No compromise

on quality

International orders help to load production capacities and boost output of railcars by UWC. The UWC brand is now well-known far beyond Russia's borders, and the Company has set itself the long-term goal of 20% of revenue from exports. Maxim Kuzemchenko, UWC's Deputy CEO for Business Development, explained how the Company has won a reputation as a quality supplier on the international arena and what steps are being taken to increase the share of exports.

№ 8 (September) 2018

As universal manufacturer, United Wagon Company can design and build cars for any railway gauge.

Maxim Kuzemchenko,
UWC’s Deputy CEO for Business Development

We come and we put down roots

What is the UWC strategy on the world market?

We have been focused on export business since 2015. We make a high-quality product, so success on competitive foreign markets was only a matter of time. The change in the exchange rate of the Russian currency was an immediate driver for our export initiative. We made a successful debut on the global market thanks to ruble devaluation and our ability to design and manufacture rolling stock, which meets the needs of international customers. But we understood that breaking into the global market would not be that easy. We began by forging relationships with some of the biggest railcar customers.

The key regions for us today are North America, the Middle East, Europe and Africa. We are already selling out products on those markets. We constantly monitor demand on the global market and, based on this analysis, we set up a network of agents and representative offices where we see points of growth for UWC’s business outside Russia.

As a universal manufacturer, we can design and build cars for any railway gauge, we can meet any regulatory standards. We offer high-quality, high-performance cars at competitive prices. We don’t offer huge price discounts – we don’t try to compete with the Chinese by that measure, because our cars are much better built.

There are many different standards applied in the world today and we cooperate with strong international railway equipment manufacturers, like Amsted Rail, Wabtec Corporation, Knorr-Bremse, etc., which help us to comply with those standards. This approach means that we can offer optimal solutions on the global market, meeting the needs of the most demanding customers. UWC also has a versatile in-house R&D unit (All-Union Research and Development Centre for Transportation Technology), which works with industry organisations in other countries.

Export business is important for UWC for several reasons. Firstly, it is an extra source of revenue. Secondly, exports help us to diversify our production programme and sales channels, and that is an excellent way of balancing supply and demand. The Russian market is strong at present, but it is cyclical, and saturation point is bound to be reached at some point in the future. Domestic demand is currently driven in part by large-scale write-offs of the old railcar fleet, and that demand is bound to drop off. So UWC is moving fast to develop export business that will compensate the decline of domestic orders, when it happens. We already have a reputation on the global market: we get invited to take part in tenders, including tenders for innovative products. Sometimes we have to turn down export contracts, because our main production facilities in Tikhvin (the Leningrad Region, Russia) are overloaded with orders for the domestic market. We use foreign projects to learn and improve what we do. Every such project makes us more confident that we can be successful in the world arena.

What agents and representative offices does UWC have abroad and what role do they play?

We currently have two foreign offices, one in North America and one in Europe. It’s a natural strategy: if you want to sell your products, you have to get close to the customer. We go where there is an attractive market, and we put down roots. It’s an approach that has fully justified itself. Since opening the offices, we have had breakthroughs in our customer relationships and we have won new contracts.

The agent model works better in countries where demand is less predictable. For example, the market in Africa is highly fragmented, with about 30 countries buying rolling stock. This is a very diverse and multicultural region, and new transport arteries are developing very fast. It is just not possible to hire one agent or even a company that would represent our interests all over the continent. At present we have eight agents working in Africa, some of them are individuals and some are companies. We select them very carefully, constantly supervise their work and, if they don’t live up to expectations, we look for a replacement. Our network of agents in Africa is still taking shape.

In South America, we recently signed an agreement with TMH International AG, which is a foreign subsidiary of the Russian company Transmashholding. It represents our interests in Argentina and neighbouring countries. We expect these markets to grow strongly in the future in a context of rising output in mining projects and the development of new mineral deposits. Investments in transport are a priority when an economy is experiencing rapid growth.

Hopper cars produced by UWC are transporting bauxites from the world’s largest deposit Dian-Dian (Boké Region) in the Republic of Guinea

Hopper cars produced by UWC are transporting bauxites from the world’s largest deposit Dian-Dian (Boké Region) in the Republic of Guinea

Competitors and partners

What companies do you see as your main international competitors, what are their strengths and what competitive advantages can UWC offer?

I would single out three groups of competitors. The first are Chinese producers. It is hard to compete with them on price, because they have the advantage of large state subsidies and China is still a lowcost country. But their weak point is quality. Many customers don’t want to buy Chinese or they put temporary blocks on participation in tenders by Chinese manufacturers, because they have had negative experience of Chinese products in the past. By contrast UWC already has a record of supplying high-quality railcars to the international market.

The second group of competitors are Russian companies, which are also trying to use the relatively low ruble as an entry ticket to foreign markets. But they are offering railcars made of domestic components using regional technical solutions, which are suited for 1520-mm gauge, and they will need to spend a lot of time and money in order to make products that match international requirements. By contrast, UWC is already working closely with leading world suppliers of bogies, brakes and other components, so we can design and manufacture cars to almost any specification in a short space of time.

For example, when we were designing a car for use in Guinea, we used a bogie with axle load of 32.5 t – much higher than in Russia. Thanks to our international partnerships, we had no trouble manufacturing that car. We have delivered the order, which has been accepted by the customer and our hopper cars are already transporting bauxite from African fields.

The third group of competitors are local manufacturers in countries, where we offer our products. They have one indisputable advantage: they don’t need to include logistics in the cost of their products. If we have to dispatch our cars to Africa or South America, transport can be a large part of our costs to meet the order. So local companies may win out on price, although they sometimes can’t produce cars of appropriate quality and in sufficient quantity.

TOP-5 GLOBAL ROLLING STOCK MANUFACTURERS Output volume in 2017, thousand freight cars

TOP-5 GLOBAL ROLLING STOCK MANUFACTURERS Output volume in 2017, thousand freight cars

What is the nature of your cooperation with Wabtec Corporation?

We have been working together for a long time – since 2010. In 2013, we set up a joint venture to design and manufacture components for brake systems and other parts, including parts for heavyweight traffic. The range of products that we originally planned has now all been designed. But that is only one aspect of our cooperation with Wabtec.

The second aspect is the supply of large castings for American Barber S-2-HD bogies. This is a major project and we have spent several million dollars to launch the new products at Tikhvin. It is a very exciting opportunity, because we not only load our foundry capacities, but also acquire unique experience producing components for international markets.

There is a queue for castings from Tikhvin: we have more export requests than we can respond to

The third aspect of our cooperation with Wabtec is joint participation in global procurement and tenders. Wabtec has long-established presence on a lot of railway equipment markets and offers solutions for almost any brake system specification. This helps us to implement new projects more quickly.

And what about your partnership with Timken?

When we opened the Tikhvin Freight Car Building Plant in 2012, we understood that Russian component manufacturers couldn’t guarantee component supplies of the quality and in the quantity that we needed. We decided on a vertical integration strategy and began investing in component production. At first all of the bogie components were brought from abroad, but now we make them ourselves. We invited the Timken company to open a joint venture in Russia so that we could work together producing up-to-date bearings (tapered roller bearing cartridges), which hadn’t been used in Russia before. This was consistent with our concept of vertical integration, and it suited Timken, which was keen to enter the Russian market.

For the moment, bearings made by the joint venture are only being used for cars built for the domestic market. But we use a number of high-tech solutions that will be of interest on external markets, so the potential for component sales is quite large. When the JV reaches capacity, we will be ready to think about exports. Also, after 2020 we expect growth of the domestic market for components in order to carry out repairs and our installed capacities for bearing production will give us a major advantage.

Tapered roller bearings assembly line at the JV Timken UWC

Tapered roller bearings assembly line at the JV Timken UWC

How are UWC cars serviced in other countries?

It all depends on the region. In some places we hire a permanent representative ourselves, who looks after the cars during their service life, makes sure that all the technical operating requirements are observed, and provides emergency back-up in unforeseen situations. In other places creation of service centres or of at least of two or three depots is a tender requirement. We already have enough experience to understand how many depots are needed to maintain a certain fleet size, what equipment is required and what sets of spare parts need to be available. With these basic solutions we can organise a satisfactory level of service even in remote regions. UWC is an international company, so we need to be ready and willing to provide service not only in the “1520 space,” but also in countries with narrow gauge.

Reliability as a guarantee of success

You said that you compete not so much on price as on quality. What are the key aspects of quality in a UWC product?

There are several key aspects. Firstly, the technologies at our Tikhvin production site are quite unique. We take great pride in the foundry. There is a queue for castings from Tikhvin: we have more export requests than we can respond to.

Secondly, we product high-quality products thanks to robotics and automation, which minimise human error. Although it is also important to emphasize that skill levels and production culture of personnel at our industrial site are improving all the time.

Thirdly, we have a multi-level quality control system. It begins at individual workplaces, where substandard products are not tolerated and are not allowed to go further along the production line. Also we have special services that monitor and ensure compliance of products with regulatory requirements and design documentation. Finally, we never skimp on materials: they always meet all of the basic design parameters. It’s no secret that when demand is strong, some companies cut corners by using cheap materials. We never compromise on quality.

And, fourthly, we have a strong engineering base, which can design railcars to any international standards and any customer requests.

What other plans do you have for the immediate future, what other new markets will you enter?

The European market is very interesting. We recently passed an audit and won status as a quality supplier to Deutsche Bahn, which is the biggest railway company in Europe and has a reputation for being very strict about quality. We hope that approval by Deutsche Bahn will serve as a signal to the rest of the European market, because UWC today is the only railcar manufacturer outside the European Union that has the right to supply cars to Europe.

The representatives of Deutsche Bahn visited the Tikhvin industrial site

The representatives of Deutsche Bahn visited the Tikhvin industrial site

What products will you bring to Europe first?

Multimodal transport is the fastest growing segment in Europe today, so we plan to enter this market with our flat cars, but we are also discussing other types of rolling stock – for transportation of gases, bulk and other cargoes. We are open to suggestions and requests, but we think that flat cars will be the bestseller in the near future, so it is important to get established in this segment as soon as possible.

It’s important that we are already in compliance with EU regulations and standards, so we can develop almost any type of car quickly and bring it into production it at our facilities.

Was it hard to make your mark as a new player when you first came to the international market, and has it got easier now? How bureaucratic are the tender procedures?

It was hard at the beginning. We were surprised how conservative the markets are, how reluctant they are to embrace new opportunities and new suppliers. Nobody had heard of UWC, even though, objectively, we are one of the largest companies in the world by production capacity and output volumes. We had to spend a lot of time promoting the UWC brand in the global market. We made ourselves known at trade and industry fairs around the world, at one-onone meetings, using direct emails shots with information about our production capabilities. These efforts are bearing fruit today. Of course, sometimes we lose tenders, but we are philosophical about it. We are learning and developing.

As for bureaucracy, it depends on the region. There are some local markets where they choose the supplier first and hold a tender just
to comply with formal procedures. Coming from Russia we don’t stand much chance in competitions like that. But in Europe and North America, for example, the selection procedure is transparent. Customers on these markets take a very rational approach to the selection of suppliers although, there too, we have to face powerful lobbies, protectionist frameworks and duties that support domestic manufacturers. So the principles, procedures and tools vary a lot, and we spend a lot of time learning the rules on each specific market and figuring out how to work efficiently with these rules.

Comparing different standards and approaches to manufacturers, which region, in your opinion, appreciates innovation the most?

You will be surprised by my answer. It’s a fact that the railway industry is very conservative the world over, and attitudes to innovation are usually cautious, because innovation means risk. The most innovative region is probably Australia, where railways aren’t just a part of national infrastructure, but a key part of the technology chain for mineral producers. If you extract ore or coal, you need to get it to a port along a railway line, which you have to build. In Australia, high-tech solutions are in demand: they have the highest axle load in the world (40 t) and trains of up to 250 cars weighing as much as 40,000 tons. The same applies to other regions where there is a large mineral extraction industry and dedicated railway lines. For example, Saudi Arabia also appreciates innovations as a way of making transport more cost effective. But all markets, without exception, focus on safety as much as on cost efficiency. So a global supplier has to confirm the quality and reliability of its cars. This is the key to success.

Elena Romanova