There are a number of reasons why we are witnessing a transformation in the railway supply industry. On the one hand the explosion in the number of high-speed projects around the world, coupled with president Obama's $US 8 billion plan to kick-start intercity and high-speed rail investment in the United States, has encouraged more companies to enter the market, and existing companies to develop new products.
There are clear indications that the Japanese railway industry is looking at export markets more seriously. Japan has been extremely successful in exporting its technology around the world to dominate markets such as electronics and cars, yet it has only had sporadic success in exporting railway equipment. Up to now, Japanese manufacturers have enjoyed a strong and buoyant home market, but this will change as orders for new trains and equipment are expected to decline over the next few years.

The big three JR railways - West, Central and East - are very closely involved in developing new technology, and JR Central in particular has tried to prevent Japanese companies from exporting this expertise. This was demonstrated recently when the chairman of JR Central Mr Yoshiyuki Kasai launched a stinging attack on China's rail industry in what appeared to be an attempt to undermine China's export ambitions.

But even JR Central has woken up to the immense possibilities abroad, and earlier this year it unveiled its strategy for entering international markets. The first concrete step was to set up two companies in the United States, one to market Shinkansen high-speed rail technology and the other to promote its superconducting maglev system.

A group of leading Japanese manufacturers supported by the Ministry of Economy, Trade & Industry toured Europe recently to study the railway market, and Japanese companies are expected to have a much stronger presence at InnoTrans in Berlin this September than on previous occasions.

The two large Chinese equipment suppliers, CSR and CNR, are starting to bid for contracts in Europe now that they have acquired the technology and expertise to enable them to take on the big established players. Modern technology combined with low production costs and low prices could prove irresistible to many railways, especially now that money is tight.

The number of manufacturers of trains for the top end of the high-speed market is also increasing. Korea's national rail operator Korail together with Hyundai Rotem recently launched KTX II, the first high-speed train to be designed and built in Korea, which they are keen to export.

In Spain, Talgo and CAF are both about to unveil their designs for new 300+km/h trains. In other sectors of the passenger market, CAF and another European middleweight Stadler have excelled, recently winning a string of contacts to supply a range of trains from commuter emus to LRVs. These are all clear signs of intensifying competition.

Conversely, the flurry of new open-access freight operators in Europe during the last few years appears to be rapidly drawing to a close following first a spate of mergers and takeovers within the private sector, and more recently as a result of acquisitions by the large incumbent state-owned railways.

A similar situation is emerging in Europe's newer private passenger sector, as the large state railways seek to buy-out their fledgling private competitors. The latest example is German Rail's (DB) acquisition of Arriva, which operates train and bus services in several European countries.

Nobody seems to be questioning whether it is right for state-owned railways to acquire private operators. State-owned organisations do not operate to the same rules and financial discipline as private companies. For one thing, they can never go bust and can often rely on their sole shareholder to bail them out when things get tough. The financially-challenged freight division of French National Railways (SNCF) is a classic example, having received large sums of government support to bail out a poorly-run operation.

Clearly the German government is happy for DB to snap up as many private rail operators as possible to fatten up the company for its long-planned but elusive privatisation. Although DB will have to sell Arriva's rail operations in Germany, the deal will increase its presence in Britain, Denmark, and the Netherlands, consolidate its position in Poland, and give it greater access to Sweden. As a result, DB will become the biggest rail freight and rail passenger operator in Europe.

But isn't this making a mockery of the European Union's policy to open up the European rail market to competition? We are in imminent danger of swapping the old order of state-owned national railways for a handful of state-owned European operators. While this might improve rail's competitive position with other modes across Europe, there is a danger that rail's overall freight market share could fall.

It is the small fleet-of-foot private operators which are able to win new freight traffic to rail, as a lot of this traffic is unattractive to large operators with high fixed costs and prices. Similarly, a reduction in the number of private passenger operators will diminish competition for passenger concessions.

It is time to start questioning what sort of railway Europe really needs. We must not lose sight of the overall objective to increase rail traffic and rail's market share. But will this be achieved by allowing state-owned railways to take over private ones to create huge state-owned European operators?