: Railroad Equipment Australia: Railroad Equipment Page 1 of 6

John Kanawati 08/200 9

Summary

The Australian railroad industry generates about US$ 5 billion in goods and services, or 1.7 percent of the nation’s total output. The market for railroad equipment is valued at US$ 915 million and will grow by five percent annually over the next three years.

Despite the world economic crises, demand for railroad technology is being fueled by Australia’s buoyant minerals industry, an industry structure which encourages investment by ma jor operators, and the Federal Government’s economic stimulus plan.

Rail reform has increased the number of private rail operators from ten in the 1990s to thirty today . C ontracting out has created new work for rail maintenance and engineering firms. U. S. -based consortia have been among the successful bidders for government -owned rail assets and t he presence of more private rail operators has increased pressure to upgrade and refurbish existing state -owned and managed infrastructure. Following the priva tization of many federal and state gove rnment rail assets between 1995 and 2002, the industry has recently emerged from a period of inevitable rationalization. Demand for equipment and technology is enjoying considerable growth.

Market Demand

With the completion of Springs to Darwin Railway, Australia has approximately 37,000 route kilomet er s of standard, broad , and narrow track , compared with 34,480 km in 1990 . Annual engineering construction work is in the vicinity of US$1,800 million. This represents 20 percent of the value of expenditure on roads and bridges.

Rail infrastruct ure can be divided into the following categories :

- Mining Rail roads include i ron ore rail roads in the Pilbara Region of W estern Australia and coal rail roads in Qu eensland . The remaining significant mining rail road is the Hunter Valley coal lines in New S outh Wales.

- The Defined Interstate Rail Network (DIRN) includes over 8000 km of standard gauge track joining the mainland capital cities and their ports with connecting lines to Whyalla, Port Kembla and Newcastle .

- Urban Rail roads are standard among the five largest capital cities of Australia . is the only city to have significantly extended its network recently with new lines .

There are two key players in the rail transport industry, QR (37 percent market share) and (27 percent ma rket share), which both represent almost two thirds of inter -modal rail freight business. There are other major participants in the bulk freight market – most operate on the private rail lines managed by major mining companies. In road transport, the la rgest two firms, Toll and Linfox, have 10 percent o f the road freight market but the majority of participants are single person operators. This reflects the low barriers to entry of road freight . The cost of fuel represent s 50 percent o f the total cost st ructure for road transport and 25 percent for rail transport. As the cost of fuel continues to rise, the railroad sector is likely to win more business from road.

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According to a 2008 Australasian Railway Association (ARA) report, non -urban passenger and freight sectors operated 1,829 locomotives and 39,169 wagons in 2007. A pproximately 50 percent of the locomotive fleet was less than 17 years old while 50 percent of the wagon fleet was less than 25 years old.

Since the beginning of 2008, Australian rail operators purchased 30 new diesel electric locomotives – three times more than they purchased between 1997 and 2007. The growth of ’s coal industry and Pacific National’s entry into Qu eensland’s coal haulage market have helped fuel n ew locomoti ve orders . Pacific National is Australia’s largest private rail freight business.

In March 2009, the announced a US $1.6 billion investment in rail infrastructure improvements on the National Land Transport Network and the interstate rail network . The Government will provide US$420 million for rail projects, and US$570 million to the Australian Rail Track Corporation (ARTC) to further develop the - - rail corridor. A public company (although its shares are who lly owned by the Australian Government), ARTC has also committed its own funds toward the project. The proposal is expected to shift an extra 300,000 tons of freight per year by rail instead of road . The majority of interstate goods continue to be transpo rted via road in Australia. Road funding remains predominant in both state and federal government budgets but invest ment in off -track infrastructure and new forms of rolling stock have seen rail’s share of freight transport grow in recent years.

Market Data

Table 1: MARKET FOR RAILROAD EQUIPMENT (US DOLLARS MILLIONS)

200 7 200 8 200 9 Total Market Size 648.5 871.6 914.9 Total Local Production 621.5 835.4 876.9 Total Exports 80.8 108.6 114.0 Total Imports 107.8 144.8 152 .0 Imports from the U.S. 40.9 55.0 57.8

The above figures are unofficial estimates.

Best Prospects

Distributors and rail operators have demonstrated an openness to reviewing technology designed to increase the capacity and efficiency of bulk freight, inter -modal freigh t, and urban -passenger traffic.

Distributors of railroad equipment have expressed an interest in contacting U.S. manufacturers of:

- Resurfacing and track maintenance equipment . - Track construction and laying equipment . - Wayside monitoring equipment . - Rolling stock accessories and parts . - Workshop systems . - Measurement technology . - Safety equipment . - Railroad t ools .

Existing research projects within the industry also suggest opportunities in:

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- Technology designed to improve the railroad industry’s environmental p erformance, particular ly in the area of emission and noise reductions. - Collision -avoidance systems. - Measurement systems for welds. - Longer life insulated rail joints.

Key Suppliers

The Australasian Railway Association considers e ight wholly -owned Austral ian divisions of multinational corporations as Tier 1 suppliers. These companies include: United Group Limited ; Downer EDI Rail ; Bombardier Transportation ; Bradken ; Siemens ; Alstom Transport ; QR Limited ; and Railcorp. Both QR Limited and Railcorp have sig nificant capabilities in manufacturing and maintenance.

With 38 percent o f goods originating in the U.S., the United States is the single leading country of origin for Australian imports of rail road parts and rolling stock. Other major suppliers are China (22%), Germany (12%), and the Czech Republic (7%) .

Sources: Australian Bureau of Statistics and Industry Estimates

Prospective Buyers

End -users of rail road equipment fall into four groups:

1. State -owned rail operations 2. Private rail operators 3. Maintenance/infrastructure engineering firms 4. EPCM (engineering, procurement, construction, management) contractors

At the Federal level, the Australian National Railways Commission (AN) previously operated intrastate freight services in South Austral ia and Tasmania as well as transcontinental rail passenger services. In 1997, the government split AN into three businesses and sold them to:

- U.S. based Genesee & Wyoming in consortia with Transfield, a major Australian civil engineering and constructio n firm, and (now known as Downer EDI rail) , one of two Australian locomotive and rolling stock manufacturers, which runs ’s rail business .

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- The Australian Transport Network, made up of Wisconsin Central and ( a privatized New Zealand rail operator ), which runs Tasmania’s rail business .

- Railway, made up of GB Rail (a U.K. -based passenger rail operator ), ( service industry provider ), and Macquarie Bank , which runs three passenger rail operat ions: , , and Ghan.

In January 1999, the Victorian Government sold V/Line Freight for US$98 million and franchised its tram and bus operations. (then known as Freight ) was the successful bid ding consortium and also acquired a 45 -year lease on the track. Freight Australia is a subsidiary of Rail America. Other consortium members were Macquarie Bank, A Goninan (rolling stock maintenance), and Fluor Daniel (infrastructure maintenance).

In October 2000, the Wes tern Australian Government sold Westrail, its freight business, to Australian Railroad Group (ARG) , a joint venture between and Genesee & Wyoming.

In 2002, the Federal Government and NSW and Victorian State Governments so ld their National Rail Corporation (NRC) to Toll Holdings Limited and Lang Corporation Limited, two publicly -listed Australian transport companies. Pacific National is now Australia’s largest private rail freight business.

Queensland's passenger and frei ght business, QR, remains a vertically integrated and profitable government - owned operation.

Market Entry

Australian distributors seek long -term contracts with rail operators and maintenance and engineering firms. The success of companies which purely distribute and/or manufacture often depends on their ability to diversify either through taking on additional agencies or entering into joint venture arrangements.

State -owned rail authorities and OEM manufacturers will go directly to the U.S. if the comp onent is not available locally but their preference is to deal with domestic suppliers.

Some European and U.S. suppliers have established branch offices or subsidiaries in Australia. U.S. firms have also successfully entered into joint venture or licen sing arrangements with Australian manufacturers.

For large -scale railroad pro jects, companies use EPCM (engineering, procurement, construction, and management) contractors to assist in project design and development. U.S. companies that bid for tendered projects should have knowledge of local technical requirements and may have to submit to several levels of qualification.

Australian customers will stress the importance of local support and service. U.S. companies will need to establish a local sales pr esence to succeed in the market. Given the relatively small size of the market, most distributors are only willing to consider exclusive agencies. For capital equipment, U.S. companies may also need to f orm strategic alliances with EPCM contractors .

Ame rican companies should visit Australia to meet prospective partners and to demonstrate ongoing support, as this is the common practice of their European competitors.

We can help most American firms to select agents, distributors, and customers in Austra lia. Performing due diligence in Australia is as important as in the United States, and we can assist in that work , as well.

Market Issues & Obstacles

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In 2005, Australia and the United States enacted a Free Trade Agreement (FTA) , which e liminated impor t duties on more than 99 percent of tariff lines, including railroad equipment. Prior to the FTA, the maximum general tariff on most products was five percent.

All rail equipment must meet Quality Assurance Standards. Organizations such as Lloyd’s Regi ster, Standards Australia, British Standards Institute, o r Underwriters Laboratories Ltd need to certify companies submitting tender bids.

Standards Australia represents t he International Standards Organization (ISO) in the market. Australian standards for railroad equipment can be purchased through SAI Global ( www.saiglobal.com ). These standards relate to : permanent way material such as anchors, spikes and sleepers; hoses for railway air brakes; low voltage switc hgear and control -gear; internal combustion engines; springs for railway rolling stock; and transfer connectors for flammable and combustible liquids.

The Australasian railway Association also offers advice on complying with railroad equipment standards .

Trade Events

Event name: AusRAIL PLUS 2009 Date: November 17 -19, 2009 Location: Convention Centre, South Australia Website: http://www.ausrail.com/informaoz/AusRAIL/

Event name: AusRAI L 2010 Date: November 23 -24, 2010 Location: Perth Convention & Exhibition Center, Website: http://www.ausrail.com/informaoz/AusRAIL/sponsorship_exhibitio n.htm

Resources & Contacts

Australasian Railway Association, Inc.: http://www.ara.net.au/site/index.php Australian Railway Industry Corpo ration: http://www.aric. com.au

For More Information The U.S. Commercial Service in Sydney, Australia can be contacted via e -mail at: [email protected] ; Phone: +61 2 9373 9207; Fax: +61 2 9221 0573; or visit our website : www.buyusa.gov/australia .

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