Why the US is overpaying for Rolling Stock

As a child, I instantly recognized the difference between trains in the US and Europe. The rolling stock in the USA stood out due to their bad condition, their perceived age and their perceived inconvenience for passengers.
It seemed to me, that the trains there are at least 15-20 years older then comparable counterparts in Europe. I thought that this was mostly due to a lack of interest and investment in rolling stock in the US and thus reflected only very long, if at all, replacement cycles.
Over the years, I realized, that the US train operators are investing not that much less in their rolling stock than elsewhere which made me curious. It appeared as if manufacturers can ask for higher prices for trains in the US.

To understand this better, I made a quick comparison between three different but recent projects for double deck coaches without propulsion (yes they are arbitrarily chosen and therefore do not have any scientific merit).

  • Project 1: CRRC delivers 45 coaches to SEPTA in the US for 137.5 MUSD see also
  • Project 2: Bombardier delivers 33 coaches to Israel Railways for 56 MEUR (60.9 MUSD) see also
  • Project 3: Transmash delivers 106 coaches to RZD in Russia for 185.6 MUSD see also

So how does this look like

ROS_Graph_V00

Two things we need to recognize here:

  1. The orders in Russia and Israel are part of a larger frame work agreement between the operator and the rolling stock supplier
  2. The coaches in Israel and Russia have more seats, thus the price per passenger ratio is even better for these two

It seems as if rolling stock in the US is just somewhat 40%+ more expensive then elsewhere, but how comes?

In my opinion there are three main reasons why rolling stock in the US is more expensive then in other places. However, to have a solid understanding of it, it would be necessary to drill down to each cost position and analyze each cross-effects of it.

  1. Regulation – while many countries have even tougher requirements when it comes for instance to PRM, noise or fire safety than the US, the requirements are somewhat also more flexible. Instead of a strict rule based system as applied in the US, other authorities focus on the overall goal of the requirements (e.g. safe passenger evacuation) and guidelines how to achieve this. Therefore each supplier can argue for more cost efficient solutions that serve the same purpose.
  2. Closed markets induced by acts such as the buy-america act that require a large local manufacturing presence, the respective documentation and indirectly also red tape, increase overall costs for manufacturing and the project. Its anti liberal structure wipes out any flexibility of the supplier to set-up an ideal supply chain.
  3. Specific RFQ (requests for quotation) instead of functional descriptions by the purchasing organization. This reduced the flexibility of the supplier to the selection of the sub-suppliers and a few minor innovation parts. Many suppliers have developed over the years specific solutions to lower costs (e.g. combining several equipment together). These economies of scale, and sometimes scope, cannot be materialized if the purchasing organization does not allow this.

The third point is also the reason why there is very limited innovation in the US rolling stock. Since there is no incentive, any only a potential penalty, advancements made in other countries can only be introduced in the US if the purchasing organization includes this specifically in the RFQ.

I sincerely hope, that over the next few years the US purchasing organizations will look more over the big ponds, in the East as well as in the West, to let them be inspired so that we will see more modern rolling stock in the US in the future as well.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s