Introduction

This report is an analysis of the responses provided to the Department for Transport (DfT) in the Mode shift grants review call for evidence (CfE) and an outline of our next steps.

This work has been conducted as part of a comprehensive review of the Mode Shift Revenue Support (MSRS) and Waterborne Freight Grant (WFG) schemes. These schemes, which provide vital support for the freight industry, were granted state aid approvals originally scheduled to expire on 31 March 2025 and 31 March 2026 respectively.

The MSRS and WFG schemes are aimed at promoting sustainable transportation solutions within the UK freight industry. Through these programmes, eligible businesses and freight operators receive financial incentives to adopt greener modes of transportation, such as rail and waterways.

By encouraging freight companies and customers to explore alternative transportation methods, the government aims to:

• reduce road congestion
• decrease carbon emissions
• create a more sustainable and resilient freight network that benefits both the economy and the environment

MSRS and WFG currently operate across Great Britain, with DfT responsible for funding in England.

The CfE ran from 4 December 2023 to 2 February 2024, under the 2022 to 2024 Sunak Conservative government. In total, 42 responses were provided from a wide range of organisations. The responses were passed to AtkinsRéalis and MDS Transmodal (MDST) for analysis, who were contracted by DfT to review the freight grants schemes.

The government will use the information supplied, along with other relevant information, to shape policy proposals relating to the future of both schemes and their potential successor(s).

Responses and caveats

There were 42 responses to the CfE. Forty-one responses were through the online portal. One response was submitted offline, which comprised a mix of position statements and feedback.

Responses were received from a broad range of organisations including, but not limited to:

• water and rail freight operators
• representative organisations
• port authorities
• freight logistics firms
• unions and trade associations

It is important to caveat that the views of respondents do not necessarily reflect the full range of opinions across the industry.

Background

The MSRS scheme started in 2010. It supports companies with the  costs  of running rail or inland water freight transport instead of road. It applies in cases where rail or inland waterway transport is more expensive but less polluting.

The scheme is divided into 2 parts:

• MSRS (Intermodal), which supports domestic intermodal container movements
• MSRS (Bulk and Waterways), which supports the movement of non-containerised freight

In 2023 to 2024, MSRS has led to circa 1 million fewer lorry trips and has prevented circa 45,000 tonnes of carbon emissions.

Small changes have been made to MSRS since its inception. The MSRS cost model was reviewed and updated from 1 April 2015 following research carried out by Ove Arup & Partners Ltd. From 1 April 2016, amendments were made to wagon utilisation assumptions within the MSRS Intermodal Port model which resulted in changes to some maximum grant rates.

The WFG scheme started in 2004. It is a one-off grant designed to provide time-limited support for the inception of new coastal or short sea shipping services. The grant is paid over 3 equal periods (maximum of 3 years), but at a declining rate (50% applies to the first period, 33.3% to the second and 16.7% to the third). Applicants must demonstrate that the service will be viable at the end of the grant.

The primary objective of the CfE was to seek information about the experience of users of the MSRS and WFG or alternative schemes. It specifically sought views regarding:

• the challenges encountered by applications when applying for the schemes
• the impact of the schemes on organisations
• any changes that would make the existing schemes more effective

Further, it sought views regarding the development of potential successor schemes and aimed to gauge industry needs to ensure the effective design of any such successor schemes.

It was designed to gather insights, data and opinions from a wide range of stakeholders, especially those within the freight industry.

Future policy options

At the launch of the CfE, DfT identified the following options for possible exploration:

• option 1 - closing the 2 freight grants schemes
• option 2 - continuing the schemes as they are with necessary modifications to meet the requirements of the UK’s domestic subsidy control regime
• option 3 - continuing the schemes as they are with necessary modifications to meet the requirements of the UK’s domestic subsidy control regime and with additional changes
• option 4 - replacing the current schemes

Summary of responses

Responses were analysed by AtkinsRéalis and MDST using thematic analysis (qualitative responses) and statistical techniques (where appropriate, given the small sample size). The findings are presented below, grouped by theme.

In conjunction with the survey, DfT held 3 stakeholder sessions, summaries of which can be found below.

In total, 74% of respondents (31 out of 42) were in favour of the schemes continuing. 94% of these respondents (29 out of 31) expressed a desire for modifications to be made to the schemes.

Structure and complexity

14% of respondents (6 out of 42) reported feeling excluded from the application process due to the perceived narrow scope of the grant schemes. Fixed grant rates between specific origin and destination points were proposed by 10% of respondents (4 out of 42) to make the schemes more inclusive.

Additionally, 14% of respondents (6 out of 42) felt that it was important to update grant rates to be more dynamic in order to reflect market economics, such as fluctuations in fuel and operational costs. All these respondents were large organisations and 50% were rail freight operators (3 out of 6).

Further to this, 2 freight operating companies (FOCs) called for an adjustment of the grants or a provision of temporary grant rates in order to encourage mode shift during periods of uncertainty and to better reflect the real economic position at this time. They also indicated that it would be useful for variables in the grant scheme such as fuel costs, HGV driver costs and service utilisation to be recalibrated on an annual basis to ensure that the scheme remains flexible and resilient and that the budget is fully utilised each year.

22% of respondents that were water freight organisations (5 out of 23) raised the concern that they suffered from insufficient support and felt disadvantaged from the scheme’s criteria. 60% of these respondents (3 out of 5) were small organisations. The schemes were regarded as not inclusive by 12% of respondents (5 out of 42), 80% of which were maritime organisations (4 out of 5).

Funding

One of the main barriers to successful grant applications identified by 26% of respondents (11 out of 42) was related to the limited government funding of the schemes. According to 1 professional institute, this sometimes resulted in applications missing out on grants despite meeting the required minimum benefit-cost ratio (BCR) of 2:1.

Infrastructural development was a significant request by 50% of respondents that were marine operators (7 out of 14) who felt that limited funding was a barrier for mode shift to water. 71% of these maritime operator respondents (5 out of 7) cited that the reintroduction of the Freight Facilities Grant would help funding towards this. For example, a water freight operator highlighted the need for upgrading existing facilities as well as new wharves and jetties for Stourton Port and Wharf in Leeds.

Collaboration and engagement

10% of respondents (4 out of 42) indicated that collaboration and engagement was important to the grant schemes. 75% of these respondents (3 out of 4) were maritime operators or representatives and they strongly encouraged strategic partnerships between the public and private sectors to better align the grant schemes with industry-specific objectives.

17% of respondents (7 out of 42) also felt that the schemes were not promoted enough and that this resulted in organisations being unaware of the grants available. For example, 1 freight logistics firm pointed out that they only became aware of the MSRS scheme through working with FOCs. The implication being that freight logistic firms newer to the rail sector would not be aware of the scheme’s existence and therefore would not be able to benefit.

Application difficulties

26% of respondents (11 out of 42), from both small and large organisations, cited difficulties during the MSRS application process. They reported finding the application process as ‘highly competitive’, ‘complex’ and ‘resource-intensive’, with smaller businesses impacted the most because of this. One respondent claimed that, due to this, most small inland water freight operators choose to allocate time and money elsewhere in their businesses.

The complexity of the application process was more commonly cited by maritime organisations as a significant barrier to the uptake of the freight grant schemes – 36% of respondents that cited these complexities were maritime organisations (4 out of 11). None of these 4 maritime organisations supported the scheme.

Digitising the application process was suggested by 33% of respondents (14 out of 42) as a way to improve the process. One respondent suggested that digitisation would:

simplify the process for those who haven’t experienced it, reduce administrative burdens and broaden the scope of eligible participants.

Another respondent, an industry group, highlighted that an online application system would ultimately lead to ‘speedier decision making’. To further reduce complexities, they also called for the reinstatement of the Benefit Calculator Tool (BCT) which could indicate mode shift benefits (MSBs), such as a reduction in congestion and carbon emissions, more clearly.

According to a construction firm, a simplification of documentation requirements and the provision of clear guidelines would increase the accessibility of the MSRS scheme for a wider set of organisations, including smaller business, and for flows such as bulk.

Technology

5% of respondents (2 out of 42) noted that technological innovations could potentially make road haulage more competitive against rail and water and therefore disincentivise mode shift. For example, 1 FOC stated a concern that innovations may occur ‘more readily’ in the road haulage sector and that this would make road haulage more competitive by reducing the comparative carbon savings normally observed when comparing freight moved by rail and road.

However, a water freight operator cited that the grant schemes may benefit from supporting the substantial capital cost of new vehicle technologies, such as making available a lower cost biofuel, like Hydrotreated Vegetable Oil (HVO), for operators traversing tidal waters to compete with road and rail haulage. In addition to this, 1 road haulage organisation called for the grants to provide for greener lorries rather than taking lorries off the road at a higher cost. 

A freight logistics company also called for support with developing digital platforms, including terminal technology and lifting equipment.

Historic lack of support for water freight

29% of the respondents (12 out of 42) expressed the view that within the grant schemes there is a historical lack of support for water freight, with rail being favoured. Of these, all respondents were from maritime organisations.

A water freight operator indicated that the grant scheme currently adopts a ‘one size fits all approach’ and that this has excluded many water freight operators from receiving funding. This was also highlighted by 1 respondent who stated that between 2000 and 2011 only one-third of the grants were awarded to waterborne freight.

Additionally, 29% of respondents (12 out of 42) reflected on the 2022 to 2024 Sunak Conservative government’s target announced in December 2023 to grow rail freight by at least 75% by 2050 and called for a similar approach to water freight. The reasons provided for this include:

• limited eligibility criteria
• biases towards rail freight during the application process
• lack of funding for infrastructural development.

Further to this, 17% of respondents (7 out of 42) indicated that the grant schemes could better support shorter distance flows.

The comparative cost advantage of road haulage was cited as a barrier by 12% of respondents (5 out of 42), including by 3 maritime organisations and 2 rail organisations. One water freight operator reported finding difficulties in persuading clients to mode shift unless they are able to demonstrate an overall cost saving of a minimum 10%. This seems to be driven by the comparative cost advantage of road haulage over maritime.

Environmental benefits

Environmental benefits were a determining factor in whether an organisation supported or didn’t support mode shift. 45% of respondents (19 out of 42) cited environmental benefits as a key driver for mode shift. These organisations had belief in the fact that mode shift to rail and water would help progress towards wider policy goals such as the government’s Net Zero goal by 2050.

It may be possible that larger organisations are more readily aware of how the MSRS scheme achieves its environmental objectives, as 79% of respondents citing this theme (15 out of 19) were large organisations.

Within the discussion of environmental benefits, the statistic that ‘each tonne of freight being moved by rail produces 76% less carbon dioxide (CO2) emissions than the equivalent transported by road’ was cited by 17% of respondents (7 out of 42). To further support this, 1 representative association indicated that withdrawing the MSRS scheme would have ‘adverse environmental and economic consequences’.

Wider policy goals

While discussing the environmental benefits of MSRS, 67% of respondents who cited the impact on wider policy goals were rail organisations (8 out of 12). For example, 1 industry group noted that MSRS is particularly ‘vital’ in assisting mode shift to rail in order to compete with road costs falling between 10-15%.

Furthermore, the use of electric traction for rail freight was cited by 7% of respondents (3 out of 42) as an important addition during the renewal MSRS.

Connectivity and the overall supply chain

Larger organisations more commonly cited the whole supply chain, including consideration of the whole network (for example, rail freight ports, intermodal terminals, strategic rail freight interchanges). Of the total respondents that cited the bigger picture, 75% of these were large organisations (6 out of 8). For example, 1 large cross-modal freight organisation stated that ‘integrated solutions would only be possible through consideration of the total freight supply chain’.

36% of respondents that were maritime operators (5 out of 14) cited their concern that the current grants didn’t support the whole supply chain, with a port authority citing that maritime activity was sometimes seen as ‘less integral to the overall supply chain due to being isolated as a single mode of transport’. Another port authority also stated that changes must be made to the scheme to ensure a ‘level playing field’.

There was a call by 10% of respondents (4 out of 42) to revise the zonal boundaries of the MSRS scheme. A freight logistics company cited limitations around the fact that ‘intra-zonal’ journeys are automatically made ineligible for funding. They cited 1 such flow that they would look to reintroduce should grants be awarded for flows within zones.

One representative association proposed that if the zonal boundaries are to be updated, wider consideration of contextual factors should be taken to understand the ‘realities of network usage and review the zones to reflect policy priorities’.

Economic considerations

21% of respondents (9 out of 42) cited the BCR criteria in their responses. 33% of these respondents (3 out of 9) called for a revision of current benefit calculations. Moreover, 1 respondent indicated that the minimum BCR requirement of 2:1 and a competitive range of 3:1 to 7:1 may be a large hinderance to waterborne light freight. In total, 17% of respondents (7 out of 42) indicated that the BCR scoring disadvantages shorter distance flows.

Two FOCs commented on the diverging costs between moving freight by road and rail. The fuel duty freeze (since 2011) and real increases in rail costs were cited to demonstrate this divergence. Both FOCs cited a 6.8% compound annual growth rate (CAGR) in Network Rail’s Track Access Charges between 2011 and 2024 for Class 66 locomotives, 5.2% CAGR for port lift charges and 3.3% CAGR for lift and shunt charges.

Two FOCs commented on the additional port charges for moving freight onto rail, which in some cases are in the region of £70 and called for the grant scheme to reflect these reported widening cost differentials between road and rail in future grant rates.

Summary of stakeholder engagement sessions

Rail stakeholder engagement sessions

In the rail stakeholder sessions, stakeholders were strongly aligned on the value of MSRS, citing that it is particularly essential for intermodal business. They claimed that without MSRS the financial need and the gap between road and rail would be too great, especially in an environment with no other policy levers to alleviate these market issues. Therefore, they suggested that MSRS is vital for rail as customers will choose to move volumes in the cheapest way possible. 

Rail stakeholders questioned how MSRS supports shorter distance flows which typically have a higher financial need but a lower benefit-cost ratio. The scheme being largely congestion-based provides challenges for stakeholders, who queried if there was an option to revisit this and incorporate more options for benefits. At the same time, it is important that long distance flows are not adversely affected. 

Stakeholders stated that potentially DfT could encourage decarbonisation through incentivising alternative fuels, such as low carbon traction, which deliver higher environmental benefits by helping bridge the gap in cost between these forms of fuel and diesel. It was noted that there are more stages to go through for applications for the bulk scheme when compared to applications for the intermodal scheme.

Stakeholders felt that the complexity of MSRS creates issues when applying for the scheme, especially for those who don’t use it often, with applicants having to look at maps to determine which zones and rates are applicable.

Maritime stakeholder engagement sessions

Ports

Maritime stakeholders, in particular ports, said that they rely on MSRS and it actively encourages them to invest in rail and they want to use rail for shorter journeys. However, they deemed the claiming back process to be complicated. As a result, it is likely that they claim back less than they are entitled to as they want surety.  

If ports did not have MSRS then it would be difficult to use rail and they would shift to moving more freight by road. Port operators see MSRS as an operationally important, enduring subsidy. They suggested that consideration should be given to improving areas or using small elements of the grant in different ways. The duration and level of the funding were deemed the most significant aspects of any future grants by maritime stakeholders. It was also noted that it is important to provide more meaningful assistance upfront for new entrants into the market.

Inland waterways

The stakeholder feedback for inland waterways was that MSRS was not fit for purpose and is difficult to understand and navigate. The perception was that it is not user friendly and those who have spent time and money understanding whether to bid have decided that the grant is more suited to rail freight. They do not feel that MSRS meets the needs of the vessel operators or their clients.

Stakeholders emphasised the importance of a level playing field and that MSRS does not provide this in its current form. They told DfT that bureaucracy is a big issue and while they understand the need for balance for public money, achieving the required BCRs are difficult especially in London and along the Thames.

List of attendees at DfT stakeholder sessions

4 January 2024

• Colas Rail
• DB Cargo
• Freightliner
• GB Railfreight
• Mineral Products Association
• Rail Partners

8 January 2024

• Associated British Ports
• ADM
• Canal Rivers Trust
• Commercial Boat Operators Association
• DP World
• Forth Ports
• HMM
• London Container Terminal
• Maersk
• MSC
• Peel Ports
• Port of Felixstowe
• Port of London Authority
• Solent Stevedores

9 January 2024

• Aices
• CEMEX
• RailX
• RFG
• Work Boat Association

Next steps

MSRS has been extended and will now expire 31 March 2026. WFG will also expire on 31 March 2026. DfT is considering options for the longer-term future of both MSRS and WFG. It will continue to use the evidence collected through this call for evidence to support development of these longer-term options.