EU rolling stock market grows: What are the trends and funding chances?

The EU rolling stock market will grow annually by 2-3 per cent until 2030, while the rolling stock fleet operated in Europe will grow by 2.1 per cent between 2020-2030. The global market will also increase collectively, while technological advancements will be the primary driver influencing the demand for freight locomotives and waggons. For waggons, specialised equipment like refrigerated containers will lead development.

Those figures are a product of a study launched on behalf of the TRANS Committee of the European Parliament. The study claims that the global rail supply industry is currently dominated by 20 companies accounting for “80 per cent of the rolling stock market.” As rail freight is gradually acquiring a key position in supply chains resulting from green policies, rolling stock manufacturers are set to benefit from that because the significantly increased demand for state-of-the-art rolling stock equipment will ramp up production. The same will apply to part suppliers.

At the same time, older but also new companies entering the European rail freight market can benefit from multiple funding instruments that aim to facilitate access to new or retrofitted equipment.

Old fleets retire

While technology advances, the demand for new equipment increases, reads the study, and that does not come as a surprise. Rail in Europe is in a transitional stage, and companies should be critical when choosing their equipment. This means that older rolling stock unsuitable for retrofitting will gradually phase out, and new equipment will take over the market. Several companies are already on the course of renovating or renewing their fleets already.

“Technological advancements, the retirement of old fleets, changes in transported goods, network electrification and the expansion of infrastructure” will influence demand and supply in the rolling stock industry, according to the TRANS Committee.

Specifically, the demand for locomotives, Multiple Units (MUs) and specialised freight waggons will increase, but the demand for locomotives will be more predictable than that for waggons. That is because the development of locomotive fleets happens in accordance with decarbonisation policies that shift transport towards biofuels and electrification making it thus more specific in terms of production.

On the other hand, the rail freight waggon market is more versatile. Trends of the past few years show a tendency towards more specialised equipment like refrigerated containers or tank waggons. This trend will likely continue meaning that production will primarily focus on these types of waggons but will also be affected by changes in transported cargo types.

EU funding options

Of course, retrofitting or getting new rolling stock equipment via purchase or lease can be costly for operators. That is why the EU has launched several financing initiatives that can help rail companies transition to modern fleets. Some of these initiatives include CEF, which has approved 402 million euros in grants to retrofit existing rolling stock to meet interoperability standards and reduce noise, and the ERDF and Cohesion Fund, which have disbursed 541 million euros in grants for the purchase of rolling stock.

Additionally, the EIB has approved 16.7 billion euros in loans for purchases, while the Recovery and Resilience Facility has allocated other resources for loans and grants for rolling stock investments in some Member States. Finally, more funds–55 million euros provided by Horizon Europe are available for research and innovation projects.

EU is not the only option

Apart from EU institutions providing financing, commercial banks do the same–for instance, the German BayernLB and many more. In an older interview with RailFreight.com, Christoph Pasternak, back then Sector Head of Rail and Bus at BayernLB and now CEO of EUROFIMA, explained that the rail freight rolling stock market still has lots of potential in terms of financing.

Most importantly, he shared some golden tips for companies seeking financing to expand their business and renew or retrofit their fleet. Those tips include:

• A good and clearly defined asset case, thus requesting financing for assets that should be attractive also for the financing partner. “This means”, explained Pasternak, “new technologies over old ones. New electric locomotives, for instance, rather than 20-year-old ones. Even if a locomotive is diesel but is classified as Stage V or can be later retrofitted to battery-electric or hydrogen, it will be preferred over older diesel locomotives”.
• Ensuring maintenance is also critical. Does the company carry out asset maintenance using its resources? Does it have the capacity to do so? Does it outsource maintenance, and if so, to whom and with what cost? These are some important points.
• Also, a company’s client base plays an equally important role irrespectively of whether it wants to rent out or lease assets. Does a company have a diversified customer base, or just one customer covering 60 per cent of their income? Most importantly, companies should also have an indexation clause in case they rent out locomotives or freight cars, for example, to adjust their prices to the respective pricing index.
• Finally, especially new companies should have at least two or three people in their management who are experienced in the rail industry to provide some security.