The developing maintenance markets – a trend for the future

Over the past years, a market for maintenance has developed and this market is becoming more-and-more vibrant, leading to astonishing cost savings and efficiency gains. The industry welcomes this development and calls up on the legislator to put in place the right framework for the future.

For decades, the maintenance of rolling stock and infrastructure was carried out by the maintenance divisions of the state railways. This has changed. With the increasing degree of liberalisation and the disintegration of the incumbent railways, the number of actors in the railway sector has multiplied. As a result of this, a market for railway maintenance has begun to develop and it can be witnessed how, slowly but surely, more-andmore railway operators and infrastructure managers outsource maintenance activities to third parties instead of relying on in-house maintenance divisions.

This is a general trend that is expected to continue, leading on the one hand to the development of specialised maintenance companies and a reduction of in-house maintenance capacities on the other hand. The process is driven by a number of catalysts.

All actors in the railway sector feel the pressure to specialise on their core activities in order to increase efficiency. For most railway operators it means focusing on the provision of transport services. In freight transport this trend could be observed for a long time already, with some companies only offering traction services and others offering the lease of wagons, train drivers, etc. In regional services the phenomenon has also been in existance for several years already. One example is the Metronom Eisenbahngesellschaft in Northern Germany. It focuses on the provision of transport services and leases its rolling stock. Instead of maintaining the rolling stock itself, maintenance is carried out by the rolling stock manufacturer.

Only intercity connections and international connections do not yet see outsourcing of maintenance to the same extent as freight and regional traffic. The obvious exceptions are the United Kingdom and Sweden where the maintenance of rolling stock is largely outsourced. It is expected however that increasing competition on intercity and international lines will lead to greater outsourcing of maintenance on these services in other countries too. New entrant operators rarely possess the know-how and the facilities that are needed for the maintenance of trains, let alone is it guaranteed that they would be able to set up an international network of maintenance facilities. To such operators, the possibility to outsource the maintenance of rolling stock lowers the barrier to market entry significantly as it simplifies access to all kinds of railrelated services. One can therefore expect that the trend to outsourcing maintenance will continue: the more competitors enter the market the more the demand for third party maintainers will grow.

A further driver of this development is the steady increase of turnkey projects. This is in particular, but by no means exclusively, the case for urban transport. An increasing number of cities decide to order not only trams or metros from rolling stock manufacturers but to include maintenance services in their contracts. Ideally, this offers city authorities carefree availability of their rolling stock and it presents an interesting business case to the industry that gets to service its products from cradle to tomb.

Outsourcing of maintenance can bring significant benefits. Sweden decided to separate the maintenance division (now Euromaint) of SJ from the rest of the company 10 years ago. The subsequent privatisation brought tremendous efficiency gains. With fewer employees the output grew drastically. At the same time, emerging competition from suppliers and specialised maintenance companies on the Swedish market drove down prices and increased performance.

Where rolling stock manufacturers offer specialised maintenance services to their clients, for instance in the case of service contracts or turnkey projects, the results are impressive. Trains maintained by the manufacturers display availability rates that are usually around five percentage points higher than trains that are based on the same platform but maintained by other actors! At the same time the manufacturers can offer better prices.

Sweden is also one of the few countries where the maintenance of infrastructure was privatised and where the development of a free market for infrastructure maintenance was fostered. Infrastructure services are always tendered. Again, this has increased the efficiency of maintenance. Today, the quality of the service has improved and a change of mentality on the side of the service providers took place. Private maintenance companies are forced to offer value for money and an excellent ‘customer experience’, as customer satisfaction is one of the basis of payments.

Several reasons can be considered to play their role in the immense efficiency gains and the improved service.

All contracts with third party maintainers are based on certain key performance indicators. These can include the availability of rolling stock or track, customer satisfaction and the cleanliness of the trains and the maintainer is only paid the agreed price if its targets are met. Naturally, this provides a strong incentive for the maintainer to fulfil its contractual obligations.

Third party maintenance providers are specialists in their fields. Being under constant pressure to improve their performance, they make use of the latest technology, such as information and communication technology, and sensors that monitor the state of the vehicle and its components. These data can be transmitted to a central database where the information is collected, fed into Computerised Maintenance Management Systems and made available to the workshop. This allows the development of new maintenance regimes that are not based on fixed deadlines and service intervals but on actual maintenance needs.

Such innovation can come from the rail supply industry that needs to develop a competitive advantage. Only in a very few cases are the monopolistic in-house maintenance divisions of railway undertakings that have their contracts guaranteed able to drive innovation to the same extent.

The industry, however, does not only see efficiency potential in the maintenance process itself. The manufacturers of rolling stock believe that carrying out maintenance themselves would allow them to stay in touch with their products over their entire life time. According to the manufacturers, this would allow a constant improvement of their products by closing the feedback gap that currently exists, as well as optimising life-cycle costs.

This is the bright sight of outsourcing maintenance. However, trade unions especially see problems with outsourcing maintenance. They worry that safety standards might suffer from outsourcing to private companies that aim at maximising profits. Prior to the governmentally-mandated privatisation of maintenance in Sweden, extensive debate took place on this question. A thorough set of rules and regulations on safety was put in place by the Swedish National Rail Authority to ensure that safety would not be compromised for the sake of profit. According to the largest maintenance companies in the country, safety levels have therefore increased after the creation of the market for maintenance. However, they underline that a clear safety-first regime is necessary for this to happen.

A second concern that needs to be addressed is social dimension of outsourcing. Especially trade unions are afraid that more efficiency for the maintenance providers equals less employment in the field. Given that many maintenance divisions today are overstaffed and given that for reasons of tradition railway workers in several countries enjoy various privileges compared to workers in other industries, these concerns appear legitimate. It might seem that a balance needs to be found between efficient maintenance and cost reductions for transport users on the one hand, and state intervention to protect those workers already in employment on the other.

However, the Swedish experience suggests that the choice is not as crude as that. Indeed, after the liberalisation of the maintenance division of the Swedish railways, adjustments in the number of employees took place. However, as the rail sector has been growing in Sweden for several years, many workers quickly found reemployment. In Spain, other ways have been found to address the social impact of outsourcing. Maintainers are obliged to employ a part of the existing workforce when performing maintenance activities for the national incumbent. As long as the industry is not forced to accept inefficient organisational structures, the Spanish model looks like a compromise between the need for more efficiency and a way to mitigate possible undesirable social effects of outsourcing.

The European rail industry expects that the current trend of more-and-more maintenance activities that are carried out by independent maintainers will continue and will accelerate as it goes hand-in-hand with an increasing liberalisation of the railway sector. The railway industry welcomes this development because it can help make the sector as a whole more efficient. UNIFE hopes that the legislator creates the framework conditions that are necessary for the maintenance market to develop. According to UNIFE, the current Recast of the First Railway Package represents a good opportunity to set the right framework. It would be of particular importance that maintenance providers have access to well-located real estate where they can build workshops. These need to be close to where the customer needs them, in passenger transport this often means that they need to be close to the main train stations. According to UNIFE, it would also be desirable that the Entity in Charge of Maintenance Concept (ECM) is expanded in order to clarify the duties and responsibilities of rolling stock and to allow for independent maintainers to develop their market share.

About the Author

Before joining UNIFE as Public Affairs Manager, Jan Steinkohl gained experience in the Directorate General for Transport and Mobility of the European Commission and worked in the automotive sector.