Understanding the effect of COVID-19 on Rolling Stock market – Rolling Stock Market Insight Q1 2020

Introduction :

COVID-19 has started since late 2019 up until now, and this outbreak continues to expand to all regions around the world. And the case has grown exponentially to 693.282 confirmed cases and 33.106 deaths as of 30 March in all parts of the world1. Epidemic curve of confirmed COVID-19, by date of the report and WHO region through 30 March 2020 can be seen as follows:

Epidemic curve of confirmed COVID-19, by date of report and WHO region through 30 March 2020

Looking at the situation, McKinsey has gathered the data and information and develop a compressed briefing material for companies around the world to act promptly. One of the information is the developed scenarios, based on three likely paths for the spread of the virus and the public health response, and three possible levels of effectiveness for governmental economic response2. Those three scenarios can be seen as follows:

Scenarios for the economic impact of the COVID-19 crisis

Three broad economic scenarios might unfold a quick recovery, a global slowdown, and a pandemic-driven recession. McKinsey model developed in partnership with Oxford Economics suggests that global GDP growth for 2020 falls from previous consensus estimates of about 2.5 percent to about 2.0 percent. While in the global slowdown scenario, global GDP growth for 2020 in half, to between 1 percent and 1.5 percent, and pulls the global economy into a slowdown, though not recession. And at the worst scenario, pandemic, and recession, global growth in 2020 falling to between –1.5 percent and 0.5 percent2.

As the GDP is often related to the development of the rolling stock market, the rail industry is certainly not immune to its effects. This, understandably, an awkward position for all transport sector stakeholders. Thus, it is intriguing to see how this COVID 19 will affect the rolling stock market. The questions arose; will it affect the global rolling stock market equally, and how severe it will affect the rolling stock market.

Methodology :

The methodology that will be used within this article is quite simple. The data of rolling stock market performance are gathered from reputable sources such as railwaypro, international railway journal, and railway gazette. Once the data administrated into a single database, shorted, and filtered. The performance of the rolling stock market in Q1 in the last five years will be compared and then broke it down. Starting from the global market view into each regional. Consecutively, based on the majority of the market region that shaped the market capacity.

Global Rolling Stock Market Performance :

The global market performance, in terms of volume of cars ordered within the first quarter period from 2015 until 2020, is shown as follows:

Global rolling stock market performance in Q1 2015 – 2020

In this 2020 first quarter, we can see a bit decline compared to the previous year. This decline emphasizes that, as in many sectors, the impact of COVID-19 is being felt strongly in the global rail industry and further afield. Though the impact is not equal in every region, this will be discussed later.  But still, the number of railway vehicles ordered in 2020 Q1, regardless of the type, is still above the average of the last five years period. With CAGR value is still around 7.82%, the projection of the rolling stock market is still showing an optimistic trend, though this trend cannot be overgeneralized in all the regions in the world.

Following the three scenarios on how this situation might be developed, we will try to figure out how it’s going to be likely happened in the rolling stock market, by building a forecast model.

The forecast model is shown as follows:

Q1 Forecast, based on the model

In a quick recovery scenario, in Q1 2021, the number of vehicles ordered will be continuing the positive trend and mark another record in the rolling stock market with around 4.1K railway vehicles ordered globally, regardless of the type. In a Global Slowdown scenario, the number of vehicles ordered will slow down, and the number of vehicles ordered will only be around 3.6K, regardless of the type. While in pandemic and recession scenarios, the number of vehicles ordered globally will drop into around only 3.1K, as it happened in Q1 in 2018.

The data shown above is global data, so please bear in mind the geographical spread of customers though we do know that the rolling stock market is not distributed evenly in the whole region.

The distribution of the rolling stock market per region is shown in this pie chart as follows:

Regional rolling stock market share

As expected, Europe (Western and Eastern Europe combined) is expected to be the largest rolling stock market. Then, followed by Asia, North America, and others. With the distribution of rolling stock ordered around the world in Q1 2020 is seen as follows:

Q1 2020 rolling stock order distribution map

To understand how much the effect of COVID in rolling stock order distribution in the first quarter of 2020, a contrast point of view will be generated to show a comparison. Thus, we select to view the rolling stock order distribution in Q1 in the last five years, as shown as follows:

Q1 2015 – 2019 rolling stock order distribution map

Europe – 

The comparison between those two distribution maps, telling that Europe is less affected than any other region. With detail, Q1 performance in Europe can be seen as follows:

Europe Rolling Stock Market Performance in Q1 2015 – 2020

The current crisis has interrupted the regular rhythm of the European rail supply industry. And Europe has been forced to adopt unprecedented measures to blunt the impact of the ongoing coronavirus outbreak. But the condition is not as severe as another region due to: Shortly before the Europe-wide lockdown, the EC released its New Industrial Strategy for Europe with the intention of “maintaining the European industry’s global competitiveness and a level playing field, at home and globally.” Importantly, continuing the current Commission’s commitment to the EU Green Deal, rail was among the “sustainable and smart mobility industries” that will be given “special focus” as it works to “ensure that EU mobility industries maintain their global technological leadership”3.

By doing so, UNIFE also hopes to see a strong soon, finalized 2021–2027 Multiannual Financial Framework (MFF) budget that seeks to compound on these improvements by allocating substantial packages for rail projects through Horizon Europe, the anticipated extension of the Shift2Rail Joint Undertaking as ‘Shift2Rail 2’, the Connecting Europe Facility (CEF) and the Structural Funds.3

 Asia and North America –

Different from Europe, Asia and North America, the rolling stock market fluctuates. A decline can be seen in the Asia market; the CAGR drops to -11.74%. While in North America, market performance seems to be worse.

Asia Rolling Stock Market in Q1

North America Rolling Stock Market in Q1

1WHOCoronoavirus disease 2019 (COVIS-19) Situation Report-70, March 2020.

2Covid-19: Implications for business, March 2020|Executive Briefing

3Philippe Citroën, Director General of UNIFE, “COVID-19 and its impact on the European rail supply industry”, https://www.globalrailwayreview.com

Article Author:

Mr. Bedy Kharisma,

Manager, PT Industri Kereta Api (Persero)