The International Resurgence of the Railway Industry

Julian Fitz | 10 Aug 2016 | European Perspective

Fast Modern Passenger Train with Motion Radial Zoom Blur

Once considered as old fashioned, too slow and not flexible enough for today’s modern world, the railway sector has seen a remarkable resurgence in recent years, with key investments driving growth throughout both advanced and emerging economies. Many governments have realized the negative effects of over-reliance on individual transport and motor vehicles in dense and growing urban centres. Investment into mass transit, especially in the railway sector, will become a key aspect of managing transportation in the future.

The current resurgence of the railway sector is a combination of rehabilitation of existing lines and investment into new infrastructure and stock, particularly in emerging markets. Within the group of developed economies the railway sector has seen massive increases in public investment over the course of the last decade. For instance, France has year-on-year increased investment into railway infrastructure from €4.1 bn in 2005 to €9.6 bn in 2015, with the UK and Germany following suit, increasing their investment from €5.7 bn to €7.9 bn and €3.4 bn to €4.4 bn in the same timeframe, according to OECD data.

Additionally, a number of countries that have traditionally not relied on rail have recently made major announcements for expansion. Qatar’s first phase of development of its new Doha Subway System is already underway, with over 100 kilometers of tracks and 37 new stations to become operational by 2019. Overall, the investment is estimated at over $17 bn. South Africa has presented its rolling stock procurement programme which will involve the purchase of 7,200 new rail vehicles by 2034, an investment of SAR 51 bn (€3.2 bn). The Brazilian Metropolitan Area of Sao Paulo announced a continued investment into a private-public partnership worth over $1.6 bn, improving commuters’ access to their work place and therefore the overall quality of life. Finally, the State of New South Wales in Australia is planning an extension of its Light Rail Network with public investments estimated at A$ 1.6 bn, transforming the urban transportation system and allowing for rapid transit between the city and its south eastern suburbs.

These public investment plans are one of the key drivers for investment projects of major OEMs in the railway sector. The Gibela Rail Transport Consortium and Alstom of France (majority shareholder of Gibela RTC), have already invested in a new manufacturing site in Ekurheleni, some 50 kilometers east of Johannesburg. There they plan to build more than 500 trains and more than 3,800 coaches by 2030, employing some 2,000 people. In a similar vein, Stadler of Switzerland are currently considering an expansion in Unanderra (Australia), expecting to create a further 600 jobs for the manufacturing of light rail carriages and equipment.

Despite these positive signals, mainly from emerging markets, there is still further potential for the railway sector. According to an estimate by Siemens North America, the United States alone are facing a $50 bn investment gap. In the UK the planning process for the HS2 line has been ongoing for several years. However, increasing passenger numbers in most developed economies (for example Amtrak recorded an increase of more than 50% since the year 2000 from just over 20 million to well over 30 million), as well as increasing demand in emerging economies, would suggest great future potential.

With public investment driving location development for OEMs, such as Alstom or Stadler, their respective value chains seem increasingly likely to consider international investments, opening up entirely new possibilities for economic development.  The railway sector is more dynamic than ever!

In September OCO Global will attend the InnoTrans Trade Show, the biggest industry event on the calendar on behalf of our clients.

We look forward to seeing you there!