Last update – September 2023
Transport Equipment
New orders at risk, but high backlogs should ensure production and income in the short term
Sector rating
SENSITIVE RISK FOR ENTERPRISES
Fragmentation
Internationalization
Capital Intensity
Profitability
Strengths & weaknesses
- High pricing power since there are few manufacturers capable of engineering and building tailor-made transportation equipment, particularly in aviation (an oligopoly with very few well-recognized players).
- Lot of growth potential for the transportation sector in general, especially for the rail transportation market, with governments looking to encourage green mobility.
- In some cases, construction contracts are signed with governments (state-owned transportation companies), which gives greater reliability of repayment.
- Construction periods for transport equipment tend to be long (several years), allowing companies to anticipate production capacity and forecast income in advance.
- Very capital-intensive sector as it is necessary to invest both in R&D (design and engineering of state-of-the-art models) and in capex and infrastructure for the construction and assembling of the equipment to be sold.
- Highly leveraged market. Given the large size of contracts, companies require a high level of disposable working capital over the construction period as in most cases they will be fully paid only on delivery.
- As steel and aluminum are the main metals used for the manufacturing of trains, airplanes and vessels, profitability is vulnerable to commodity price volatility, though sales are agreed on a fixed-price contract basis.
- A market that demands high precision, high-quality finished products and safety. Any failure of a structural component, manufacturing defect or accident can have huge negative consequences for both the operator and the manufacturing company.
- A cyclical sector: sales accelerate in in economic boom periods because transportation companies enlarge their capex, but investments decrease significantly during economic slowdowns.
Sector overview
Subsectors
Contact
Contact Allianz Trade
Economic Research Team
Economic Research Team
Maria Latorre
Allianz Trade
Allianz Trade