Downer moves locomotive manufacturing offshore
Downer EDI has announced that it will cease building locomotives in Australia with all future Downer locomotives for the Australian market to be manufactured by the company’s partner, EMD, at one of its new low cost overseas facilities.
Courtesy Downer Rail
By Jennifer Perry
Downer said in a statement released last week that while the long term demand for new locomotives in Australia will remain strong as a result of growth in mining and the ageing Australian locomotive fleet, the market is changing due to “increased offshore competition, customer requirements for lower capital costs and shorter lead times for delivery”.
Downer chief executive Grant Fenn said that under the new five-year agreement, Downer and EMD will transition to a “competitive locomotive supply model” that will provide significant benefits for its customers.
“Downer and EMD have taken action to ensure we have a sustainable business model that will give our customers an advantage,” Fenn said.
A spokesperson from Downer acknowledged that increased competition from China was one of the reasons behind the company’s decision to move its manufacturing of locomotives offshore.
“Chinese competition has commenced and is only going to increase. Downer and EMD have taken this action because that’s the way the market is going for Australian locomotives and we’ve recognised that and had to ensure that we have a sustainable business model,” the spokesperson said.
Principal consultant for Orion Advisory, Ian Wilson, who provides supply chain advice for resource companies and has recently headed up a major study on passenger rolling stock manufacturing in Australia on behalf of the Federal Government, the rail supplier advocate and the Australasian Railway Association, told Rail Express that Downer’s announcement is indeed indicative of an increasingly competitive international market for rolling stock manufacturing.
“This global, competitive market has unfavourably impacted the rolling stock landscape in Australia with rail products being increasingly built offshore. In addition, the appreciation of the dollar has made a range of imported products more competitive which sees imported locomotives and components becoming cheaper to import than being built here in Australia,” Wilson said.
Wilson believes the “trend” towards offshore manufacturing is only set to increase.
“China is already producing wagons for Australia’s bulk market, both coal and iron ore. These wagons are being imported as finished products from China directly into those markets for customers like Pacific National and the major miners in Western Australia. Bradken are also making wagon bodies at their manufacturing facility in China and SCT Logistics have imported locomotives from China’s CSR,” he said.
“Now Downer has announced that they will be making all their locomotives overseas. This is an extension of the existing business model where Downer already imports locomotives for specific markets. Downer already fully import WA iron ore heavy haul locomotives from the US and are planning to supply TasRail with imported locos as well.”
UGL has also moved to what it says is a low cost sourcing model and has recently entered into a joint venture with India’s Texmaco Rail and Engineering Limited for the manufacture and supply engineering components for locomotives and wagons.
The new five-year agreement with EMD will see Downer continue to sell offshore EMD locomotives and after-market products, including spare parts, in the Australian market.
As the company exits high cost manufacturing it will concentrate on sales, repairs and maintenance, and whole of life asset management.
Under the 12-month to two-year transition period, the company will continue to manufacture locomotives in Australia. A number of Downer Rail employees working on locomotive products will be transferred to other rail projects while it is expected there will be a small number of redundancies.
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