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UNIFE investigations in the current economic crisis and its impact in the rail supply industry

UNIFE investigations in the current economic crisis and its impact in the rail supply industry

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UNIFE investigations in the current economic crisis and its impact in the rail supply industry

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  1. UNIFE investigations in the current economic crisis and its impact in the rail supply industry Michael Clausecker UNIFE Director-General

  2. Current downturn is exceptional Real GDP growth forecast Industrial production 2000-07 2008 2009 Decline Sep-Nov 08 vs. Jun-Aug 08(%) World 3,9% 3,4% 0,5% Adv. econ. 2,5% 1,0% -2,0% • -10 2,7% 1,1% -1,6% 2,2% -0,3% -2,6% • -15 2,2% 1,3% -2,5% 2,0% 0,8% -1,9% • -16 2,0% -0,6% -2,1% 3,6% 1,2% -1,7% • -20 2,7% 0,7% -2,8% Emerg. econ. 6,4% 6,3% 3,3% • -21 9,9% 9,0% 6,7% 7,1% 7,3% 5,1% • -25 7,0% 6,2% -0,7% Source: BCG, April 2009

  3. Sharp volume decline in rail freight Example with selected rail freight operators • In January PKP Cargo delivered 37% less goods than last year • The current economic situation resolves competition between rail freight operators. Some small rail freight operators had to close down • 3 reasons account for volume decline in rail freight: - drastically declining volumes in market - a price decline combined with dumping prices of established competitors - termination of contract by an important partner. (Year-on-year volume development) Nov/Dec Dec Jan 2009 -10% -13% -15% -18% -19% -20% -22% -33% -37% -40% Source: BCG, 2009

  4. Rail freight industry is in troubles • Hardly any new orders will be placed in 2009 by leasing companies for freight locomotives • New orders placed in 2009 for freight wagons are expected to be half of 2008 • Currently rail freight manufacturers are busy but customers are trying to postpone deliveries or even to cancel existing orders • Most options are not exercised • Some new projects are being discussed due to long lead times and despite strong demand slowdown • Newcomers in rail freight operation with small equity base are in danger of failure which may lead to a drawback in railway liberalisation

  5. Passenger traffic also start to decline: CEECs more affected than Western Europe Central and Eastern Europe passenger development (passenger-km % growth compared to previous year) • Business travel more affected than leisure • However, city trips start to slowdown • Public transport traffic decreasing in some cities (e.g. London) Source: CER, April 2009

  6. States have massively stepped in to cope with the crisis Source: BCG, 2009  Infrastructure will largely benefit from stimulus packages

  7. USA, China and Western Europehave specific stimulus packages for rail industry USA Western Europe China Description • Stimulus package of $11Bn for rail: • ~30% for infrastructure over 5 years, mainly in VHS/ Mainline/Urban • ~50% of $11Bn for ROS, mainline starting in 2011, VHS starting in 2014 • ~20% for service, over next 3 years, dedicated to station upgrade and modernization • Overall ~€20Bn rail packages: • France: +€600M for RFF (infra), further spending in HST expected • Germany: +€11B • €2Bn for infra. expansion • €9Bn for network renovation • Italy: +€1,4B • €1Bn for regional services and new ROS • €0.4-0.5Bn for infrastructure • Spain: +€ 140M, mainly for maintenance/services • UK: +£1Bn to accelerate major transport projects in 2009 and an additional +£300M to buy 200DMUs • EU package: +€5Bn expected (€0,5Bn already decided) for • energy efficiency projects • implementation of ETCS/ERTMS • €85Bn anti-crisis package in China • Stimulus package to benefit mainly to local suppliers • Major segments concerned are mainline, urban and VHS Expected timeline • ~ 5 years • First investments to be carried out in in 2009-10 • Investment spread over 5-10 years • 50% already spent in 2008 • ~ 5 years • First investments to be carried out in Germany in 2009 Expected segment focus • ~$3-4Bn for infrastructures • ~$5-6Bn for ROS • ~$2Bn for service • €5-7Bn for infrastructures • €4-6Bn for ROS / rail control • €9-10Bn for Services and Maintenance • €25-30Bn for infrastructure • €55-60Bn for ROS

  8. Some recovery plans are including a rail industry’s package… • Governmental plans to sustain activity and local employment generally include a package for rail industry but: • Attribution and final approvals of packages on-going, with an impact expected over the next 5-10 years • difficulty to perceive if stimulus packages will generate additional funds for rail infrastructure investments • or if they will just accelerate investment plans already in the pipeline • issue with governments "empty pockets", putting at risk overall market development perspectives in the long run • Increased implication of governments expected to come along with a slowdown of liberalization in the short-term

  9. … however several uncertainties are subsisting • Several uncertainties subsist on the rail development perspectives • Effective implementation of the anti-crisis packages, e.g. development of high speed in the US • Further support from European Commission and member states (e.g. Germany, France) • Slippage vs. acceleration of modernization programs in Russia, depending on oil price development • Funding support in the rest of the world from local governments or international financing institutions (IMF, EBRD, World Bank...) • Differentiated impact by regions: • Confusing situation in Western Europe (investments likely to be affected in the short term, drop in demand in freight) • CEECs strongly hit in the short-term (project cancellation or delay, temporary closing down of existing freight lines in Poland)

  10. PPP- type financing of infrastructure projects are at risk A complex equation: + reduced availability of loans to private investors and PPP projects + altered risk consideration of banks and investors =increased cost of loans + temporary slowing down of the transport demand growth = Higher costs for PPPs = Increased pressure on price and margins = Increased project selectivity = Dramatic effects in the short term if not supported by public budgets/ recovery programs = Temporary higher risk aversion as well as reduced bank funds and appetite for cross border financing

  11. HSL Sud-Europe Atlantique: a PPP case through the economic crisis • PPP concession to build and maintain the 300 km Tours – Bordeaux high speed line, • Expected to reduce Paris – Bordeaux journeys to 2h by 2016 • One of four major railway projects identified by President Sarkozy as part of the French national economic stimulus package However: reduction in railway infrastructure expenditure in framework of French recovery plan announced in May  uncertainty on final structure of PPP Source: FIF, May 2009

  12. UNIFE initiatives in response to the economic crisis (1/2) Monitoring and lobbying for rail investments • Early analysis of the credit crunch’s impact on the rail supply industry • Monitoring of EU and various national recovery programs regarding rail infrastructure investments • Raising European Commission’s awareness on rail sector’s challenges and needs (e.g. letters to Commissioners on the need for an increase and acceleration of rail investments) • Joint initiative with CER on concrete proposals for measures related to rail against the economic downturn (PT Tickets in exchange for car scrapping, tax incentives for long-distance train tickets, withdrawal of fuel taxes and VAT from rail…)

  13. UNIFE initiatives in response to the economic crisis (2/2) Scenario perspectives for the rail industry in 2025 – Strategic project with the Boston Consulting Group Context of the project Objectives of the project • UNIFE has recently released a detailed market study of the rail industry • The Worldwide Rail Market Study 2008 provide projections till 2016, excluding effects of the crisis • Throughout 2008, the world has progressively entered an economic crisis, heightening even more the level of uncertainty, in all sectors of the economy • A high level review of possible impacts of the crisis considered as starting point • UNIFE wants to complete the market projections with a longer term perspective (2025-2030 horizon) to prepare its members to possible futures • Contrasted evolution possibilities, including key megatrends and disruptive effects • Scenarios on the evolution of the railway industry • Highlight potential short and mid-term impact and uncertainty resulting from the economic crisis • High level quantification of impact on market • Build scenarios on the evolution of the rail industry to develop a perspective beyond the 2008 market study • Screen trends relevant to the industry to identify key potential drivers and possible disruptions • Construct industry evolution / transformation scenarios, using BCG creativity methodology • Develop a shared vision and scenarios of the possible futures • Derive possible impact for the rail supply industry • Investigate effects on dynamics of railway industry and positions of key players • Identify possible business opportunities

  14. Providing Competitive Railway Systems for Increased Rail Traffic