Monday, September 08, 2008
A good time to be in the rail industry
Driven by several large orders in the rolling stock sector, the average annual volume of the world market has increased by €19bn in two years, or a nominal growth rate of 9%. And despite worries about a global economic downturn, the consultants predict that ‘robust growth will continue for the foreseeable future’. From today’s estimated €120bn a year, the market is expected to grow by between 2·0 and 2·5% per annum to reach €154bn in 2016. Within this, the 'accessible' element will grow by between 2·5 and 3% a year from €86bn to €111bn.
According to Roland Berger, Europe, NAFTA and the Asia-Pacific region remain the dominant markets, with Asia-Pacific expected to overtake NAFTA to become the second-largest ‘accessible’ market by 2016. Eastern Europe and the CIS region will also see above-average growth.
As an example of the current optimism and buoyancy in the rail sector, we need only to look at the forthcoming InnoTrans trade fair in Berlin on September 22-26, which has attracted more than 1900 exhibitors from 41 countries. And this is not to mention the REMSA and RSI events taking place in the USA at the same time.
I have remarked before on the fact that major investors are taking a greater interest in the rail sector, notably amongst the US Class Is as highlighted by the public battles between CSX and its activist shareholder TCI. But the phenomenon is not confined to the USA, nor to the bigger railways. Private-sector investment is flowing into many other railways, notably those serving mineral resources. When I talked discussed with him about the forthcoming sale of Central East African Railway, Railroad Development Corp Chairman Henry Posner commented that ‘the value of railways is significantly greater than it was’.
It is a far cry from a few decades ago when the very existence of railways was under threat. The death at the end of July of Sir David Serpell – at one time a senior civil servant in the UK’s Department of Transport – reminds me that it is 25 yeas since he chaired the Review of Railway Finances. This suggested - in all seriousness, that the British Rail network could be slashed from 16 000 to little more than 5 000 route-km in order to achieve profitability. Serpell never understood why his report was so roundly rejected, but the economic model he used was ‘pure’ to the point of lunacy. And although Serpell is reported to have recognised personally that rail offered wider social and economic benefits, they were not considered because they were not in his terms of reference.
Today almost all governments recognise that railway investment brings wider economic and societal benefits, which David Burns explores in the September issue of Railway Gazette International. It may be wishful thinking to believe that rising oil prices and environmental concerns are having a significant impact on modal choice, where the main drivers remain cost and quality of service, but looking further ahead, it seems likely that the rationing of carbon emissions and pressure on energy sources will have a fundamental effect on transport policy at the political as well as economic level.
Just how this will play out is by no means clear, but the scenarios developed by RSSB’s groundbreaking Foresight Studies project unveiled at the World Congress on Railway Research earlier this year present some possible directions. For rail to prosper, it needs to form part of a balanced transport strategy, and as the ongoing debate about the use of very large lorries in Europe highlights the risk that attempting to optimise each mode separately risks a seriously sub-optimal overall result.
Nevetherless, with market optimism and investment both running at high levels, it is, as Posner and others have remarked to me recently, ‘a good time to be in the rail industry’.
