Is new stock cheaper than re-using existing stock?

[GWRrrr]

I see many times people saying that an operating company is building new trains because it's cheaper than using existing ones.

So I have a couple of questions:

1. Is this actually what's happening? Are new trains being built when perfectly good ones of an appropriate type already exist? Or are there reasons, that we don't know about, why the existing ones can't be used?
2. If it is happening, then what is it about the procurement system that make it cheaper to buy new and scrap existing, rather than re-using the existing stock? Why is it that way?

(apologies if this has been discussed elsewhere)

 

[DanNCL]

In both cases I can think of where this has happened - SWR with the 707s and Greater Anglia with the 379s - it's only been cheaper to replace the units as older stock in the same fleet needed replacing anyway and replacing everything would result in a common fleet. Generally the larger the fleet you order, the cheaper the lease on each unit will be as there'll often be a discount for ordering more.

 

[northwichcat]

Maintenance and training may also be cheaper if you have a large modern, consistent fleet. However, the downside could be that a consistent fleet is less passenger friendly e.g. if the long distance services are operated by what feel like a commuter train with a few modifications.

Presumably a small, old fleet could create difficulties in obtaining spare parts.

 

[Sorcerer]

In both cases I can think of where this has happened - SWR with the 707s and Greater Anglia with the 379s - it's only been cheaper to replace the units as older stock in the same fleet needed replacing anyway and replacing everything would result in a common fleet. Generally the larger the fleet you order, the cheaper the lease on each unit will be as there'll often be a discount for ordering more.

So is that why the leasing costs were cheaper for the 701s than the 707s? Because the more uniform fleet as a whole would mean lower leasing costs overall than having them among a varied fleet? Like I knew the leasing costs for the 701s being cheaper was the reason they withdrew the 707s but I didn't know that much.

 

[swt_passenger]

So is that why the leasing costs were cheaper for the 701s than the 707s? Because the more uniform fleet as a whole would mean lower leasing costs overall than having them among a varied fleet? Like I knew the leasing costs for the 701s being cheaper was the reason they withdrew the 707s but I didn't know that much.

Leasing costs was never the only reason for the intended withdrawal.
DfT had already strongly implied in the 2017 franchise ITT that they had inadequate capacity for the routes operated, and dwell times were too long at major stations. Now with hindsight that’s probably no longer a current issue, but it wasn't the case when the bids went in.

If back then a bidder had asked a ROSCO for another 600 x 707 based vehicles and suitable conversion of existing sets, it’s possible the lease costs could have been renegotiated anyway.

 

[AlexNL]

Having a large uniform fleet is interesting as you need to spend less effort on training staff and the greater commonality of parts makes it easier to keep a sufficient supply of spade parts.

Leasing costs may vary based on when the rolling stock was procured, and that has to do with interest rates at the time. For a long time money was practically free, which made the case for acquiring brand new trains relatively straightforward.

 

[Bertie the bus]

I have no knowledge of train leasing deals but the following could be a factor:

Interest rates over the last 10 or so years have been ridiculously low so borrowing costs to purchase trains will be low, which in turn could have an impact on leasing charges.

There have been a number of new entrants into the train leasing market recently. This could well be because they have seen that a certain amount of profiteering has been going on and if they undercut the old guard they could still make a reasonable profit and win the business. Result – new train leasing costs reduce.

 

[tomuk]

In the past improved technology has made new stock cheaper to run, for example, the move to traction converters and AC traction motors significantly reduces maintenance requirements of EMUs.

In the case of the 379s and the 707s the leases were more expensive because the lease was for a shorter period and wasn't guaranteed by the DfT. Although the ROSCO could be pretty sure someone would carry on leasing them there may well be some storage and modification costs etc this was factored into higher charges plus of course the dent financing would proably be higher too.

 

[Mikey C]

I wonder if the economics have now changed, with rampant inflation, the shortage of key components such as micro-processors and interest rates increasing?

Add in the decline in commuting, and suddenly the environment that delivered the 701s to SWR and 720s to East Anglia might not exist now.

 

[coppercapped]

I see many times people saying that an operating company is building new trains because it's cheaper than using existing ones.

So I have a couple of questions:

1. Is this actually what's happening? Are new trains being built when perfectly good ones of an appropriate type already exist? Or are there reasons, that we don't know about, why the existing ones can't be used?
2. If it is happening, then what is it about the procurement system that make it cheaper to buy new and scrap existing, rather than re-using the existing stock? Why is it that way?

(apologies if this has been discussed elsewhere)

This is all to do with the total cost of ownership of the trains. What is of interest to any business, not just railways, is how the cost of using the assets will change in the future - and the calculation is only made for the future as it is impossible to change any expenditure already incurred. Money already spent is a sunk cost and can be ignored.

So the operator has to answer a set of interlinked questions about his whole operation:

• What do I need to do to increase income in the future?
• What do I need to do to minimise my costs in the future?

Insofar as the answers are applicable to the rolling stock the operator then has to ask:

• Are my current assets competitive in the market?
• Which is more financially advantageous, modification or replacement?

Modification costs include such items as the expected remaining life of the stock; does it need a heavy overhaul anyway or has it just had one; costs of any necessary corrosion/damage repairs; the loss in income of several train sets being in works at the same time for rework; costs of obtaining replacement stock to 'fill in' while the rebuild is in progress; costs of making stock compatible with current regulations where necessary; updating/replacing obsolete items; stripping and repairing components and so on and so forth.

The advantages of replacement are, as others have already written, the existence of a standardised fleet which reduces the additional costs of fleet specific crew training, spares holding and maintenance knowledge or route usage. This is one of the things that the 'low cost' air carriers do well, Ryanair uses only one model, nearly 300 Boeing 737-800s, and Easyjet does the same with over 300 Airbus A320neos, although both are now transitioning to newer models from the same model ranges.

The cost of funding has also to be considered - over the past decade interest rates have been at an all time low so money has been essentially free, but this is no longer the case. Changes in the anticipated cost of money will affect both what is done and when it is done.

All this is to say that the reason decisions are made the way they are is mostly financial - or in the case of the railways in Britain also strongly influenced by the rules of the game as set by the Department for Transport from time to time which influences the 'buy new' or 'rebuild' decisions.

 

[LNW-GW Joint]

Manufacturers are also very keen to maintain their own products as a forward revenue stream for maybe decades (Alstom is into its 3rd decade of maintaining Virgin/Avanti's Pendolinos).
That means (usually) the manufacturer taking over a TOC's maintenance base and staff, further derisking the TOC's operation.
That's how the Hitachi IEP contract works, and they maintain all class 80x units for multiple TOCs.
Stadler is doing the same for Merseyrail's new class 777 fleet.

Interest rates play a significant part in train purchase and leasing costs.
The currently "unwanted" fleets like class 350/2 or 379 were purchased when rates were high, and new fleets have been better value in the last decade with very low interest rates.
With today's sudden rampant inflation and increasing interest rates it remans to be seen how the balance goes in the future.

 

[Snow1964]

I wonder if the economics have now changed, with rampant inflation, the shortage of key components such as micro-processors and interest rates increasing?

Add in the decline in commuting, and suddenly the environment that delivered the 701s to SWR and 720s to East Anglia might not exist now.

Clearly Interest rates are climbing (and bound to go up again at lunchtime today).

There probably won’t be repeat of 600+ vehicle orders (like 701, 720), but there remains a significant gap in a lack of a universal middle of the market train.

By middle of market, I mean a secondary route train (say 5 or 6 cars long, 110mph electric, 95mph diesel configured for long secondary routes, with doors suitable for outer surburban crowds, which can also work footed and holiday reliefs). Realistically it is the only way many of the remaining 15x sprinter fleet will be cascaded out as there will be a reluctance to fund pure diesel trains going forward.

But I think it will have to wait until a manufacturer leads it, or GB railways (or whatever new organisation is called) realises it needs something between IETs and suburban EMUs. This is the only train I could see being ordered in say more than 400+ vehicles. (not including new railway HS2 stock)

I think we have come to the end of lots of small batches of multiple designs, because reaching a point where financing them without a guaranteed usage period becomes uneconomic.

 

[43096]

Clearly Interest rates are climbing (and bound to go up again at lunchtime today).

There probably won’t be repeat of 600+ vehicle orders (like 701, 720), but there remains a significant gap in a lack of a universal middle of the market train.

By middle of market, I mean a secondary route train (say 5 or 6 cars long, 110mph electric, 95mph diesel configured for long secondary routes, with doors suitable for outer surburban crowds, which can also work footed and holiday reliefs). Realistically it is the only way many of the remaining 15x sprinter fleet will be cascaded out as there will be a reluctance to fund pure diesel trains going forward.

But I think it will have to wait until a manufacturer leads it, or GB railways (or whatever new organisation is called) realises it needs something between IETs and suburban EMUs. This is the only train I could see being ordered in say more than 400+ vehicles. (not including new railway HS2 stock)

Isn’t that the market for Stadler’s FLIRT? Given all the benefits of it in terms of passenger facilities, including level boarding, it should be the standard new regional train.