Japanese seek a slice of growing

The Japanese have arrived in Europe. Three decades after the Japanese auto industry established car manufacturing plants on this side of the globe, contracts have been signed for the first Japanese railway plant in Europe. James Abbott reports.

JAPANESE SEEK A SLICE OF GROWING EUROPEAN RAIL MARKET

ON 14 May 2013, Hitachi Rail Europe announced that it had signed a contract with Merchant Place Developments for the construction and fit-out of a rolling stock manufacturing plant in Newton Aycliffe, County Durham, UK. The contract paves the way for the construction of Hitachi’s first train factory in Europe, which represents an investment of £82 million. Hitachi Rail Europe is to receive a £4 million grant from the UK’s Department for Business, Innovation and Skills to support the build of the factory.

Alistair Dormer, executive chairman and chief executive officer of Hitachi Rail Europe said: “By investing substantially in our train factory, we are creating employment opportunities for a large number of engineers and technicians in the North East of England, which has a strong tradition of engineering skills. We are keen to fill our order books, building trains here in the UK – for use in Britain and for exporting to continental Europe.”

Hitachi said the factory will create long-term employment for 730 people. It is expected that 200 jobs will be created during the construction phase of the factory. Construction of the plant is expected to start at the end of 2013, with the factory scheduled to go into production in 2016.

In Japan, Hitachi is a builder of the famous Shinkansen bullet trains used on the Japanese high-speed lines. The UK factory will initially be used to build Super Express Trains, a type of inter-city train devised for use on Britain’s historic network. The Super Express Trains will go into full passenger service on the Great Western main line from London Paddington to Bristol and South Wales in 2017.

Artist’s impression of Super Express Train to be produced at the Hitachi plant in Newton Aycliffe, UK.

The construction of the Newton Aycliffe factory has been strongly supported by the UK Government, with Government minister Philip Hammond joking when he was Transport Secretary that the Japanese ambassador to London had a permanent chair in his office. The Government is plainly hoping that the Newton Aycliffe railway plant will emulate the success of Japanese car maker Nissan, whose Sunderland plant close to Newton Aycliffe in the North East of England has a reputation as the most productive car-maker in Europe. The Qashqai car made in Sunderland has been exported all over the world, including for a while to Japan itself.

Whether this is a realistic aim for the trainbuilding plant is a moot point. Critics of the UK Government’s policy argue that the English plant will be doing little more than assemble kits built in Japan, although Hitachi is at pains to point out that there will be a Research & Development department in County Durham.

Reportedly, one reason the UK Government is so keen on the building of the new plant is that there was a worry that amalgamations in Europe could lead to a semi-monopoly in railway equipment supply. There have in the past been concerns that the Canadian firm Bombardier, which is the largest railway manufacturer in Europe, might sell its railway division in order to free up funds for new model development in its aircraft division. However, in the event this did happen, it is unlikely the European Commission would sanction purchase of Bombardier’s capacity by Alstom or Siemens, the other two of the European ‘Big Three’, and for now there is more than enough rivalry between the European majors to ensure keen prices.

UK demand only modest

The history of the past half century in the European railway manufacturing industry is one of overcapacity and plant closures, rather than openings. Is there enough potential demand to justify the Newton Aycliffe factory? The requirements of the UK market on its own are modest enough to be met by one plant and there is one remaining historic train building factory in the country: Bombardier’s plant at Derby.

Since Derby lost out on a big order for the Thameslink line in London to Siemens’ plant at Krefeld in Germany, the plant has been kept going with a longstanding order for the London Underground that will dry up over the next couple of years, plus a handful of small orders for London commuter trains.

So the only large order on the horizon in the UK, new trains for the Crossrail line now taking shape under London which is due to open in 2018, has become a ‘must win’ for both Bombardier and Hitachi – both firms need it to keep work in their UK factories. These two firms are up against other shortlisted bidders Alstom of France, CAF of Spain and Siemens of Germany for the 60-odd trains that will be needed for Crossrail.

A decision is due to be made towards the end of this year and it is sure to be a political hot potato. Interestingly, the UK Government has announced that the Crossrail trains will be built using conventional public financing, rather than the complex private finance arrangements that have led to long delays in between announcing the preferred bidder and the firm contract for the Hitachi Super Express Trains and the Siemens Thameslink trains. With public money speeding up the process, it will be feasible to tie up the contract for the Crossrail trains in advance of the next UK election in 2015.

The Crossrail and Thameslink projects show the British administration is continuing to invest in rail despite high levels of government debt, and the same goes for other major northern European countries such as France and Germany – although the Mediterranean countries that have borne the brunt of the eurozone crisis have retrenched. In a study last year, the SCI Verkehr consultancy said it expected the €39.7 billion European railway equipment market to grow by 3 per cent a year up to 2016.

Rapid expansion beyond Europe

That is dwarfed by the break-neck scale of investment in China, where in 2010 SCI estimated the market size at €100 billion,

although by 2011 it had declined to about €70 billion as some of the largest projects were completed.

While in the early years of expansion the Chinese relied heavily on joint ventures with European and Japanese firms in railway equipment manufacture, domestic Chinese companies now produce many of their own clone products and their sheer volume of output makes them the largest railway equipment suppliers in the world. However, most of the output is for domestic consumption and Chinese export success so far is mainly limited to Asia.

One of the strongest markets of late has been Russia, buoyed up by strong raw materials exports. Here again the west European majors have been in joint venture with local suppliers. For example, at the Hannover Messe in April, Russian State Railways (RZD) signed a memorandum of understanding with Siemens for the purchase of 350 electric locomotives, which are to be produced by a joint venture of Siemens and local firm Sinara and made at a plant in Yekaterinburg, Russia.

Also trumpeting an east European deal at Hannover was Bombardier, which has tied up with Russian rail manufacturer UVZ to develop jointly metro trains for the Moscow metro and elsewhere in the Commonwealth of Independent States.

SCI forecasts annual growth of 3.2 per cent for rail technology products in the region, which will increase the size of the CIS market to €21.3 billion by 2016. Some of the growth is being propelled by rail projects associated with the Sochi Winter Olympics in 2014 and the soccer World Cup which Russia will host in 2018.

Siemens of Germany is building eight new ‘Sapsan’ (‘Falcon’) high-speed trains to supplement the eight already working between Moscow and St Petersburg. Operating developments

Turning to railway operating, subsidiaries of the French (SNCF) and German (DB) state railway companies are making much of the running where services are tendered. The most open market is the UK, where franchises are let for operation of main line services. Here, through its part ownership of Keolis, SNCF is a participant in the GoVia joint venture, the franchisee with the highest number of passengers in the UK.

DB’s Arriva subsidiary operates a number of UK franchises and in May 2013 the company took over Veolia Transport Central Europe, an operator with bus activities in Poland, the Czech Republic and Slovakia.

SNCF is a shareholder in NTV, a new intercity operator which competes against the state operator FS on the high-speed network in Italy. Meanwhile, when European competition policy dictated that the German arm of Arriva should be bought by someone other than DB, FS took it on. Bringing a dose of private sector competition to all this nationalised industry activity is National Express of the UK, which has had some success in the market for tendered local rail services in Germany.

In rail freight, DB of Germany is the undisputed king, being the dominant player in the UK and the Netherlands and with operations in many other European countries. When DB bought English, Welsh & Scottish Railway from Canadian National, the company’s embryo French operation Rail Cargo Europe came as part of the sale. DB is now using this subsidiary to compete against SNCF on its own turf.

Rail Cargo Europe is just one of a number of freight operators that have entered the French market under European Commission-inspired open access rules. They see potentially rich pickings, as SNCF Fret is a basket case, losing €2.5 billion in the five years to 2011 (a period which admittedly encompasses the financial crisis, but which other state rail freight operators endured much better).

Unable to fight off new entrants by fair means, the company has adopted foul: it has been fined more than €60 million by the French competition authority, the Autorité de la Concurrence, principally for misusing confidential information supplied to SNCF in its role as national rail infrastructure manager by competitors in the rail freight field.

A recent report highlighted that more flexible labour practices and nimble marketing had allowed the open access operators to run rings round the state freight operator, to which SNCF Fret’s response was that the new entrants should be obliged to apply SNCF labour conditions!

With attitudes like this it is unsurprising that rail freight is losing market share to the road alternative in many European countries. Brussels still has some way to go with its efforts to galvanise the market by introducing competition. n

Bombardier in Derby, UK, is building 191 trains for the London Underground sub-surface network.

The author is Editor of Modern Railways magazine and Technical Editor of European Railway Review.