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Japan rail car makers up U.S. orders, global cachet

by Keiichiro Otsuka

Kyodo

Japanese manufacturers of railway cars are making inroads into the United States, taking a sizable share of orders in a market seen as a touchstone for success in globalization by overcoming challenges on the cost front such as the requirement to raise local content.

Kawasaki Heavy Industries Ltd. has won an order for subway vehicles from the Washington Metropolitan Area Transit Authority, breaking into what had been a stronghold for European manufacturers. It will be delivering up to 748 subway cars worth a total of about $1.48 billion starting this year.

Behind Kawasaki’s achievement appears to be discontent with previous suppliers. An executive with the Washington transit authority said European manufacturers give good presentations when they enter bids but don’t send good engineers after winning orders.

Kawasaki was also apparently picked by the transit authority for its track record of delivering high-performance vehicles for the New York City subway system, which have received favorable reviews.

Hiroji Iwasaki, an executive officer in Kawasaki Heavy’s rolling stock unit, said the firm’s growing presence in the U.S. market “is largely attributable to the high product quality and technological edge that we have achieved by meeting the rigorous demands of our client railway companies in Japan for quality.”

The new vehicles for the Washington D.C. area use energy-saving light-emitting diodes for lighting and come with more seating space. They are “next-generation vehicles designed for easier servicing,” Iwasaki said.

In September, Kawasaki Heavy announced it received orders for train cars from two railway companies linking central New York City with its suburbs — Long Island Rail Road and Metro-North Railroad.

Up to 676 cars worth a total of $1.83 billion will be delivered to the carriers starting in 2017. Kawasaki Heavy is delivering cars for Metro-North’s Harlem Line and its Hudson Line, which experienced a derailment Sunday that left four passengers dead and more than 60 others injured.

Three Japanese manufacturers — Kawasaki, Nippon Sharyo Co. and Kinki Sharyo Co. — garnered about 43 percent of rail car orders in the United States between 2008 and 2013, according to data compiled by Kawasaki. The figure stands out when compared with their estimated 10 percent share of the global market.

Kawasaki is the biggest among the three, holding 25 percent of the $9.37 billion market, followed by Nippon Sharyo’s 11 percent and Kinki Sharyo’s 7 percent. Canada’s Bombardier also controls 25 percent, though it delivered more in quantity terms.

Kinki Sharyo received an order in 2012 for light rail vehicles from the Los Angeles County Metropolitan Transportation Authority, and is expected to deliver up to 470 cars for a total of about $890 million. Nippon Sharyo has also made deliveries to the L.A. transit authority.

The Japanese manufacturers, however, face some challenges. In line with a law to promote U.S. products, many of the orders placed by U.S. companies require that at least 60 percent of procurement in value terms must be of American products and final assembly must be conducted in the United States.

“It’s tough to turn a profit,” a source said.

Nippon Sharyo, which won an order in 2012 to produce double-decker cars from the state of California, faced an even stricter domestic content requirement and was forced to expand its Illinois factory at a cost of about ¥5.2 billion (about $50 million).

Kawasaki Heavy’s Iwasaki said, “We are getting positive feedback about Asian bids such as a Singapore subway order we are aiming to grab, thanks to our track record in the United States.”