The demise of British Steel will create a crisis for our railways

Just over a week ago, the news emerged that Network Rail, the nationalised owner and operator of Britain’s railway infrastructure, had put an offer in for a portion of British Steel as it grinds through compulsory liquidation.

The announcement raised lots of questions. Could Network Rail’s offer save British Steel? Why put in an offer when several manufacturers of steel rails exist across the Channel? What would be the impact of domestic rail production ceasing?

The answer to the first question is easy...no, Network Rail’s offer could not save British Steel as a whole.

While British Steel (and its predecessor Tata Steel UK) have been supplying over 100,000 tonnes of steel (2000 kilometres of rail) a year to Network Rail since 2014, this only represents 3 per cent of their 3 million tonne annual output. This isn’t enough to justify keeping even one of the four Scunthorpe blast furnaces – Mary, Bess, Anne and Victoria – in operation.

Answering the second question is more complicated.

Clearly, for a functioning railway, the source of its rails is of pressing importance. There are two factors to this: the quality of the rails and the quality of the logistics in getting them to the location where they’re needed.

British Steel provides 95 per cent of the steel rails used by Network Rail. You might think that there would be a substantial risk associated with relying on a single supplier for most of their steel rail supplies, and clearly the collapse of British Steel is evidence for this.

However, by ordering a large volume of rails from outside of the UK to test the waters in diversifying its rail supply chain, Network Rail very quickly discovered that they couldn’t rely on either quality or delivery being up to scratch from the other suppliers. As a result, they extended their contract with British Steel for a further two years back in September 2018.

Quality of the product is one thing but, given that a supplier could invest in better quality control, logistics are even more crucial.

Unlike its mainland European competitors, British Steel has right-time delivery figures in excess of 99 per cent, despite week-on-week changes to its orders being commonplace. For infrastructure delivery on the British rail network, where planning is complex and possession timescales are short, this is critical. Having a rail-connected manufacturer means that rails are able to arrive on-time and onto site with incredible reliability.

An external supplier (i.e. one that had to send rails through the Channel Tunnel or by boat) simply could not replicate this level of responsiveness without building up a substantial onshore stockpile as well as facilities to prepare the rails (such as welding them together into the longer lengths required in modern track). This would take time and add significantly to costs, at least in the short to medium term. It would also require Network Rail to bolster its own planning capability.

Even if rails made in Europe were able to meet the right quality standards, the logistics impact is sufficiently problematic that Network Rail felt it necessary to put their offer in despite the potential political ramifications.

Which leaves us with the last question: How well can Britain’s railways cope if domestic rail production ends?

Ignoring the tariff and logistical challenges associated with our current no-deal Brexit trajectory, getting 200 metre-long rails onto the British mainland is unavoidably expensive.

Sending freight through the Channel Tunnel is expensive. Sending it by boat is less reliable and – crucially – limits the length of supplied rails to 60m or so, roughly doubling the welding required. Again, this is pricey, not least as any new supplier would need to buy or build new rail welding facilities (these require a lot of space).

The logistical effort to shift hundreds of tonnes of steel rails doesn’t end once it reaches the harbour either. Network Rail needs rail supplies to reach the required location at the drop of a hat, and any new supplier will have to establish that capability from scratch. Yet again, this adds cost and reduces reliability.

The loss of Britain’s domestic rail supplier will mean an unavoidable increase in Network Rail’s costs and a subsequent decrease in the amount of maintenance and renewals work that it can deliver from year to year.

Multiply this for the rest of the UK construction industry, and you can see how significant British Steel’s demise will be for the British economy. It’s a good job we aren’t simultaneously in the middle of a political crisis...