HC Deb 24 January 2000 vol 343 cc120-8

Motion made, and Question proposed, That this House do now adjourn.—[Mr. Betts.]

10.3 pm

Dr. Alan Whitehead (Southampton, Test)

I was delighted to be selected to initiate this debate.

During the two and three quarter years I have been a Member, I have observed that Adjournment debates come in all shapes and sizes. Some deal with large issues involving a national or international sweep, and others with very local issues, often pertinent to the constituency of the Members initiating them. My chosen subject does both. On the one hand, it is a large issue that goes to the heart of the well-being of United Kingdom manufacturing and retailing and the competitiveness of the UK economy; on the other, it affects everyone's lives in a detailed and local way. In Southampton, every time I visit Safeway, just down the road from me, I am relying on the just in time system. At Ford, just up the road, every time a production worker turns round to look for a component from the box to, fit the shell of a Transit van, he or she relies on just in time.

Perhaps it is because the factor is all-pervasive that no one notices it. I did a trawl of the number of times that just in time has been mentioned in the House since 1994, and there is virtually no trace; yet the importance of the system is incalculable, and to date has been a source of some pride to the United Kingdom. Indeed the White Paper on sustainable distribution states: the evidence suggests that the UK is now amongst the world leaders in efficient management of the supply chain, representing an important competitive advantage for UK companies. How does just in time work? It works on the basis that goods arrive to serve their purpose—display for sale, or entry into the production line—literally just in time, by means of planning the transit of goods from internal source or entry port, via national or regional distribution centre to destination, so that warehousing is eliminated and minimal time is lost in storage.

Recently, that has worked to the UK's advantage. Between 1986 and the present, the ratio of stock to turnover in the UK has reduced from about 15:1 to just over 10:1. The UK now holds the lowest number of weeks stock of all the major European Union countries. However, as maximum efficiency requires for just in time the integration of each stage of distribution, the system is centralised. Distribution is based on the UK motorway spine. It relies on the transit of goods to depots on the spine and redistribution to their destinations back along motorways.

That means that goods are transported substantial distances overwhelmingly by road. There is a downside. The system's profligacy with vehicle miles means that just in time will become an increasingly potent source of carbon dioxide emissions. More than 80 per cent. of UK freight goes by road, a far higher proportion than in other EU countries and a significantly higher proportion than the 60 per cent. carried by road in France and Germany.

There is a further complicating factor. As a nation, Britain trades externally to a greater extent than many of its competitors. Some 30 per cent. of goods entering the just in time system come from abroad and 95 per cent. of those arrive at UK ports.

Although goods come in a variety of forms and will require differing methods of handling at ports and subsequent distribution, a significant proportion arrive in containers and are then transported to national or regional distribution centres, mainly by road. The containers arrive at port on ships that are rapidly increasing in size rapidly. Currently, vessels transporting 6,000 to 7,000 boxes are operating and vessels able to take up to 10,000 boxes are under construction.

The draught of those ships and their port handling requirements mean that, increasingly, port facilities for containers will be concentrated in three places: Felixstowe, Thamesport and Southampton. That will inevitably add to the problems of just in time as the logistics of getting boxes to distribution centres are compounded by the need to navigate the M25, in the case of Felixstowe and Thamesport, and the A34 and M40 in the case of Southampton.

The system relies for its efficacy on specifying the arrival time as a starting point for the consideration of logistics. That works only as well as it is possible to identify reliable delivery methods. If those methods become suspect, logically, the whole system will fall down.

That is exactly what is happening in the UK; it is a little noticed side effect in the debate on road congestion. We know that car traffic is predicted to increase by one third over the next 20 years. Freight transport is predicted to expand even faster. Estimates for 20 years' time suggest that miles driven by articulated trucks will almost double.

As congestion worsens, each distribution company vies for ways to maintain its supply routes, often employing computer modelling to evade congestion delays. That produces a classic "tragedy of the commons", in that it is overwhelmingly in the interest of each company to invest in ways of avoiding congestion to keep its business afloat, but in no one's joint interest to investigate ways of reorganising the overall system so that it continues to work. Collectively, therefore, the companies involved in just in time are entering a cul-de-sac, with no logical way out. What was a competitive advantage for the UK then becomes a competitive disadvantage.

We are therefore faced with three challenges to just in time. Congestion will change it from just in time to just too late. The concentration of imports to a few ports will exacerbate that effect. To maintain the system, reliance on road transport will radically increase vehicle miles and carbon dioxide emissions.

As just in time is predicated on arrival time, transport managers will resort to planning earlier start times to distributional journeys. That will inevitably run up against the legal limits of drivers' time. The companies will then either press drivers to flout the regulations, or they will have to introduce of modern version of the old stagecoach system. That would entail stationing fresh drivers in motorway service areas or the doubling of cab crews for longer journeys. In either event, over time such measures would introduce to the system a step change in costs, cancelling out many of the cost advantages of the system's initial introduction.

As a consequence of the combined pressure of just in time and the development of container vessels, additional capacity in the three receiving ports that I mentioned is likely to be needed. At the same time, the future for the United Kingdom's approximately 200 other commercial ports will become uncertain. Although some of them will continue to trade successfully in the import and export of bulk or specialist cargoes, many others will effectively close down and be converted to leisure uses. Already, most of the medium and smaller United Kingdom ports are under-used, and together, they represent a huge amount of long-term investment which is in danger of being lost as an element of the United Kingdom's distribution system.

As transport managers resort to avoidance stratagems to maintain the flow of goods, overall journey distances will increase. Even if they do not increase, fuel expended in traffic jams will cause the same effect. Advances in fuel efficiency, engine design and co-operation between distributors will certainly offset some of that outcome, but overall, it is unlikely that the result will be to reduce emissions of carbon dioxide from the transport sector, as is required under the targets in the Government's strategy on climate change. The eventual trajectory, as just in time becomes less effective, is for such emissions to be increased substantially.

At this point, the weary Minister will undoubtedly be saying to himself, "That's the problem defined, but what about the solutions?" Although we are not short of solutions, the problem is that many of them do not really help—or, if they do help, they mitigate the problem, not solve it.

We could, for example, build more roads. Simply increasing the capacity of the United Kingdom's roads to deal with maintenance of just in time would be a straightforward policy. The policy might also be accompanied by freight-only lanes on major roads, to provide greater time reliability for haulage. However, the environmental consequences of such increased road building would be devastating, and the emissions produced by the greater use of roads that would follow such a policy would make it a politically and environmentally unacceptable route to follow.

We could put more goods on to rail. Initially, that is a very attractive option, and, in the medium-term, it is a very important policy imperative. However, use of the current rail system is not favoured by hauliers, as they believe that the system is not reliable and that transit by rail would involve complex and expensive switching of modes. Certainly, the railways have dealt with the short-term problem of reliability in freight transport. Modal split remains a problem, but could be dealt with by more efficient transfer facilities. However, a structural long-term problem remains if we are considering a road-to-rail policy.

Even if all the targets of the two rail freight companies now operating were met, only about 10 per cent. of road haulage would be diverted. That would flatten out road haulage growth in the short term, but would only alleviate the long-term problem, rather than solve it. To go further than that would require fundamental change to the rail network. Although freight slots could be given priority over passenger slots, that would impinge on the Government's plans for increased passenger traffic, as slow freight trains run in front of faster passenger trains.

Alternatively, new track to accommodate freight could be built, but the environmental impact of such new infrastructure could well be as difficult to justify as a programme of new motorway construction.

We could distribute goods by sea. Such a suggestion has historically been regarded as somewhat cranky, but is now becoming increasingly realistic. Distribution by sea would rely on trans-shipment, perhaps from the hub ports that I have mentioned, such as Felixstowe and Southampton. In principle, that is eminently possible, because of the network of available receiving ports along the length of Britain's coastline and the relatively short distances inland that would be required to distribute goods to their destination.

Advances in the design of roll on/roll off and fast-goods vessels ensure that the journey times and the unpredictability of sea routing could be considerably reduced.

Environmentally, sea distribution would be the almost perfect solution, combining very low energy use per kilometre hauled and the capacity to remove a far greater percentage of road haulage than could be done by transferring to rail. Transport managers object that sea freight also suffers from modal exchange problems, is unreliable and—as distribution routes largely do not exist—is effectively unusable. Moreover, the existence of distribution centres on the motorway spine ensures that the whole distribution system would need to be reorganised.

Currently, port charges and ancillary dues mean that 60 per cent. of the costs of many short sea journeys will be taken up by payments due before the shipment leaves port. This compares very unfavourably with the ease of access to road, and the still relatively low cost of entering a truck into the haulage business. These problems are real and serious, but are all in principle resolvable.

We could deconstruct the present assumptions behind the just in time system itself. Considerable scope exists to question the structure that has developed around just in time. Are there methods of sourcing goods which do not entail such profligate movement of materials around the country? These might relate to an examination of the arrangements employed at present of hauling goods to one central point in the UK to redistribute them; changing the way in which containers come into the UK; or encouraging the adoption of more local sourcing by attaching the true costs of the travel of goods to the eventual cost to the consumer.

My preferred policy approach starts with what I hope is an important understanding—that just in time, as a method of securing efficient distribution of goods, must not be seen as the enemy. The assumptions slotted in behind just in time, which have created an almost total reliance on road distribution, are the problem. If we are to attempt to analyse the requirements of a genuinely sustainable distribution system that breaks out of the logical cul-de-sac of present practice, we need to address a simple policy question—can we retain just in time without its pitfalls?

In reality, this is a difficult target, but just in time—or something like it—is not negotiable unless we are to contemplate the dismantling of much of the pattern of food and consumer goods shopping that our society now regards as a given; and, of course, unless we contemplate adding substantial stock-holding costs to our manufacturing industries.

Policy imperatives therefore stand out. We should not look for a magic bullet, because there is none. Instead, we should look at a combination of modes—importantly, bringing the sea into full use around our coasts—which match, crucially, the mode to the transportation need. That is the opposite of the current practice of just in time.

We need to recognise that the market will not—and, logically, cannot—solve its own dilemma. Integrated Government policy initiatives which provide incentives for change, protection from short-term adverse consequences and regulatory penalties for recalcitrant distributors are necessary.

We need to develop distribution routes based on the trans-shipment of goods arriving at the main UK ports to the dozens of regional ports that can serve as new distribution centres. The technology of short sea shipping already exists in a way that can establish fast routes. The political issue is to examine the economics of port handling, so that the front-loaded costs which make short sea shipping disproportionately expensive are reduced.

We must combat the perceived unreliability of short sea routes by extending establishment and support grants to the long-term development of effective routes. We can overcome the perceived time delay on sea routes by priming just in time shuttles—that is, ensuring that a continuous conveyor belt of goods to arrive just in time is established. Ford already operates such a system between Zeebrugge and Dagenham.

Priming essentially consists of underwriting the initial day or arranging that goods will be in transit when they are switched to a slower mode. Once the shuttle is established, no further underwriting is then needed, assuming that the overall costs of the new system are equivalent to its predecessor's.

We should examine with the distribution industry the economics of breaking down the logistics of long-term trunking to national and regional distribution centres. This could consist of a variety of mutually supportive measures, such as co-operation in distribution between companies; developing source-packed containers, so that they travel as close as possible to their eventual destination before being opened and redistributed; and the encouragement, through financial incentives or penalties, of the local sourcing of goods to minimise haulage wherever possible.

This is, unashamedly, a discussion of a big issue. However, I sometimes think that the pursuit of how we get through next week often blinds us to the work that we should be doing next week to get us through the next 50 years. The problem with this subject is that no one will notice that it is a real policy problem until the system has actually broken down.

Professor Charles Handy, in his book "The Age of Unreason", cited the alleged scientific fact that the central nervous system of a frog is insufficiently developed to impel it to jump out of a saucepan of water provided it is heated gently. The gradualness of the change at no stage triggers a reaction in the frog, and it eventually boils to death. I do not know how Professor Handy knows this, and it is an experiment that I would strongly advise against trying at home. However, it serves as a metaphor for our current position.

I was encouraged by the publication of the White Paper on sustainable transport, which put forward many wise ideas. I am not sure, however, that it contains sufficient saucepan-jumping techniques. I trust that my hon. Friend the Minister will address the need for such skills in his reply tonight.

10.20 pm
The Parliamentary Under-Secretary of State for the Environment, Transport and the Regions (Mr. Keith Hill)

As is conventional, I begin by congratulating my hon. Friend the Member for Southampton, Test (Dr. Whitehead) on obtaining this debate on the future of just in time. Indeed, I read with interest his Adjournment debate of 23 April 1998. Some of the issues that he raised then are of relevance today.

The Government recognise the importance of a healthy distribution system. The introduction of just in time has had huge consequences for the competitiveness of United Kingdom industry and the economy of the country as a whole. The use of the just in time philosophy has led to a radical reshaping of our major manufacturing and retail industries, reducing wastage and costs and improving the quality of production. The reductions in working capital that industry has been able to achieve over the past 10 years have released nearly £30 billion of resources at manufacturing and retail levels for productive investment. That has helped to maintain our competitiveness in a challenging global market place.

Furthermore, the UK is rightly recognised as a world beater in efficient supply chain management—of which just in time forms the philosophical basis. We can boast that logistics as a proportion of gross domestic product in the UK is the second lowest in the world at 10.62 per cent., beaten only by the United States at 10.49 per cent. Europe averages 11.79 per cent., and the global average is 11.74 per cent. The Government are committed to maintaining the UK's position at the competitive edge.

My hon. Friend is right to point out that we need a distribution system that is sustainable and that will serve our economy in the decades to come. That is why we stated in our freight policy paper "Sustainable Distribution: A Strategy": We need an integrated transport infrastructure in which road, rail, inland waterways, coastal shipping, ports and airports all play their part in delivering the goods. This is a multi-pronged strategy, which makes better use of our roads as well as our rail and water networks. Clearly, the freight transport industry has a strong role to play in improving the efficiency of its services and developing the new logistics and supply chain opportunities that keep British business on track.

The Government recognise that short sea shipping is a generally safe, environmentally friendly and sustainable mode of transport. We actively support its further development. The shipping sector can make an important contribution, either in its own right or as part of an intermodal system, to the economy of this country. As set out in our shipping policy paper, "British Shipping: Charting a New Course", the Government want to encourage short sea shipping and are keen for the industry to look at ways in which shipping might overcome some of its disadvantages. Measures might include logistical and technical innovation, research and development programmes to investigate the potential contribution of new shipping designs and technologies, better intermodal freight connections and innovation in equipment and design to reduce handling.

With the development and deployment of faster ships, there is the increasing potential for short sea shipping to be able to meet the just in time requirements of modern industry and to break into new markets. It can reach some outlying parts of the European Community that other transport modes cannot reach. At the same time, we recognise that better marketing and promotion of short sea shipping and better communication between the various service providers could encourage more shippers and forwarding agents to consider sea freight as a real option. The Government will liaise with the industry regarding possible initiatives to encourage the short sea and coastal shipping sectors that help us to meet our environment and transport goals.

The use of just in time shuttles is an interesting idea. I note that Ford already operates such a system, and clearly finds it a viable option. However, it would be for industry itself to establish whether, given the time constraints associated with road congestion and the consequential costs associated with that, the continuous conveyor belt of goods that can be achieved by short sea shipping would be a better option.

The Government are committed to extending the freight facilities grant scheme to include coastal and short sea shipping to encourage the transfer of freight from roads to this more environmentally friendly mode of transport. We will be consulting on the details, including the costs that would be eligible for grant, and the criteria to be used in assessing applications.

The United Kingdom will also continue to be involved in European initiatives to support short sea shipping. We warmly welcomed the European Commission's second progress report on this subject, and were pleased to support the adoption of the Transport Council resolution on the promotion of this mode of shipping last month. A number of the recommendations in the report are already in place in the United Kingdom. We are examining the others to determine whether they can be taken forward by Government initiative. Some are clearly for industry action, but we will be keeping in close touch with the shipping industry to discuss the Government's role in creating a climate favourable to the development of short sea shipping.

The efficiency of our ports is vital to our industry and our distribution networks, as my hon. Friend pointed out. Increases in port traffic bring pressures on ports themselves, and on the road and rail links to ports as part of wider transport networks. Ports are distribution centres not only for primary products moved in bulk, but increasingly for higher value manufactured goods moved in boxed cargoes—both deep sea container traffic and ro-ro trailers and containers on shorter sea routes. Increases in ship sizes and the growth in boxed cargoes are increasingly associated with gateway ports, including those mentioned by my hon. Friend.

Ports must play their full part in taking active measures to improve the efficiency of operating berths and moving cargoes to customers, eliminating hold-ups and improving delivery times and reliability. The Government will also play their part, as we said in our White Paper "A New Deal for Transport: Better for Everyone". We aim to encourage provision of multimodal access to markets, make best use of existing port infrastructure and promote best environmental standards in the design and operation of ports. We are also aiming to address the issues raised by changes in trading patterns and their effects on demands for port capacity. We recognise that some ports may need to increase capacity to meet future demand. We aim to say more about our strategic approach in this area in a ports policy paper on which we are currently working.

As my hon. Friend has said in the House before, congestion threatens our economy. Even if we were to divert freight via coastal shipping to its nearest port, roads would still be needed to transfer the goods to and between our factories and shops. That is why a competitive, thriving road transport sector will still form a linchpin in our economy; that is why this Government will be spending £1.4 billion over the next seven years on major trunk road schemes; and that is why we increased spending on roads maintenance by 10 per cent. this year. That compares with the record of the previous Government who cut spending by 9 per cent. over a four-year period.

We are also improving choice for the commuter. The Transport Bill will enable local authorities outside London to introduce road user charging which can help to tackle the problems of traffic congestion that cost the economy billions of pounds every year. Then there is the £750 million that we have allocated to local authorities so that they can put their local transport plans into action. That is all part of a £2.4 billion cash injection for local transport over three years. But that is not all: on 13 December 1999, my right hon. Friend the Deputy Prime Minister launched his 10-year investment plan to transform Britain's transport systems, and which will tackle congestion on our roads, improve journey times and make life easier for British industry.

Through our promotion of the use of key performance indicators, we have been able to demonstrate the importance of transport provider-customer relations in reducing delivery delays and improving efficiency. However, there is much room for improvement, especially in the reduction of carbon dioxide emissions from freight distribution. That is why the Government are working with industry to improve the efficiency of distribution and to reduce its energy consumption. Through the energy efficiency best practice programme, we have been promoting best practice in road haulage and logistics. The new sub-group of the Road Haulage Forum, established by my noble Friend Lord Macdonald of Tradeston, will tackle the environmental and business challenges associated with improving business performance.

Industry has not been a complacent partner in these matters. I offer the House some examples of best practice, where efficient supply chain management has reduced transport demand, while retaining the basic philosophy of just in time. Tesco has integrated its primary and secondary distribution activities. By sharing both types of activities with its suppliers, the company has been able to reduce empty running and, more important, the total mileage of the vehicle fleet. Together with new packaging technologies, those measures have combined to improve the efficiency of vehicle utilisation, saving about 3 million miles per year—equating to 4,600 tonnes of carbon dioxide emissions.

Excel Logistics, a third-party logistics provider, operates a consolidated just-in-time supplier collection system for Rover Group. Vehicles are shared by the factory and the suppliers, visiting each supplier in turn, before returning to the factory to de-stuff and then repeat the cycle. That has resulted in a saving of 3.9 million miles—equivalent to 5,400 tonnes of carbon dioxide emissions.

The automotive industry is recognised as being at the forefront of just in time in the UK; we are seeing the development of supplier parks, whereby suppliers of volume components are encouraged to set up manufacturing operations on sites that are literally next door to the assembly plant. That is resulting in huge savings in transport costs and has removed any concerns regarding road congestion on the timing of deliveries.

By these examples, I hope that I have been able to show my hon. Friend that just in time does not mean a profligacy of vehicle miles. Companies that have adopted that approach consider transport as part of the whole supply chain and do their best to ensure that that part of the chain operates as efficiently as possible—maximising vehicle utilisation and minimising vehicle mileage.

In conclusion, I reiterate that we are committed to ensuring that we do not lose the competitive edge that we have gained through the use of just in time. As my right hon. Friend the Deputy Prime Minister has pointed out, good transport is key to our economic ambitions. With our new transport package delivering the policies for an integrated transport system, as set out in our transport White Paper, we intend to develop the framework within which British businesses can thrive.

Question put and agreed to.

Adjourned accordingly at twenty-eight minutes to Eleven o'clock.