United Kingdom Freight Transport Report 2007

Steady but unspectacular appears to be the outlook for the UK freight business, at least as far as volumes are concerned. This is in keeping with Britain's role as a mature economy, where freight already plays a fundamental role in manufacturing, trade, and the services sector. As is consistently the case in the more developed countries, freight volume growth is tending to lag a little behind the overall expansion of the UK economy. BMI's UK Freight Transport Report concludes that freight traffic, measured in million ton/kms will expand by an average of around 1.0% per annum over the next five years, slower than economic growth of around 2.9% in the same period. By 2010 the UK transport and communications sector will be valued at US$220bn, equivalent to 7.4% of the country's GDP.

The UK economy is not exactly 'transport saturated', but the industry is well developed, and transport intensity (freight movement relative to GDP) is high. BMI estimates that around 60% of total UK freight traffic is now carried by road and with congestion and relatively slow new motorway construction, we expect this to grow at only 0.5% per annum. Rail freight growth will be higher at 2.9%, as the private operators entice some business back off the road and continue a gradual expansion of capacity. Maritime cargo will come a little lower down the growth table, we believe, with 1.3% annual expansion. Air freight will continue to be the fastest-growing fright transport mode, with annual expansion of 3.3%, focused on electronics and other high-value low-bulk loads.

Steady growth does not of course mean that the UK freight industry will be devoid of excitement and drama in the next half-decade. We expect ongoing takeover and merger activity as global companies seek to gain competitive advantage, with the UK market seen as an important piece in the jigsaw puzzle. The purchase of P&O's worldwide port interests by Dubai Ports World (DP World) was an illustration. In the last quarter on a more local scale Flybe took over British Airways regional operator, BA Connect. Regulatory issues will also figure prominently, as the Office of Fair Trading (OFT) and US Justice Department investigation into alleged price rigging by British Airways and other airlines indicates. Increased M&A activity is supported by the generally open and competitive UK regulatory framework, something which in BMI's view will contribute to the long-term efficiency and dynamism of the industry. We have scored both the UK competitive and regulatory environments quite highly. Our overall business environment rating for the UK is 43 (out of a maximum of 70), which places Britain at the top end of the global ranking (on a par with the US and Japan).