In its bi-annual report on the current health of the global railway market, released in time for InnoTrans, SCI Verkehr projects steady growth of 4% over the next five years, as Managing Partner Maria Leenen and Senior Manager Andreas Wolf explain. Euros have been converted to U.S. dollars in the text, but not in the charts. The exchange rate as of Sept. 9, 2024 is 1.1 U.S. dollars per Euro.
The global railway industry’s market volume surpassed the US$220 billion mark for the first time in 2023 and is projected to grow steadily by 4% per year over the next five years.
Challenges such as worldwide supply chain disruption and the surge in energy costs have been overcome, or at least mitigated, in the past two years. The biggest challenge now is the digitalization of railway operations and the entire transport and logistics chain, which is driving disproportionate growth in system technology.
This sector is expected to grow by 4.6% per year over the next five years, outpacing the established markets for railway infrastructure and rolling stock. New rail networks, particularly in the Middle East, are setting improved standards for modern and highly-digitalized railway operations. In contrast, upgrading existing networks to accept digital systems is proving immensely time-consuming and costly, partly because it must be done while rail lines remain open to traffic.
The Chinese market, which is also the world’s largest, is now only growing in the after-sales segment. But this is counterbalanced by the strong growth in new business in other geographic territories, notably India and the Middle East.
The high uncertainty caused by an unstable geopolitical situation is leading to increased protectionism within the railway industry. Indeed, the market accessible to international suppliers has shrunk significantly in recent years, with little sign that this trend will reverse.
The deployment of new transport systems through greenfield projects have a clear advantage when it comes to advancing digital operations. They are able to set new standards of performance and service through the deployment of ATO and CBTC solutions and AI-supported systems from the start.
In contrast, much-needed upgrades of many existing networks are only possible at a very high cost. Existing technologies are increasingly becoming obsolete and are also unsuitable for delivering urgently needed increases in capacity or to improve operational reliability and safety. However, replacement is much more complex and challenging, and upgrades can only be implemented gradually and at a slower pace than installing systems on a new line.
Despite notable progress with some pilot projects, and already-established examples of automated systems working effectively on metro networks, the complete automation of conventional railway networks is still a distant prospect due to the high investment cost. In Europe, installation of trackside and onboard ETCS equipment is an important prerequisite for further digitalizing rail transport. Yet high expectations are not matched by progress on the ground. In addition, there is a need to retrofit substantial fleets of older rolling stock with ETCS, but with only limited industry capacity to carry out the work.
China has been the growth engine of the global railway market for decades. The country remains the largest national railway market with a volume of nearly US$40 billion. However, growth in the next five years will only be generated in the after-sales market.
In terms of the Asian market, the largest overall at US$76.2 billion, this development is at least partially offset by strong momentum in India, where the expansion of rail systems enjoys strong political support. India, already in third place behind China and Russia in the OEM sector, is increasingly supplied by the international railway industry, which is working alongside local manufacturers.
The Africa/Middle East region is set to record annual growth of nearly 8% per year over the next five years, the fastest-growing region in the world, although from a relatively low base of US$8.5 billion. In the Middle East, many new rail networks are currently under development, and this is driving innovation in the global industry by requiring suppliers to meet high quality standards by delivering the latest technology.
The European market, which is worth US$73.9 billion, will grow at 5.4% per year over the next few years due to high investment in existing networks and a demand to increase both urban and high-speed line capacity.
Freight
Global rail freight transport is driven by economic developments and the performance of commodities and trade. Following a quick recovery from the impact of COVID-19 and a sharp decline in 2020, the sector reported strong growth in 2021 and 2022. However, rail freight performance stagnated in 2023.
Asia, the CIS and North America account for 87% of the global rail freight transport market. Asia accounts for almost 40% of all tonne-km transported, well ahead of any other single region. Asia will continue to be the growth driver over the next five years, with an average annual growth rate of 2.8%. Even higher growth rates in rail freight transport are expected as new projects come online in the Africa/Middle East region, although volumes here are starting from a low base.
In contrast, the European rail freight market has been in a structural crisis since at least 2023, which can only be overcome through significant efficiency improvements and more competition between operators. Increased political support is essential if such a turnaround is to happen.
Electrification
Expanding rail freight and passenger traffic will play a crucial role in achieving climate change goals within the transport sector, which remains the second-largest overall emitter, accounting for approximately a quarter of all global greenhouse emissions. Rail accounts for just 1% of these, according to the International Energy Agency. Despite this relatively low share, significant work is underway to decarbonise rail operations, in particular reducing the use of diesel, in pursuit of net zero.
A key factor in this transition is electrification. The market volume for new and upgraded rail electrification is expected to grow at 5.8% per year over the next five years. In Asia, significant progress in electrification has been made over the past decade, which is also boosting network performance. China’s 99,200-mile network is nearly 75% electrified, while India is on the path to electrifying its entire 78,000-mile rail network.
In Europe, the share of electrification is significantly lower at 54%. The political objectives set by some European countries such as Britain and Germany to substantially increase the rate of electrification have not yet been achieved. Many electrification projects are time-consuming and costly, and complete network electrification is often not economically feasible. Nevertheless, the market volume in Europe is growing by nearly 8% per year, albeit from a low base.
In North America, the extent of electrification remains at only 2% of the total 161,200-mile network and is not expected to rise significantly in the coming years.
For these types of rail networks, which transport heavy loads over long distances, the rail industry is working intensively on technical solutions to replace diesel technology. However, there is still a long way to go before diesel locomotives in heavy haul freight transport can be replaced across the board. So far, none of the new propulsion technologies such as battery, LNGor hydrogen has gained a foothold. However, a number of prototypes from a range of manufacturers and industry partners have been developed and are undergoing extensive testing in several countries.
For passenger vehicles, however, development is much further advanced, and the market volume for trains with alternative propulsion systems is expected to increase significantly in the coming years. However, it must be noted that the installation of alternative drive concepts leads to notably higher unit costs per vehicle, while the operational benefits are much the same.
As well as costs, sustainability is presenting challenges for the rail sector. These include saving energy in energy-intensive production processes and railway operations; transitioning to renewable energy; and using new sustainable products instead of CO₂-intensive materials like steel, aluminum and concrete in the construction of new infrastructure.
Protectionism
The isolation of the Russian railway technology market, which began in 2022, has been further intensified by heavy sanctions over the past two years. European and North American companies have withdrawn from the market, resulting in major cuts in local production and maintenance, particularly for modern and high-performance components. These shortfalls have now largely been compensated by domestic production or imports from Asia, and the Russian railway industry appears surprisingly strong in terms of current delivery volumes.
In other regions, there is also an increasing emphasis on local production to reduce dependence on global manufacturers. A good example is the decision by the German government to ban components from Chinese manufacturers Huawei and ZTE in the 5G standard, mirroring similar restrictions by 10 other European countries including Britain, France, Italy, Sweden and Denmark in recent years. CRRC pulled out of a bid for a Bulgarian fleet contract earlier this year when the European Commission (EC) launched an investigation into potential market distortion by means of alleged government subsidy.
Nevertheless, CRRC, with a revenue of nearly $US22 billion, remains the largest railway technology company worldwide, albeit with stagnating revenue growth. A slight increase in exports is not making up for the shortfall created by the declining domestic market. This trend is expected to continue in the coming years.
Hot on CRCC’s heels is Alstom. With revenue of more than US$19.25 billion, the French manufacturer is the clear market leader outside of China and could take the overall lead in the coming years. Alstom’s potential is reflected in its greater diversity of products. It generates revenue in infrastructure, system technology, and rolling stock, while CRRC specializes in rolling stock production.
Hitachi and Wabtec have grown significantly in recently years, following a spate of acquisitions to occupy fourth and fifth place respectively behind Siemens Mobility in third. Hitachi announced the acquisition of Thales’ Ground Transportation Systems (GTS) business unit in May 2024. The combined total revenue of both business activities amounted to US$8.03 billion in 2023 and have already been taken into account in our ranking). Wabtec has recorded strong organic growth, particularly in the resurgent freight segment in North America over the past two years.
As it was in 2022, Greenbrier is the only specialized freight car manufacturer in the top 10 ranking of equipment manufacturers, rising one place to ninth. Specialist infrastructure manufacturers, however, do not make it into the top 10, although currency fluctuations in 2024 are again making precise global comparison difficult.
To order the complete report visit www.sci.de
