International Railway Journal - October 2008 - (Page 2) This month Rail market growth set to continue There is another factor which makes the future more predictable for rail than other industries: a high proportion of investment is to replace existing assets rather to cope with growth or new construction projects, and some investment is to increase capacity to try to catch up with demand. But rail is also benefiting at the moment from a switch from other modes where soaring fuel costs are driving people and goods from road and air to rail. SCI’s latest study considers the entire railway market, and not just the portion of the market which is accessible to manufacturers and service providers. This is important because the market is constantly changing. There is a trend towards contracting out the maintenance of new and in some cases existing trains, but if the newly-privatised German Rail (DB), for example, decided to contract out its train overhaul work this would suddenly open the door to many million euros of business. The SCI forecast also takes into account the rising cost of railway equipment, due to inflation, and the increasing complexity of railway products. For example, locomotives are becoming more expensive not simply due to the increase in the cost of steel and energy, but also because of the addition of new systems to make them interoperable or, in the case of diesel traction, to make them comply with more stringent emissions standards. Freight wagons are becoming more specialised and passenger coaches more sophisticated, which again adds to the cost. These factors mark out the SCI Verkehr study from another study of the world railway market - also published last month - by Roland Berger for the European Rail Industry Association (Unife). On the face of it, the Roland Berger study seems more cautious in its outlook, predicting annual growth of between 2% and 2.5% from É120 billion last year to reach É154 billion by 2016. However, SCI Verkehr says that when the differences in the way the two studies are compiled are taken into account, there is not that much difference between them. The important point is that both studies are predicting solid growth. The huge increases in the cost of raw materials, energy, and transport will affect the rail industry in a number of ways. The trend by some companies to concentrate manufacturing in fewer, larger factories and then transport the finished product to customers on the other side of the world will become increasingly unviable. This change will favour companies with a strong regional presence. The only exception might be Chinese manufacturers which have very low labour costs and are now in a position to start exporting their new-found manufacturing expertise, which will mean more competition in Europe. David Briginshaw Editor-in-Chief A MIDST all the gloom of the current world financial crisis, we can bring you some good news this month about the bright outlook for rail transport in the next five years. SCI Verkehr, Germany’s respected transport economics consultancy, has just published its latest forecast for the global rail transport market (see page 4). The key prediction is annual growth of around 4.5%, which would increase the overall size of the market for railway equipment and services from É125.5 billion today to É157 billion in 2013. There are several factors which add credence to SCI Verkehr’s forecast. First, SCI has the only global railway database which it has built up over several years and is used by other organisations for their market studies. Most of the forecast is based on projects already underway or committed to. Indeed, SCI says 100% of the forecast for the first half of the five-year period is based on existing or approved projects, and 50% for the second half. This is made possible by the fact that railway investment is so long term, and therefore takes more time than other industries to react to changes in the general economy. So, provided we do not start to see major projects being cancelled or postponed, the future for rail looks secure. Annual growth of around 4.5% will expand the railway equipment and services market to €157 billion by 2013. An interesting development is the revelation by Air France that it is negotiating with Veolia to start open-access high-speed rail services radiating from Paris. It is clear that Air France is very worried about the way high-speed trains continue to gain market share, and have even forced it to abandon a number of routes. The chairman and CEO of Air France, Mr Jean-Cyril Spinetta, says withdrawing from key markets represents “a very serious risk” to the airline and is “paving the way for a somewhat fragile future for Air France.” Spinetta says he has reached the logical conclusion that the only way to stay in key markets is to start running trains under the Air France banner. This is quite an admission for one of the world’s leading airlines, and should boost confidence in rail’s future. Provided we do not start to see major projects being cancelled or postponed, the future for rail looks secure. Many mergers and acquisitions are also likely in the next five years, fuelled by the current financial crisis, which will undoubtedly jeopardise the future of companies with a high level of debt. Companies will also be looking for ways to reduce costs in order to remain competitive. The most important thing for the railway industry is to retain its confidence. All the indicators point to a bright future, but it is all too easy to become unnecessarily pessimistic during these turbulent times. db@railjournal.co.uk 2 IRJ October 2008
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