Outsourcing models The power of big dataOutsourcing models The power of big data

Outsourcing maintenance activities to the third parties

For decades, the maintenance of rolling stock and
infrastructure was carried out by the maintenance divisions of the state
railways. Still some 70% of the total market is accounted for by rail
companies, who maintain their own vehicles. However, with the increasing degree
of liberalization and the disintegration of the incumbent railway operators,
the number of actors in the railway sector has multiplied. In addition, railway
operators and infrastructure managers are increasingly concentrating on their
core business. As a result, maintenance activities are becoming outsourced to
third parties instead of relying on in-house maintenance divisions. With new
rolling stock the maintenance is increasingly performed by the original
manufacturer that hold contract for both the delivery and maintenance of
rolling stock.

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Digitization and advanced analytics are shifting value chain;
thus, creating new business models

The power of big data analytics has substantially increased
in recent years. Since this technology is becoming easily available at low
cost, suppliers are expanding their business models and taking over a growing number
of tasks from rail operating companies and rolling stock owners in the service
business. Advancements in digital solutions, connectivity technology, remote
monitoring, and big data analytics will offer new opportunities in the service
space for traditional suppliers provided they manage to adapt their current
business models successfully.

Technical advances using digitization and big data
analytics will lower maintenance
costs significantly over the next decade. Apart from advances in technology and
cost efficiency, customers’ preference for asset availability further
contributes to this development. Solutions from the digital space are not
limited to rail operations and maintenance, but are also likely to have a huge
impact on the industry’s product development processes.

Rise in industrial production
index and total trade value

A rise in the industrial production is noticed in recent
years. To cope with the production and the shipment of materials such as heavy
machinery, mining output and manufactured goods, it leads to high demand for
rail freight industry. In addition, higher production will proportionally
increase the total trade value. Rail is the most practical mode of
transportation for industrial commodities. The higher level of industrial
production is likely to increase the potential demand is for rail freight. The
industrial production index and total trade value is expected to increase by
2022.

Industry Consolidation

As in many other industries, global rail is witnessing a
clear trend towards consolidation and it appears likely that the industry will
experience further consolidation. In a few years, there could only be a handful
of large suppliers. One possible scenario might see four to six large system
suppliers providing rolling stock, rail control, and infrastructure systems.

In last few years, we’ve seen major mergers and related
activity in the rail industry. Siemens acquired Invensys Rail. Alstom acquired
GE Rail Signaling. CNR and CSR announced a merger. Hyundai Rotem had an initial
public offering. The Hitachi group acquired Ansaldo STS. And in September 2017,
Europe’s biggest suppliers, Alstom and Siemens Mobility, agreed to merge their
global rail operations in September 2017.

While the market will remain relatively fragmented,
market pressures mean that consolidation is most likely to continue, but
possibly at a slower pace. We’re likely to see further consolidation among the
lower tier suppliers, and particularly the manufacturers of specialist
subsystems. Larger industry participants may start to break up into separate
businesses focused on specific niches.