Scottish Government

8 Freight Related Economic Impacts

8.1 THE CONTEXT

8.1.1 Historically there has been a close relationship between GDP and freight traffic. Between the 1950s and 1990s the increase in GDP was matched by increases in freight traffic particularly by road. This was the consequence of increased demand for raw and manufactured products created by a growing economy requiring more tonnes of freight to be moved over greater distances.

8.1.2 Changes in industry structure are ongoing and this economic restructuring is likely to continue. Services now account for over 70% of the economy, a rise from 63% ten years ago. Within this, financial and business services account for nearly a quarter of total GDP and the public sector, including health and education, accounts for a further 21%.

8.1.3 The economic outlook for exports is partly determined by the economic performance of Scotland's main trading partners.

8.1.4 However, one significant influence on trade could be rising fuel prices. Due to its location, rising transport costs are an important freight transport issue facing Scotland. The greatest inflationary pressures would be felt by road haulage and airfreight, the two most energy-intensive modes.

8.1.5 Furthermore, the long term strategies of national and UK-wide energy policy will have a direct impact on the demand for coal and petroleum transport. The North Sea oil industry is a major freight generator mostly using its pipeline network. Also, in recent years there has been a steep increase in the quantity of UK coal imports routed through Hunterston and transported to power stations in Scotland and England by rail.

8.2 FREIGHT INTENSITY WITHIN THE ECONOMY

8.2.1 Figure 8.1 demonstrates that Scotland has experienced consistent growth in its Gross Domestic Product ( GDP) averaging 2.4% a year in real terms from 1996 to 2007. It indicates that the relationship between GDP and road freight is changing. Although GDP has continued to increase steadily, the volume of road freight has fluctuated with no systematic growth trend between 1996 and 2007 in the road freight tonne kilometres originating in Scotland. Accordingly, the road freight intensity, which is measured as the ratio of road tonne kilometres to GDP, has declined by 14% from 1996 to 2007. The intensity of freight across all modes has declined more sharply, reducing by 40% to 2006.

Figure 8.1 Relationship of GDP to road and all freight movement

Source: Scottish Government, 2007 & DfT, 2008b

8.2.2 These reductions in freight intensity within the economy are potentially due to the following reasons.

• Due to the depletion of oil reserves there has been a strong and continuous reduction in tonnes moved on water. Even in 2006 water based freight still accounted for more than 50% of the total tonne kilometres moved in Scotland. Hence, the reduction in water borne movements will dominate overall freight movements.
• Although there has been more than a doubling of tonne kilometres moved on rail, its overall impact is not large because the mode share of rail in 2006 is still below 10%.
• Road freight stays relatively stable during the years ⁷. The freight industry has become more efficient at transporting freight and generates fewer journeys to transport the same quantity of goods. This has included reducing inefficient practises such as empty running.
• Scotland's economy has partially moved from freight intensive industries (eg mining and heavy industry) to knowledge based industries which do not create large volumes of tonnage. Such industries include electronics, telecommunications and financial services.

8.2.3 Overall, the absolute decoupling of economic growth from freight growth is saying that although freight movement is decreasing, the Scottish economy is continuing to grow. The historical close relationship between growth in GDP and in freight traffic has not been observed during the last decade in Scotland.

8.2.4 It remains desirable that Scottish freight and logistic services are sufficiently resilient and flexible to accommodate the diverse demands of the future. Improvements in economic productivity should help to increase GDP growth trends, while freight and logistic connections in all economic sectors are likely to play a key role in facilitating this growth.

8.3 INTERNATIONAL TRADE

Figure 8.2 Scottish goods and services exports by destination

Source: Global Connections Survey, Scottish Government, 2007
Note: In 2007 prices; destination estimates exclude SIC 61 (water transport), SIC 62 (air transport), SIC 65 (financial intermediation), SIC 66 (insurance and pension funding) and SIC 90 (sewage and refuse disposal). This is due to a lack of reliable company information for these industries.

8.3.1 Scotland exports goods and services to destinations worldwide with total exports worth £20.6 billion in 2007. This is an increase of 7% on the previous year (Figure 8.2).

8.3.2 In 2007 exports to European Union countries accounted for 46% of all exports (by value), with the remainder being Rest of Europe 7%, North America 15%, Asia 11%, Rest of World 10% and 6% is unallocated.

8.3.3 Since 2002, exports to Rest of the World have increased by the largest proportion (31%). Exports to Asia (including Middle East) and North America have been relatively constant whilst exports to Europe have declined.

8.3.4 The destination of exports has a significant impact on the spatial pattern of freight moved in Scotland and on the transport mode used. Exports to other European countries are frequently transported by road via the Dover Straits ports in England or by rail via the Channel Tunnel. Goods destined for more distant locations are more likely to be transported by sea with small high value consignments going by air (often after being transported by road to Heathrow).

Figure 8.3 Scottish exports of physical products by commodity type by year: 2002-07

Source: Global Connections Survey, Scottish Government, 2007
Note: In 2007 prices

Table 8.1 Scottish exports of goods and services by type by year: 2002-07

Source: Scottish Government, 2007
Note: In 2007 prices

8.3.5 Exports consist of both physical goods and intangible services (e.g. financial and business services). In 2007, £20.6 billion of goods and services were exported. 21% of the Scotland's foreign earnings come from intangible services. As financial and business services do not generate freight, the focus on exports below is only on the movement of physical products.

8.3.6 Manufactured goods were the dominant exports from Scotland in recent years with a value of £14 billion in 2007. The proportion of manufactured goods within the total physical products reduced from 87% in 2002 to 83% in 2007.

8.3.7 Overall Manufacturing output in Scotland has seen a downward trend since 2000 ( SCDI, 2005). Manufacturing exports had been declining steadily until 2005 to £12.5billion, and then climbed up steadily until 2007.

8.3.8 The contrast in Table 8.1 between the 62% drop in manufacturing of computers & office machineries (including items of computers, communication equipment and other machinery and equipment) and the 7% rise in intangible services of 2002-2007 illustrates the changing economic structure of Scotland. The foreign earnings of Scotland's special export, whisky, have shown significant growth over the years.

Figure 8.4 Scottish imports and exports by commodity type, 2004

Source: Input-Output, Scottish Government, 2004
Note: In 2004 prices

8.3.9 Figure 8.4 presents the composition of Scottish imports and exports by commodity for physical products in the year 2004. This information is in 2004 prices as it is taken from the most recent version available of the Input-Output table of Scotland, because this includes imports as well as exports. Manufactured goods are the dominant type of physical products imported. In total, about £20.9 billion goods and services were imported from the rest of the world to Scotland. In 2004; intangible services (value £5.5 billion) account for 26% of overall imported goods and services.

8.4 TRANSPORT COST TRENDS

8.4.1 The Corporate Services Price Index ( CSPI) is a quarterly survey of prices charged for services provided by UK businesses to other UK businesses and government. No separate data are available for Scotland. It is conducted by the Office for National Statistics ( ONS) and provides a key measure of inflation (Figure 8.5).

Figure 8.5 Corporate Services Price Index ⁸

Source: Office for National Statistics, 2008

8.4.2 Data suppliers are asked to provide details of services which are typical and representative of their business, and can be re-priced on a regular, quarterly basis. For example, in the road freight sector, one of the services for which contributors are asked to provide a price quotation is for a 38 tonne articulated vehicle to carry grain on a 50 mile trip.

8.4.3 Figure 8.5 shows that there have been different freight transport price changes according to the transport mode. Prices for road freight have risen steadily since 1996 (up 33%) reflecting changes in fuel and labour costs. Rail freight prices fell in 1997 and 1998 (following privatisation of the industry) but have returned to their 1996 level by 2006. Costs of transporting freight by sea have fallen steadily since 1996 and in 2006 were 13% lower than 10 years previously. Freight forwarding costs declined from 1996 - 1999 but have been rising steadily since 2003.

Figure 8.6 Average fuel costs in the UK by year

Source: DfT, 2008c

8.4.4 Figure 8.6 shows how average diesel fuel prices across the UK have increased from 1997 to 2008. Whilst the average price in Scotland will be similar, the cost paid in rural areas such as the Highlands & Islands will be slightly more.

8.4.5 The majority of the price of fuel that hauliers pay at the pump is tax which accounted for 66% of the total cost in 2008. Whilst the absolute cost of fuel tax has increased since 2001 (due to the effects of VAT), the percentage of the total price has steadily declined from 1999 when tax represented 83% of the total. The total price of diesel was closely aligned to petrol prices from 1997 to 2004 although in recent years, diesel has been more expensive, averaging 9 pence more per litre in 2008.

8.4.6 Petrol and diesel prices rose significantly in 2008 due to global changes in supply and demand before declining again in 2009.

8.4.7 Figure 8.7 shows the different prices paid for diesel fuel across Europe with prices in the UK 15% higher than the EU average. This has an impact on the competitiveness of domestic hauliers who purchase their fuel in the UK compared to operators who fill-up elsewhere in Europe. Since cabotage ⁹ was liberalised in 1998, there has been an increase in the amount of domestic haulage work undertaken in the UK by foreign carriers.

8.4.8 Although in 2003 this was only 1.05% of all domestic tonne kilometres, the cabotage share of the long distance haulage market was much larger. The fuels purchased outside the UK empower the cabotage of foreign carriers with a significant cost advantage over UK-registered hauliers. For example, the diesel prices in France are 14% cheaper than UK in 2008. Foreign operator penetration on Scottish corridors (6.2% of inbound freight, 4.5% outbound) is higher than to other peripheral GB regions' (Burns, R et al, 2005 ¹⁰).

Figure 8.7 Average cost of 1000 Litres of diesel retail in different European countries, 2008

Source: EU, 2008

Table 8.2 Scottish goods and services exports by destination

Notes: Destination estimates exclude SIC 61 (water transport), SIC 62 (air transport), SIC 65 (financial intermediation), SIC 66 (insurance and pension funding) and SIC 90 (sewage and refuse disposal). This is due to a lack of reliable company information for these industries.

Table 8.3 Scottish imports and exports by commodity type, 2004

Source: Scottish Government, 2004

Table 8.4 Corporate Services Price Index

Note: Movements in prices are weighted to reflect the importance of transactions in a given year (the 'base year' is currently 2000) and then aggregated for each of the individual indices within the corporate services sector. The published series are classified as experimental, that is statistics that are in the testing phase and not fully developed. Therefore some of the results may be subject to revision.
Source: Office for National Statistics, 2007

Table 8.5 Average fuel costs in the UK by year

Note: Average pump price in pence in April of year. 'Diesel' represents DERV prior to 2000 and Ultra low sulphur diesel from 2000.

Table 8.6 Average cost of 1000 Litres of diesel retail in different European countries, 2008

Note: Consumer prices of petroleum products inclusive of duties and taxes. Prices in force on 30/06/2008. European Average includes 27 countries.
Source: EU, 2008