Roland Berger: Rail Industry Supports Sustainable Worldwide Economic Growth

April 5, 2007 // Published as a news service by IHS

Analysts said 70% of the overall market is accessible to suppliers; the rest is work conducted by rail companies or municipal public transport authorities themselves.

Over the next 10 years, the rail industry is expected to grow at a real growth rate of 2% per year. The most important growth markets will be Eastern Europe, Commonwealth of Independent States (CIS) and Asia-Pacific.

According to a Roland Berger study commissioned by the Association of the European Railway Industries (UNIFE), the continuing liberalization of the rail market, as well as railway maintenance needs will create new opportunities for the supply industry.

"Over the next 10 years, the rail supply industry will grow for a number of reasons," said Andreas Schwilling, a partner at Roland Berger's Transportation Competence Center.

"First, the growing rail traffic volume will play a role, as will heavy urbanization and economic growth in emerging markets. Second, governments are showing increasing support for the development of railways and public transport. This is because rail transportation plays an important part in the sustained development of their economies."

Markets in Eastern Europe, CIS and Asia are showing the strongest growth. Analysts said within the next few years, these markets are expected to see annual growth exceeding 3%. This can be explained by the economic and population growth in these regions, where the rail infrastructure is outdated or underdeveloped. "China is the clear forerunner and is quickly developing its rail and subway network," Schwilling said.

In Western Europe and North American Free Trade Agreement (NAFTA) countries (U.S., Canada, Mexico) where the rail network and rolling stock are well-developed and firmly established, analysts said markets remain important because of their sheer absolute volume.

Despite low annual growth rates that hover between 0.5% and 1%, Western Europe remains the rail supply industry's biggest market, accounting for 32% (€34 billion) of total business. The light rail segment has the highest growth in the Western European market, with annual growth rates of 3%. The service, rolling stock and passenger car segments are also growing at above-average rates. The NAFTA region accounts for 22% (€22 billion) of market volume.

The total rail supply market is divided into four segments - the services (market volume of €50 billion) and rolling stock (market volume of €28 billion) segments are the biggest, followed by infrastructure (€18 billion) and rail control (€7 billion). In the future, analysts said the rail vehicle segment will see average annual growth of 2% per year. Passenger coaches, shunters and light rail vehicles are in particularly high demand.

Analysts said the service segment will see the highest growth over the next 10 years, with real annual growth rates of 2%-3%. "Liberalization and the growing number of private railways in Western Europe will make the rail market more accessible to suppliers," Schwilling said. State-run rail companies will increasingly outsource services to external companies. Only about half of the world market for services has been made accessible to private suppliers.

Maintenance and parts replacement will continue to create future opportunities for the supply industry, analysts said. Services for rolling stock and infrastructure make up more than half the market.

Future development of the rail supply market not only depends on economic growth in general, but also on national rail transport policies and major projects, including the passenger dedicated railways planned in China. Analysts said in mature markets, such as Western Europe, the need for replacements will also play a major role.

Even with replacement intervals of 30 years or more, replacement of large fleets and infrastructure makes up the bulk of market volume. For this reason, the industry must be able to adapt to cyclical investments, just as it did in the past.

Analysts said growth of the European railway market is also in the hands of politics - Europe must be willing and able to open the railway market throughout the continent and harmonize technical regulations.

For more information, go to www.unife.org.

Source: Roland Berger Strategy Consultants.