Amidst growing liberalization,
competition, and changing passenger expectations guided by the rise of digital
technologies, global rail companies and OEMs must have a clear view of the
opportunities, threats, and challenges that lie ahead in their industry.
2018 turned out to be a good year for the rail
industry—a 2.7% growth rate was projected
at the start of the year for freight-rail traffic. But the actual volume toward
the end of the year stood at 2.9% with almost all segments showing improvement.
The impending mega-merger between Siemens and Alstom is expected to come
through in H1 of 2019 (pending regulatory approvals) to forge a formidable
defense against the Chinese rival CRRC.
The buzz on the
convergence technologies and the benefits of digitalization has been on the
rise in the industry for the last 5 years. While the adoption rate and scale of
these technologies can be far better, there has however, been an increasing emphasis
to improve reliability, availability and passenger connectivity to ensure
maintenance and operational costs are optimized.
In the wake of such
highlights and changes in the rail transportation sector, the trends expected
to continue in 2019 can be viewed under
the following heads:
Increased M&As to Further Industry Consolidation
Consolidation continues
to be the dominant tactic in the industry. Setting aside the merger of the
behemoths Siemens and Alstom, 2018 also saw few other major developments. Japanese
multinational Hitachi that already owned 50.77% interest in Italian rail
transportation service provider Ansaldo STS
purchased an additional 31.79% of its share capital taking the aggregate stake
up to 82.56% in November 2018. Wabtec
Corporation signed an agreement to combine its operations with GE
Transportation. Finland-based Transtech manufacturing double-deck carriages,
low-floor trams, vehicle transport carriages, and
electrical units sold its 25% stake to Skoda Transportation Group.
The increasing rate and scale
of such deals indicate that the rail
industry is set for more consolidation. In
the fragmented industry, companies have realized
that their general business interests and innovation in the industry can be more successfully promoted if they are more
vertically or horizontally integrated in their supply chains. For e.g.
standardization and harmonization of asset platforms, supply chain
optimizations and wider global footprint are few of the critical drivers
leading to such exercises. The rail industry is often one of the critical
backbones of the economic framework of countries, therefore leading to
increasing interference from regulatory bodies and competition commissions in
fructification of such deals.
Increased Focus on Digitalization
Digitalization has
emerged as the key driver for innovation in the railways. It provides significant
opportunities to streamline operations, improve reliability of assets and
enhance passenger (or customer in case of freight) experience while reducing
costs. It is being used to derive real-time information on rail movements and
is an enabler of predictive maintenance for fixed assets and rolling stock.
IoT driven asset
management technique is now leading up to the possibility of creating Digital Twins of critical assets to
replicate real-time performance of a live asset and thereby draw useful and
powerful insights on asset performance and its design effectiveness.
Augmented and Virtual Reality
(AR/VR) techniques that
are already enhancing training sessions for rail personnel can also help to
unlock the value associated in remote asset management routines , thus reducing
the dependency on physical availability of subject matter experts while
training, fault isolation and fault resolution exercises.
The adoption trend of such technologies has been slow but has been on
the rise and we hope that 2019 will be better than its yesteryears.
The emphasis on smart trains and connected railways at reduced costs
demonstrate that the adoption rate of these digitalization techniques will be
on the rise for 2019 and beyond. For example, a report by Cisco suggests that
around $30 billion will be spent in the
next 12 years in IoT projects in the rail
sector. The potential applications range from advanced passenger information
systems to insights on better manufacturing procedures to preventive
maintenance and real-time incident alarms. Demand for advanced analytics,
machine learning, simulation related services shall be on the rise to support
the adoption trend above.
Cyber Security will Gain Center Stage
The flipside of digitalization
for railways is the associated risks and exposure to vulnerabilities that
emerge while bridging the legacy ecosystem with new technologies. As the
boundaries between different segments of railways continue to thin with the
presence of increased digital tools on the rail network, the threat landscape
is expanding.
Rail companies must
comprehensively assess all the components of the digital infrastructure on
which the network relies and operates on. They will need to partner with the
right blend of rail domain and cyber security experts for solutions to identify
and to thwart the hacking attempts before they imperil passenger safety and
rail assets. Security protocols will also have to be frequently updated to stay
two steps ahead of the malicious attacks that are becoming increasingly
sophisticated.
The narrative on the
need for robust cyber security guidelines for the rail industry has been emerging
over the last 24 months and will be on the forefront in 2019 and the years to
come thus driving the industry from the principles of safe by design to those of safe
and secure by design.
Shift in Spend Patterns – Increasing Investment in
the APAC Region
The high population and
increasing urbanization in the Asia
Pacific (APAC) region have led to a
growth in the demand for expansion and upgrade of their existing rail
infrastructure. The railways, at present, is the third largest travel segment
in the region and recorded the highest growth in online travel bookings for
2017.
Global
rail companies must observe that the governments in APAC countries are actively
making big budget investments in their
railway infrastructure planned for the next 20 years. Among the recent
developments, there are plans of connecting Kunming-Singapore railway with
China, and also a proposal for a high-speed
rail link between Singapore and Kuala Lumpur. It is estimated that the rail network in Singapore will double in
length by 2030.
China
approved a total budget of $15.7 billion for urban railway projects in the
capital of the northern Jilin province.
Metro
and urban transit systems are now the center piece of the transport solutions
in the emerging economies. In India,
there is an increased emphasis on metro
rail connectivity with the finance ministry approving projects worth Rs 1.07
lakh crore for cities across northern and central states.
With
such opportunities, rolling stock manufacturing companies, OEMs, and technical
expertise service providers will focus harder on these regions in the coming
years.
The UK-EU Brexit Impact
Although
the legal position of UK in the European Union has not yet changed and there is
uncertainty on terms that will govern this exit, there could be critical
impacts on its economy once the country formally leaves the EU.
Railways
that generated passenger revenue of £8.8 billion in 2014-15 owed a large part
of this amount to the immigrants and tourists who came to the UK from EU. The
growth in number of travelers had led to
higher investment in commuter rails, metros and high-speed
lines. With restrictions on immigration
and free movement of European tourists, revenue generation may take a hit.
The
impacts of a final Brexit may also be manifested in train franchise
competitions and the policy of separating operations from infrastructure. Paucity
of skills is a critical driver for globalization of the rail industry. There
are concerns on the ease of transfer and mobility of skills between EU and UK
to drive realization of the massive infrastructure projects planned in UK. Furthermore,
if the value of the GBP continues to depreciate the products supplied by
manufacturers who accept payments in Euros are likely to become more expensive
for UK rail companies.
As we look forward to 2019 for the rail industry, the impetus towards supply
chain consolidation, adoption of digital technologies, and enhanced passenger
experience is evident. For sustainable growth, the improvements in the performance of rail-based
transportation will also be accompanied
by efforts towards de carbonization and environmental protection – thanks to
smart propulsion techniques and lighter car body frames being developed by the
industry.
