie Merseyrail.
For profitable mainlines have a track operator and they offer up batches of paths for train operators, with one batch having the prime paths but also having to provide the least popular too (a slight rebalancing of what already happens).
I would let Scotland fully nationalise their system, as that would provide a benchmark to see if it really is better as claimed.
Tempted to offer C2C as a long lease track and train deal with set freight paths they must provide and write their timetable around (or provide infrastructure to segregate), again as a comparator.