Seismic shifts are reshaping the railway supply industry
THIS year is shaping up to be a watershed for the global rolling stock supply industry. A series of mergers, acquisitions and disposals, coupled with the growing importance of small and medium-sized enterprises are likely to have far-reaching consequences for the railway industry.
The massive merger between China's two train building giants, CNR and CSR, received final approval last month from China's Securities Regulatory Commission and the Ministry of Commerce, as well as anti-trust authorities outside China, and the first appointments have been made to the board of the new CRRC Corporation. This means the merger could be completed as early as next month.
CNR and CSR generated combined revenues of
$US 30.5bn between January and October last year, and achieved total profits of
$US 1.45bn. To put this in context the world's next largest train builder, Bombardier Transportation, had a turnover of $US 9.6bn for the full year and an Ebit of $US 429m.
CNR and CSR have so far focused their export efforts on Asia, South America, Africa and the Middle East. But with the Chinese government keen for the new company to boost exports there will be considerable pressure to enter new markets.
Speaking at the recent Railway Forum in Berlin, CSR chairman Mr Zheng Changhong, who has been nominated to the CRRC board along with his CNR counterpart, explained how China wants to become a manufacturing power focused on innovation achieved both independently and through the continued transfer and absorption of technology. He referred to the huge resources at the disposal of Chinese companies, noting that 10,000 R&D engineers participated in the development of the 380A high-speed train supported by the ministries of railways, science and technology. This could give CRRC a huge competitive advantage in the future.
Completion of the e12bn GE-Alstom deal, which involves GE acquiring most of Alstom's power business in exchange for GE strengthening Alstom's rail division, is awaiting approval from the European Commission's (EC) competition directorate, which is due to give its verdict on July 8. If the deal does clear this final hurdle then Alstom will be purely focused on rail transport and should become a much stronger competitor particularly in signalling and locomotives.
Hitachi's purchase of Italian train builder AnsaldoBreda and a 40% stake in signalling specialist Ansaldo STS is expected to be completed later this year subject to regulatory and antitrust approval. Hitachi Rail Europe already has a strong foothold in Britain having won several substantial orders for passenger trains, and chose Britain as the location for its rail business global headquarters. Despite having innovative and highly reliable products, Japanese companies have often found it difficult to compete because of the strength of the yen, so Hitachi's Italian acquisitions should prove an astute move by consolidating the company's presence in Europe and improving its chances of achieving its goal of becoming a strong global player.
Vossloh is in the midst of restructuring its railway business and plans to sell off its locomotive and LRV manufacturing divisions in order to concentrate on infrastructure, where it is one of the main players. While Vossloh's vehicle building businesses are relatively small, they could prove attractive to a manufacturer looking to strengthen its position in the market, although the European locomotive market is highly competitive and has excess capacity.
If recent reports in the financial press are accurate, then another major change in the supply industry could be afoot. Bloomberg claims that Bombardier has hired UBS and Citigroup to advise it on a possible initial public offering or sale of Bombardier Transportation. The parent company is keen to shore up its loss-making aerospace division and one way to achieve this would be to sell its profitable rail business. This would have a profound effect on the market depending on who bought it, especially as it hard to see how a European or North American railway equipment company would be able to buy it, which would leave the door open to Asian companies looking to penetrate new markets.
Some of the smaller and medium-sized train builders have been steadily increasing their market share, most notably Stadler and CAF, and more recently some of the eastern European players such as Pesa and Škoda. These companies have proved adept at winning orders due to their agility, low overheads, and their ability to produce good products at competitive prices.
This has been aided by changes in the European market. The advent of open-access passenger operators and concessioning of local and regional passenger services has reduced the dominance of national railways and led to more smaller contracts, while traditional railways, most notably German Rail (DB), are becoming more receptive to bids from a wider range of suppliers.
While some companies are becoming increasingly focused on their core product, others are expanding their product range quite aggressively through acquisitions of niche players. Two notable examples of this are Knorr-Bremse and Wabtec, which are both developing a wide portfolio
By the end of this year the landscape of the railway supply industry could look quite different and these changes will shape the future of the railway industry for the next few years.