Global rail industry has been sluggish in the last few years
and sales have been slow in most of the geographic regions. The most
significant decline was noticed in North America, primarily due to weakness in
the rail industry that ARC expects will persist into 2018. Due to weaker
commodity prices and fluctuating trade links, rail industry remains challenged
with low traffic volume and a significant number of idle locomotives.
Due to idled fleets, it is noticed that rail operators have not
been placing any new orders on rolling stocks and the aftermarket and service
revenues are being negatively impacted by resulting in the slow growth in the
rail. ARC expects the availability of the North American freight locomotive
offering to positively impact sales in 2018. In Asia/Pacific, the decrease was
due to the absence of a large sale of locomotives in 2017. While demand in
Latin America and EMEA were also negatively impacted by the weakness in the
High Barrier to Entry in the Rolling Stock Industry
Rail and Rolling stock industry has very high barriers to
entry. Rail operators have increasingly demanded higher-quality certification
and approvals, causing suppliers that lack the accreditation to be restricted
in the types of contracts they receive. Additionally, it is often costly or
difficult for new entrants to the industry to gain the desirable certifications.
Another significant barrier to entry stems from establishing solid connections
The major suppliers in the industry have significant
market power and tend to have long-term contracts with the rail operators; while
new entrants may struggle to replace those existing relationships between them.
Technology is another barrier to entry. Rail operators expect high speed and
fuel-efficient product offerings, which are becoming major factors in securing contracts.
Therefore, new entrants should have budgets for research and development to
succeed in this market. In addition, developing and implementing new technology,
building manufacturing and testing plants, is significantly expensive process for
entrants with no expertise.