HC 1453 Transport CommitteeWritten evidence from the Railway Industry Association (RSP 11)

Executive Summary

ES1. The Association represents the railway supply industry in the UK, including the three historic suppliers of rolling stock, Alstom, Bombardier and Siemens, although not Hitachi. The Association is regularly consulted by major clients and stakeholders for rolling stock in the UK. The Association makes no comment on the outcome of the Thameslink procurement so far, but welcomes the favourable decisions which the Government has made to support major investments in the mainline railway.

ES2. The Association does however have substantial concerns about the volatility in demand for mainline rolling stock and other causes of uncertainty, and the difficulties and costs which result from such uncertainty. A more predictable and consistent flow of work would lead to significant cost reductions through the optimisation of tendering costs, production planning, supply chain management and the financing of new train projects. The Association also favours strengthened dialogue between clients and suppliers to optimise the timing of procurements.

Full Paper

1. The Railway Industry Association (RIA) would like to thank the Select Committee for the opportunity to present evidence on rolling stock procurement.

2. The Association is the trade body representing the railway supply industry in the UK. It has more than 160 member companies of all sizes. Manufacturers, contractors, consultancies, leasing companies and providers of specialist services to the railway are all members. They include most top tier companies from the principal railway discipline supply chains, such as track, electrification, signalling and rolling stock. They therefore account for the great bulk of the sector by turnover; numerous lower-tier companies and SMEs (Small and Medium-sized Enterprises) are also members.

3. Member companies supply to the principal railway client bodies in Great Britain and export worldwide. They hold in-depth expertise in many aspects of the railway itself; indeed the supply sector is believed to account for some 40% of the employment base of the railway industry as a whole. The Association and its members hold regular discussions with client-side organisations such as the Department for Transport, Crossrail and London Underground.

4. There is much to be said that is very positive about the investment in mainline rolling stock that has taken place since the mid-1990s. Some 5,000 new vehicles have entered service, approximately 40% of the fleet, such that this country has the youngest train fleet in Europe, and more have been refurbished. The ROSCOs (Rolling Stock Leasing Companies) have been central in providing finance for this investment; two—Angel Trains and Eversholt Rail Group—are members of the Association. Their success in attracting funding from the capital markets has demonstrated the importance of their portfolio ownership approach and ensured that the lifetime value of trains is taken into account at all stages.

5. At the same time, the trainbuilders have demonstrated their capability to supply modern, efficient and significantly improved rolling stock, which has been accompanied by the development of a range of service models to support the new fleets. More recently, the Department for Transport’s Technical Strategy of 2007, and its implementation through procurement, have been key in encouraging manufacturers and their supply chains to develop the next generation of EMU’s (Electric Multiple Units) that by contrast with the first generation will be more energy efficient, lighter, do less damage to the infrastructure and cost less on a whole life whole system basis (as opposed to the traditional focus on rolling stock capital costs only).

6. Such trains were specified for the Thameslink project. The Association cannot comment on the outcome of that procurement so far: RIA members were consulted during the lead up to the tender process, but RIA has not been party to the negotiations, which have been conducted on a confidential basis between the DfT and the tender participants. Moreover, the shortlisted bidders, Bombardier and Siemens, are both members of the Association, as is Alstom.

7. On behalf of all its members, however, RIA very much welcomes the outcome of the 2010 Comprehensive Spending Review for the mainline railway. So far as rolling stock is concerned, the confirmations of for example the Thameslink and Crossrail projects, and of the major renewal of the Great Western Main Line,were much needed, and we recognise the scale of the investment that the Government is making.

8. Nonetheless the Association believes that the Committee may find it helpful to be aware of some of the less positive aspects confronting its train builder members operating in the UK, and the supply chains of smaller companies that depend upon them.

9. RIA member companies are well-versed in competing for workload, and the UK rail market is probably one of the most open and competitive markets worldwide. But members’ capability to compete effectively is seriously harmed if major and unexpected changes or delays are made to the workload facing the sector. Such changes have repeatedly occurred in the volume of orders placed for the mainline railway over the last 20 years. The extreme volatility is shown in Figure 1:

Figure 1

For three years during the period of privatisation no mainline orders were placed. During this period the Association believes that at least 10,000 jobs were lost by the train builders and their supply chains. Over time, and for a number of reasons, the number of major production sites in the UK fell from ten to one.

10. This period of orders famine was followed by very large orders for new trains associated with the first round of franchising and then with the decision to replace all slam-door trains on the network. Both of these were matters of public policy. They were followed by a further period of famine, then by relatively subdued activity.

11. Volatility on this scale is costly both for train builders and for companies in the supply chain: in times of low demand expensive plant is under-utilised, trained staff are made redundant, skills are lost, and smaller specialist suppliers withdraw from the railway supply chain either voluntarily or through closure. When demand is restored, firms then have to recruit, train, re-open moth-balled facilities, seek new sources of sub-supply and reclimb the learning curve. The process is expensive, wasteful of human and other resources, strongly discourages innovation, drives up the cost of capital and can make long term skills development impossible to achieve.

12. The volatility is difficult enough for the train builders to accommodate. Companies in their supply chains have even less visibility of future demand and often find themselves continuously ramping up or ramping down production, both of them costly processes.

13. The Association has advised Sir Roy McNulty’s review of the Value for Money of the Railway that the lack of continuity of production has added roughly 20% to the general cost of rolling stock in Great Britain.

14. Unnecessary uncertainty is not restricted to ordering patterns only. For example, when procurement exercises have been launched, substantial uncertainty still remains. Thus, in December 2008 a procurement notice was issued for 200-250 Diesel Multiple Units (DMUs) with the contract to be awarded in March 2009; the procurement was cancelled in August 2009 because of the change in policy on electrification, but after bids had been submitted. Timing is also a source of major risk: in April 2008 the Thameslink contract was to be signed by summer 2009; it has not yet been let, having just reached preferred bidder stage. Similarly, at the launch of the Intercity Express Programme (IEP) competition in 2007, contract let was forecast for early 2009. The contract has yet to be signed.

15. These delays and changes of direction are not cost-free; they waste resources that often cannot be redeployed or put to optimal use. They have a more insidious damaging effect also. The GB market is significant, but substantially smaller than the markets in a number of our most important competitor countries. Moreover, for reasons of gauge it requires specialist train building equipment not needed by other railways. Yet the railway supply industry is substantially now globalised; none of the headquarters of the train builders is located in this country, and the same is true of many of their subsystems suppliers. The frequency of changes to policy and to project timescales is inevitably damaging to the credibility of any forecasts of the GB demand for rolling stock. That in turn undermines the credibility of the market, and therefore companies’ willingness and ability to invest in research and development, production plant and skills development in or for this country.

16. There is nothing inherent about rolling stock that requires such uncertainty or such large bursts of feast and famine as are seen in this country. For example, Figure 2, provided by the Japan Association of Rolling Stock Industries (JARI), shows rolling stock production there over the last 20 years:

Figure 2

17. It is emphasised that the data relate to production rather than orders, so the comparison with Figure 1 is not totally direct, but it is evident that even with some weaker years the overall pattern is substantially more smooth than that seen in GB. Even in the very lowest years, production has never fallen below half that in the highest peak year; the baseload has been high throughout; and the UK years of zero workload (matching zero orders) have not been seen. Moreover, in a number of years of low orders by the Japan Railway (JR) companies, volume was compensated by work for the private railway companies in Japan and for exports, suggesting a good degree of market flexibility.

18. Within the UK, we note that the draft Network Route Utilisation Strategy for Rolling Stock, prepared by Network Rail and the subject of recent consultation, urges consideration of procurement at more consistent and predictable levels of workload and with fewer designs of trains. We agree with this view, and with the conclusion that substantial industry savings could be obtained by so doing.

19. Finally in his July 2010 report to the Secretary of State on the Intercity Express Project, Sir Andrew Foster noted with approval that:

Figure 3


In the course of our work we learned that government officials in France and Germany meet informally with the rolling stock manufacturers and industry supply chains to discuss future orders for new trains.

These discussions take place with each company separately but allow the companies to declare the orders that they have in their factories and the available space and timescales that they have for further new orders.

This information allows the state-owned railway companies to time the procurement of new trains to align with available manufacturing capacity across one or several of the manufacturing and supply chain companies; this drives a more competitive price for the new trains as each company obviously wants to fill the spare capacity of its factories rather than bid for work that falls when they have little or no capacity.

Consultation with manufacturers and industry supply chains in this way make sense both in terms of engaging with key stakeholders and in ensuring that the timing of future new train procurements aligns with capacity in the factories to drive the best practice for the new trains.

20. We have already noted that substantial dialogue exists both within the industry and between train builders and client bodies. As Sir Andrew implies, however, that dialogue is less strong in relation to issues of capacity in advance of the launch of procurement exercises. We recommend that in future the capacity issues should be addressed earlier in the process and in a more formalised manner, so that the timing of procurements can be optimised to the benefit of both clients and suppliers.

August 2011

Prepared 15th December 2011