The Rail Supply Industry (RSI) in the EU accounts for nearly half of the world market for rail products and has a market share of more than 80% in Europe, while – as top exporter – it accounts for approximately 20% of world trade with railway products. The world leadership of the European RSI is largely due to its research, development and innovation capacities, and these are strongly boosted and coordinated at EU level by the former Shift2Rail and now Europe’s Rail programmes to transform the European railway system by 2030. At the same time Europe – already today – is not producing around ¼ of the Railway supplies it needs; these include raw materials, intermediate products and finished products (the amount in Euros was around 2.500 billions in 2014, with increasing trend).1 The COVID-19 lockdowns and the set of following crisis and supply disruptions (both short ones such as the Suez Canal blockage in 2021, and long ones like the ongoing war in Ukraine) have taught that the more you rely on Global Value Chains (GVCs) for your supplies, the more you are vulnerable. And in too many cases, the supply of key components and raw materials is not only very far from Europe but also concentrated in a few places, which boosts vulnerability. As reported by McKinsey2, in fact, “more than 50% of chip foundry production capacity of about 45 nanometer or smaller chips (typically focused on logic chips) is concentrated in ~15 facilities (factory modules) in Taiwan. About 98% of manufacturing capacity of 350 nanometer and smaller optoelectronic chips (for example, used in image sensors, lasers, LEDs) is in 9 facilities in southern Japan, and about 40% of memory chip capacity is in 10 facilities in Seoul and surrounding cities”. Not only: the greater frequency and severity of climate hazards is teaching that climate change is one more source of disruptions in Global Value Chains, interrupting production, raising costs and prices, and hurting corporate resilience. According to McKinsey estimations, for instance, “by 2040 a company using leading-edge chips such as an OEM manufacturer of Autonomous trains, sourcing from geographies in Korea, Japan, Taiwan or other hubs in the Western Pacific, can expect that hurricanes sufficient to disrupt their suppliers will become 2 to 4 times more likely”3, with lasting effects for several months. Also, “the probability heavy rare earths production is severely disrupted from extreme rainfall may increase 2 to 3 times by 2030”4, as their production is concentrated in Southern China, which is increasingly exposed to such extreme climate events. McKinsey estimates for instance that “the manifestation of an extreme precipitation event, or series of events, could cause at least a 20% drop in heavy rare earth output, and potentially much more in a worst-case scenario. Damage mechanisms include excessive mud and landslides in mines, flooding treatment ponds, and disrupted logistics to and from mines (…) and a large landslide could disrupt production for up to 12 months in severely hit mines, though for most mines the disruption would be shorter if the landslide is shallow and only affects parts of the mine”. Europe’s vulnerability can increase proportionally with the increasing demand for Advanced Technologies and Advanced Materials5 necessary to deliver (also) the innovations targeted by the Europe’s Rail Master Plan and Multi Annual Work Programme for 2030. This is posing a double challenge: in terms of change in the demand, and in terms of actual capacity of Europe to supply and produce the necessary materials and components for such innovations, or to source them from more reliable and secure supply chains from oversea. This has become definitely clear with COVID-19 effect on Global Value Chains, with the result of the European Commission having to revise in May 2021 its Industrial Strategy – that had only been launched in March 2020 and then based on Twin Transition and Global Competitiveness -, including in it the Resilience of Europe’s economy as well as the need to identify where Europe’s strategic dependencies lie, how they may develop in the future and the extent to which they could lead to vulnerabilities. To achieve this, the European Commission: § is monitoring strategic dependencies, identifying from the first bottom-up report 137 products in sensitive ecosystems for which the European Union (EU) is highly dependent on foreign sources. The report also offers an in-depth analysis of 6 strategic areas where the EU has dependencies, and 5 of them are key for delivering the target Europe’s Rail innovations in 2030: raw materials; batteries; hydrogen; semiconductors; cloud and edge technologies. In this framework also lies the EU monitoring of Critical Raw Materials for resilience6; § based on that, is developing Europe’s strategic capacities and autonomy by supporting new industrial alliances in the above (and further) strategic areas - Raw Materials Alliance; Clean Hydrogen Alliance; Circular Plastics Alliance; Industrial Data, Edge and Cloud Alliance; Processors and Semiconductor Technologies Alliance – as well as relevant Technological Partnerships – High Performance Computing; Photonics; § is diversifying international partnerships to use trade to sustain strategic diversification of supply and demand.7 In this sense, among the most recent initiatives taken by the EU: (a) “closely working with the Biden administration right now (…) we face (…) for example the challenge together that we are developing an over-dependency on China regarding raw materials that are critical for our green transition. So, one of the possible solutions could be to create a raw materials club to overcome China's monopoly in this field”8; (b) Strategic Partnership MoU between EU and Kazakhstan in the field of raw materials, batteries, and renewable hydrogen9; (c) EU-Latin America Partnership on Raw Materials10. In this highly complex framework, the "Map of disruptions experienced so far by the Rail Supply industry and lessons for the future" offers a starting point for giving – ultimately – answer to the key question: will Europe have enough materials and components to deliver the railway innovations needed to transform the European Railway sector in 2030, as defined at EU level? To pose the first building block that will lead to such final answer at the end of the LEADER 2030 project, the study provides: § key insights from desk research on disruptions in supplies having impacted Europe in the most recent years § the results of the European survey of the Rail Supply industry on disruptions experienced since 2018, launched by the LEADER 2030 project. Section 5 introduces to the key topics of supply disruptions and dependencies, to help the readers better understand not only the terminology but also the complexity behind them. Section 6 presents the Desk research that was conducted on the many available studies and reports produced in the recent years following to the impact of the COVID-19 pandemic, war in Ukraine and other major events having impacted on the flow of global supplies. The detailed list of consulted documents is provided in the References – Section 9. The desk research phase not only provided a huge quantity of information, of which the key ones are highlighted in this study as necessary for drawing specific conclusions for the Railway sector, but also provided guidelines to better frame and select the questions for the survey phase. Section 7 presents the Survey that was conducted through a multilanguage online European Consultation addressed to companies of the Rail Value Chain, and open from November to December 2023, and its results. Also it comments the survey results with correlations with the ones emerged in the Desk research phase. Section 8 draws the final conclusions and introduces to the next project steps. 1 European Commission (2019), Final Report: Study on the Competitiveness of the European Rail Supply Industry. 2 McKinsey (2020), Could climate become the weak link in your supply chain?, p. 17. 3 Ibidem. 4 Ivi, p. 23. 5 Advanced Materials | Advanced Technologies for Industry (europa.eu). 6 Critical raw materials (europa.eu). 7 European Industrial Strategy (europa.eu). 8 Keynote speech by the President von der Leyen on the occasion of the 120th anniversary of Bocconi University, 7 December 2022. 9 Strategic Partnership between the European Union and Kazakhstan on sustainable raw materials, batteries and renewable hydrogen value chains (europa.eu). 10 The partnership | MDNP (mineralplatform.eu).
Veronica Elena Bocci (Wed,) studied this question.