A loaded aggregates train stands in a yard at first light with the locomotive already running. It will leave for yards around London, tip, and come back empty, several times a day for as long as the contract lasts.
The path it runs on was settled in a timetable process that closed the best part of a year earlier, before anybody knew what the quarry would have to send. The wagons are on a lease with years left. The customer is on a contract with eighteen months to run.
That order is the whole trade. You buy the slot first and find the load second, and every way rail freight goes wrong is a version of the gap between those two things.
The path is bought before the traffic
A freight train needs somewhere to be on a railway already full of passenger services, and slots are settled through an annual timetable process that runs well ahead of the year it applies to. Committing to a path means committing to pay for it, and if the flow never materialises the charge does not politely go away.
That is a different risk from the one most businesses carry. A haulier with no work parks the lorry and stops burning diesel. A freight operator with no work has already bought the capacity, has wagons on a ten-year lease, and has drivers who are expensive to train and slow to replace.
Getting in costs between £6,000,000 and £30,000,000. Most of that is traction and wagons, a yard with somewhere to fuel and examine them, and working capital to last while industrial customers settle invoices on their own terms. Bad debt is a live issue here in a way it is not on a passenger railway, because you sell to businesses, one at a time, on credit.
Private freight operators exist at all only because British Rail's freight businesses were sold in 1995 and 1996. Since then the mix has turned over completely. Coal, once moved in enormous quantities to power stations, has fallen away, and intermodal traffic, meaning containers running between deep-sea ports and inland terminals, is what most new entrants are now chasing.
A train has to beat a lorry before it beats anything else
Every flow is priced against road, and road is very good at short distances. The operators' rule of thumb is that under roughly a hundred and fifty miles a lorry usually wins, because the cost of getting a load onto a train and off it again at the far end is incurred whatever the distance and has to be spread over the miles you then run.
What rail is good at is weight, volume and repetition. One train takes a large number of lorry loads off the road and does it with a fraction of the drivers.
The costs are lumpy and mostly fixed. Gross margin on a well-loaded flow runs near two fifths, and the labour is skilled: a freight driver costs in the region of £58,000 and is qualified for particular routes and traction. The year has a shape to it too. Construction materials move in the building season, containers hardest before Christmas, and August is quiet because the customers shut down.
A train only pays if it is full both ways
The figure the whole business turns on is how much is in each train against the paths you have paid for, and what share of the return working is loaded rather than empty.
A path is a fixed cost. Running it half full does not halve the cost, it halves the revenue. Running it full in one direction and empty in the other means the loaded leg has to carry the whole round trip. This is why operators will take a cheap backload that barely covers its own fuel: it is not profitable on its own terms, it just stops the return working from being a complete write-off.
One regulator, and a contract that can be taken off you
The Office of Rail and Road stands behind all of it. The licence to operate trains comes under the Railways Act 1993, which licenses the running of trains rather than the carrying of people, so a freight operator holds broadly the same train operating licence as a passenger one. The ORR also issues the safety certificate and approves the track access contract that gives you your paths.
Its powers bite in an unusual place. The ORR can suspend the licence, which is the obvious sanction, but it can also refuse or vary an access contract, and that takes the path itself away. A freight business without paths is a yard full of assets and no way to move them.
One obligation is easy to overlook when buying second-hand wagons: every wagon has to have an organisation formally responsible for maintaining it, named and answerable for the system behind that maintenance. Leasing the wagon does not move the responsibility.
VAT splits along a line that catches people out. Domestic freight is standard rated, so most of what a British freight operator invoices carries VAT. The leg of an international movement is zero rated under the VAT Act 1994, Schedule 8, Group 8, item 5. An operator hauling boxes off a ship needs to know which part of the journey it is invoicing.
Six customers is not a customer list
There are perhaps eight significant freight operators in Britain, on revenue of roughly a billion pounds a year. Treat those as the scale of the thing. The Office of Rail and Road publishes the real figures for freight usage, measured in tonne kilometres moved.
A field that small has a matching problem at the other end. A freight operator's customer list is not a market, it is about six names. One flow of aggregates or containers can be a fifth of the business. When a quarry works out, a power station closes or a shipper decides that road is simpler, a third of the fleet can empty in a month.
That is how the trade dies, and it dies commercially rather than through a regulator's letter. The customer goes, next year's paths are already committed, the wagons are on a lease with most of its term to run, and the flow cannot be replaced inside a timetable year. The business is solvent right up until it is not.
Where this shows up in the game
Rail freight in Business Baron is one of the specialist trades, and the monthly decision is the one that defines it: which flows to commit to a path in next year's timetable, before the contracts that would fill them have been signed. You are spending real money on a slot on the strength of a conversation with a customer who has not signed anything.
The number you watch is tonnes or boxes per train against the paths you are paying for, with the loaded share of the return working beside it. The Office of Rail and Road appears when the safety certificate or the access contract comes up, and it can take a path away rather than merely fine you. The failure, when it comes, is a customer list of six names becoming five. The Rail Freight Operator page carries the licences and the flows behind it.
Like the rest of the specialist trades it needs the full game underneath it, because a freight railway only makes sense when there is an economy moving about on top of it. It is a poor first business and an interesting fourth one, because it rewards the habit most small trades punish: committing to capacity before the revenue exists.