Getting the UK's rail infrastructure back on track

Over the next few years the UK’s rolling stock and related infrastructure sector is likely to see significant growth, as political will to improve the UK’s infrastructure network gathers pace, alongside game-changing projects like HS2 and Cross Rail 2.

The multifaceted nature of the industry and its diverse group of participants including the Department for Transport, Network Rail, rolling stock owning companies and train operating companies, manufacturers and the broader supply chain, makes it complex and disparate. But for many UK companies within the rail supply chain whose proportion of sales to the sector only account for a small portion of their business, the size of the opportunity is significant.

The collective income of the UK’s rail industry, including passenger revenue, was £18.4bn* in 2015/16. It’s estimated that annual growth in the UK’s rail equipment manufacturing sector alone, which has a combined revenue of £1.5bn, will be almost six percent between 2016 and 2021**. The UK is embarking upon a significant period of investment into rail infrastructure, with estimated increases in rolling stock to exceed 9,500 new units in the next 30 years. Forecasts estimate that passenger miles will increase by 46 per cent by 2030, with freight volumes expected to rise by 50 per cent over the same period. This year also saw the Government kick-start its Digital Railway programme, with a £450m investment to trail new signalling technology.

Recently, the involvement of the UK supply chain has become a key consideration for rolling stock procurement contracts. On top of this is the Government’s pledge to increase economic infrastructure investment by c.60%, reaching £22bn by 2020-21, as a part of its new National Productivity Investment Fund (NPIF).

The opportunity is there, but whether every part of the rail supply chain is aware of this and how to grasp it, is uncertain.

As an industry, the rail sector is quite traditional. Procurement channels can be closed and contract awards have almost entirely been driven by price competitiveness. But with the unprecedented expenditure on rolling stock and signalling and the renewed focus on the involvement of local suppliers in order to win contract tenders, local talent and skilled companies need to seize the opportunity.

Working with the Rail Alliance, the member body for the rail supply chain, we’re helping businesses take advantage of opportunities. Our engagement with the major rail manufacturers and rolling stock owning companies, and involvement in key infrastructure projects such as Thameslink and IEP 1 & 2, means we have a deep insight into the operating environment and what the supply chain needs to deliver.

A range of financial tools are required to ensure that end-to-end suppliers can access the necessary financing and risk management products to tap into the opportunity. By utilising these options, the complete supply chain can continue to invest in their respective businesses and help to deliver against the infrastructure targets in the UK.

Funding requirements will continue to grow, with alternative funding strategies like structured debt finance or capital market bond issuance, post-construction, likely to become more prevalent to help companies meet contract demands and deliver their equipment.

Rail infrastructure will play a central role in the UK’s economic development over the next decade, with increased focus on localised on-shore production. The next few years will be about the rail supply chain scaling up and mobilising effectively, with access to affordable and sustainable funding sources to capitalise on growth opportunities.

* Source: Feb 2017. Office of Rail and Road. UK Rail Industry Financial Information 2015-16

** Source: March 2016. IBIS World. Railway Equipment Manufacturing in the UK – only equipment manufacturing – 90 companies