TRANSPORT EQUIPMENT

The Covid-19 pandemic has taken its toll on the transportation, as well as the upstream transport equipment sector. The main aircraft manufacturers from China, the US and Europe have slashed their ten-year forecasts for new demand by a quarter from two years ago. Shipbuilders as well as truck manufacturers have relied on ‘force majeure’ to extend delivery dates while railway producers have searched for ways of recovering as future demand is better oriented.

The duopoly of aircraft manufacturing, Airbus and Boeing, was not immune to the Covid-19 outbreak. Both have already announced significant layoffs if not furloughs, in addition to many order deferrals, since they faced the temporary shuttering of aircraft production due to Covid-19 containment measures. The slump in global airline travel and the shift in international travel also pose challenges for aircraft exposed to long-haul travel such as the B747 or the A380 whose exit from the market has been implemented two years ahead of schedule. While commercial aviation suffers, manufacturers like the US Boeing or the French Dassault can fortunately count on military aircraft orders on the rise.

Like aircraft, long lead times between orders being placed and final products being delivered make shipbuilding and rolling stock manufacturing less cyclical than many others, with very high development costs acting as a significant barrier to new entrants. Shipbuilding has faced challenging times however, driven by excess capacity in the dry bulk and tanking segments as the two largest competing countries - China and South Korea – have been engaging in a merciless price war to win orders. The sector’s impact is visible through the labor force and the ability of subcontractors to meet their commitments to supply materials and equipment necessary for building, repair and conversion projects. This may imply potential delays in the delivery of the vessels, leading to a disruption of the underlying supply chain. However, shipbuilding could cash in on a looming container ships shortage if global trade momentum increases.

Demand for railway rolling stock is more dynamic but competition between the main global players remains intense, especially coming from the Chinese state-owned behemoth CRRC. The market is highly consolidated, with the top four major players holding more than 60% of the market share. The Covid-19 pandemic came close to bringing the sector's growth to a grinding halt a year ago but the introduction of new railway projects and the growing investments in urban rail transit are poised to give a brighter outlook in the long-run. Public infrastructure aimed at improving domestic and international connectivity and logistics channels might pick up both road and rail manufacturers' dynamics as well. More long-term considerations are the share of households for whom air and sea travel becomes affordable and the ongoing capacity of states, whether emerging or matured, to fund the modernization of their own transport infrastructure in order to ramp up the ‘Green transition’ and reduce carbon emissions.