A LIMITED number of global manufacturers supplying rail infrastructure products, and a multitude of companies installing them is only one of several dimensions to the railway infrastructure market. In fact, there are multiple niches offering attractive opportunities to specialists, and increasingly beyond their home markets. Depending on the criteria chosen, some of them surprisingly share leading positions alongside well-known competitors.
For the second time since 2009, SCI Verkehr's 2014 study of global railway infrastructure manufacturers presents a panorama of the world's most significant players. A comparison with the previous study clearly shows the major continuities as well as the structural changes currently underway.
The most significant manufacturers are still in Western Europe. Russian manufacturers are now about to follow their Chinese counterparts into the global market, while renowned players and dedicated specialists are competing against each other.
In many ways, railway infrastructure manufacturing forms a rather heterogeneous sector of the overall railway market: even where the demand for railway products has enabled a domestic manufacturing industry to develop, there are only a few major consumers of these products, in particular the incumbent national railway network managers. As these are state-owned entities in most countries outside North America, or projects funded by international financial institutions, business is mostly limited by their respective budgets. Private companies, such as the Class 1 railways in North America, pursue procurement strategies that keep infrastructure costs low. In both cases, there is rapid fluctuation of funds to procure infrastructure products, which in turn results in unsteady order inflow and production.
Manufacturers have developed different responses to this. The most common is to make rail infrastructure manufacturing a business unit of a multi-industry portfolio. In addition, factories have often altered to manufacture different products such as steel profiles, wires, cables, and relays for use in the rail or other industries, and sometimes combined with other activities.
In China, India, and Russia, state-owned manufacturing conglomerates with numerous subsidiaries cover major parts of the market, assisted by small to medium-sized private companies and conglomerates of major primary industries. Another approach is to establish highly-dedicated players providing cutting-edge technology in specific market niches which are increasingly outgrowing their domestic markets.
This market structure restricts communication on each player's manufacturing activities and makes specifying them a particular challenge. In addition, a well-balanced view of the specific strengths of smaller but dedicated players is crucial. As a first step, SCI Verkehr's analysts separated railway infrastructure manufacturing covering track, electrification and train control and signalling from all other activities of the players we identified. This allowed the narrowing of an initial selection of nearly 400 companies to a final total of 100 companies which were assessed in detail. All input used and preliminary segmentation results were recorded in corporate fact sheets, which were presented to the companies for comment and now make up the study's annexe.
The second step involved compiling a tailor-made set of indicators based on railway infrastructure manufacturing turnover and its share in the total corporate or divisional business, shares in selected core product markets (rails, turnouts and crossings, rail fastenings, catenary equipment, traction power supply, and electronic interlockings), and their corporate dynamics (three-year compound annual growth rate). Where not clearly indicated by corporate information, their business structures and relationships were interpreted to deduce a portfolio of data for ranking.
All partial results were integrated into a comprehensive scoring system which allowed each player's position to be specified in relation to each individual criterion as well as in total. The segmental, core product market and comprehensive scores are presented and explained in detail in the study.
Siemens has retained its position as the leading global infrastructure manufacturer over the years (Figure 1). The prominent position of other leading players headquartered in Europe - Vossloh Rail Infrastructure, Voestalpine, Thales, and Ansaldo STS - is also not very surprising, nor is the traditionally strong position of rail and turnout manufacturers in the infrastructure market.
In the track system segment (Figure 2), where results are similar to those of the previous study, Voestalpine is the leader thanks to its leading global position in the rail and turnouts business. A high degree of specialisation and dedication puts Vossloh Rail Infrastructure second. Third place goes to BetElTrans, a subsidiary of Russian Railways (RZD) which produces concrete sleepers and is currently undergoing partial privatisation. This somewhat surprising result is due to BetElTrans' focus until recently on the domestic market and it being part of a largely state-owned industry.
In the electrification sector, it is particularly important to separate manufacturing from other activities, since most players exclusively provide construction services. In addition, the number of medium-size but highly-dedicated manufacturers is significant.
Most catenary manufacturers own production lines for some overhead contact line components. In contrast, the market for third rail equipment is concentrated on a few producers, the most significant being Delachaux. In the traction power supply segment, global players occupy the top positions since the most important products in this segment, such as substations, rectifiers, and stationary switchgear, are capital-intensive. For sub-systems and components, such as switches, transformers, and cables, there are still some lucrative business opportunities for specialised niche suppliers.
In the signalling segment, only Siemens, Ansaldo STS and Thales out of the five main global signalling suppliers rank among the top 10 manufacturers, but all of them, including Alstom and Bombardier, can be found among the top 15 players. National producers from China, Russia, the Czech Republic and Japan hold strong positions.
Most of the dedicated signalling manufacturers demonstrate extremely low margins, whereas manufacturers which have other businesses or activities in other parts of the railway business in their portfolio are able to increase margins above 5%.
In addition to the analysis according to the four criteria treated individually and then as a whole, assessments were also made combining the infrastructure turnover (shares) and corporate key figures such as turnover development (CAGR) and corporate margin - the relationship between published corporate profit and published corporate turnover.
Manufacturers can be roughly divided into global players with capital-intensive activities, such as Siemens, Voestalpine, and Nexans, national/ regional players with a strong position in their domestic markets such as BetElTrans, Elteza, and Hollysys, and medium-sized specialists with a high level of dedication to manufacturing. But, in all sectors, most manufacturers face comparatively low margins. The most common strategies to stabilise business and raise margins are exports, extension of activities to other parts of the railway market or even other industries, while maintaining a strong domestic presence. The cyclic nature of large projects, predominantly in the control command and signalling segment, can have a significant impact on the infrastructure business: after the completion of a major project, the sudden drop in turnover may cause a loss for a short period before the next order replenishes the coffers again.
As far as data was available, the leading rail infrastructure manufacturers were compared according to their rail infrastructure turnover, their corporate development (CAGR) and their corporate margins.
Even fairly dedicated players such as Siemens, Alstom and GE Transportation are active in several sectors, including rolling stock, trade and construction services, which in most cases represent the majority of turnover and margin. On the other hand, Vossloh Rail Infrastructure (although also linked to a conglomerate including rolling stock and services) still holds an exceptional position based on its expertise in track.
Electrification and signalling equipment suppliers are in a slightly better situation than the track system manufacturers. The latter appear to be predominantly driven by economies of scale, whereas electrification and signalling products seem to allow for technological change and innovation to have an effect in the marketing process.