In October of 2014 we alerted Supply Chain Matters readers to a noteworthy milestone development, namely Chinese designed and branded railway cars appearing in a U.S. subway system. Much of U.S. media did not cover this development at the time.

The headline back then was that the State of Massachusetts Department of Transportation selected China’s state-owned CNR Corp. for the replacement and delivery of 284 modern subway cars for the Massachusetts Bay Transportation Authority (MBTA), also locally known as the “T’. This was the first Chinese manufacturer to win a U.S. based major transit system equipment replacement contract. The further significance of this development was twofold. First, the awarded contract cost, namely $566 million, was a rather affordable sum for this amount of modern rail equipment. A further significance was that the contract called for the railcars to be assembled at a new final assembly manufacturing facility at a former closed Westinghouse factory site located in Springfield, a central city in Massachusetts. Assembly operations would therefore be U.S. based, with the expectation that other U.S. equipment supply contracts could follow.

At the time of bidding, there were actually two China state-owned railway firms, CNR and CSR, as bidders along with other prominent global based producers. While CNR eventually won the contract, CSR was eliminated because of deficiencies.

In our 2014 commentary, we cited a Bloomberg published report indicating that the contract awarded price was a little more than half that of Bombardier and other bidders including Hyundai Rotem Co. of South Korea and Kawasaki Rail Car of Japan. Earlier this year, at the request of China’s government, both state-owned rail companies were combined, primarily because both were bidding against each other for the same business opportunities.

Yesterday, a ground-breaking ceremony was held at the site of this new $95 million assembly plant. Massachusetts Governor Charlie Baker was present along with officials of The China Railway Rolling Stock Corporation, the newly formed entity. This new production facility is expected to be completed by the end of 2017 and employ upwards of 150 local factory workers. Rail car production operations are expected to begin in the spring of 2018 with first deliveries of rail cars beginning in early 2019.

A published report from yesterday’s New York Times reiterates that this deal represents China’s biggest push into the U.S. rail market and is part of the Chinese government’s policy to encourage its tech companies to export expertise to foreign markets. It further notes that the contract may be an impetus for other U.S. states and cities to consider modernization of their transit and railway systems.  Bejing_subway_CNR

The Times cites an independent rail economist as indicating that the Massachusetts contract might have been a price-loss leader as a means to establish a presence in the U.S. The publication cites CRRC’s vice-president of international business as indicating that his company was eager to apply the lessons learned in building transit and high speed rail systems in China. This same executive was the former chairmen of Tangshan Railway Vehicle, and oversaw the design and manufacture of one of the fastest high-speed trains in the world. The manufacturer has previously produced subway cars for many systems including three separate lines within Beijing’s subway network. (pictured).

The contract calls for the design, manufacturing and replacement of 152 Orange Line and 132 Red Line subway cars, along with an additional option for the delivery of 58 additional Red Line cars. Existing decades older Orange Line cars have racked up in excess of 1.5 million miles of service per vehicle while some Red Line cars have logged even longer service.

Last winter, the city of Boston and its surrounding metropolis experienced its most severe winter that included in excess of 100 inches of snowfall and subsequently crippled its subway system. Its aged equipment just could not overcome the accumulation of snow and ice and many cars were forced out of service. That situation has placed enormous ridership pressure on the MBTA to replace the aging fleet as soon as possible. Thus it is rather crucial that China Railway Rolling Stock meet its production and delivery milestones.

From a supply chain perspective, the initial plans call for many of the major train components to be produced in China and shipped to the U.S. for final assembly at the Springfield Massachusetts facility. However, there have been some indications that some U.S. service and production suppliers may be considered. Another open question is the recruitment of an adequately skilled U.S. workforce that can adapt to Chinese work methods.

This remains an important development to observe over the coming months as China’s railway experts continue in their efforts to make a more sustained presence within the U.S. We at Supply Chain Matters will continue to provide updates and perhaps a plant visit at some point.

Bob Ferrari