score d3.2 push and pull factors for industry as derived from...

D3.2

Push and pull factors for industry

as derived from analysis of

disruptive trends shaping future

demand side

Brussels,23.03.2018

D3.2 Push and pull factors for industry as derived from analysis of disruptive trends shaping future demand side

1

Document change record

Version Date Status Author Description

0.1 10/08/2017 Draft VDI/VDE-IT Draft document structure

0.2 12/01/2018 Draft Railenium Section 4

0.3 13/01/2018 Draft UITP Section 4

0.4 15/01/2018 Draft VDIVDE-IT Section 2

0.5 15/01/2018 Draft TOI Section 2

0.6 16/01/2018 Draft CU/IK4 Section 3

0.7 19/01/2018 Draft ISL Section 5

0.8 23/01/2018 Draft MUS Section 5

0.9 31/01/2018 Draft UITP Merging of contributions.

0.10 19/03/2018 Draft All partners Section 6 by VDIVDE-IT

and review by all partners

1.0 23/03/2018 Final VDIVDE-IT Final version

Consortium

No Participant organisation name Short Name Country

1 VDI/VDE Innovation + Technik GmbH VDI/VDE-IT DE

2 Railenium Railenium FR

3 Cranfield University CU UK

4 Maritime University of Szczecin MUS PL

5 Transportøkonomisk Institutt ( TOI) TOI NO

6 Institute of Shipping Economics and Logistics ISL DE

7 IK4 Research Alliance IK4 ES

8 Intl. Association of Public Transport Operators UITP BE


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Table of contents

1 Introduction (VDIVDE-IT) ..................................................................................................... 3

1.1 Project background ...................................................................................................... 3 1.2 Motivation and objectives of the current task ............................................................... 3 1.3 Selection of research topics based on industrial relvance ........................................... 3 1.4 Coherent template for individual chapters ................................................................... 3

2 Automotive ............................................................................................................................ 5

2.1 Mobility as a service applications reshape mobility patters of young and adult urbanites 5

2.2 Flying taxies established in a few major cities, flying cars remain a niche market solution 11

2.3 Autonomous driving technologically established but deployment is a long process . 15 2.4 30% of new vehicles sold are electric vehicles, buyers demand easy access to fast

charging loading points .............................................................................................. 20 2.5 Freight and passenger vehicles are platooning on public roads to increase traffic flow

capacity of existing road infrastructure ...................................................................... 35 2.6 Batteries of electric vehicles are recycled and re-used on a material (and increasing) scale

43

3 Aeronautics ......................................................................................................................... 52

3.1 Legacy systems future technologies digitisation (IK4) ............................................... 52 3.2 Backlog! Operational optimisation and availability type contracts ............................. 61 3.3 Future concepts - all-electric, blended wing, open rotor and hybrid air vehicles ....... 68 3.4 Attractiveness of business models in the perspective of emerging markets and growth in

economy ..................................................................................................................... 74

4 Rail/Rolling stock ............................................................................................................... 79

4.1 Automated or autonomous trains, how can cybersecurity and onboard security be guaranteed as critical features? ................................................................................. 80

4.2 Digitalization to enhance customer experience ......................................................... 84 4.3 Efficiency of modal transfer; Multimodality; Multimodal hubs .................................... 93 4.4 Rolling stock OEMs providing more train transportation services than just trains ... 100

5 Shipbuilding ...................................................................................................................... 108

5.1 The development of cooperation inside shipbuilding sector and between the European shipbuilding sector and shipowner will be a relevant factor in increasing the competitiveness. ...................................................................................................... 108

5.2 Market share developments of EU cruise ship shipyards ........................................ 126 5.3 Production of an autonomous ship will be a key factor for further creating the competitive

advantage of the European shipbuilding sector. ...................................................... 130 5.4 Development of alternative fuels in shipping ........................................................... 140

6 Push-Pull Factors for future demand of the European Transport Manufacturing industry

............................................................................................................................................ 144

6.1 Aggregated Push-Pull factors for Automotive Manufacturing Industry .................... 144 6.2 Aggregated Push-Pull factors for Aeronautics Manufacturing Industry ................... 146 6.3 Aggregated Push-Pull factors for Rail/Rolling stock Manufacturing Industry .......... 148 6.4 Aggregated Push-Pull factors for Shipbuilding Manufacturing Industry .................. 149

7 Appendix ........................................................................................................................... 151


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1 Introduction

1.1 Project background

WP3 is the second of the three content-related work packages of the SCORE project and presents the

outlook on disruptive trends in the transport manufacturing industry. The work package will assess the

trends and future perspectives for the value chains of the European transport manufacturing industry

(Task 3.1), as well as the future requirements for the transport manufacturing industry from the

demand side (Task 3.2). In addition, the work package will analyse future global competition arenas

for transport manufacturers (Task 3.3), and derive the critical factors for assessing global future

developments for the European transport manufacturing industry (task 3.4).

Together, WP2 and WP3 will create a knowledge base for WP4, which in turn will discuss insights

regarding relevant framework conditions, and provide recommendations to relevant decision makers in

the industry and at public authorities.

1.2 Motivation and objectives of the current task

The main objective of the task is to identify relevant trends and future perspectives that will effect

supply and demand of transport manufacturing industry and analyse their impact on setup and

dynamics of supply chain, innovation capacities and on demand side and derive upcoming challenges

and opportunities. Likely market developments of present and upcoming markets will be forecasted

and future customer requirements and mobility demands including aspects like demographic trends,

GHD reduction targets etc. affecting business models of the addressed industries will be analysed.

This way a comprehensive picture of (interdependent and interplaying) trends and their complex

impact on the competitive position of the European transport manufacturing industry by characterizing

anticipated future competition arenas will be created. Overall the task will assess how future

developments and trends will shape demand and in turn will shape requirements on transport

manufacturing industry.

1.3 Selection of research topics based on industrial relvance

To analyse and determine the future competitiveness of the European Transport Industry crucial

research topics were identified and elaborated in interactive workshops (see Deliverable 5.2 Results of

the First Industry workshop and Deliverable 5.3 Results of the 2nd

Industry for more information) with

industry experts. While the focus of the first workshop was on an initial selection of promising and

crucial research topics, the second workshop was focussing more on the disruptive potential of

manufacturing technologies and cross-sectoral collaboration and was used to refine our approach.

The results are reflected in the creation of the mandatory template for each deliverable chapter. In

specific cases multiple options for research topics were drafted by consortium experts based on their

experience and cooperation’s with industry stakeholders. These options were forwarded to a selection

of the Industry Advisory Board and based on their feedback the analyses were carried out.

1.4 Coherent template for individual chapters

One challenge was to provide a coherent template which addresses all needs for harmonized cross-

sectoral analyses while also providing enough flexibility to address the particular characteristics of the

respective transport manufacturing sector and the futuristic demand topics. We therefore introduced a

template describing a plausible future use case scenario, analysing the current state of the art and

starting position of the European Industry and deriving implications and conclusions to the present

value chain. Realization of the futuristic scenario is pulled either by global trends (societal, technical,

economic, political and/or ecological) and/or pushed by (disruptive) technology developments (Push-


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Pull Factors1) into the market. Furthermore there is the possibility to describe alternative modifications

or wild cards for the considered scenario and its implications for the value chain and existing business

models. For more information have a look in the appendix of the document.

1

(2008) Pull vs. Push — Strategic Technology And Innovation Management For A Successful Integration Of Market Pull And

Technology Push Activities. In: The Boundaries of Innovation and Entrepreneurship. Gabler


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2 Automotive

The following reserach topics have been investigated in terms of future demand trends impacting the

automotive sector. For each topic, a scenario has been defined and anaysed (section 2.1 to 2.5) with

the overall purpose to answer some key research qurestions reported bleow.

• Mobilitiy-as-a-Service

What special design for vehicles and services need to be applied to mobility-as-a-service

models? How can those models be transferred to busses and trucks?

• Flying cars

Congested roads in big cities could improve through automation of cars but only up to certain

limits if everyone still remains with the ownership of his or her own private car. The aerospace

of cities offers space to free roads. New trends in electrification and automation enables self-

flying, vertical take-off or landing vehicles at low energy consumption. What are demand-side

requirements to a safe, regulated employment of flying cars. What are side effects for the

society and could they eliminated?

• Autonomous driving

What complementing technologies must be provided in order to allow a successful human-

machine-communication between drivers & cars and cars and pedestrians so users and

society are rather likely to accept the new technology? How can a positive image be fostered

within society? How can potential scandals be inhibited? Are there application fields, where

autonomous driving gives no benefit?

• Infrastructure

How can startups like Tesla manage to install fast charging infrastructure extensively while

other bigger players remain inactive? How can enough energy be produced to fit the

increasing demand for electric mobility? What other technologies could benefit the stability of

the grid and usage of electricity at the right time?

• Fusion of logistic delivery services and passenger transport

Connected vehicles enable traffic management systems to match routes of vehicles (busses,

cars,..) with addresses packages. Several ways and fuel can be saved. Under what

circumstances is this fusion accepted by the users and society and hw will the sectors

(transport & logistic) be connected in the future?

• Circular Economy

How can materials being mined from the Earth be more effectively recycled and re-used?

What about the future recycling technology and possibilities of cars and how can these be

supported by automotive manufacturers.

2.1 Mobility as a service applications reshape mobility patters of young and adult urbanites

Sector/Mode of Transport: automotive, cross-sectoral

Time Horizon: 2030

Management summary

Mobility-as-a-Service (MaaS) is a widespread on-demand mobility concept that supports and utilizes

the inter-modality of transport in the year 2030 providing sustainable and affordable long-distance

journeys in combination with first/last mile solutions. Traditional business models, vehicles designs as

well as value chain will change radically. To realize MaaS business models, collaborations are

essential. With new technologies like automated shared vehicles, intelligent algorithms and block

chain, all partners of a platform together can achieve that objective.


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In Europe MaaS-business models and pilot implementations are currently run in middle-sized cities

such as Hannover or Leipzig, mainly driven by the public transport services. Though, there are no real

MaaS-applications in the US and China known by today, these countries have the potential to become

full MaaS-providers, because they have the IT expertise for the development of a MaaS-platform and

with already established service providers (Uber, Lyft, Didi Chuxing…) an enormous potential.

Description of the Future Use Case Scenario

Mobility-as-a-Service (MaaS) is a widespread concept that does both, it supports and utilizes the inter-

modality of transport in the year 2030 providing sustainable and affordable long-distance journeys in

combination with first/last mile solutions. To offer seamless door-to-door journeys, public and private

transport providers are integrated into digital platform to become part of a comprehensive service.

MaaS offers its users an intelligent journey planner optimizing the travel schedule according to

individual needs (transfer time, preferred modes of transport, etc.) and gives real-time information on

delays and alternative routes (Catapult 2016). Very attractive to most user groups appears the

comfortable all-in-one ticket and payment system with transparent bill-per-use or with flat rates (VCD

2017). Block chain-based ticketing allows the exact and secure tracking and payment of inter-modal

vehicle usage (Burgwinkel 2016). Not all companies are using this due to development and

implementation costs.

While MaaS-implementation in bigger cities are mainly driven by fast-growing start-ups, because of

their competences in scaling up IT-platforms and collaborations and because of their understanding of

younger user groups, local and regional public transport providers are driving the change in small

municipals. This is due to the fact that they have experience in operation of local solutions on tight

budgets and their already built-up ties with customers. Some cities have used co-creation-approaches

to merge ideas of different user groups in order to implement intermodal-transport solutions

successfully, overcoming barriers through dialogues with the society. This way, the high investments

were allocated effectively (for the potential of co-creation refer to Mobility4EU 2017).

A positive effect of MaaS for the livability of urban areas is that more people leave their cars at home

or do not buy a car at all. Further, users get in touch with CO2-emission-free transport solutions and

spread the word attracting more people to join platforms. Due to increasing interconnectivity and data

for user statistics time tables can be optimized based on big data and by the help intelligent

algorithms. On the other hand, the existence of several new platforms in bigger cities, with different

approaches still makes it hard for potential users to decide which service to follow. They doubt some

of them will be still relevant a few months later. Some of them wait before they adopt a new solution,

once one platform seems to be established. This economic betting process as well as mergers and

acquisition activities lead to the breakthrough of one or two incumbents per area (comparable to the

intercity bus market developments, cf. Doll 2017).

The outlook of cities has changed as well. Mobility hubs are spread across the city at frequented

places in quartiers. This has architectural impact, since space for bike and car parking is required, as

well as more dedicated bike roads are built. The new space around the mobility station is partly used

for leisure activities in green spaces and shopping. Though, more traffic occurs around these spaces,

the noise and emissions are significantly lower than before due to the combination of low-emission

transport modes.

Hence, logistic companies develop platforms for a flexible logistic online- and offline infrastructure,

where free capacity for freight transport is marketed. The transport on ship, rail, trucks and busses is

organized in a modular way by the help of algorithms. Block chain is helping to stay on track with the

location of goods (Mattke 2017). The transportation of goods is partly organized in fusion with

passenger transport, where it is effective, e.g. with long-distance busses.

More and more young people, and young to middle-aged adults find MaaS attractive because it gives

them the freedom to leave there car at home or not even to buy a car at all.


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Younger people and adults without cars get used to plan journeys on the go. There is no need for a

car even for a longer trip out of town, because car rental companies included within the service

portfolio provide discounts on cars. Older people also adopt the solution. However, companies fail to

offer offline-solutions. Thereby, they exclude users who avoid digital-only services. In the segment of

middle-aged people, there are different usage patterns, but usually they keep a private car even

though they use MaaS from time to time. But there are many people that will not be reached by those

offers. They want to keep their cars to remain independent. Especially people living out of cities tend

to keep their cars, since MaaS is not available in their particular region.

Nevertheless, not all car drivers gave up their private car in order to get to destinations in and out the

city whenever they want, especially if there is no interface of their service with the service at the

destination or no MaaS at all.

There are certain logistics-as-a-service users ranging from startups with upscaling, but unstable good

deliveries like new online fashion or electronic stores, but also bigger companies experiment with new

kinds of service, especially if they have free capacity in their own logistic chain.

Fruitful cooperation between passenger and freight transport, where parcels are delivered into shared

vehicles for the driver that is picking it up.

Analysis & Assessment of the impact on present industry structures:

At present, there are a lot of companies with different approaches and pilot applications/services

entering the market.

• In Europe: Compared to other solutions, small-scale MaaS-business models are currently run

in middle-sized cities such as Hannover or Leipzig, driven by the public transport services,

using one electronic card to track the usage of services. They provide mobility hubs across the

city with secure bicycle parking spaces as well as parking lots for cars with electric charging

infrastructure. This way, sustainable modes of transport can be combined (VCD 2017). The

Finnish company PayIQ offers smart city payment solutions, e.g. contactless cards to pay

different cross-modal transport with one solution (PayIQ 2017). Startups like Moovel or MaaS

Global (App: Whim) undertake trials for MaaS in Hamburg, Helsinki and London (Whim 2017;

Moovel 2017). Various pricing schemes are offered already today (pay-per-use vs. flat rate

packages). Furthermore, some transport providers joined with one or two partners to offer

interlinked transport, like DB does with a car sharing and bike sharing. This is a good

foundation to lay out large-scale intermodal transport solutions.

• Worldwide: In the US, companies like Uber, Lyft built up ride-hailing and ride-sharing services.

Didi Chuxing, a Chinese ride-hailing service is investing in emerging markets like India or

Brazil. The mobility startups foster cooperation with OEMs to provide automated driving.

Further, bike sharing services are established across the US and in major cities in China

(Wikipedia 2017). Though, there are no MaaS-applications in the US and China known by

today, these countries have the potential to become full MaaS-providers, if they reach out to

other partners, because they have the IT-expertise for the development of a MaaS-platform.

The implementation of MaaS has a very high impact. Traditional business models, vehicles designs as

well as value chain will change radically. MaaS would require incremental innovation in existing fleets

in terms of connectivity, but rather radical innovation in terms of vehicle design: To fit the needs of

differently sized cities and purposes, vehicles should be designed with universal design principles to

include vulnerable groups and or citizens with impairment. Therefore, they should be easy-to access,

easy to drive and park. These vehicles should do not need much space on roads. This way, they need

active safety-mechanisms preventing accidents. Such vehicles should have easy-to-use HMIs with

self-explaining functionalities. Electrified, automated, connected vehicles can fulfill these requirements

(Meyer 2015).

In terms of infrastructure, it is important that, high-speed, secure connectivity is ensured for real-time

data exchange, not only for the fleet, but also between the platform and each affiliated service.


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The topic of transaction decryption through block chain requires new IT-competences, probably

supplied by the platform provider.

For the traffic management, big data analytics will be run in order adapt schedules of each affiliated

transport provider.

Probably, transport providers like car rentals or bike sharing services will work with different platforms

and more or less standardized interfaces in the beginning, since it is not clear, which platform will have

a breakthrough and later a dominant market position. In the ramp-up-phase within the next years, it is

important to stay agile regarding cooperation and ready to advance related product and service

innovation demanded by the platform. Another strategy could be to build an own platform. Especially

in smaller cities, this could be the only way of introducing MaaS with appropriate functionality, since

local transport providers know their clients and have already set up basic infrastructure.

Currently, many transport providers run collaborations with one or more partners, e.g. to show

connections (Google Maps, DB AG, etc.). They usually do neither offer booking services nor show the

prices for the complete journey. Though, some basic structures of possible MaaS business model are

on the market, e.g. ticketing through app, the intermodal journey planner as well as intermodal hubs

are being installed, a MaaS business model requires more functional diversity than that. There a few

startups like MaaSGlobal or Moovel with different pricing schemes according to transport needs.

To realize MaaS business models, collaborations are essential. In order to provide transport to a high

variety of destinations, it is necessary to provide a network of different transport solutions, to use the

benefits of each mode. To follow the user need for seamless transport and on-demand availability

(Mobility4EU 2017) the optimization of the interconnection between each travel step is a difficult task.

With new technologies like automated shared vehicles, intelligent algorithms and block chain, all

partners of a platform together can achieve that objective.

The EU transportation industry is in competitive position with the US and China from today´s

perspective, since all MaaS-platforms known to this study, being tested today, come from Europe.

With a very good transport network and already existing intermodal links, the provider-side is in a good

position to extent inter-modality. China has very good network as well, whereas road and air transport

dominate the US transportation market. But, the US and China with their strong investment

companies could help existing mobility services to extend their service portfolio and scale up their

market volume immensely. Previous market entries of UBER and Didi Chuxing show how quick they

built up services in other geographic markets. The necessary AI-competences are rather located in the

US and China, than in Europe.

Global trends & technology developments facilitating a realization of the Use Case:

Societal trends facilitating a realization of the scenario:

• Last-Mile: public transport network is impractical for certain destinations due to last-mile

problems (still cars are needed) (Catapult 2017)

• Increasing urbanization: leads to less space (to park own car), usually public transport has

faster connections compared to driving in bigger cities

• Increasing user belief: Travelling time should be quality time (Mobility4EU 2017)

• Increasing demand in sharing-solutions (bike, car) (CarIT 2016)

• Disinclination to give up freedom with cars (ORB 2017)

Economic trends facilitating a realization of the scenario:

• Digital platform-based business models are easier to scale up (Investopedia 2017)

• Increasing cost-efficiency in connectivity, sensor-based and automation, electrification

technologies for earlier return on investments


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Political trends facilitating a realization of the scenario:

• Promotion of sustainable transport solution across EU (Horizon 2020)

• Increasing cross-border inter-modality (Mobility4EU 2017)

Technology trends facilitating a realization of the scenario:

• Intelligent matching and route optimization, journey planning algorithms

• Connected, automated & electrified driving technologies are advanced (Mobility4EU 2017)

• Connectivity

• Big data analytics for traffic and network management

• Block chain

Alternative Future Use Case Scenario/ Wild Card:

MaaS platforms are only established in a few areas, where transport operators could agree on

partnerships with same (revenue) objectives. Usually, these local MaaS platforms are driven by local

public transport providers leading to limited inter-modality of service when it comes to journey from

one region to another or into another city.

The reason for this local development is that too many huge different transport providers (like rail way

companies, new mobility services) have tried to set up platforms with unique selling propositions until

2030. As a result users had to subscribe to many different services in order to get from one point to

another (due to reduced or unpredictable frequency of certain services in certain areas, etc.), then

some of the platforms discontinued or merged with brands. Thus many users could not be won over

from using a private car to which they return after a trial and error phase.

Strategically, companies, striving to build up MaaS have to be capable of adapting business models

on the go. The decision to enter the MaaS market should be based on a thorough analysis of

competences necessary and the other players in the innovation landscape. They should keep in mind

that some players can scale up their market volume very fast and span their networks across several

cities. This will be attractive to many users who travel between different cities but who would not want

to subscribe a new service everywhere they go. Thus the market developments for platform solutions

are going on at high speed. A strategy for smaller local MaaS-providers could be to offer partnerships

to the bigger players.

References

Burgwinkel, Daniel (2016). Blockchain Technology. Einführung für Business- und IT Manager.

Catapult (2015). IM Traveller Needs and UK Capability Study. Supporting the realisation of Intelligent

Mobility in the UK. Retrieved from: https://ts.catapult.org.uk/wp-content/uploads/2016/07/Mobility-as-a-

Service_Exploring-the-Opportunity-for-MaaS-in-the-UK-Web.pdf . Accessed on 29 November 2017.

Catapult (2016). Mobility as Service. Exploring the opportunity for mobility as a service in the UK.

Retrieved from: https://ts.catapult.org.uk/wp-content/uploads/2016/07/Mobility-as-a-Service_Exploring-

the-Opportunity-for-MaaS-in-the-UK-Web.pdf. Accessed on 29 November 2017.

CarIT (2017). Autokunden wollen privates Carsharing. Retrieved from: http://www.car-

it.com/autokunden-wollen-privates-carsharing/id-0047707. Accessed on 29 November 2017.

Doll, N. (2017). Flixbus legt sich mit Greyhound an. Retrieved from:

https://www.welt.de/wirtschaft/article170421566/Flixbus-legt-sich-mit-Greyhound-an.html. Accessed

on 9 November 2017.

European Commission (2017). Logistics and multimodal transport. Multimodal and combined

transport. Retrieved from: https://ec.europa.eu/transport/themes/logistics-and-multimodal-

transport/multimodal-and-combined-transport_en. Accessed on 29 November 2017.

https://ts.catapult.org.uk/wp-content/uploads/2016/07/Mobility-as-a-Service_Exploring-the-Opportunity-for-MaaS-in-the-UK-Web.pdf




http://www.car-it.com/autokunden-wollen-privates-carsharing/id-0047707

http://www.car-it.com/autokunden-wollen-privates-carsharing/id-0047707

https://www.welt.de/wirtschaft/article170421566/Flixbus-legt-sich-mit-Greyhound-an.html

https://ec.europa.eu/transport/themes/logistics-and-multimodal-transport/multimodal-and-combined-transport_en

https://ec.europa.eu/transport/themes/logistics-and-multimodal-transport/multimodal-and-combined-transport_en


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Klingebiel K., Wagenitz A. (2013). An Introduction to Logistics as a Service. In: Clausen U., ten

Hompel M., Klumpp M. (eds) Efficiency and Logistics. Lecture Notes in Logistics. Springer, Berlin,

Heidelberg.

Investopedia (2017). The Story of Uber. Retrieved from:

https://www.investopedia.com/articles/personal-finance/111015/story-uber.asp. Accessed on 29

November 2017.

Mattke, Sascha (2017). Logistikriese Maersk experimentiert mit Blockchain zur Güter-Verfolgung.

Heise Medien. Retrieved from: https://www.heise.de/newsticker/meldung/Logistikriese-Maersk-

experimentiert-mit-Blockchain-zur-Gueter-Verfolgung-3646860.html ,accessed on 21 August 2017.

Meyer (2015). Vernetzung, Automatisierung und Elektromobilität Retrieved from:

http://intellicar.de/perspective/synergien-von-vernetzung-automatisierung-und-elektromobilitaet/.

Accessed on 13 November 2017.

Mobility4EU (2017). D2.2 – Novel and innovative mobility concepts and solutions. Not yet published.

Moovel (2017). Home. Retrieved from: https://www.moovel.com/de/de. Accessed on 09 November

2017.

ORB (2017). ORB/Uber: attitudes to car ownership across European cities, September 2017.

Retrieved from: https://www.orb-international.com/2017/09/05/orbuber-attitudes-car-ownership-across-

european-cities-september-2017/. Accessed on 29 November 2017.

VCD (2017). Multimodal unterwegs. Handlungsempfehlungen zur Umsetzung multi-modaler

Verkehrsangebote. Retrieved from:

https://www.vcd.org/fileadmin/user_upload/Redaktion/Themen/Multimodalitaet/Multimodal_unterwegs_

-_Digitale_Infomappe_VCD.pdf. Accessed on 9 November 2017.

Whim (2017). Whim-App. Retrieved from: http://whimapp.com/fi-en/. Accessed on 7 November 2017.

Wikipedia (2017). List of bicycle-sharing systems. Retrieved from:

https://en.wikipedia.org/wiki/List_of_bicycle-sharing_systems. Accessed 13 November 2018.

https://www.investopedia.com/articles/personal-finance/111015/story-uber.asp

https://www.heise.de/newsticker/meldung/Logistikriese-Maersk-experimentiert-mit-Blockchain-zur-Gueter-Verfolgung-3646860.html

https://www.heise.de/newsticker/meldung/Logistikriese-Maersk-experimentiert-mit-Blockchain-zur-Gueter-Verfolgung-3646860.html

http://intellicar.de/perspective/synergien-von-vernetzung-automatisierung-und-elektromobilitaet/

https://www.moovel.com/de/de

https://www.orb-international.com/2017/09/05/orbuber-attitudes-car-ownership-across-european-cities-september-2017/

https://www.orb-international.com/2017/09/05/orbuber-attitudes-car-ownership-across-european-cities-september-2017/

https://www.vcd.org/fileadmin/user_upload/Redaktion/Themen/Multimodalitaet/Multimodal_unterwegs_-_Digitale_Infomappe_VCD.pdf

https://www.vcd.org/fileadmin/user_upload/Redaktion/Themen/Multimodalitaet/Multimodal_unterwegs_-_Digitale_Infomappe_VCD.pdf

http://whimapp.com/fi-en/

https://en.wikipedia.org/wiki/List_of_bicycle-sharing_systems


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2.2 Flying taxies established in a few major cities, flying cars remain a niche market

solution

Sector/Mode of Transport: Automotive

Time Horizon: 2030

Management summary

With rising population of cities and increased road congestion, vertical take-off and landing flying

taxies (VTOL - which are autonomous passenger drones) are being explored in a few major cities

worldwide. Both, the aeronautic and automotive sectors have complementary competences to react to

the increasing demand for VTOL’s and both industries will rely on cooperation in the market ramp-up

phase. Looking at the urban aviation market today, the EU is on a level-playing field with the U.S. and

China with comparable amount of players, gaining competences in automation and electrification.


With rising population of cities and increased road congestion, in 2030 vertical take-off and landing

flying taxies (VTOL) are currently being explored in a few major cities in the US, Europe and China

besides Saudi Arabia. VTOL-vehicles are autonomous passenger drones that can take off vertically

and then accelerate horizontally with high energy efficiency in cities using their (all-in-one) electric

propulsion system for vertical and horizontal aviation compared to a conventional jet-engine, where

two drive trains would be required (Uber 2016). Though, automated cars will ease the traffic flow in

2030, traffic jams cannot be eliminated by 2030 yet due to mixed traffic situations and rising individual

transport necessities. Although, private car ownership was decreasing over the last decade, a majority

of people still owns a private car (ECF 2016). The usage of individual on-demand transport with

automated shared cars has increased, that is why roads remain congested (Wang 2017). Moving on-

demand transport from road to air space is a solution of choice in order to meet climate protection

goals and ease road traffic. Thanks to the efficient electric propulsion, automated urban air taxis

vertically take off and land on ‘vertiports’ based within the city. Thus, smart charging infrastructure with

higher energy capacity as well as security measures has been installed, that allow an efficient

application. Legal restrictions only permit the employment of fleets in certain corridors to ensure

citizen´s privacy and public safety. Most routes connect airports located out of cities with central

mobility mega-hubs within the city to shrink commuting times.

Until 2030 the vision of individual transport by flying cars for both, air and land, has been driven by

smaller startups and a few premium OEMs. The dominant technical path of flying cars utilizes

advances in vertical take-off and landing instead of horizontal take-off (as is it is today, referring to

Aeromobil 2017; Pal-V 2017). The shape and configuration of flying cars can be transformed to meet

requirements for road and air transport. Due to legal restrictions regarding public roads, flying cars

remain a niche application in motor sports and leisure with exclusive flying zones. Only specialist

vehicles, such as emergency vehicles or VIP-transport vehicles for public authorities are permitted on

the road to facilitate their service under any circumstances.

While the urban air taxi service will have started as a premium service for managers and officials with

dense schedules due to the simple fact that vertiports (urban air taxi hubs) are easier to facilitate on

privately owned buildings, the clients in 2030 are working commuters between economic centers of

towns or airports into the city center with high affinity to intermodal-mobility solutions, since the

services got more reasonably priced.


Around the world, the main players actively developing in the field of urban air taxis already follow the

vision of automated passenger drones. Today is a tipping point in history, where automation

technologies and machine vision are far advanced, battery cost shrink at high pace and IT-based on-

demand business models are started to be accepted by clients to realize the vision of automated (and

thus safer) passenger transport in cities.


12

The technical paths differ in the way of aviation and purposeful design (size, function, etc.). One of the

biggest challenges of today is the navigation in 3D-space in complex urban environments, noise

reduction and increasing the range while lowering the weight (Uber 2016).

Regarding personal flying cars (roadable aircrafts) many startups are active in developing high cost

products. They fly with conventional fuel, but drive on electricity (Aeromobil 2017; Terrafugia 2017).

• In Europe: Speaking of urban air taxis (VTOL) the European industry is pioneering different

technological paths for aviation. Volocopter is embracing a multi-copter approach, whereas

Airbus and Lilium follow a multi-jet-engine approach (Lilium 2017; Airbus 2016). The players

move at present from demonstrator phases to prototype phase and real-world tests (Spiegel-

Online 2017).

• Worldwide: Mobility service startups like Zee.Aero or Uber and aircraft building companies like

Boieng in the U.S. focus on both jet-engines as well as rotors (business-insider 2017; Uber

2016). Ehang in China develop automated passenger drone with highest range of 20min flight

time known to the public today (Ehang 2017). Uber has announced that they want to run a

commercial route in 2020 in Dubai and Dallas (Aviationweek 2017).

The value chain to mass-produce light-weight electric automated passenger drones does not exist by

today. In the future, the value chains of aeronautic and automotive sectors would need interfaces,

benefiting from trackable goods with innovations alongside the automated factory. For the

infrastructure and its security completely new business models have to be launched.

The on-demand business model for urban air taxis is not launched. Airlines today work with long-term

booking systems. Together with airports they run a quiet efficient passenger handling. The automotive

industry on the other hand has no experience in deploying and maintaining aircrafts, but some OEMs

and mobility services have set-up on-demand business models with ride-sharing or ride-haling

capabilities. Thus, they already have the connection to on-demand users and the direct user interface.

A future challenge will be to run a business model with both, efficiency in digital-based on-demand

services, passenger handling, artificial Intelligence-based routing of flights and an efficient fleet

management.

Both, the aeronautic and automotive sectors have complementary competences to react to the

increasing demand for VTOL’s. While aeronautic suppliers have capabilities in aviation, navigation,

automation, safety standards, the automotive industry has most experience in electrification and IT-

based business models as well as experience with on-demand-mobility clients. Volocopter and

Daimler as well as Airbus and Italdesign (New Atlas 2017) are pioneering aeronautic and automotive

collaborations. Probably, both industries will rely on cooperation in the market ramp-up phase to meet

the demand in 2030. Later on, each industry will gain competences in the other´s field to deploy

services on their own.

Looking at the urban aviation market today, the EU is on a level-playing field with the U.S. and China

with similar amount of players, gaining competences in automation and electrification. Huge

investments are done either in-house, such as Airbus (Airbus 2016), by mergers and acquisition such

as with Boeing and Aurora (Lavars 2017) or with external investments such as from Daimler into

Volocopter (Volocopter 2017). All players are not at the stage of technical development, where on-

demand-mobility services are integrated. Thus it is difficult to say, which country holds an advantage

there. The competences for this could be acquired from existing on-demand-mobility services, each

market already provides. That is why collaboration is one crucial strategic factor for increasing

competitiveness for the new market.

Regarding the path of horizontal starting roadable aircrafts (flying car) it can be stated, that the EU has

two more known players than the U.S. engaging in the field. All countries would find resources and

competences to build products for the niche market as fast followers.


13


Societal trends facilitating a realization of the described scenario:

• Increasing population size from 2015 until 2030 in urban areas (e.g. Paris from 10,8m up to

11,8m; New York 18,6 up to 19.9m; Shanghai from 23,7m up to 30,8m) (UN 2015)

• Traffic: Europe´s countries with highest congestion (Inrix 2016)

• Private Car Ownership: may drop by 80% but will be replaced by shared cars, having the

same (Business-Insider 2017b);

Political activities facilitating a realization of the described scenario:

• Congestion taxes and other instruments reduce traffic in metropole city centers slightly

(Transport of London 2006, p. 3)

Technology developments facilitating a realization of the scenario:

• Horizontal acceleration (Flying cars): Aeromobil (Slowakia); Pal-V (Netherlands); Terrafugia

(US);

• Vertical take-off & landing: Airbus (France); Lilium Avaition (Germany), Volocopter (Germany);

Boing (US), Zee Aero (US); Ehang (China);

• Range: 20min range, 200kg (Ehang 2017)

• IT-Platform technologies offering on-demand mobility (ride-sharing/ ride hailing/ carpooling

services): Uber, Didi, Gett, Lyft, Grab Carma (Techworld 2017).


• Legal advances in the US (as for automated driving) allow the US-firms to operate urban air

taxis fully on-demand (not only in time, but also to individual destinations).

• Due to legal restrictions, individual air taxi services in cities are not permitted except for the

commute between city airports and surrounding airports (such as in Paris).

Derived implications for the industry value chain & business models:

• Depending on the scalability of the business model within future legal framework technologies

has to be flexible and not scaled-up to early.

• Hacked passenger drones lead to social in-acceptance. Comparable to the Concorde disaster

one fatal accident might make the whole business model obsolete.

Derived implications for the industry value chain & business models:

• Security: The communication of the fleets must have highest-standards and proven fail-safe

operability. The in-vehicle entertainment systems have to be separated from crucial vehicle

systems. The flight corridors must be designed in a way that public safety is guaranteed.

References

Aeromobil (2017): Flying Car. Retrieved from: https://www.aeromobil.com/flying-car/. Accessed on 17

August 2017.

Airbus (ed.) (2016). Future of urban mobility. Retrieved from:

http://www.airbus.com/newsroom/news/en/2016/12/My-Kind-Of-Flyover.html. Accessed 18 August

2017.

Business-Insider (2017). Larry Page’s mystery flying car startup is expanding its fleet of oddball

aircraft. Retrieved from: http://www.businessinsider.de/larry-page-zee-aero-kitty-hawk-flying-car-

startups-registering-new-aircraft-2017-3?r=US&IR=T. Accessed 3 November 2017.

https://www.aeromobil.com/flying-car/

http://www.airbus.com/newsroom/news/en/2016/12/My-Kind-Of-Flyover.html.%20Accessed%2018%20August%202017

http://www.airbus.com/newsroom/news/en/2016/12/My-Kind-Of-Flyover.html.%20Accessed%2018%20August%202017

http://www.businessinsider.de/larry-page-zee-aero-kitty-hawk-flying-car-startups-registering-new-aircraft-2017-3?r=US&IR=T

http://www.businessinsider.de/larry-page-zee-aero-kitty-hawk-flying-car-startups-registering-new-aircraft-2017-3?r=US&IR=T


14

Business-Insider (2017b). Only 20% of Americans will own a car in 15 years, new study finds.

Retrieved from: http://www.businessinsider.com/no-one-will-own-a-car-in-the-future-2017-5?IR=T.


Ehang (2017). Ehang 184. Retrieved from: http://www.ehang.com/ehang184/. Accessed on 30 August

2017.

ECF (2016). Klimafreundliche Autos in Deutschland. Ein Überblick über sozio-ökonomische

Auswirkungen. European Climate Foundation.

Inrix (2016). Measuring the impact of congestion in Europe Europe’s Traffic Hotspots. Retrieved from:

http://inrix.com/wp-content/uploads/2017/02/INRIX-Europes-Traffic-Hotspots-Research-FINAL-hi-res-

1.pdf. Accessed on 6 November 2017.

Lavars, N. (2017). Boeing advances autonomous flight aspirations with Aurora acquisition.

https://newatlas.com/boeing-aurora-autonomous-flight/51655/. Accessed 7 October 2017.

Lilium (2017). Technology. Retrieved from: https://lilium.com/technology/. Accessed on 3 November

2017.

New Atlas (ed.) (2017b). Italdesign and Airbus reach for the skies in Geneva. Retrieved from:

http://newatlas.com/italdesign-pop-up-concept/48388/. Accessed 16 August 2017.

Pal-V (2017). A car that flies, a plane that drives. https://www.pal-v.com/ Accessed on 6 November

2017.

Spiegel-Online (2017). Lufttaxi meistert Jungfernflug über Dubai. Retrieved from:

http://www.spiegel.de/auto/aktuell/dubai-volocopter-lufttaxi-meistert-jungfernflug-a-1169937.html.


Terrafugia (2017): The Transition®. Online verfügbar unter https://www.terrafugia.com/the-transition/.

Accessed 24 August 2017.

Techworld (2017): Alternatives to Uber. Retrieved from:

https://www.techworld.com/startups/alternatives-uber-best-alternative-ride-hailing-apps-3656813/.


Transport of London (2006). London Congestion Charging. Impact Monitoring. Fourth Annual Report,

June 2006. Retrieved from: http://content.tfl.gov.uk/fourthannualreportfinal.pdf. Accessed on 3

November 2017.

Volocopter (2017). Volocopter. Retrieved from: https://www.volocopter.com/de/. Accessed 7 August

2017.

Uber (2016): Fast-Forwarding to a Future of On-Demand Urban Air Transportation. Retrieved from:

https://www.uber.com/elevate.pdf. Accessed 17 August 2017.

UN (2015). World City Population 1950-2030. Retrieved from:

http://luminocity3d.org/WorldCity/#3/12.00/10.00. Accessed on 1 November 2017.

Wang, B. (2017). Worldwide ridesharing at $285 billion per year by 2030 will be profitable when self-

driving. https://www.nextbigfuture.com/2017/10/worldwide-ridesharing-at-285-billion-per-year-by-2030-

will-be-profitable-when-self-driving.html. Accessed 6 November 2017.

http://www.businessinsider.com/no-one-will-own-a-car-in-the-future-2017-5?IR=T

http://www.ehang.com/ehang184/

http://inrix.com/wp-content/uploads/2017/02/INRIX-Europes-Traffic-Hotspots-Research-FINAL-hi-res-1.pdf

http://inrix.com/wp-content/uploads/2017/02/INRIX-Europes-Traffic-Hotspots-Research-FINAL-hi-res-1.pdf

https://newatlas.com/boeing-aurora-autonomous-flight/51655/

https://lilium.com/technology/

http://newatlas.com/italdesign-pop-up-concept/48388/

https://www.pal-v.com/

http://www.spiegel.de/auto/aktuell/dubai-volocopter-lufttaxi-meistert-jungfernflug-a-1169937.html

https://www.terrafugia.com/the-transition/

https://www.techworld.com/startups/alternatives-uber-best-alternative-ride-hailing-apps-3656813/

http://content.tfl.gov.uk/fourthannualreportfinal.pdf

https://www.volocopter.com/de/

https://www.uber.com/elevate.pdf.%20Accessed%2017%20August%202017

http://luminocity3d.org/WorldCity/#3/12.00/10.00

https://www.nextbigfuture.com/2017/10/worldwide-ridesharing-at-285-billion-per-year-by-2030-will-be-profitable-when-self-driving.html

https://www.nextbigfuture.com/2017/10/worldwide-ridesharing-at-285-billion-per-year-by-2030-will-be-profitable-when-self-driving.html


15

2.3 Autonomous driving technologically established but deployment is a long process


Time Horizon: 2030

Management summary

Within this future scenario autonomous driving is in the phase of deployment. Approx. 30 % of all

vehicles sold will have autonomous driving capabilities (level 4-5). This results in tremendous shifts for

the value chain. Technology providers will struggle with traditional car manufacturers and ride-

sharing/ride-hailing companies for the leadership and value added along the value chain. At present a

lot of alliances are formed amongst the stakeholders and the future value chain is not decided yet.


In 2030, autonomous driving is technologically well established in all driving scenarios for passenger

and freight transport. Approximately 30 % of all vehicles sold have autonomous driving capabilities

(level 4-5) (VTPI 2017), i.e. the vehicles are able to handle all aspects of dynamic driving situations

without any manual intervention. The huge requirements regarding sensors and electronics for level 3

autonomy could partially already be handled in 2017 (Audi 2017, Tesla 2017). Level 4 autonomy and

upwards require an upgrade of infrastructure concerning information and communications technology

(5G networks) which will be available between 2020 and 2025.

All major car manufacturers are present in the market with more than one model. Deployment of the

new technology into the car fleet is slow. In 2030 only 15 % of the vehicle fleet will have it installed,

since autonomous driving is, at least in the private sector, at present not sufficiently deployed to

replace an old vehicle (VTPI 2017).

Software will be the biggest differentiator for OEMs, which gives the opportunity for companies new to

the vehicle market to enter as service providers, technology suppliers or challenge established

manufacturers with complete cars. By 2030 first market consolidations will have happened in the field

of autonomous taxis and micro-driving.

Although, the majority of people will still own a private car, their number decreases over the 2020s

(ECF 2016). Especially in urban areas autonomous taxis and micro-driving are a cost efficient

alternative. Nevertheless, the vehicle market will not shrink at first, due to the increased demand for

individual on-demand transport. Still, in less congested areas people unable to drive like adolescents

and disabled people benefit tremendously from better mobility with an increased participation in social

and economic life. Another aspect in this sector is the free time gained during longer road trips or

commuting. This time span can be used either for productive work or personal relaxation which is

another entry point for service providers into the market. Utilizing autonomous driving helps to optimize

traffic flow, which leads to increased road capacity, reduced fuel consumption and therefore reduced

costs and pollution. The community, and the individuals, will benefit strongly from increased safety

standards. Despite a growing traffic density fewer people get injured in car accidents (VDA 2015). Self

driving cars will have proven to be at least as reliable as and much safer than manually driven cars.

For commercial freight transport the cost advantage of not having to rely on a driver is substantial.

Thus, adaption in this segment is even higher than in the private sector (ITF 2017).

In private passenger transport autonomous driving will have trickled down into midsize vehicles but

remains a moderate premium feature. In this case Level 4 autonomy will dominate since a

considerable amount of drivers still wants to ride manually on occasion.

For commercial applications, either freight transport or passenger transport, level 5 autonomy will be

established. The first to adopt are trucks for long distance routes due to their relatively simple road

conditions. For urban purposes the scenario is more complex and therefor adoption is slower.

Nevertheless, level 5 vehicles will be available on a large scale and used for delivery, taxi services,

and micro-driving services.


16

Analysis & Assessment of the impact on present industry structures

All major industry players have been actively working in the field of autonomous driving for many

years. Most car vendors, e.g. Mercedes, BMW, Audi (VW), PSA, Lexus (Toyota), Infinity (Nissan),

Cadillac (General Motors), Volvo, Ford, Hyundai, Tesla, have level 2 autonomy systems commercially

available. AUDI recently introduced the first production car with level 3 autonomy for driving in traffic

jams on highways up to a speed of 60 km/h (AUDI 2017). All competitors announced comparable

systems for the next two years. The industry expects full autonomy around 2021. First, it will be

deployed on highways and later during the decade in urban areas due to its more complex

environment (VB 2017). Prototypes of level 4 cars are being extensively tested on public roads.

The current market is characterized by a network of strong strategic and technological collaborations.

Electronics companies like NVIDIA and Intel are investing heavily into spreading their technology

across the automotive industry. They supply the technology for artificial intelligence and machine

learning, which is necessary to handle all the sensor input and navigation in a self driving car.

Additionally, new players are entering the market. These include Software companies like Waymo

(Alphabet/Google), Baidu and Apple, start-ups like nuTonomy, suppliers like ZF and Delphi or service

providers like UBER and Lyft. They are either supplying software solutions or developing complete

system platforms in cooperation with car manufacturers or on their own.

• European car manufacturers are investing heavily to be able to deploy autonomous driving into

their fleet, starting with premium passenger cars and trucks. The companies are beginning to sell

cars with level 3 capabilities and cars of higher levels of autonomy being already tested. In

Germany several public test fields exist or are under development. Recently an international

collaboration for a public test area was announced between Germany, France, and Luxemburg

(BMVI 2017). The landscape of self driving cars is in Europe dominated by the big manufacturers

and suppliers.

• Worldwide there are different approaches to the topic. Japanese companies like Toyota and

Honda took a very conservative one but their efforts are increasing. Toyota announced an

investment of $1 billion into their Toyota Research Institute in 2016 (BI 2016). In the United States

the market is more diverse. It is a mixture of long established car manufacturers (GM, Ford,

Chrysler), established software/technology companies (Apple, Waymo, NVIDIA, Intel), and start-

ups (Lyft, UBER). Autonomous cars are being tested on public roads in several states (California,

Arizona, Michigan, Nevada). The market in China is comparably diverse. Legislation regarding

testing and deployment is not yet in place, but politics gave strong signals, that they are willing to

push the technology (20AD 2017).

The value chain will see significant changes. A large scale deployment of car sharing/pooling with

automated taxis would change the ownership model, as people might not need a car of their own

anymore. To a certain degree this can already be observed in a lot of urban areas with car sharing

solutions in place. An increase in road safety and decrease in severe injuries will lead to falling

insurance rates or premiums for cars without certain autonomy features.

The freed up time will further increase targeted in-car advertising and sales of CRM data (B2B

revenue streams). In addition to this, new in-car content services, both work and entertainment

related, will increase. This might be an opportunity for consumer electronics to expand their reach

(McK 2014). Concerning the handling of data streams a division is imaginable. The large amount of

data generated by the cars (upstream) will stay under the sovereignty of car companies, whereas the

downstream will be handled by technology companies with their content services. This is comparable

to the computer industry with its division between hardware suppliers and software companies.

In the field of logistics and industry services lots of applications are imaginable in urban areas and on

long distance routes as well. Most of them lead to a considerable reduced demand in truck drivers.

The lack of drivers hampers the growth of logistics at the moment. Thus, self driving trucks could give

new impulses for the industry on the one hand but will lead to job losses on the other (ITF 2017).


17

Fully autonomous vehicles rely heavily on infrastructure, i.e. digitalization of roads for car2x

communication or capable mobile networks. It is not clear how this will be handled. In case of

subscription models the introduction of new market participants is possible.

Business models will shift further towards car sharing, autonomous taxi services, and micro driving

services. The market already responds to that in form of development of own car sharing services

(e.g. Car2Go (Daimler), Maven (GM)) and alliances to new ride sharing solutions (e.g. Lyft, UBER) are

formed. Not to forget, established car rental companies (e.g. Hertz, Avis, Sixt), which are experienced

in handling large fleets, are eager to form alliances with car manufacturers (e.g. Sixt/BMW with

DriveNow) or with technology companies like Apple (Hertz) and Waymo (Avis) (Jal 2017). This in part

might lead to OEMs becoming white label manufactures and providing engines, chassis – up to

complete vehicles (Del 2017). Thus, the industry is well aware of the upcoming changes.

The widespread introduction of autonomous driving makes the work on new highly sophisticated

technologies (digitalization, mobility services, artificial intelligence /deep learning, and many more)

necessary, All these technology fields are more or less completely new to car manufacturers and pose

tremendous challenges for them. Thus, partnerships with technology companies are vital. All players

identified these necessities and are involved in a large amount of collaborations in all directions. In the

future a division, comparable to the computer industry, is highly possible with hardware suppliers on

one side and software companies on the other. In that way software becomes a main differentiator.

European car manufacturers and German manufacturers in particular today are technologically well

established since they are dominantly based in and more or less form most of the premium segment,

where technology is a main differentiator. This makes them attractive employers who attract many

skilled workers and talents. Additionally, they are well funded.

In the future the competition is going to see significant shifts. The 15 biggest technology companies

today already have a bigger market capitalization than the 25 biggest car companies (KPMG 2018).

The vast majority of those tech companies are based in the US and China and they are investing

heavily in autonomous driving. Both governments set up well financed funding programs (BI 2017, For

2016). The mindset of competition purely between car companies has to change. This is especially

true for the Chinese market where 47 % of customers rank technology companies as most trustworthy

regarding to autonomous driving (KPMG 2018).

Global trends & technology developments facilitating a realization of the UseCase:

The worldwide population in urban areas is going to grow considerably (e.g. Paris from 10,8m up to

11,8m; New York 18,6 up to 19.9m; Shanghai from 23,7m up to 30,8m) (UN 2015) and the annual

number of cars sold remains growing as well (McK 2017). This combination leads inevitably to more

congested roads unless new mobility concepts are developed and is fertile ground for new mobility

services. Beyond that, autonomous driving will help to make the traffic more efficient and will

counteract the increasing congestion.

Due to an increase in car sharing services the rate of car ownership might drop by 80% but will be

replaced by those shared cars (Business-Insider 2017b) leading to the same or even more congestion

(BI 2017b). Politics starts to act in dense urban areas. One approach are congestion taxes and other

instruments to reduce traffic in metropole city centers (ToL 2006)

The bulk of the technology required for self-driving cars is not futuristic, but it is the combination of

different sensors with advanced computer vision systems that makes it work. Many of the vehicles use

Lidar (Light Detection and Ranging) – a rotating laser, that continually scans the environment around

the car. Traditional radar is also used for detecting distances to objects and cars, as are various

cameras, accelerometers, gyroscopes and GPS, which are all used in conjunction to build a 3D picture

of the environment around the vehicle.

The most complex part of an autonomous car is the software that collects the data, analyses it and

actually drives the vehicle. It has to be capable of recognizing and differentiating between cars, bikes,

people, animals and other objects as well as the road surface, where the car is in relation to built-in


18

maps and be able to react to the environment. As in many areas the systems have to shrink further in

physical size and costs to get widespread deployment. On a positive note, hardware capabilities

regarding artificial intelligence and deep learning made big leaps in recent years (TD 2017).


Self-driving cars still have several, partly very high, obstacles to pass. First, there are technical ones

and since cars move in a very complex environment - much more complex than trains and plains for

example - most of them are related to the road infrastructure. Self driving cars not only rely on the

input of their sensors, but also on detailed 3D maps of the roads they are driving on. Creating and

maintaining them is difficult work. Some companies, e.g. Tesla, solely plan to rely on sensor data,

which poses much higher demands to onboard computing power.

Driving requires many complex social interactions, which are still tough for robots. Machines will have

to learn a lot to make right decisions in a lot of subtle situations, which are natural to a human. Of

course it is possible to favor systems, which can flip between computer and driver control. This in

return can be dangerous as well when the driver is drifting away, as can be seen in as a growing

problem in the airline industry. Bad Weather makes everything trickier. Snow and heavy rain are

difficult for the sensors, because lines on the road are harder to identify and pot holes and puddles are

hard to distinguish. The skipping of mixed traffic, i.e. a separation of manual and autonomous traffic

could solve these problems, but opens the door to regulatory and financial questions. Who would pay

for the necessary infrastructure? The regulation of autonomous cars is completely unsolved today. It is

unclear how safe exactly they will be, what kind of testing will be necessary, how they will be insured

and who will be responsible in case of accidents. This opens up even ethical questions. How should

the machine decide between two humans in case of an inevitable fatal crash? A widespread open

discussion concerning these questions is mandatory and international standards need to be worked

out. After all, self-driving cars need to earn the trust of customers. They need to be at least as reliable

as and a lot safer than manually driven cars to be widely accepted. Especially regulatory and safety

issues can substantially slow down the deployment of autonomous vehicles or even stop the process

completely, thus diminishing the positive effects.

Summarizing all of the above, autonomous driving has to overcome these and more technological And

societal difficulties serious. Otherwise acceptance by citizen is jeopardized and might slow down

further research and especially deployment. Europe has a huge advantage to international

competitors as we mainly manufacture premium cars which are more likely to adapt new technology

features. With crowd sensing approaches e.g. to create digital high definition maps we can utilize this

enormous potential. But we should be aware of the public opinion. If acceptance changes within the

European Union (e.g. by a series of fatal crashes, hacked cars or accidents with vulnerable road

users) this might result in serious difficulties and delays in adapting necessary regulations (national

and European) for testing and especially deployment.

References

20AD (2017). How to deal with the constraints of China's laws on driverless cars. Retrieved from:

https://www.2025ad.com/latest/2017-11/china-driverless-car-regulation/. Accessed on 11 January

2018.

AUDI (2017). Audi auf der IAA 2017: In drei Schritten zum autonomen Fahren. Retrieved from:

https://www.audi-mediacenter.com/de/pressemitteilungen/audi-auf-der-iaa-2017-in-drei-schritten-zum-

autonomen-fahren-9311. Accessed on 8 January 2018.

BI (2016). Toyota just hired a dream team of scientists to create a car that's 'incapable of causing a

crash'. Retrieved from: http://www.businessinsider.de/toyota-research-institute-tri-2016-

1?_ga=2.42380709.169292841.1515497247-1184984915.1515497247&r=US&IR=T. Accessed on 9

January 2018.


19

BI (2017). China is preparing for a trillion-dollar autonomous-driving revolution. Retrieved from:

http://www.businessinsider.de/china-is-preparing-for-a-trillion-dollar-autonomous-driving-revolution-

2017-12?r=US&IR=T. Accessed on 11 January 2018.

BI (2017b). Only 20% of Americans will own a car in 15 years, new study finds. Retrieved from:

http://www.businessinsider.com/no-one-will-own-a-car-in-the-future-2017-5?IR=T. Accessed on 1

November 2017.

BMVI (2017). Autonomes Fahren: Neue Teststrecken in drei Ländern. Bundesministerium für Verkehr

und digitale Infrastruktur. Press relaese 14 September 2017

Del (2017). The Fututre oft he Automotive Value Chain – 2025 and beyond. Deloitte 2017

ECF (2016). Klimafreundliche Autos in Deutschland. Ein Überblick über sozio-ökonomische

Auswirkungen. European Climate Foundation.

For (2016). Obama Boosts Self-Driving Cars With $4 Billion Investment. Retrieved from:

https://www.forbes.com/sites/briansolomon/2016/01/14/obama-boosts-self-driving-cars-with-4-billion-

investment/#68c89db3c97c. Accessed on 11 January 2018.

ITF (2017). Managing the Transition to Driverless Road Freight Transport. International Transport

Forum

Jal (2017), The Rental Car Companies Will Manage Driverless Car Fleets. Retrieved from:

https://jalopnik.com/the-rental-car-companies-will-manage-driverless-car-fle-1796450597. Accessed

on 10 January 2018.

KPMG (2018). Global Automotive Executive Survey 2018. KPMG 2018

McK (2014). Connected car, automotive value chain unbound. McKinsey 2014

McK (2016). Automotive revolution – perspective towards 20130. McKinsey 2016

TD (2017). Deep Learning Hardware Limbo. Retrieved from: http://timdettmers.com/2017/12/21/deep-

learning-hardware-limbo/. Accessed on 11 January 2018.

Tesla (2017). Autopilot: Full Self-Driving Hardware an All Cars. Retrieved from:

https://www.tesla.com/autopilot. Accessed on 8 January 2018.

ToL (2006). London Congestion Charging. Impact Monitoring. Fourth Annual Report, June 2006.

Retrieved from: http://content.tfl.gov.uk/fourthannualreportfinal.pdf. Accessed on 3 November 2017

UN (2015). World City Population 1950-2030. Retrieved from:

http://luminocity3d.org/WorldCity/#3/12.00/10.00. Accessed on 1 November 2017.

VB (2017). Self-driving car timeline for 11 top automakers. Retrieved from:

https://venturebeat.com/2017/06/04/self-driving-car-timeline-for-11-top-automakers/. Accessed on 9

January 2018.

VDA (2015). Automation: From Driver Assistance Systems to Automated Driving. Verband der

Automobilindustrie.

VTPI (2017). Autonomous Vehicle Implementation Predictions: Implications for Transport Planning.

Victoria Transport Policy Institute.


20

2.4 30% of new vehicles sold are electric vehicles, buyers demand easy access to fast

charging loading points


Time Horizon: 2030

Management summary

In 2030, electric vehicles (EV) will have gained market momentum and 30% of new vehicles sold are

electric. Buyers demand easy access to publicly available fast charging infrastructure and a vast

network of fast-charging stations has been established in major markets. A more mature market has

required standardisation both in terms of charging technology, but also in terms of interoperability of

payment solutions and communication protocols. To address these prerequisites and reduce problems

with peak power demand, various measures have been proposed. These encompass developments of

smart charging systems that enable load shifting, application of vehicle-to-grid and vehicle-to-building

solutions, smart solar systems, and the usage of stationary battery storage in critical parts of the grid.

Under this scenario, OEM’s are expected to develop different technology standards, work with

suppliers that can provide expertise in vehicle production and charging systems, provide new areas,

and be flexible in a rapidly shifting landscape where new technologies might rise or decline in short

periods of time. New cross-sectoral collaborative ventures and/or other formations will be more

important. One example is utilities and oil companies are working together to step into the EV supply

chain to benefit from the future growth in vehicle demand.

European manufacturers plan a wealth of new EV’s in all different customer segments in the years to

come. The establishment of the CCS standard as the European standard for fast charging systems is

a major step forward, and lays the foundation for a standardised network of fast charging stations in

Europe. However, there is still a need for reaching interoperability in terms of payments solutions and

IT communications protocols.

Several market players are building fast charging stations across Western Europe, and expansions

are expected, as utilities, OEM’s, oil companies and start up-techs are planning to capture shares of

the booming market. When the overwhelming majority of fast charging stations offers the CCS

standard, other standards like CHAdeMO or Tesla standards would comparably become less

attractive in Europe than today.

However, for this to happen the European manufacturers need to be successful with their upcoming

EV’s and sales rates must be on a par with the likes of Tesla and Japanese manufacturers that

promote their own standards. Yet, while European OEM’s push for the CCS standard to become the

new global fast charging standard, they still must customize new EV’s to fit with other global or

regional standards. This is particularly important for the large emerging markets in Asia where

authorities might want to retain their charging standards or where new disruptive technological

charging solutions might emerge.

Future Use Case

Greenhouse gas emissions regulations have been tightening the limits on emissions over the last

years. As a consequence, in 2030 thirty per cent of all new vehicles sold are expected to be

electrically powered.2 The market is gradually shifting from conventional internal combustion engine

vehicles (ICEVs) towards battery energy vehicles (BEVs). At this point, the market for BEVs is

sizeable and is expected to keep growing rapidly. In order for the OEM’s to enlarge their market

shares they will have to be well entrenched in the BEV market.

By 2030, the new electric motors might be more compact, efficient and emission-free at the point of

use. Also, silicon electrodes might replace the graphite anodes in earlier versions of the lithium ion

2

There is an ongoing EV30@30 campaign, launched as part of the Electric Vehicles Initiative in the Clean Energy Ministerial.

For more about the campaign, see: http://www.cleanenergyministerial.org/Our-Work/CEM-Campaigns/EV30at30#Coalition


21

batteries (The Guardian, 2017a). The development of new battery technologies might sharply reduce

the costs of battery packs, allowing that by 2030, all new vehicle models have large batteries with

ranges of at least 800 km, even for freight vehicles. In the premium segment the range will be even

longer. The new models will be able to charge quickly at powers up to 350 kW, which means that car

owners can fully load their batteries in under 20 minutes, making longer and more frequent trips

possible both for passenger and freight transport (Figenbaum in press, 2017).

As the technology for vehicle batteries develops, automotive manufacturers will be competing on

making vehicles with longer driving ranges, faster charging times and highly optimized battery sizes

and vehicle design for comfort. In addition, they will compete on offering the best charging availability.

For some car owners, the most common charging place is still at home using slow chargers, for

instance by fully loading the car during night time. In addition, there is now a large network of publicly

available charging stations over the world, making it possible also for car owners without loading

facilities at home to own an EV. The network consists of over 10 million points, and 1 million of these

are fast charging points.3 Investments in enlargement of charging station networks will boost demand

for new e-vehicles.

A few players in the premium market segment own their loading technologies and fast charging

stations, while the volume manufacturers adhere to global loading technologies. In the EU,

standardization has led to a prevailing loading technology that is available in all EU countries. China

has still got its own charging standard, which means that OEM’s that want to serve the world’s largest

EV market must customise their vehicles to this charging standard.

The additional energy demand from electric car deployment is sizeable but largely manageable (IEA,

2017). However, the challenge is to handle the increased peak demand on local grids. Several

measures have been taken to reduce this problem; smart charging systems that enable load shifting,

vehicle-to-grid and vehicle-to-building solutions, in addition to stationary battery storage in charging

stations. Installing solar panels in charging stations and cars also helps to ease the pressure on the

local grid in some countries.

The market for infrastructure in the form of stationary charging stations might become mature by 2030,

but at the same time new charging technologies might emerge. Dynamic wireless charging, where

cars charge on the fly via electromagnetic fields from the roads, is established in some countries and

could become a new technological disruption after 2030.

Analysis and Assessment

Current situation

Currently, the OEM’s are positioning themselves to capture large shares of the expected growth in the

market for electric vehicles. The various strategic decisions by several companies indicate that EV’s

are gaining market momentum. For instance, Volvo has announced that all new cars launched from

2019 and onwards will be fully electric or hybrids (The Guardian, 2017b). Volkswagen plans to invest

more than 20 billion euros in zero-emission vehicles by 2030, and to roll out 80 new electric cars

across its brands by 2025 (Reuters, 2017a). Tesla model 3’s price tag starts at $ 35.000 which could

mean that EV’s are breaking into the mass markets for the first time.

Table 1 shows vehicle models in pipeline to the BEV market in the years to come. The list is not

exhaustive, but shows examples of vehicles that are expected for different market segments.

Table 1. Expected BEV launches 2018-2021. Source: Figenbaum, in press (2017).

Segment 2018 2019 2020 2021

Vehicles in

undisclosed

segments

Nissan, Nissan Audi, Ford-CUV,

Skoda

Genesis, Kia,

Hyundai, 5 new

Renault models,

Subaru-CUV,

3

Based on estimations for future EVSE deployment in Global EV Outlook 2017 (IEA, 2017)


22

Segment 2018 2019 2020 2021

Mini Mazda Mitsubishi

Small Peugeot-208 Citroën DS SUV

Peugeot-2008

Compact Nissan-Leaf2,

Kia-Niro, Kia-

Stonic,

Hyundai-Ioniq

Hyundai-Kona

Mini-Cooper-E,

BMW-i3-2, Volvo

XC40,

Mercedes-EQA

Ford, VW-ID-

Hatch

Medium Tesla-Model3 Mercedes-EQC BMW-4-GT,

BMW X3 VW ID-

CUV

VW ID-Sedan

Large Jaguar-I-Pace,

Audi-E-Tron-

SUV

Volvo Tesla-Y,

Audi-E-Tron-

Sportback BMW-

i5/INext

Mercedes-EQE

VW-ID-Buzz

Luxury Aston-Martin-

RapidE

Porsche-

Mission-E

Mercedes- EQS

Sport Tesla-Roadster

Notes:

o Mercedes: 6 additional models expected up to 2025

o Opel: Additional Models expected

o PSA: Peugeot, Citroën and Citroën DS, 2 more models planned for introduction 2022-2025

o Toyota: No models known, new division lead by CEO in place to develop BEVs, entrants likely

in this timeframe

o Skoda: 6 additional models by 2025

o Porsche: Additional variants planned

o VW: Additional models planned for 2022-2025. Likely to replace E-Up mini vehicle with

upgraded model

o Chinese manufacturers could introduce additional BEVs in European market in this timeframe.

o More replacement vehicles and new models are likely also for the mini segment, but none has

been disclosed

To support steady growth in the BEV markets, the demand for charging infrastructure has to be met.

The other way around, larger increases in the availability of charging infrastructure might stimulate e-

vehicle demand. A recent study of 350 metropolitan areas with populations greater than 200.000

people, found a significant relationship between the number of charging points and the uptake of

electric vehicle in this area (Hall and Lutsey, 2017), meaning that for EV’s to be purchased, a

corresponding charging infrastructure has to be provided.

The market for charging infrastructure is still immature. There are different standards available and the

network of charging stations is only just started to be built globally. As the market for EVs is expected

to boom in the coming years, there will be a lot of changes in the market for charging infrastructure.

Vehicle manufacturers that succeed in offering good value vehicles and providing better charging

infrastructure than their competitors might gain higher competitive benefits.


23

Charging standards and technology

Different standards apply to various sockets, connectors and communication protocols for chargers

over the world today (see Figure 1).

Figure 1. Fast charging System Standards in the world. Source: CharIN (2017).

The map shows three main fast charging system standards in the world. Europe and North-America

have committed to different versions of the Combined Charging System (CCS), which combines

single-phase and three-phase charging units that utilize both AC and DC charging. The CCS-standard

was introduced by the seven car makers Audi, BMW, Daimler, Ford, General Motors, Porsche, and

Volkswagen. These seven manufacturers have established the organization CharIN, to promote CCS

as the future global charging standard.

CHAdeMO is an organization and a fast charging system that was developed in Japan by Nissan and

Mitsubishi and was a leading global fast charging system before the CCS standard was developed.

Charging stations in Europe typically have solutions for both CCS and CHAdeMO. CHAdeMO does

only support DC-charging, and thus requires a separate slot in the vehicle to facilitate both AC and DC

charging.

China has its own GB/T standard, and for foreign car companies to sell EVs in the Chinese market

today, charging solutions have to be made compatible with the GB/T standard.

Tesla Motors developed its own Supercharger system which uses a single port to support different

types of slow charging, in addition to fast charging trough Tesla’s own DC-network. Tesla is member

of both the CHAdeMO and the CharIN associations, and has recently developed dual-charging ports

for its Model S and Model X vehicles sold in China and Europe. These vehicles comply with the

Chinese GB/T standard and European CCS standard, and also offer Tesla-to-CHAdeMO adapters.

Table 2 provides an overview of the standards, categorized by power output.


24

Table 2. Standards of power output and socket and connector used in China, Europe, Japan

and the United States. Source: IEA (2017).

Interoperability in payment solutions & communication protocols

Several different standards and solutions for payment and identification of users prevail at different

charging stations. Because it might require that an electric vehicle driver must carry a variety of

memberships, accounts and cards to access publicly available infrastructure, it creates a barrier to the

EVs and EV infrastructure developments (Hall and Lutsey, 2017). The Homeplug GreenPhy

communication protocol has been developed and adapted for standard charging communications by

SAE and ISO/IEC4. The CharIn promotes the Homeplug GreenPhy to be the global communication

standard for charging stations. Several ongoing projects work on promoting interoperability, for

instance the Ladenetz and the Hubject-projects in Europe and the ROEV project in the US.

Standardization in Europe

Directive 2014/94/EU on the deployment of alternative fuels infrastructure was adopted by the

European Parliament and the Council on 22 October 20145. The legislation sets standards for

recharging points for electric vehicles. It states that alternative currents (AC) - normal and high-power

recharging points for electric vehicles shall be equipped for interoperability purposes, at least with

socket outlets or vehicle connectors of Type 2. Direct current (DC) high power recharging points for

electric vehicles shall be equipped, for interoperability purposes, at least with connectors of the

combined charging system ‘Combo 2’ (CCS).

There is still a need for interoperability of payments solutions and communications protocols and this

should be addressed by future policy instruments.

The network of charging points

The network of publicly available chargers is growing, but the number of charging points is still quite

low with 212.000 slow chargers and 110.000 fast chargers globally (IEA, 2017). Due to driving range

anxiety and limitation to BEV use on longer trips that constrain households with just one single electric

vehicle, these barriers might obstruct the BEV market growth (Figenbaum in press, 2017). Yet, the last

year a sevenfold growth in the number of fast chargers has been observed in China; globally, 4 out of

4

http://groups.homeplug.org/tech/whitepapers/HomePlug_GreenPHY_Overview.pdf

5

http://eur-lex.europa.eu/legal-content/EN/ALL/?uri=celex%3A32014L0094


25

5 Publicly available fast chargers are currently situated in China (IEA, 2017). This is illustrated in

Figure 2.

Figure 2. EV stock and publicly available charging points, by country and type of charger, 2016.

Source: IEA (2017).

Still, when looking at the number of charging points relatively to the population, China is not the world

leader. Smaller countries, like Norway and the Netherlands, top the shares of EV sales (see e.g.

Figure 3).

Figure 3. EV sales and public charge points per million population in major markets. Source:

Hall and Lutsey (2017).


26

Figure 4 illustrates the number of slow and fast chargers per electric vehicle available in different

countries.

Figure 4. Number of chargers per EV. Source: Own elaboration based on IEA (2017).

The figure indicates that European countries have a relatively high proportion of chargers per electric

vehicle as compared to other nations. However, the number of fast chargers (which includes AC 43

KW chargers, DC chargers, Tesla Superchargers and inductive chargers) is smaller compared to

Japan, Korea and China. Thus, to fulfil the demand for fast chargers in the future, European countries

need to invest more in loading points infrastructure with fast chargers.

Market players in fast charging infrastructure

There are many different providers of charging infrastructure, and the market is developing rapidly.

Recent developments and trends show that major players in the vehicle industry and in the utility and

energy sector mobilize for future growth in electric vehicle demand. There are different business

models and the players include OEM’s, power utility companies, traditional oil companies, technology

start-ups, and governmental initiatives.

Tesla’s Supercharger network with DC-technology provides customers with powers up to 120 kW.

Currently, the Supercharger network can only be used by Tesla cars. As of December 2017, there

were 1.043 Supercharger stations with 7.496 charging points in the world.6

IONITY is a joint venture of BMW, Daimler, Ford and Volkswagen, founded in November 2017. By

teaming up with companies like Shell, OMV, Tank & Rast, and Circle K, the joint venture has already

secured sites for half of the planned 400 fast charging stations along major routes in Europe. IONITY

uses the CSS standard with a charging capacity up to 350 kW.

Several utility companies are also building networks of charging stations. In March 2017, the French

company Engie announced the acquisition of the Netherlands-based company EV-box with over

40.000 charging stations in Europe (Engie, 2017, Reuters, 2017b, c). The international, Germany-

based energy company E.ON and Danish e-mobility service provider CLEVER have joined forces to

establish a network of 180 ultra-fast charging stations in seven countries connecting Norway to Italy

(E.ON, 2017). French utility EDF and its subsidiary SODETREL teamed up with Renault, Nissan,

BMW and Volkswagen to install and operate 200 fast-charging stations in France (EDF, 2017), while

utilities Enel and Endesa operate similar projects in Italy and Spain, respectively. In Germany,

Innogy, a subsidiary of energy giant RWE, offers a broad network of charging stations in Europe.

As for traditional oil companies, the Royal Dutch Shell (RDSa.L) has launched its first fast charging

station in the UK, planning to equip all its 400 retail outlets with fast charging points (Independent,

6

Source: Tesla website

0,00

0,05

0,10

0,15

0,20

0,25

0,30

Slow chargers per vehicle Fast chargers per vehicle


27

2017). At the same time, Shell acquired NewMotion, the owner of one of the largest EVCS networks

with over 30.000 charging points all over Western Europe, showing that the oil company is serious in

its attempt to enter new markets (Reuters, 2017b, c).

Chargepoint is the leading American provider of charging stations and in 2017 has expanded into

Europe.

In China, the State Grid Corporation of China (SGCC) has opened its monopoly on charging

stations, and several Chinese companies participate in expanding their networks of fast-chargers.

ABB from Switzerland is one of the players in the Chinese market which commits to Chinese GB/T

standard.

Power supply and renewable energy

Calculations made by the International Energy Agency show that the additional energy demand from

electric car deployment is sizeable but largely manageable towards 2030 (IEA, 2017). However, the

challenge would be more to handle increased peak demand, for instance the demand caused by the

effects of superfast charging on local grids and evening peak demand when EV drivers come back

from work and plug in. To mitigate problems related to peak demand, smart grid solutions could be

part of the answer. Some examples of smart grid solutions are illustrated in Figure 5, and include

(Amsterdam Round Tables & McKinsey, 2014):

1) Smart charging / Load-shifting: Price signals and smart charging systems will help shifting demand

from peak periods to periods with lower demand.

2) Vehicle-to-Grid (V2G): Bidirectional flows of electricity could make it possible to let EV’s provide

electricity to the grid from their batteries. This could help balance the supply and demand of electricity

on the grid.

3) Vehicle-to-Building (V2B) and stationary battery storage: increased storage sizes in batteries could

allow the EV owners to arbitrage and thus take advantage of different electricity prices over time. The

EVs could then also function as a control reserve where electricity from the battery is loaded into the

grid in case of power outages or other unforeseen events. Stationary battery storage may also be

used at charging stations to stabilise the local grid.


28

Figure 5. Battery capacities in EVs and bi-directional charging as solutions to demand peak

challenges. Source: Amsterdam Round Tables & McKinsey (2014).

Another solution to the demand peak problem is to locate the fast-charging stations in areas with high-

capacity infrastructure.

Alternatively, to ease the pressure on the grids and to take advantage of renewable energy sources,

smart solar charging in combination with V2G-technology is an interesting addition to the EV’s and

charging stations. This is being tested in five linked pilot areas in Utrecht (the Netherlands) where 70

solar cars store solar energy and upload to the local grid via a smart charging station.7

Implications for the industry value chain

The transition from today’s massive productions of internal combustion engine vehicles to battery

driven electric vehicles has several implications for the industry’s value chain. OEM’s must develop

diversified technology standards, work with suppliers that can provide expertise in specific and novel

areas, and retain flexibility to effectively face rapidly shifting technologies which might rise or decline

within a short period of time.

EV charging standards form one example. OEM’s should push for their preferred technologies to

develop the future standard global charging solution, but at the same time be open to other standards

or to product differentiation in some segments. For instance, European vehicle manufacturers should

continue to push for the CCS standard as the prevailing global fast charging standard, while at the

same time adapting to the GB/T standard to take part in the Chinese market in which massive growth

in EV sales is expected.

The vertical integration into infrastructure means that vehicle manufacturers enter a new market. With

1.000 fast charging stations globally, exclusively for Tesla owners, Tesla is a forerunner. For European

manufacturers not to lose the race, they must ensure that their customers find charging solutions

competitive. The introduction of the CSS standard and massive plans to build fast charging stations

that use the CSS standard are steps in the right direction. 7

http://smartsolarcharging.eu/en/


29

Navigation, as well as charging and payment services, are the new areas where the OEM’s would

have to find suppliers ready to enhance the EV driving experience by offering user-friendly products.

Until the charging infrastructure is more standardized than it is today, these products would be of great

importance for EV drivers to find and pay for electricity needed.

In the future, e-cars might be equipped with solar systems. The EVs might also become a part of the

smart grid solution with utilities becoming owners of electric charging stations. In the latter case, a

cross-sectoral collaboration between automobile manufacturers and the energy sector might become

reasonable. Utilities and charging station specialists are capturing opportunities in the EV value chain,

and OEM’s that find the best collaboration with these new entrants will most likely achieve a

competitive advantage.

Figure 6 gives an overview of new types of players and developments in the EV infrastructure value

chain.

Figure 6. New players in the EV value chain. Source: Amsterdam Round Tables & McKinsey

(2014).

Competitiveness of the EU transport industry today

Until recently, the European OEM’s have not developed charging infrastructure for EV’s in a way that

would support large numbers of consumers going electric. For instance, figures show that the number

of fast charging points in European countries is relatively low as compared to Asian countries.

However, some recent developments indicate that this condition is going to change. All major OEM’s

will release a number of EV’s in the next years, addressing all customer segments. To succeed with

new models, OEM’s spend significant efforts to supply the market with a vast network of charging

stations. Doing so they have managed to establish a European standard for charging technology,

which is also enshrined in the EU Directive. Several market players are building fast charging stations


30

across Western Europe, and more is to come as utilities, OEM’s, oil companies and start up-techs are

planning to capture larger shares of this booming market. When an overwhelming majority of fast

charging stations is offering the CCS standard, other standards like CHAdeMO or Tesla standards

could comparably become less attractive in Europe.

While the European OEM’s push for the CCS standard as new global fast charging norm, they must

also customize new EV’s to fit other global or regional standards. This is particularly important for

users in large emerging markets in Asia that might retain their own charging standards or invent new

technological charging solutions.

Global trends & technology developments facilitating a realization of the Future Use Case

Governmental programs promoting EV charging infrastructure

Governments at both national and local levels are promoting electric vehicle charging infrastructure

through different forms of subsidies, grants, and public-private partnerships. Table 3 gives an overview

of the different programs in major EV markets (Hall and Lutsey, 2017)

Table 3. Major charging infrastructure programs in major markets. Source: Hall & Lutsey (2017)

Growth in the EV market

Global markets have registered rapid growth in the numbers of electric vehicles sold. The global stock

surpassed 2 million vehicles in 2016, which is almost three times the number from 2014. However, the

sales are not evenly distributed over the globe: 95% of the sales are taking place in just ten countries:

China, the United States, Japan, Canada and six European countries (Norway, the United Kingdom,


31

France, Germany, the Netherlands and Sweden) (IEA, 2017). These developments are illustrated in

Figure 7.

Figure 7. Evolution of the Global Electric Car Fleet, 2010-16. Source: IEA (2017).

China is the largest market for EV’s, and saw the registration of 336 thousand new electric cars in

2016, more than double the number of registrations in the United States. European countries

accounted for 215 thousand sales (IEA, 2017), but the growth rate was significantly lower than in

China between 2015 and 2016 (McKinsey & Company, 2017).

Battery technology development

Battery technologies and their charging capabilities have evolved in recent years. Prior to 2010, none

of the vehicles on the market allowed fast charging, and normal charging was limited to 2,3-3,2 kW. In

2017, most vehicles allow fast charging with powers of 50 kW, while Tesla offers 120 kW on its Model

X and Model S. This development is expected to continue in the years to come, and it is expected that

vehicles on the market after 2020 will be capable of fast charging at up to 350 kW (Figenbaum in

press, 2017). In November 2017, Tesla announced that it had built the world’s biggest battery, a 100-

megawatt lithium-ion battery. This record will probably not last long as Hyundai Electric & Energy

Systems Co (South Korea) is building a 150-megawatt battery to be delivered by February 2018.

(Bloomberg, 2017).

Table 4 shows a classification of different BEV generations and possible future characteristics of the

vehicles.

Table 4. BEV generations. Source: Figenbaum, in press (2017).

Year Nomi

nal

range

Typical

real-

world

range

in

Norway

Batte

ry

size

Fast

char

ge

pow

er

Fast

charge

km/min

Win-

Sum

Sizes and

segments

km km kWh kW Km/min

Pre Li-

ion

- 2010 60-85 40-70 8-12 NA NA Micro, Mini

Gen 1 2010-

15

150-

230

70-140 16-

24

50 3-6 Mini, Small,

Compact

Gen 1 2013- 375- 250-500 60- 120 6-10 Large


32

Tesla 17 594 95

Gen 1+ 2016-

17

250-

300

120-180 28-

30

50 4-6 Mini, Small,

Compact

Gen 2 2017-

18

400-

520

250-400 40-

60

80 6-9 Mini, Small,

Compact,

Medium

Gen 3 2018-

21

400-

600

300-500 50-

90

150 10-18 Compact,

Medium, Large,

Luxury, SUV,

MPV,

Crossover,

Sport

Gen 4 2022-

25

500-

650

400-600 >90 350

kW

23-35 Large, Luxury,

SUV, Sport

In freight transport, BEV’s have also experienced a sharp increase in range and freight capacity over

the last years, but the battery technology is not yet mature enough to compete with conventional

freight vehicles in terms of range, loading capacity, or price. The battery electric freight vehicles on the

market today have a range of about 130-280 km with different volumes of load capacity. The Iveco

Daily Electric, for instance, has a range of 280 km and a load capacity of 19,6 m3 cargo volume.

8 In

November 2017, Tesla announced that it intends to start producing its own semi-electric truck by

2019. According to Tesla, this truck will be a class-8 vehicle with a range of up to 800 kilometres. With

operating costs envisioned to be about 20 percent lower per kilometre than for diesel trucks,9 Tesla

expects to offer a real contender to conventional freight vehicles.

Alternative future scenario

Currently, it looks like electric battery powertrains will become the prevailing technology for the next

generation of vehicles. However, if another technology should prevail, the future demand for electric

vehicles could be different than presented in this case scenario. One example could be breakthroughs

of hydrogen-fuel-cell vehicles, which instead of electric charging infrastructure would put a focus on

hydrogen filling stations. A new disruptive electric charging technology may also change this scenario.

For instance, dynamic wireless charging, where cars charge on the fly while on the road, could make

stationary charging stations redundant (Renault, 2017).

This future scenario builds on the assumption that BEV’s will capture great shares of the automobile

market by 2030. If this is going to be realised, BEV’s must become more affordable for end users

compared to ICEV’s than is the case today. This also means that production costs and all other costs

along the EV supply chain must decline considerably in the years to come and/or that government

intervention makes ICEV’s a considerably less attractive choice.

References

Amsterdam Round Tables and McKinsey & Company (2014): Evolution. Electric vehicles in Europe:

gearing up for a new phase?

Bloomberg (2017): Elon Musk’s Battery Boast Will Be Short-Lived. Retrieved from:

https://www.bloomberg.com/news/articles/2017-11-30/musk-s-battery-boast-will-be-short-lived-as-

rivals-go-bigger. Accessed on 1 December 2017.

8

http://www.iveco.com/uk/products/pages/iveco-daily-electric-trucks.aspx

9

https://www.reuters.com/article/us-tesla-truck/new-200000-tesla-roadster-speeds-in-front-of-electric-big-rig-truck-

idUSKBN1DG1LW

https://www.bloomberg.com/news/articles/2017-11-30/musk-s-battery-boast-will-be-short-lived-as-rivals-go-bigger

https://www.bloomberg.com/news/articles/2017-11-30/musk-s-battery-boast-will-be-short-lived-as-rivals-go-bigger


33

CharIN e.V. (2017a): The path to a global charging standard. Retrieved from:

http://charinev.org/fileadmin/Downloads/Presentations/2017_CharIN_Charge_Days_Bracklo.pdf.


CharIN e.V. (2017b): What is the Combined Charging System (CCS)? Retrieved from

http://www.charinev.org/ccs-at-a-glance/what-is-the-ccs/. Accessed on 23 November 2017.

Clean Energy Ministerial: EV30@30 Campaign (2017). Retrieved from:

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http://utilityweek.co.uk/news/the-ev-charging-market/1314272#.Wh514eSouHs


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2.5 Freight and passenger vehicles are platooning on public roads to increase traffic flow

capacity of existing road infrastructure


Time Horizon: 2030

Management summary

As urbanization and transport demand continue to increase towards 2030, authorities and transport

companies need to adopt new technologies for more effective utilization of existing road infrastructure

and the reduction of vehicle emissions. This chapter discusses the propagation of platooning

technology10

on European roads by 2030 as a means of attaining the above objectives.

Platooning is enabled by connectivity technology and automated driving support systems that allow

freight and passenger vehicles to be linked together and drive in convoys. Because the vehicles can

drive closer to each other, existing road infrastructure can be more effectively utilized and energy

consumption reduced. As a first step towards fully autonomous driving, platooning might also lower

labour costs and increase road safety.

Platooning might generate system-wide implications when adopted on a large scale, thus affecting all

industry stakeholders. New technology solutions and new regulations must be developed, and new

players may emerge in the industry. One such player is an independent “Platooning Service Provider”

that will match vehicles on the fly through on-vehicle information systems and live traffic data

exchange. Yet, to connect carriers, operators, and service providers, trust-based relationships

between these parties need to be established.

Platooning Service Providers might also experiment with platooning of freight and passenger vehicles

within the same convoys. This is interesting, as it paves the way for intertwining the transportation of

passengers and freight on public roads. Such developments could heavily influence supply chains for

freight and passenger (vehicle) manufacturers, as these different vehicle types must become more

interoperable.

Most of the major European automotive OEM’s already invest in the development of platooning

technology, and the success of “The European Truck Platooning Challenge” in 2016, in which many of

these OEM’s participated, shows that both technological expertise and political willingness to introduce

platooning on public roads, already exist. For platooning to become successful, however, it is essential

for national authorities in different EU Member States to overcome challenges, e.g. related to the

crossing of borders by platoons and the harmonization of the required regulatory framework given

differences in national traffic regulations. If such challenges are not solved in the near future, there is a

risk that OEM’s in other global markets will introduce platooning in their own main markets first, and

thereby become the market leaders determining the prevailing global technology standards.

Future use cases

By 2030, developments in connectivity technology and automated driving support systems have

enabled the wide-spread and multi-brand application of vehicle platooning11

on public roads. This

could be an important step forward to fully autonomous vehicles, both for freight and passenger

transport.

Several benefits of platooning might emerge from better capacity utilization of existing infrastructure,

potentially lower labour costs, increased road safety, and reduced energy consumption, leading to

both transportation cost savings and reduced emissions for transportation operators and society at

large.

10

A platoon is when multiple separate vehicles are linked together to form convoys with equal and very short distances between

the vehicles. The front vehicle in the convoy acts as leader, while the following vehicles automatically react to changes

performed by the lead vehicle. This is made possible by the use of radars, cameras, and vehicle-to-vehicle (V2V)-technology

in the vehicles involved.

11

Ibid


36

Because the benefits apply to all kinds of vehicles, future platoons may consist of both freight and

passenger vehicles, such as coaches/buses. The platoons will be created based on gains for each

vehicle to join the platoon, which means that a fusion of freight and passenger transportation in one

platoon could prove mutually beneficial when traveling on the same roads. Centralized operation

centres - called “Platooning Service Providers (PSP)” - will monitor traffic and assist operators in

forming multi-brand platoons on the fly. When a passenger vehicle and a freight vehicle benefit from

forming a platoon over a certain distance, the PSP will facilitate this connection. When the platoon

reaches the point where the mutual benefits of driving together no longer exist, the platoon will be

dissolved, and each vehicle will perform the rest of the journey as single unit or by joining new

platoons.

Fully autonomous platooning might happen through several stages. In 2030, there will still be drivers in

the vehicles, but only the driver of the lead vehicle in a platoon will need to monitor the driving. Drivers

in the following vehicles will at the same time be able to rest or sleep, perform other work tasks, plan

the next goods delivery, prepare order documents, and so on. For coaches/buses acting as a following

vehicle in a platoon, the driver might perform service tasks or help passengers, check tickets, serve

food and beverages, offer on-board sales, etcetera.

In sum, platooning may offer cheaper, more efficient and better service for both freight and passenger

customers. Therefore, a scenario may evolve in which manufacturers apply platooning technologies

like Cooperative Adaptive Cruise Control (CACC) in new vehicles, to ensure the interoperability

between freight and passenger vehicles. This would also pave the way for rethinking how vehicles

should be built to maximize benefits from the platooning of freight and passenger vehicles.

Analysis & Assessment

Benefits of platooning

Technologies for platooning receive a lot of attention because of their commercial and societal

benefits. For instance, a recent study shows that platooning has the potential to increase capacity on

road intersections by a factor of two to three (Lioris et al., 2017). Because intersections are the

bottlenecks of roads, platooning might increase the traffic output of existing infrastructure. Similarly,

another recent study shows that maintaining equal distances between vehicles would dramatically

reduce travel time, fuel consumption, and lower congestion (Horn and Wang, 2017). Because different

drivers keep different distances between themselves and vehicles ahead, this variability leads to

phantom traffic jams which can be avoided if vehicles are platooning.

As platoons can reduce wind resistance, the vehicles in a platoon can also reduce energy

consumption, which then reduces transportation costs and emissions. The reduction in energy

consumption is estimated at roughly 5% for the lead vehicle and 10-15 % for the following vehicles

(Fläming, 2016). Moreover, road safety will improve as the following vehicles would act in immediate

response to the lead vehicle, leaving out the human error factor that is the cause of most road

accidents and damages (European Commission, eSafety Working Group, 2002). In addition,

platooning results in lower labour costs for carriers/operators because the following vehicles in a

platoon can move without an operating driver, for instance making it possible to operate a 24-hour

transport system where drivers sleep and rest in alternating shifts.

Status of platooning technology

Because of the potential benefits of platooning, all the major European automotive freight OEM’s are

in some ways investing in this technology. In 2016, DAF, Iveco, Scania, Daimler, MAN, and Volvo

participated in “The European Truck Platooning Challenge”, the world’s first large-scale cross border

demonstration of automated and connected trucks on public highways, initiated by the Netherlands

(European Truck Platooning Challenge, 2016). The initiative was a joint effort between road and

vehicle approval authorities, the EU umbrella bodies, and the industry. This challenge was

successfully tackled and can be considered as a stepping stone towards commercial deployment of

platooning. The EU has chosen the port of Rotterdam, a major logistics hub, to serve as proving

ground for further testing in years to come. First test rides will start in 2018 with the main aim to form a

platoon with over 100 trucks by 2020 (Gopressmobility, 2017).


37

Both in Europe and worldwide, Scania is a leading player in development of platooning technology.

Scania, in cooperation with Toyota, is testing autonomous platooning between port terminals in

Singapore (Automotive Fleet, 2017). Singapore has already tested autonomous cars, taxis, utility

vehicles and buses.

In Japan, the transport ministry is aiming to go mainstream with platooning in 2020. A dedicated lane

on the Shin-Tomei Expressway between Tokyo and Nagoya will serve as testing ground in 2018. Hino

Motors, Isuzu, Mitsubishi and UD Trucks are all planning to use platooning technology, and to build on

outcomes and cooperation achieved by the Energy-ITS Automated Truck Platoon project that took

place in Japan during 2008-2012 (Wonderhowto, 2017).

In the USA, automotive manufacturers have so far showed less interest in platooning, but truck

company Navistar announced that it will invest in this technology (Trucks.com, 2016). The American

branch of German automaker Daimler AG’s truck division is planning to test platooning in Oregon with

two connected Freightliner Cascadia system (Reuters, 2017). Also, Silicon Valley Startup Peloton

Technology (partly owned by Volvo), has started studying and testing platooning technology in

cooperation with automotive manufacturers (Govtech.com, 2017). The American Trucking Association

is monitoring the technology, but has not yet endorsed it (Trucks.com, 2016). When it comes to the

regulatory side, there are some multi-state test agreements for the testing of platooning, such as the I-

10 Connected Freight Corridor Coalition (California, Arizona, New Mexico and Texas) (Govtech,

2017).

In China, platooning and automated vehicle technology developments have been slower than in

Europe, Japan and the USA. However, there are signs that China too, is making progress with some

recent developments. In 2015 and 2016, the Chinese Ministry of Industry and Information Technology

unveiled several test areas for self-driving vehicles, for instance a 3,6 km long road section in

Shanghai (Michigan Department of Transportation, 2016). Also, truck manufacturers FAW Jiefang and

Beiqi Foton Motor Co have both been developing automated trucks, the former stating that it plans to

commercialize self-driving vehicles in 2018. Despite these developments, China’s complicated traffic

and road situation will likely leave a long way to go before platooning or self-driving vehicles are

allowed in mixed traffic on Chinese public roads (ChinaDaily, 2017).

Implications of platooning for the auto-industry value chain

Platooning might introduce new players to the industry and affect the entire industry value chain.

OEM’s and tier suppliers will need to produce vehicles with new technologies, such as Cooperative

Adaptive Cruise Control (CACC), and other communication and information sharing systems. Carriers,

shippers and passenger transport operators will reduce costs through the use of platooning, and thus

want a wider use of multi-brand-platooning on the roads. To facilitate multi-brand platooning among

carriers and their vehicles, new standards must be developed. First mover advantages will most likely

apply here, and the first OEM that successfully delivers vehicles that enable platooning on public

roads is likely to strongly influence the technology standards and gain greater market shares as

industry leader.

Because platooning implies that competitors’ vehicles might form platoons, the technology requires a

new logistics planning system. Matching vehicles into platoons becomes a new additional service that

should be done by an independent third party based on vehicle information and live traffic data. To

reconcile vehicles from rival companies within one platoon might require an independent “Platooning

Service Provider” that will match vehicles on the fly and overcome the possible lack of trust between

carriers and operators. An illustration of this is given in Figure 1.

The Platooning Service Provider might also ensure that insurances, safety reports, payments, and

other formalities are fulfilled, and allow the different vehicles to join platoons (Janssen et al., 2015).

The service provider should also ensure that the financial benefits of platooning are evenly distributed

across all carriers and thus prevent that some carriers/operators always act as following vehicles and

never take responsibility as the lead vehicle, leaving convoy leadership to others.


38

Figure 1 - Platooning supply chain and the services exchanged (Janssen et al., 2015).

The Platooning Service Provider could also facilitate the platooning of freight and passenger vehicles

into the same convoys. This is interesting, because it will facilitate intertwining passenger and freight

transportation on the road. The alignment of freight and passenger vehicles in one convoy will require

standardization of the platooning technology for these two vehicle categories through attainment of

vehicle-2-vehicle interoperability. This, in turn, could heavily influence the supply chains for both freight

and passenger manufacturers. Another possibility is that major OEMs that operate in both markets

reach a critical mass of both freight and passengers vehicles with shared platooning technology, and

thereby set the standards as market leaders, resulting in larger market shares.

In addition, platooning could change the way drivers act in the vehicles, with drivers in the following

vehicles resting, sleeping, reading, doing administrative work, etc. This might also change the way the

driver’s cab is designed, putting pressure on OEM’s and their suppliers to devise and deploy more

advanced solutions to improve driver comfort.

Developments and challenges towards implementation

The future scenario of the widespread application of multi-brand platooning entails some implications

in the years to come for the European OEMs and their suppliers, as well as for policy makers and

regulators.

Technology and standards

To become a reality on the roads, the technology must be tested sufficiently to be proven safe. For this

reason, manufacturers must develop and take part in the testing of the new technology under real-life

conditions. To reduce costs, the manufacturers must cooperate and contribute to the development of

multi-brand and multi-vehicle platooning technology. OEMs that already produce both freight and

passenger vehicles should ensure interoperability by devising common platooning technology to be

applied by their freight and passenger vehicle manufacturing divisions. European standards for

platooning technologies, including communication protocols, should be coordinated by the EC and

agreed between the EU member states.

Regulatory framework, policies and societal acceptance

The European Truck Challenge project showed that it was demanding to coordinate and allow cross-

bordering of platoons, even though all participating countries treated the challenge as a one-off

demonstration only. The reasons for this lie in different exemption procedures, different legal

requirements, and different safety rules in different member states. To tackle this situation,

standardization and guidelines should be achieved and developed on the EC and EP level. To allow

for easy border crosses of platoons in Europe might require regulatory changes and the harmonization

of rules of EU Member States.

To reap the commercial benefits from platooning, changes are also required in regulations on driving

and resting times. Today, driving times are monitored and inspected with digital tachographs, devices

that digitally record speed, distances and the driver’s activity. These devices need to be adapted for

platooning conditions where drivers in following vehicles may rest and sleep (Janssen et al., 2015). In


39

addition, to accept platoons on the road, changes to the vehicle type approval procedure might also

need to be implemented by regulators.

Considering the benefits that platooning might bring for society governments, financial incentives could

be developed to facilitate the proliferation of platooning. In this context, dedicated public-private

partnerships for platooning could be considered.

Also, there are two groups of stakeholders that need to be convinced for platooning to become a

reality. Truck drivers and their unions will be critical, because platooning, being a first step towards

autonomous driving, will lead to driver redundancy. Therefore, drives need to be convinced of all the

advantages of platooning for the drivers, in particular with regard to safety and comfort. Secondly,

private vehicle drivers and road users might be sceptical to share the road with platoons, making it

harder for them to drive over intersections or to shift lanes. The technology must be proven safe, but

also accepted by all road users. This might lead to legislation on e.g., the maximum numbers of

vehicles per platoon. New infrastructure markings and signage might also be needed.

Cross-sectoral collaboration

Collaboration between producers of passenger and freight vehicles is required to standardize

platooning technologies across all types of vehicles. In addition, to introduce communication-

technology that is reliable under all conditions, collaboration between road and ICT-authorities might

also be required.

Competitiveness of the EU transport industry today

Together with its Japanese counterparts, European automotive manufacturers have been front

runners in developing and testing platooning technology, and the European Truck Platooning

Challenge 2016 showed that the EC, the European countries, and the major European OEMs have

both the technological capacity and the political will to implement platooning on public roads.

The European car industry includes some global players that have the technological capability to

deploy major scale platooning on public roads and to capitalize on the first mover advantage. This

advantage could set standards for the entire industry. However, it could also lead to a mono-brand

platooning scenario, where one or only a few OEMs offer platooning for their own brand vehicles,

thereby trying to develop a competitive advantage over manufacturers that do not offer platooning

possibilities.

Some of the main players, Mercedes Benz, MAN, Volkswagen and Volvo, operate both in the freight

and passenger markets, providing them with a unique position to develop shared platooning

technology for both freight and passenger vehicles.

On the other hand, the EU transport industry has a particular challenge in convincing the different

national authorities in the single market to adopt and facilitate cross-bordering platoons without

needing specific exemptions, and to transform the required regulatory framework into national traffic

laws. This will require more regulatory work and signing of new transnational agreements, compared

to e.g. the single countries Japan or China. This could give OEM’s operating in those markets a

competitive advantage.

Global trends & technology developments facilitating platooning

In “Towards clean, competitive and connected mobility: The contribution of Transport Research and

Innovation to the Mobility package” (European Commission, 2017a & b), the EC defined truck

platooning and the development of connected and automated transport as an initial implementation

measure that might increase the efficiency and safety of future transport.

Considering that greenhouse gas emission regulations have also been tightened over the last years,

new technologies such as platooning might provide a solution for many countries to reduce their

emission from transport.

Furthermore, urbanization leads to increased concentration of people in cities and metropoles, both in

Europe and globally. This trend is expected to continue towards 2050 (BBVA Research, 2016), and

might increase demand for both inter- and intra-city freight and passenger transport, putting pressure

on public roads and highways.


40

The map of the Trans-European Core Transport Network (TEN-T) in Figure 2 shows the most

important trimodal transport connections in Europe, as defined by the European Commission. As

urbanization continues, greater demand for freight and passenger transportation might clog these links

and the corresponding infrastructure. The urbanization might trigger a higher demand for traffic

throughput across the TEN-T networks. Platooning can be used as a technology and traffic

management mode that might help in using existing and new infrastructure capacity for both freight

and passenger transport, more efficiently.

Figure 2 - TEN-T Core Network Corridors (Freight and Passenger). Source: Eurostat (2017).

The technology for platooning is under rapid development. Using radars, cameras and vehicle-to-

vehicle (V2V)-technologies, the vehicles in a platoon can now drive safely at as close as 0,3 seconds

apart under testing conditions (TNO, 2017). In addition, a wider use of GPS-tracking of vehicles and

internet-based logistics operations management, might improve vehicle platoon matching on the fly.

Moving forward, these technologies might be even more developed and tested in different real-life

conditions, assuring that platooning is safe enough to be applied on public roads by 2030.


As mentioned, platooning technology must be proven safe to be deployed on public roads. Risks

regarding safety and security are crucial barriers to the implementation of platooning. If accidents on

public roads occur in the early stages of implementation, there is high risk that the technology would

not be approved by regulators or would not receive the required societal acceptance preconditioning

its deployment. Examples of such accidents might be accidents due to loss in connection between

vehicles, accidents relating to cyber-attacks, and accidents relating to infrastructure constraints, for

instance limitations on bridges, on/off ramps, or roundabouts (Janssen et al., 2015).

The implication would be that OEMs and suppliers that have invested in platooning technology, would

lose out on expected profits and lose some of their competitive advantages compared to players that

have been more reluctant toward platooning technologies.

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https://www.eutruckplatooning.com/home/default.aspx

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2.6 Batteries of electric vehicles are recycled and re-used on a material (and increasing)

scale


Time Horizon: 2030

Management summary

Over the coming decade, a transition is expected from vehicles with internal combustion engines to

electric vehicles (short term: passenger cars/public transport, medium term: freight vehicles). Driven

by policy, technological, and economic developments, manufacturers will have to adapt their

development and supply chains and increasingly source materials for lithium-ion batteries (seen as

dominant technology for the coming decade) against the backdrop of increasing raw material prices.

Particularly for the essential lithium and cobalt inputs, (temporary) shortages may occur.

Both for that reason, and due to increasing streams of used lithium-ion batteries, this chapter explores

the role of recycling and recovered materials, as well as re-use applications for used electric vehicle

batteries. Although material recycling and re-use solutions will take some years to mature, it is

expected that by 2030, adequate policy and economic incentives will have been developed and a

hybrid between re-use and recycling applications will be commonplace. Nevertheless, recycling is

expected to play only a modest role in alleviating resource scarcity.

Given that D2.1. and D2.3. suggested that European automotive manufacturers might operate at a

relative disadvantage in the development of electric propulsion systems, it is relevant that under

business-as-usual, recycling and often re-use is projected to take place in China, rather than in

Europe, for the majority of electric car batteries. If this is deemed undesirable, policy and manufacturer

action may be required.

Future Use Case

Over the coming decade, sharp increases take place in the market share of electrically or semi-

electrically powered road vehicles among new vehicle sales in most developed countries [11]. By

2030, for example, the International Energy Agency projects that 140 million electric vehicles will be in

use globally [18], while by 2050, around 100 million electric vehicles will be produced annually [1].

Important drivers behind this development are government policies seeking to reduce local and global

emissions (such as bans on petrol and diesel vehicles [18]), increasing concerns about negative

effects of traffic on health and environment, desires to become less dependent on fossil fuels, and

positive price and functionality developments of electric vehicles compared to vehicles with internal

combustion engines (ICE), strongly improving the competitiveness of electric vehicles vis-à-vis.

While at first, mainly passenger cars and public transport vehicles are likely to transition to electric

propulsion technologies, developments in battery capacities are such that also very material shares of

the market for light and heavy goods trucks are expected to be electric by 2030. For all electric road

vehicles, however, it is expected that at least until 2030, lithium-ion batteries will be the dominant

battery technology [e.g. 7].

Combined with the upcoming and increasing stream of discarded batteries from first and generation

electric vehicles throughout the next decade, the above developments raise two key challenges: firstly,

automotive manufacturers will have to be able to source sufficient amounts of necessary raw

materials, and secondly, ways to deal with increasing waste streams of discarded electric vehicle

batteries must be found.

Although solutions to these challenges will take some years to lift off, it is expected that by 2030,

adequate policy and economic incentives will have been developed for the large-scale diversion of

vehicle batteries away from waste streams. Instead, both the recycling and re-use of discarded

batteries from electric vehicles will be common practice in 2030.


44

Analysis and Assessment

Current situation and supply chain implications

Currently, newly sold vehicles are still mostly based on fossil fuel combustion engines. Developed

countries, however, have embarked on a steady uptake of alternative technologies (particularly hybrid

and electric vehicles, and to some extent vehicles running on biofuels or hydrogen/fuel cells). Although

manufacturers have successfully moved beyond pilot phases, the uptake of (semi-)electric vehicles is

still modest due to technology limitations such as short driving ranges.

Nevertheless, industry, policy, and scientific projections are such that automotive manufacturers have

started investing heavily in the transition from ICE vehicles towards alternative technologies.

Academics, in turn, are studying consequences and potential challenges, while policy makers, driven

by factors such as climate change, population increases, urbanization, and air quality, prepare and

introduce measures for cleaner and lower-emission road transport. Examples of such measures

include regulations, prohibitions, bans, quota, taxes and charges, subsidies, zoning requirements, etc.

To remain competitive in this rapidly changing environment, automotive manufacturers will to an

increasing extent have to transform their product portfolio’s towards vehicles using alternative

propulsion technologies than ICE. Of these alternatives, electric vehicles, whether fully electric or

hybrid, are expected to play a material role in the decades to come [e.g. 1, 11, 18]. As such,

manufacturers will have to overcome obstacles faced by the current generation of electric vehicles

(e.g. limited driving ranges, particularly for heavier vehicles and freight vehicles). D2.1 and D2.3 of the

current SCORE project suggested that when it comes to overcoming such obstacles through research

and development, European automotive manufacturers might operate at a disadvantage compared to

manufacturers from other global regions.

With regard to the supply chain of the automotive industry, electric vehicles will increasingly require

the sourcing of different materials and intermediate inputs than is currently the case for ICE vehicles.

The main difference between ICE vehicles and electric vehicles is formed by the battery system,

which, as mentioned above, is likely to be dominated by lithium-ion batteries for at least another

decade (see also box 1). This manufacturer preference for lithium-ion batteries is due to their relative

affordability and high energy density. This makes lithium-ion batteries relatively light compared to other

batteries, which allows for a higher capacity for any given vehicle. Additional advantages are the

relatively long cycle life and the allowing for deeper discharging compared to other batteries. Together,

these characteristics yield longer driving ranges [7, 8, 12].

Box 1: environmental aspects of ICE versus electric vehicles

By far the largest difference between ICE vehicles and electric vehicles is the

propulsion system. Where ICE vehicles use a combustion engine, electric vehicles are

powered by an electric engine which is fed by a battery. Both the production and the

disposal phase of the electric systems yield significantly larger environmental footprints

than is the case internal combustion engines. However, the much smaller footprint

from electric propulsion during the use phase generally more than weighs up for this

from a total life cycle perspective [e.g. 6].

The large scale sourcing (and recovery and disposal) of required materials for lithium-ion batteries,

however, is not straightforward. For that reason, much of the rest of this chapter will discuss potential

availability restraints and other key obstacles for an envisioned near term electric vehicle future and its

consequences for sourcing and waste streams.

Lithium-ion batteries: developments & challenges

Material availability

Lithium-ion batteries contain significant quantities of (valuable) inputs, such as aluminum, iron, copper,

lithium, cobalt, nickel, natural graphite, and manganese, some of which are considered essential for at


45

least another 1-2 decades [1, 8, 9]. In light of rapidly increasing demand (lithium demand e.g. grew by

73% just between 2010 and 2014) and a concurrent and much more slowly increasing production [e.g.

8], it has been questioned whether sufficient raw materials are available to support the expected

volumes required for electric vehicles over the coming decades [e.g. 1].

With regard to lithium availability, scientific views are mixed. Different studies employ very different

criteria of availability and as a result come to very different estimates on available reserves and

production potential [e.g. 10]. Nevertheless, there seems to be a degree of consensus that lithium

shortages are likely and that the question is more when and in what form they will occur [3, 12]. A

hypothetical case concerning the European production of future battery cells, for example, predicts

lithium and nickel shortages in a European context already by 2025 [10].

In general, however, two main lines of thought can be discerned. Firstly, even if lithium reserves are

sufficiently available (‘size of the tank’ [12]), bottlenecks are still expected due to insufficient

extraction/production rates (‘tap size of the tank’) and the inability to increase production quickly

enough [8]. This is problematic as batteries already materially add to the price of electric vehicles at

current low lithium prices, but might even more so during times of shortages [1]. Current estimates of

batteries constituting over a third of electric vehicle costs are for example not uncommon [8].

Anecdotally, a shortage recently materialized for cylindrical batteries in Japan, leaving whole sectors

unable to source materials for their products [35].

Secondly, there seems to be relative agreement that recovered lithium from recycling processes will

be desirable in the future [e.g. 3], although it should be seen only as a medium- to long term input [8].

In addition, recycling is projected to play a modest role and will in itself only yield far from sufficient

quantities to support the forecasted demand from manufacturers of electric vehicles [1]. This implies

that mining operations will remain in high demand.

When it comes to other essential inputs of lithium-ion batteries, most metals and other raw materials

are expected to be available in sufficient quantities in the long run, albeit with a risk of short term

shortages [8]. Generally, particularly the valuable cobalt might be critical, as cobalt is in high demand

from other industries, and geographically concentrated almost exclusively in Bolivia, Chile and

Argentina [10, 12]. Geopolitically, it might be desirable to increase the share of cobalt sourcing from

recycling, rather than mining [8]. However, an economic argument also exists. Just this year, the price

of cobalt more than doubled, and automotive manufacturers have difficulties securing medium term

supply at even near current prices, as miners expect further price increases in the years to come and

find it risky to lock in prices. For that reason, analysts see cobalt as a bottleneck resource for electric

mobility [37].

All in all, availability and recycling prospects cannot at all be excluded as important factors in decades

to come, albeit it should also be noted that any recycling on a material scale cannot be expected in the

short term, while the demand for lithium is already expected to surpass supply around 2020 [12].

Recycling, re-use, or both?

Generally, lithium-ion batteries in vehicles are designed to last 8-10 years, before they have fallen to

70-80% of original capacity and are considered unfit for further use in vehicles. For this reason, used

battery streams from first generation electric vehicles are still modest, but expected to increase

materially over the coming decade [e.g. 2, 5, 22]. By 2025, for example, lithium batteries in cars will

constitute around 90% of the market demand for lithium-ion batteries [4]

Given the rapidly increasing uptake of electric vehicles, used battery streams will likely also increase

significantly in the medium- to long term. This begs the question: what to do with the increasing

number of used batteries from electric vehicles?

Policy makers in different regions (e.g. EU, China and the United States) have introduced more and

more disposal bans or mandatory collection schemes for lithium-ion batteries, or are in the process of

doing so [e.g. 4, 11, 19, 31]. This implies that waste disposal as end-of-life option will effectively be cut

off in most important regions.

The figure below illustrates the resulting challenge graphically. If used batteries in practice cannot be

disposed of, they will either have to be re-used, or recycled directly. The advantages and barriers of

both re-use and recycling applications are discussed below, but even in case of re-use, most electric


46

vehicle batteries will (after secondary or tertiary re-use in other, less demanding applications)

eventually have to be recycled and their components recovered.

Recycling

Nearly all components in lithium batteries can be recycled [33]. Nevertheless, only a small share of

lithium batteries is currently recycled in practice [1]. In the European Union, for example, this

percentage lies at about five percent [30]. In addition, the recycling of lithium batteries from vehicles

faces several questions and obstacles.

Given that lithium batteries have only relatively recently been introduced in electric vehicles, most of

them have not yet reached the end of their lifetimes, so that the stream of used lithium batteries from

vehicles is still modest. As a result, current recycling percentages mostly regard lithium batteries from

small consumer electronics, for which collection is more difficult than will likely become the case for

vehicle batteries [1, 12].

Nevertheless, even when streams of used vehicle batteries increase in volume, recycling faces

challenges, not in the least with respect to profitability.

Recycling techniques and efficiency

First of all, lithium-ion batteries are more difficult to recycle than for example lead-acid (Pb-acid) or

nickel-metal-hydride (Ni-MH) types. Lithium batteries consist of more different materials and generally

many more plates, layers, and cells. Moreover, the most valuable parts for recovery are found in the

cathode, which is one of the last parts of the battery to be disassembled, thereby adding to

disassembly costs [2, 11, 33].

In addition, most recycling methods that are currently used are still relatively inefficient when it comes

to recovery rates of materials, energy inputs, safety, etc. [1], while elements that are recovered are

often recovered with impurities that don’t allow for re-use for battery applications. Effectively this turns

current recycling into downcycling [8, 26]. For that reason, there are no material examples of batteries

produced solely from recycled materials as of yet, even though several promising initiatives are

currently carried out [33].

Although most recycling methods are also still rather complicated, they exhibit a large potential for

simplification when developed on large scales in the future. One element for which significant

developments may be expected therefore regards recycling techniques and efficiency, which has the

potential to become economical in itself [1, 36].

Collection, processing and organization

Secondly, even if recycling techniques become more efficient, successful recycling initiatives will have

to overcome organizational obstacles, e.g. around collection and processing.


47

Although lithium batteries from vehicles could relatively easily be collected through dealers and

scrapyards, compared to batteries in consumer electronics, current quantities make it difficult to

support safe and economical transport and recycling [2], although a scenario analysis for Germany

suggests that several scenarios exist in which recycling networks are profitable, while simultaneously

fulfilling minimum recycling rates [15].

The increasing uptake and used battery streams over the coming decade might make transport

distances for recycling shorter and could make recycling profitable at smaller geographical scales [7,

13]. In addition, and despite economic inefficiencies, the EU has implemented mandatory lithium-ion

recycling and recovery rates [17, 31], while also China has implemented rules to put a degree of

responsibility for recycling on automotive manufacturers [4].

The above factors are some of the reasons that manufacturers like Honda and Toyota are setting up

collection schemes to recover and properly recycle electric batteries [24].

More generally, however, it has to be taken into account that many lithium-ion batteries look the same

or similar as other battery types, making it hard to distinguish them in recycling streams [2]. While this

issue should be relatively straightforward to overcome, another issue might be more challenging. Even

within the lithium-ion group, batteries are not necessarily much alike. There exists a wide variety of

sizes, shapes and chemistry, and these are ever-changing given the ongoing progress in battery

development [12]. For that reason, recycling plants will likely have to be able to deal with a varying

mix, rather than focusing on uniform products. If this proves not feasible, economical recycling might

require manufacturer or policy intervention with regard to how batteries are designed, and how end-of-

life recycling potential is taken into account in the development process [2, 11].

Economics of recycling and recovery

Thirdly, and as previously mentioned, nearly all components of lithium-ion batteries can be recycled. In

practice, however, mostly cobalt and other valuable metals are recovered, but not lithium. Although

lithium prices have been rising in recent years, mining lithium is still relatively cheap. This is one of the

reasons that the cost of recycling lithium-ion batteries, while decreasing, is still about three times as

high as the value of materials recovered, and also one of the reasons that even newer recycling

methods still mostly focus on the recovery of other elements than lithium [1, 8, 9, 18].

In addition, costs of lithium-ion batteries are to a large extent driven by their nickel and cobalt contents,

which manufacturers are in the progress of reducing to the lowest possible thresholds. By using more

cost effective raw inputs, batteries become cheaper, which negatively affects recycling incentives by

reducing recovery values [1, 7, 13, 28]. In addition, such developments require additional recycling

stages to be introduced [15].

Europe vs. China

A recent report projects that both lithium and cobalt recycling will increase in the near future, but only

to modest degrees [32]. By 2025, recycled lithium is expected to make up about 9% of total supply for

lithium batteries, while cobalt recycling is expected to increase to close to 20%, driven by increasing

prices. These relatively modest percentages are attributed to electric vehicle batteries having relatively

long lives and possible re-use applications, before they get recycled.

In addition, the report predicts about two thirds of lithium recycling to be carried out in China, while for

batteries with cobalt, a percentage of about 76% is projected based on current trends of battery

exports. As such, China may achieve a strong competitive advantage in recycling.

At the same time, the study predicts that manufacturers will be able to play an important role in the

collection (and re-selling) of used batteries.

All in all, recycling is expected to be necessary and could become economical. However, in order to

get there, significant obstacles will have to be overcome within the coming decade.

Re-use

To avoid having to resort directly to recycling when electric vehicles reach the end of their lifetimes, an

alternative is to strive to re-use applications, and a recent report estimates that close to a third of


48

electric car batteries will be re-used by 2025 [25]. Attempting to re-use batteries from electric vehicles,

however, also comes with both advantages and barriers.

The most promising re-use applications seem to be stationary energy storage (household or

commercial), back-up systems, and grid load leveling [8]. As such, discarded batteries can contribute

to more efficient energy provision by storing electricity from e.g. intermittent wind or solar in periods of

generation surpluses, or by balancing periods of peak demand with periods of lower demand [20].

A huge advantage of re-use applications is that they represent value, so that battery costs are spread

out over a longer life span and multiple applications than just vehicle lifetime (or can at least be

partially recovered) [8].

Other potential advantages of utilizing used vehicle batteries for abovementioned applications is that

they are preassembled in large modules and that they are usually supported by a relatively well

structured dealer and repair system [14].

This being said, before re-use can become a preferred or large scale pathway, a number of barriers

will have to be overcome and a number of questions will have to be answered.

One particular challenge regards the practical and technical usability of batteries. Batteries from

different electric vehicles will, with lack of sufficient standards, for example be very different from each

other in terms of size, shape and performance aspects [26]. In addition, the batteries suffer relatively

much strain in their primary use application [14]. This makes for uncertainties and safety issues, and

will often require relatively complex/custom battery management systems. This factor adds to costs

and makes large scale uptake more challenging [8].

The lack of experience with the re-use of electric vehicle batteries also yields uncertainty about their

performance in different applications. Batteries from Tesla, for example, exhibit cycling characteristics

that might not be efficiently suitable for most stationary applications [27]. This uncertainty is amplified

because even identical batteries may perform very differently depending on the environment in which

they were used and the strain they experienced. For stationary storage, it is most effective to use

uniform battery cells, as larger variety yields higher software costs and compatibility issues. Progress

in the development of testing and assessment standards for electric vehicle batteries may contribute to

somewhat alleviating this issue [26].

Economics compared to new batteries

If batteries are to be re-used, this will generally happen at the end of the vehicle’s lifetime, i.e. after

about a decade on the road. If battery prices per unit of storage keep decreasing, and taking into

account capacity degradation during the vehicle application phase, used batteries might not

necessarily be able to compete with the batteries on the market at the time of potential re-use,

particularly if these newer generations are specifically designed for stationary storage. This might be

due both to price, lower energy densities compared to the current systems at the time of re-use, and a

shorter remaining lifetime. The current lack of any real market also adds to the uncertainty around the

potential value of used electric batteries [26, 33].

Conclusions are therefore mixed: some studies [see e.g. 34] anticipate that it will be most economical

to recycle old batteries and to use the recovered materials in new batteries, while others [e.g. 32] posit

that over 60% of batteries will first be re-used, and only after this second application, be recycled. A

case study for California, in turn, concludes that re-use might be economical on larger scales in some

applications, but will not reduce costs of electric vehicle batteries by much and may play a modest,

albeit not insignificant role in California’s energy system.

Real-world examples

Vehicle manufacturers such as General Motors, BMW, Nissan and Toyota are researching and piloting

second-life applications of their batteries [14]. BMW, for example, uses a setup of 700 old and newly

produced BMW batteries in a production plant in Leipzig, Germany, in order to store intermittent

renewable energy generated by wind [16]. Nissan, in turn, is piloting the use of used electric vehicle

batteries for home energy storage [Guardian]. The same goes for Renault, which expects that this

reduces the costs of storage systems for house owners by 30%, while also recovering some of the

vehicle battery costs [22]. Daimler, on the other hand, focuses more on large scale and commercial


49

stationary storage of energy, and expects that this can prolong the functional lifetime with at least 10

years after the vehicle phase [23].

All in all, positive prospects exist for re-use applications as well, although here too, barriers will have to

be overcome in the near future. It should also be noted that re-use applications are just an

intermediate step, delaying the final recycling. For that reason, the future is likely to hold a combination

of re-use and recycling applications, and developments in recycling techniques will play an important

role, regardless which pathway will become dominant.


At the moment, it looks likely that electric propulsion systems in road vehicles will take off and lead to

a pathway in line with the future use case scenario described. Nevertheless, unexpected

developments could result in a scenario where other current (e.g. hydrogen propulsion), or yet

unknown but disruptive technologies, will lead the way instead. In that case, the future demand for

electric vehicles could develop much differently than now expected, which also influences the demand

and need for batteries. As such, pressure on material sourcing or the needs for recycling might be

relaxed, although they will probably still play a role.

The future scenario could also be influenced by other developments in battery production or recycling

(e.g. capacity breakthroughs or recycling breakthroughs). A recently reported breakthrough for

example opens up for restoring capacity of old lithium-ion batteries to 95% [38]. An unlikely possibility

also exists that due to lacking enforceability of battery disposal bans, batteries are either disposed of

locally, or exported abroad and disposed of there. Nevertheless, current trends suggest that a material

demand for electric batteries is likely, leading to material streams of used batteries, which, when this is

profitable, will likely find their way to re-use or recycling applications.

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http://fortune.com/2016/08/25/used-electric-car-batteries/

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life as stationary storage systems’, Available via: https://www.energy-storage.news/blogs/recycle-vs-

reuse-why-ev-batteries-may-not-often-get-a-second-life-as-statio

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https://dukespace.lib.duke.edu/dspace/handle/10161/14080

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https://waste-management-world.com/a/cec-report-electric-vehicle-battery-recycling-to-surge

http://fortune.com/2016/08/25/used-electric-car-batteries/

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[30] FOE Europe (2017), ‘Lithium’, Available via:

http://www.foeeurope.org/sites/default/files/publications/13_factsheet-lithium-gb.pdf

[31] HM UK Government (2014-2016), ‘Waste batteries: producer responsibility’, Available via:

https://www.gov.uk/guidance/waste-batteries-producer-responsibility

[32] Creation Inn (2017), ‘Recycled lithium to reach 9 percent of total lithium battery supply in 2025’,

Press release regarding report by Creation Inn, available via:

https://www.creationinn.com/news/2017/11/30/press-release-recycled-lithium-to-reach-9-percent-of-

total-lithium-battery-supply-in-2025

[33] Teknisk Ukeblad (2016), ‘Derfor er det vanskelig å redusere elbilbatterier’, Available via:

https://www.tu.no/artikler/derfor-er-det-vanskelig-a-resirkulere-elbilbatterier/365550

[34] Teknisk Ukeblad (2016), ‘Det vil neppe lønne seg å bruke gamle elbilbatterier på nytt’, Available

via: https://www.tu.no/artikler/det-vil-neppe-lonne-seg-a-bruke-gamle-elbilbatterier-pa-nytt/364890

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https://www.engadget.com/2017/12/06/tesla-s-gigafactory-might-be-behind-a-global-battery-shortage/

[36] Teknisk Ukeblad (2017), ‘Ny metode kan gjøre gjenvinning av litium fra elbilbatterier lønnsom’,

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lonnsom/376939

[37] Financial Times (2017), ‘Cobalt miners play a strong hand in price setting’, Available via:

https://www.ft.com/content/f42de568-d8eb-11e7-a039-c64b1c09b482

[38] News Republic (2018), ‘Groundbreaking invention can restore old lithium batteries to 95%

capacity’, Available via:

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mcc=242


http://www.foeeurope.org/sites/default/files/publications/13_factsheet-lithium-gb.pdf

https://www.gov.uk/guidance/waste-batteries-producer-responsibility

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https://www.creationinn.com/news/2017/11/30/press-release-recycled-lithium-to-reach-9-percent-of-total-lithium-battery-supply-in-2025

https://www.tu.no/artikler/derfor-er-det-vanskelig-a-resirkulere-elbilbatterier/365550

https://www.tu.no/artikler/det-vil-neppe-lonne-seg-a-bruke-gamle-elbilbatterier-pa-nytt/364890

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http://www.newsrepublic.net/detail/0789B9D2FC10100001_us?pid=14&referrer=200620&showall=1&mcc=242

http://www.newsrepublic.net/detail/0789B9D2FC10100001_us?pid=14&referrer=200620&showall=1&mcc=242


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3 Aeronautics

3.1 Legacy systems future technologies digitisation

Sector/Mode of Transport: Aviation

Time Horizon: 2050

Management summary

The digital revolution seems have to have taken over the current manufacturing world. Concepts such

as Airbnb and Uber have become the digital enterprise of the modern world. With an estimated rise in

digital transformation of $100 trillion in 2025, the internet of things (IoT) seems to take a share of $11

trillion and is estimated that a third of this value will come from manufacturing those technologies (ATI,

2017).

It is anticipated that the digital technologies will transform the aerospace manufacturing landscape

completely by 2050 revolutionising areas associated with digital integrated supply chain, future

servitisation opportunities, and sever disruption due to next generation technologies and capabilities

(ATI, 2017). Where a majority of the legacy systems still run on outdated architecture, a majority of

the operations is still paper based, and is estimated to be about 90% of the entire manufacturing

activities (Seidenman and Spanovich, 2016). The main shift is already taking place at the level known

to the industry as the Manufacturing Execution Systems (MES), where digitisation of complex legacy

systems could reduce the order-to-delivery time by 70% (GE, 2016).

One of the major challenges the aerospace industry is facing is directly linked with legacy systems

which run assets that have an average life expectancy of 25 years. With the rapid development and

rise of computer architecture, innovation in associated sectors have led to the introduction of newer

products into the manufacturing stream. However, the architecture associated with those systems, for

example an electronic avionics systems developed in the 70’s still run on a floppy disk based device,

the current norm being smart miniature solid state drives the size of a microprocessor chip. Changing

the architecture would mean taking multiple approaches, either following the revolutionary or

evolutionary approaches; revolutionary in the sense of introducing a new product developed from

scratch and evolutionary with incremental developments of sub-systems and associated architecture.

The resilience the aerospace industry has shown over the last 70 years, together with growing

competition between the American and European manufacturing industries supporting the Aerospace

chain has been supported by both the industry and the government groups. Europe has seen the rise

in blue sky thinking with targeted research and funding being released in the form of initiatives such as

Horizon 2020, Clean Sky, and Innovate UK. Further the local government and the European

commission support in establishing centres of excellence such as the Aerospace Technology Institute,

Catapult Centres, Centres for Innovative and Advanced Manufacturing, European Space Agency and

or independent groups such as the Aircraft Growth Partnerships have furthered the European

capability of the industry with digitisation, Industry 4.0 and IoT playing a major role.


Legacy systems are seldom bulky and monolithic in nature. Replacement of a module or a sub-system

is a challenge and even a slight change or mismatch in codes / software architecture might prevent the

entire system to work properly and could potentially lead to the failure of the system. Further, the

functionality of primitive systems isn’t well documented and hence not all features are explained

properly.

Over the last 2 decades, large corporations have started dedicating vast resources to digitise those

blue prints which continue to exist on paper. It has been reported that approximately 71% of the US

federal civilian agencies IT budget accounting to about US$34.4billion has been spent on maintaining

those legacy systems with only US$3.1 billion on modernisation activities (altexsoft, 2017).


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Figure 1 US Federal Civilian Agencies IT Budget (2017) (altexsoft, 2017)

ATI (2017) reported that specific digital capabilities in the area of technology, data & analytics, digital

mindset and digital trust where these will enhance the promotion of development of an integrated

supply chain, servitisation and digital-disruption.

Figure 2 demonstrates the current framework that the aerospace sector, more specifically the

European sector is being influenced to adopt to remain competitive in the market. Some of the trends

include concepts such as digital twin, IoT, big data analytics and virtual certification (ATI, 2017).

Figure 2 A framework for aerospace sector digitisation (ATI, 2017)

Digitisation on the whole will improve all air transport groups ranging from passenger to freight, from

small business jets to defence carriers. Smart technologies will need real-time data and enhanced

data management which will be facilitated by digital technology. This will also help improve the

security especially in the cyber world, and will help improve both culture and the regulations. The data

management, sharing and intellectual property (IP) rights will also be effectively managed between

multiple user groups.


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These solutions, help not just improve the current product and or legacy systems, but will also

introduce their effective use and produced improved products especially with an evolutionary approach

that some parts of the industry is currently adopting.


IoT in other areas such as social networking has created a platform that facilitates effective and

efficient transfer and sharing of relevant data and how multiple layers of information can be included

into the same dataset in a simple and integrated way. With cyber security being a major concern,

online banking and modern levels of security have now become the norm (Rossi, 2015). However, this

isn’t the case with the aerospace sector. For example, with the majority of the aircraft being built using

composite materials, the behaviour of the material isn’t fully understood. One of the reasons that

contribute to this information is the unavailability of this data in the digital form and the disparity that

exists between datasets. IoT could potential link sensors that can provide effective real-time data and

complex neural network systems and other algorithms could evaluate this information advising the

user of the health of the part, which is currently being termed as ‘smart maintenance’.

The aerospace industry is currently engaged in innovative research and development activities trying

to find and fix problems with technologies quite early in the life-cycle as this saves huge costs,

especially with technologies taking 10-15 years to be developed and reach its full potential. Smaller

sub-systems being developed as key solutions are being developed at an exponential rate especially

in the area of next generation electronics. The main reason for this drive is due to obsolescence of the

equipment due to rapid advancements in software and hardware digitalisation (Howard, 2016, 2017).

Further the pressure added by the end user to keep their legacy asset up to date, intelligent and smart

technologies are being welcomed to maintain those everyday critical systems.

One of the current trends that is being adopted by manufacturing is process level digitisation and is

described in the following figure (Figure 3).

Figure 3 The digitisation process of Manufacturing Execution Systems (MES) (GE, 2016)

Figure 3 shows the current process of digitisation occurring in complex discrete manufacturing which

is being adopted by major aerospace industries (GE, 2016). The ultimate goal for this advancement is

the removal of paper based decision and data systems and to move into automated manufacturing.

The trend in digitisation needs to follow current cross-platform trends such as social networks and e-

commerce. The release of the product especially with commercial manufacturing will need a two


55

speed architecture, one that supports the end-user with the up-to-date capabilities that asset can

provide and a transitional support system that allows effective function of the legacy system (Bossert,

Ip and Laartz, 2014). These support systems should include concepts of zero downtime, easy process

configuration, real-time data analytics, auto-scaling of IT platforms and a secure architecture.

Ultimately, it has been demonstrated through multiple models that digitisation will eliminate heavy

hardware and software routines, and will offer simplified processing improving time and efficiency the

industry takes to manufacture their products boosting their overall performance (Avedillo, Begonha

and Peyracchia, 2015).

It has been reported that, only in the last decade, the aviation’s maintenance repair and overhaul or

MRO sector is switching to the use of electronic systems, with over 90% of records still exist and

continue to be produced in the paper format. It is estimated that an aircraft (civil) with be passed

between five to six owners or operators in their lifetime between delivery of the asset till its

decommissioning. Just the engines on these aircrafts can generate thousands of paper records

capturing their service activities, over their entire life (Seidenman and Spanovich, 2016). This is

important especially when the aircraft is passed on to another owner, and lack of documentation would

mean that the new owner will have to trace the supply chain. With data, that too in limited areas is

available to aircrafts produced around 2000’s, any vintage engines produces in the 1990’s and before

will only exist in the paper. Further, they have huge implications, especially due to the lack of

standardisation and legibility and non-conformance to current norms.

The initiatives taken up in the last decade have made sure that these service records or job cards are

now recorded digitally so that there is no loss in data during asset handling and ownership transfer.

There is two-fold development that is current occurring, one in the culture of the operations, especially

in terms of equipping the engineers, designers, manufacturers and maintainers with soft skills and

protocols that have been translated from hard copies to a computer based operations management

system. The other being the supply of equipment and systems that conform to the digital

manufacturing.

The value chain has adapted to digital advancement where the supply chain to manufacture these

products and systems are constantly being evaluated. This has led to the introduction of cross-

platform products into the aerospace sector, a good example being the availability of personal screens

on every seat for passenger entertainment in almost all long-haul flights. This shifted the dynamics of

the value chain especially in the screen manufacturing industry, where it is packaged with an on-board

computer architecture and thus supports the concept of connected systems of the future, especially

with the ability to connect to internet during the flight.

Where digitisation is improving performance, the transition and conversion of data from paper to digital

format, and increased need of a high level data management system pose huge challenges to the

aerospace industry. It should be understood that the entire aircraft maintenance is heavily dependent

on prolonged existence, traceability and retrievability of service and maintenance records and any

associated history and knowledge of the system.

The demand for digitisation has been taken up by the entire industry quite seriously. Smart factory is a

complex and integrated systems composed of different smart devices as sensors, actuators, and

computers, having the ability to check and monitor the systems and the ability to decide the right

action to take. They represent the physical implementation of the concept of industry 4.0, fostering the

use of information technologies to implement Internet of things (IoT) and services within the

manufacturing environment, establishing a flexible, efficient, and reconfigurable system, able to deliver

high quality products, with low costs and higher operative performances. The main pillars of industry

4.0, shown in figure 2, are:


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1. Horizontal integration through value networks, allowing the creation of an ecosystem of

firms cooperating, through the exchange information and material;

2. Vertical integration and networked manufacturing systems, consisting in implementing a

highly flexible and reconfigurable systems to cope with a changing demand or product

mix, ensuring operational efficiency, low costs, and high quality;

3. End-to-end digital integration of all the engineering activities involved in the value creation

process, including the entire product life-cycle;

4. Implementation of technologies with low cost and size, and with high computational

capacity.

Figure 4 Industry 4.0 framework (Griessbauer, Vedso and Schrauf, 2016)

The combined integration on a horizontal level, in terms of inventory levels, supply performances, and

by track-and-trace of products to reduce inventory levels and logistic costs, and on a vertical level,

implementing sensors and actuators with manufacturing scheduling, will ensure lower costs, higher

asset utilisation, product throughput and customer delivery. Predictive maintenance is another core

sector that is dealing with these changes, using predictive algorithms to optimise and improve MRO

services, establishing a tight collaboration between OEMs and primes and customers. Finally, the high

integration among all actors in the value and supply chains will ensure pull systems, delivering what

the buyer wants when he wants (especially true for lower tier suppliers). Data analytics represents

also a valuable systems for support the decision-making process, (predictive maintenance could be a

sector where data analytics can be implemented).


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Figure 5 Cost reduction due to digitisation - pan industry (Griessbauer, Vedso and Schrauf,

2016)

It can be inferred from the cost reduction figure as seen in Figure 5, automotive, electronics and

aerospace sectors are saving revenue between 3.7-3.9% (estimated to 2020). However, the large

savings in value, for instance the US$28billion in automotive, is a clear indication of the rapid

introduction of digitisation and concepts of industry 4.0 in comparison with that of US$9billion for the

combined aerospace & defence sector. This shows that cross-sectoral collaborations would definitely

benefit the aerospace sector, not just with automotive, but with other sectors such as electronics,

materials, transportation & logistics etc. The only biggest challenge the sector faces is the stringent

standards and requirements that these technologies need to conform to.

ATI recently conducted research with focus on European manufacturing sector especially with

companies that produce digital capability. The framework for assessment was split between indicators

such as technology, data & analysis, digital trust and mindset. This assessed the sectors ability to

move to the integrated supply chain, servitisation of the sector and the disruption enabled through

digitisation. The following is the summary of the analysis as produced by ATI (ATI, 2017).

Table 1 clearly indicates the current level of competency for the sector and the results were

summarised based on industry-led workshops, expert interviews and market opportunities.


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Table 1 Summary of aerospace competence due to digitisation (ATI, 2017)



• Cost reduction: The main aim is to conserve revenue. Digitisation will not just lower cost, but

improve manufacturing processes effectively by removing bottlenecks associated with

complex discrete manufacturing systems in the aerospace industry.

• Performance: The key issue the industry currently faces is the ability to deliver their orders in

time as any delays could result drop in orders or shift to competitors, which is quite common in

the aerospace industry. Thus digitisation will contribute to effective performance both

operational and economic.


• Culture: One of the biggest challenges the industry faces is with the conservative working

culture in the sector. Where demography makes a huge impact, the ability to deliver digitally is

reliant on competent skills. The modern graduate though comes into the sector with skills, he

severely lacks practical knowledge of the sector, and the ability to be incorporated into

conservative working environments is a challenge, though this is currently changing.


59

Technical trends facilitating a realization of the scenario:

• Data management: Data in the aerospace sector is heavily guarded and the access to it is

highly restricted. Further with paper trails, this becomes a herculean task in itself. Common

questions such as, what data is required, what access level can be provided, how much does

this cost and so on. To some extent this is currently happening within industry especially when

they want to collaborate with academia.

• Intellectual property: The ability to safeguard new ideas, retain ownership of those ideas and

the ability to maximise the use of those ideas is extremely important especially in the digital

age. Stringent practices are currently being adopted to make sure the sharing of information

and how to improve the transparency in sharing is being explored. Business models and

strategic partnerships are enabling this transparent process of data sharing.

• Cyber security: With the finance industry being pioneers in providing secure systems through

encryptions and other means, the aerospace industry is also implementing cyber secure

systems through both physical and digital systems that effectively protect the asset.

Technology developments which are facilitating a realization of the UseCase

• Digital Twin: These are virtual models of a system, sub-system or a component which has the

ability to capture and predict the life of these components. This platform will help raise the

fidelity of the product’s through-life and is currently under the infancy stage. It is supported

heavily with IoT and artificial intelligence to predict early or premature failure of a component.

• Internet of Things (IoT): The organisations overall equipment effectiveness (OEE) can be

monitored through sensors and radio frequency ID (RFID) tags and assist in monitoring the

asset under operation. Various groups and organisations are coming up with IoT based

solutions to optimise performance of the asset, be it in monitoring the on-board entertainment

system, passenger seats or the flight speed data.

• Big Data Analytics: With the growing number of sensors comes the burden of data

management. In other words, how much data is being produced, which data is relevant, what

the data represents in real terms etc., are few of the questions that are currently being taken

up. The industry is now investigating the application of novel and innovative algorithms,

machine learning and data-mining to realise the value from the data and thus lead to effective

and enhanced decisions. Utilising real-time data for effective delivery is being regarded as key

to improved performance.

• Virtual Certification: With a large number of certifications and process still paper based,

digitising them could help automatically determine the level of uncertainty and thus ensure

conformity and compliance of the product. This will also help simulate scenarios effectively,

directly impacting the pace and expenditures occurring during the development of the aircraft.


For the purpose of this research, a UseCase such as digitisation has been chosen as this is currently

being investigated and adapted by the entire aviation industry. This is due to the proven nature of the

technology, with effective controls such as Technology Readiness Levels (TRLs) and cross-sectoral

implementation, finding an alternative does not practically exist for this specific case.

References

altexsoft (2017) Legacy System Modernization: How to Transform the Enterprise for Digital Future.

Available at: https://www.altexsoft.com/whitepapers/legacy-system-modernization-how-to-transform-

the-enterprise-for-digital-future/.

ATI (2017) INSIGHT_01-Digital Transformation. Available at: http://www.ati.org.uk/wp-

content/uploads/2017/09/ATI-INSIGHT-01-Digital-Transformation.pdf.

Avedillo, J. G., Begonha, D. and Peyracchia, A. (2015) Two ways to modernize IT systems for the

digital era, McKinsey. Available at: https://www.mckinsey.com/business-functions/digital-mckinsey/our-


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insights/two-ways-to-modernize-it-systems-for-the-digital-era (Accessed: 3 January 2018).

Bossert, O., Ip, C. and Laartz, J. (2014) A two-speed IT architecture for the digital enterprise,

McKinsey. Available at: https://www.mckinsey.com/business-functions/digital-mckinsey/our-insights/a-

two-speed-it-architecture-for-the-digital-enterprise (Accessed: 3 January 2018).

GE (2016) Digitizing Complex Discrete Manufacturing Processes. Available at:

https://www.ge.com/digital/sites/default/files/GE-digitizing-complex-discrete-manufacturing-

processes.pdf.

Griessbauer, R., Vedso, J. and Schrauf, S. (2016) ‘Industry 4.0: Building the digital enterprise’, 2016

Global Industry 4.0 Survey, pp. 1–39. doi: 10.1080/01969722.2015.1007734.

Howard, C. (2016) Digitization and data analytics are transforming aerospace and defense

organizations, Intelligent Aerospace. Available at: http://www.intelligent-

aerospace.com/articles/2016/09/digitization-and-data-analytics-are-transforming-aerospace-and-

defense-organizations.html (Accessed: 3 January 2018).

Howard, C. (2017) Investing in test tools for modern and legacy aerospace systems, Intelligent

Aerospace. Available at: http://www.intelligent-aerospace.com/articles/2017/04/time-to-invest-in-

test.html (Accessed: 3 January 2018).

Rossi, B. (2015) How digital can reach new heights in aerospace and defense – research, Information

Age. Available at: http://www.information-age.com/why-iot-will-be-heart-next-social-innovation-

123459921/ (Accessed: 3 January 2018).

Seidenman, P. and Spanovich, D. J. (2016) Why Airlines, Aftermarket Struggle With Digital Record-

Keeping, Inside MRO. Available at: http://aviationweek.com/connected-aerospace/why-airlines-

aftermarket-struggle-digital-record-keeping (Accessed: 3 January 2018).


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3.2 Backlog! Operational optimisation and availability type contracts


Time Horizon: 2050

Management summary

Aircraft backlog is a measure the industry uses to address demand. The aircraft being a high value

asset and only bought my major companies and operators, they are made to order and not readily

available. Again, through enough planning is taken up, due to process and integration issues, the

deliveries are not always completed on a set date. With the order books full for the next two years,

there is a large demand for both regional jets and turboprop aircrafts. The global passenger air traffic

rose by 5.9% in 2016 and is estimated to be at 5.1% in 2017 (year-on-year values). With this level of

growth, Boeing estimates that the global revenue passenger kilometres will triple to reach a value of

17 trillion passenger kilometres by 2035 (DBS Bank, 2017). The financial report further establishes

that with the growth in middle classes, and continued order of aircrafts, it is estimated that the global

fleet number is set to double to 45,240 aircrafts as of 2035. This also suggests that there will be

continued increase in demand, the financing value will also increase.

The current business models are dependent on availability type contracts, where the value of the

asset is paid according to the available time, and it has evolved from contractor logistic support (CLS)

dictated by the defence sector (Defence Aerospace.Com, 2006). Further, with financing options

provided by the banking sector in place, the current trend is that the aircraft is leased as opposed to

fully owned by operators with aircraft lessors owing over 40% of the global fleet (DBS Bank, 2017). It

should also worth mentioning that, the lease period also includes service contracts that could last for

25 years.

There are two major types of contracts that are currently seen in the aerospace industry. They are the

fixed price and availability contracts. Where the former contract may not include service costs and any

additional service costs will be borne by the operator. The cost effectiveness depends on the in-house

maintenance repair and overhaul (MRO) team. However, smaller operators’ lease the service to a

large MRO provider, thus the cost of the aircraft fluctuates and is dependent on both operating and

maintenance strategies taken up by the operator. However, in the availability contract, the estimated

cost of the aircraft could be much higher, as the MRO service responsibility is put back to the

manufacturer and is referred to as product service systems (PSS) (Meier, Roy and Seliger, 2010).

The financial implications, demand, backlog and operations optimisation have a huge impact on the

aviation industry. Whilst, business models and financing contracts are tailored to the operator, the

choices made by operators help plan returns and performance, for instance, the current operational

optimisation is targeted to achieve on-time departures. With local governments, and airports needing

to save costs due to delays, timely departure and maintaining a record is a challenge all operators

face.

With the ever-growing demand and the delivery of aircrafts, new and efficient management systems,

business models and service systems are a must. The last decade saw the shift of service

responsibilities back to the manufacturer and an increase in the banking sector that arrange the lease.

Further, rise in low-cost carriers has transformed the aviation sector globally. The stringent regulations

and the need to maintain safety of the aircraft have pushed companies to adopt to innovative business

models and comprehensive service strategies, the culture still being conservative in nature. Until late

1990’s the norm for the secondary supply market, where value and business was improved due to

aftersales, shift in business strategies have led to the creation of availability type contracts over the

last decade. Now the competition between Tier 1 manufacturers is directly in cost saving by improving

their MRO performance. There are industries in the current market that realise more that 50% revenue

due to improved MRO services. This is only possible due to direct factors such as adoption of

innovative technologies, constant R&D to find new next generation technologies, increased use of


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sustainable technologies and business models such as airline partnerships to improve and maximise

the passenger load factor. The aviation sector has adopted those systems and technologies that are

far superior and are a product of heavy competition between market rivals.


Boeing reported a compound annual growth rate or CAGR of 4.8% over the 20 year period between

2015-2035 accounting to 17,093 revenue passenger kilometres (RPKs). This has also taken into

consideration the global growth in GDP set at 2.9% per annum.

Figure 6 Global passenger traffic (RPKs in billions) (2010-2035) (DBS Bank, 2017)

Airbus reports that the demand is dependent on current economic conditions, inter-connectvity

(routes) and demography of the region.

Figure 7 Drivers for air traffic growth (DBS Bank, 2017)

ERA (2015) reported that the regional jet order backlog is in a good position with a fleet order of 700

jets globally. They also report that the maximum deliveries are aimed at USA at 342 followed by

Europe with 182 orders as of 2013.


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Figure 8 Backlog of orders for regional aircrafts as of September 2013 (ERA, 2015)

Figure 8 presents the backlog numbers as of 2013. It can be understood that these orders are

dependent on the demand as per demography requirements. An alternate measure is to define the

global distribution of deliveries.

Figure 9 Global distribution of deliveries (September 2013) (ERA, 2015)

To tackle demand, operations optimisation has emerged to be a key instrument addressing various

stages of the aircraft. In order to provide evidence to the impact of operations optimisation, GE

aviation has been considered as a representative example. GE Avaition has divided the process into

four major categories; flight risk management, navigation, recovery and planning (GE Aviation, 2018).

A variety of models and tools such as automated data processing and anlytics, comprehensive library

of safety events and measurements, data-visualisation-animation-export-external integration are

made available. They not just provide an end-to-end solution but also boost productivity, performance

and enable best practices for safety and data exchange.

On the whole, the aim is to create value through solution based models and integrated services.

Where the customer requirements are linked to reliability and availability of the asset, the new aim for

the supplier is to optimise the whole-life cost for improved performance and effective cost savings.

The current trend, as reported by pwc can be evidenced by the following figure (Figure 10).


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Figure 10 Modern approach to an integrated product service system for enhance value

capture (Starr et al., 2009)

Backlog indicators and multiple business models is set to affect the entire aviation sector, more so in

the regional aircraft manufacture. This is mainly due to the growth in global GDP and changing

demographic trends, development of megacities of the world together with indicators such as

propensity to travel will drive the market. Further, the growth in the Asian and Latin American markets

would also influence the demand. It is anticipated that the developed economies, especially the USA

and Europe will develop technologies and products and customise deliveries in such a way that they

will channel the future global demand due to competition amongst them.


PWC (2017) conducted an in-depth review and provided a new revenue guidance for the aerospace

sector. Commercial aviation programmes are very complex and the ability to maintain and fulfil the

conditions over a span of multiple years is a huge challenge. PWC reported the following guidance

which the customer should consider.

Figure 11 PWC's revenue guidance (PWC, 2017)

Figure 11 is a typical example of what companies are currently adapting to define their requirements

and how to move forward with an order. The other area that is lucrative and currently identified my all

manufacturers in the sector is ‘Servitisation’ (Servispart Consulting, 2017). The crux of the integrated

service systems the industry is trying to adopt has led to the definition of the product service

continuum by PWC (Starr et al., 2009).

(1) Identify Contract

(2) Identify Performance Obligations

(3) Determine Transaction

Price

(4) Allocate Transaction

Price

(5) Recognise Revenue

Other Considerations


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Figure 12 PWC's product service continuum presented in view of the requirements and

life of the asset (Starr et al., 2009)

Figure 10 and Figure 11 present two such approaches which are currently being adopted by

manufacturers and end-users to tackle the demand in the sector. They form part of the availability type

contract which provides the customer with a high-quality and reliable asset that is always ready and

up-to-date with reduced burden on the asset owner.

The dynamic growth in the demand has left manufacturing industries ranging from OEMs, Tier-1

suppliers through to Tier-4 suppliers and beyond to identify the best possible solution. The industry

has thus adapted to a solution-based approach. Whilst technological advancement and innovative

solutions are the front runners, business models and in-company economic predictions through

advanced analytics control the investment schedule of the asset owner. The changes over the years

have had their peaks, such as shift of service strategy to manufacturers, ability to provide a combined

asset cost as opposed to a fixed price contract have all contributed to what the industry is today. With

current local government and international environmental regulations, the aviation sector on the whole

is looking and adapting business models in an exponential rate. Aspects such as Industry 4.0 have

revolutionised the value chain and this has had a huge impact on the manufacturing itself. The

challenge is that, with an order-to-make approach and long lead time to deliver the aircraft, the end-

user expects the aircraft to come with an up-to-date capabilities including latest state-of-the-art

systems that are or will be a norm at the time of delivery of the aircraft. It is anticipated that all

business models and contracts that drive the demand will have direct impact due to changing

economic landscape.

One of the biggest challenges the aerospace industry is addressing is in the production lead times.

There are a huge number of process bottlenecks that reduce the performance of the industry. Year-

on-year, all major manufacturers’ release a target number of aircrafts they forecast, however, meeting

targets has only been a reality over the last 5 years or so. This is mainly due to the change in

investments into data analytics and process management tools that help assist the industry to plan

their production. With improved computer architecture and advanced algorithms, all aspects of the

product, be it conceptual design or integration schedule, the sector aims to deliver aircrafts within the

set time frame.

The demand has always been steady over the last decade and all forecast models predict a similar

pattern indicating that the optimisation of operations will continue over the next 20 years and

productivity should improve in the long run. It should be understood that the backlog for 2025 is still

estimated at 33,000 aircrafts with an average production rate of just over 2,000 aircrafts annually

(2015). The availability and revenue contracts will be exploited by the customer over the coming years

and the current landscape will become the benchmark for a majority of those changes.


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Cross-sector collaborations could be beneficial, but the high-value of the asset, stringent regulations

and long delivery times makes it almost impossible to collaborate with other sectors. Technologies

could be cross-sectoral, but with large demand number, identifying specific contracts and controlling

business models is a huge challenge for the aviation sector.

According to Flightpath 2050, the European aviation industry is considered the world leader for

delivering high-quality vehicles engines and services. Flightpath 2050 highlights the EC’s desire to

ensure this leadership is retained through continuing its focused investment in new technologies and

capabilities by benefiting from public-private partnerships, research organisations, education and most

importantly, industrial collaboration (Darecki et al., 2011).

The EC are continually working on initiatives and projects for new technologies in the aviation industry.

The current initiative, Horizon 2020, looks at improving Europe’s competitiveness across industries

and currently funds almost 50 aerospace specific projects. These projects range from developing

smarter technologies for aircraft guidance navigation and control to developing concepts and

technologies to reduce aeroengine noise (H2020, 2017)

In short, through its collaborative nature, Europe is more than receptive to new technologies; it actively

pursues them and provides a platform in which they can grow. However, it’s not perfect as the nature

of structure of the EC leads to standard and certification processes taking time. However, the EC are

aware of this and one of Flightpath 2050’s goals is to reduce this time by 2050 (Darecki et al., 2011).

Europe’s aerospace industry holds a competitive global position against other major industries such as

USA, Japan, Brazil and China. This culminates in the region exporting more value of aerospace

exports than any of its competitors in 2016

Figure 13 Global Aerospace Exports by Region (Workman, 2017)



• Aircraft financing: With aircraft lessors financing 40% of global fleet, more business models will

now provide customers the ability to review their requirement. This potentially could boost

backlog in orders.

• Aircraft preferences: Recent years has seen the increase in regional and or narrow-body

aircrafts primarily due to growing markets. With options of route flexibility, low-cost carriers

and increase in short-to-mid-haul routes increases the overall demand for the sector.

• Returns & Profitability: Indexing leasing returns and push for firm returns by financers has led

to a stable and predictable cash flow in the sector over the last few years. This has also led to

higher profitability which has become more consistent over the last 10 years.

•


• Again, the biggest impact has been due to growing middle classes globally, and more

specifically in emerging economies, where by the demand and propensity to travel has caused


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the industry to look for alternate solutions. Further, increased connectivity and rise of

megacities have led to liberalisation of the airspaces. Low-cost carriers continue to drive the

demand for air travel.

Technology developments which are facilitating a realization of the UseCase:

• The only major technological developments that support business models is through

digitisation. This offers complex planning algorithms and effective business forecast models,

with digital architecture being the basic building block for this theme. The advantages are quite

similar to the ones found in Section 3.1 above.


Again defining alternate UseCase scenarios is proving to be difficult in this case. There are two major

strategies, fixed price contract and availability type contract and a majority of the industry chooses

their options as per their requirements. Further, the aviation sector is controlled by firm international

regulations and bi-lateral trade agreements that prevent further business models be developed. This

can be evidenced from data published by organisations such as GE aviation that define their

operational optimisation parameters conforming to the current industrial practices (GE Aviation, 2018).

References

Darecki, M. et al. (2011) ‘Flightpath 2050’, Flightpath 2050 Europe’s Vision for Aviation, p. 28. doi:

10.2777/50266.

DBS Bank (2017) Aircraft Leasing.

Defence Aerospace.Com (2006) Availability Contracting – Making Defence Procurement Smarter.

Available at: http://www.defense-aerospace.com/article-view/feature/67702/the-growing-acceptance-

of-availability-contracting.html (Accessed: 3 January 2018).

ERA (2015) The case for investing in the regional airline industry.

GE Aviation (2018) Operations Optimization. Available at:

https://www.geaviation.com/digital/operations-optimization (Accessed: 3 January 2018).

H2020 (2017) Horizon2020 Transport: Aviation. Available at: https://ec.europa.eu/inea/en/horizon-

2020/h2020-transport/projects-by-field/aviation?page=4 (Accessed: 28 August 2017).

Meier, H., Roy, R. and Seliger, G. (2010) ‘Industrial Product-Service systems-IPS2’, CIRP Annals -

Manufacturing Technology, 59(2), pp. 607–627. doi: 10.1016/j.cirp.2010.05.004.

PWC (2017) In depth: A look at the current financial reporting issues. Available at:

https://www.pwc.com/gx/en/services/audit-assurance/assets/pwc-in-depth-ifrs-15-industry-

supplement-aerospace-and-defence.pdf.

Servispart Consulting (2017) Servispart innovation enables first ever whole-aircraft availability

contract. Available at: http://www.servispart.co.uk/project/whole-aircraft-availability-contract/

(Accessed: 3 January 2018).

Starr, R. et al. (2009) Creating Value through Integrated Products and Services in Aerospace and

Defense.

Workman, D. (2017) Aerospace Exports by Country. Available at:

http://www.worldstopexports.com/aerospace-exports-by-country/ (Accessed: 25 August 2017).


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3.3 Future concepts - all-electric, blended wing, open rotor and hybrid air vehicles


Time Horizon: 2050

Management summary

The global aviation industry produces around 2% of all human-induced carbon dioxide (CO2)

emissions (ATAG, 2017). Even they can last for many more decades, fossil-fuel based energy sources

are being limited. While many other industries have shifted to electric power, aerospace remains

powered by fossil-fuels.

In this scenario –and also with even more strict regulations- new technologies have to be introduced to

improve aircraft efficiency and reduce the emissions. Shifting to electric power seems to be the natural

step (as other sectors like automotive are doing), but other technological innovations like open rotor or

blended wing are also on the horizon.

As electrification has arrived to other sectors as automotive or railway, many battery or generator

manufacturers are already developing and improving their products. With aircraft electrification some

suppliers will increase their market (those providing all kinds of electric actuators), while other will

decrease (hydraulic actuators).

Open rotor uses many similar components with traditional turbines, so value chain will not change so

much; but blended wing, radically different from current aircrafts, will require new aero structures,

systems and components and propulsion will also be different, so the entire value chain has to

change.

After years in the shadow of US aircraft industry, the EU aeronautic industry is nowadays on par with

the US; in particular in engine technologies, flight mechanics and aerodynamics. The EU aeronautic

industry has also a long-standing experience in the management of cross-border value chains, with

many OEMs and TIER 1 companies working together from different countries.


Conventional fossil-fuel based power sources are being limited, though they can last many more

decades. On the other hand, electric power is future-proof, and potentially more efficient. Many other

industries have totally or partially shifted to electric power, from residential to locomotives, while the

automotive industry is already changing. But aerospace, with higher and more complex requirements,

remains a harder nut to crack. Even so, all indications suggest that it will eventually follow suit.

The trend of More Electric Aircrafts and hybrid aircrafts has already begun to give benefits to those

suppliers that acted early within the limitations of current aerospace architecture and legislation. The

trend to electrical propulsion will completely revolutionize the industry, with new architectures and

ecosystems becoming reality. Consumers look for cleaner, cheaper and safer flights in the future.

Current airliners and aerospace companies have to decide how to ride the wave of change; new

entrants when and how to join; investors must decide which ventures to back; and governments and

other legal entities should consider how best to facilitate economic and industrial growth.

On the other hand, aerospace companies and research entities are working in other disruptive

technologies to achieve cleaner, more efficient and safer flights. Using open rotor engines is a

possibility, due to their lower fuel consumption (even if they are slower than traditional jet engines).

Finally, new aircraft configurations are also being studied, such as Blended Wing Body, which offers

lower skin drag, increasing fuel efficiency and lowering the noise. This technology also offers lower

weight and more cabin space.


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The future concepts described will completely change the aircraft industry. Both civil and cargo

aviation can benefit from these solutions as competitiveness of air transport will be increased and

cost-efficiency will be improved. Also, aviation’s environmental footprint in terms of greenhouse gases

will be reduced, improving air quality and reducing noise. Finally, an increase in the safety level of

aviation is expected from the application of these technologies.

Even so, the implementation of future concepts in aircrafts won’t be immediate, but will apply first for

some type of flights (i.e. Urban Air Taxis or Regional Aircrafts).


Future technologies are intensively being studied nowadays both by industry and by academia. Many

research projects and demonstrators are being developed and millions are being invested. At a

glance, the civil airplane has undergone very few changes over the past few decades. Aircraft

emissions, regulations, and standards, along with the cost of fuel, are causing a need of new

aerospace technology.

• In Europe:

European Commission launched in 2008 an open rotor demonstrator led by Safran within

the Clean Sky programme with 65 million euros funding over eight years; a demonstrator

was assembled in 2015, and ground tested in May 2017. (Safran, 2017).

Airbus, Rolls-Royce, and Siemens have formed a partnership which aims at developing a

near-term flight demonstrator which will be a significant step forward in hybrid-electric

propulsion for commercial aircraft (Aviation Report, 2017).

Different projects as AHEAD -by KLM and Delft University- (Daily Mail, 2015) or

DisPURSAL –Airbus, DLR, and others- (EC, 2015) have been carried out to research

blended wing configurations.

• Worldwide:

NASA is investigating low-noise open rotor systems in collaboration with industry in two

projects: the Environmentally Responsible Aviation Project and the Subsonic Wing Project

(NASA, 2010).

Boeing Co and JetBlue Airways Corp announced plans to bring a small hybrid-electric

commuter aircraft to market by 2022 (Reuters, 2017).

In November 2017, Boeing announced the acquisition of Aurora Flight Sciences, an

advanced aerospace platform and autonomous system developer. This is seen as a

strategy to improve its capabilities in electrical propulsion (Boeing, 2017).

Many companies as Boeing (Popular Mechanics, 2017) or Lockheed Martin (Aviation

Week, 2015) and even governments like China (The Drive, 2017) are researching and

developing pilot solutions of blended wing aircrafts.

The value chain to mass-produce electric or hybrid aircrafts does not exist today.

Electrification has arrived to other sectors like automotive or railway, so there is much to learn from

those sectors and their production systems. Even so, there are lots of battery manufacturers, electrical

engines are being developed and improved continuously and other mechanical elements (such as

gearboxes or axles) are quite similar to currently existing products.

An increase in electrification of aircraft systems would see the market share of EHA (Electro-Hydraulic

Actuator) / EBHA (Electric Backup Hydraulic Actuation) / EMA (Electromechanical Actuator) suppliers

increase, while hydraulic/pneumatic system share decrease. Aerospace TIER 1 and OEMs, who are

down-stream in the value chain (and buy and assemble these components), would not see a

significant change and are not expected to experience major changes in market share outside of the

regular existing cycle of new program launches and contracting (Roland Berger, 2017).


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Open rotor concepts should also not change the value chain in excess, as the main suppliers of

current fuel engines are involved in the development of this new type of engines.

Finally, regarding blended wing concept, that involves radically new aircraft designs, the value chain

will change to include new materials and production processes for the parts (inner wing, outer wing,

spars and stringers, skins, etc.). The use of composite materials will be high in these aircrafts, so

composites automation is critical to achieve high productivity. Also, new systems and components will

be needed and propulsion will also be different, so the entire value chain has to change. Current

suppliers will have an opportunity to make business, but there will be also chances for new players to

join.

The airline industry has seen few fundamental challenges to business models over the past 30 years,

except for the arrival of Low Cost Carriers (LCCs) and the introduction of alliances.

Nowadays, airlines try to differentiate themselves competing on network availability and on prices and

service quality.

There is the potential for airlines to take advantage of advances in automation, new transport modes,

and consumer attitudes. Customer service, social values, and simplicity will become increasingly

important as consumers expect more personalized solutions. Companies that control data will have an

advantage over existing competitors in developing new niches (IATA, 2017).

It is important for airlines to consider whether they should compete with newer, asset-light data

companies or instead build relationships.

The industry will need to focus on customer service and interaction with passengers. It will be

important to leverage existing strengths, including reputation as a trusted, safe and mature industry.

Aeronautic sector can benefit and collaborate with automotive in the field of electrification and new

materials development, but an overall collaboration seems difficult due to the considerably different

safety, security, quality and legal requirements of both sectors.

A specific field of possible collaboration will be VTOL (Vertical Take-Off and Landing), as Flying Cars

are a common interest and capabilities can be complementary (aeronautic in aviation, navigation,

automation, safety and automotive in electrification, on ground moving and IT-based business models.

The European aeronautic industry was created from national industries. Initiatives started at the end of

the 1960s, when it was recognized that individual states did not have the potential to catch up the lead

of the US industry. The efforts resulted in the creation of EADS and Airbus.

Nowadays, the EU aeronautic industry is on par with the US. In particular in engine technologies, flight

mechanics and aerodynamics the EU commands a good position. Europe can also count on a strong

know-how basis in air traffic management systems –ATM- (EC, 2009).

The EU aeronautic industry has also a long-standing experience in the management of cross-border

value chains. This experience reduces the risk of OEMs in their efforts to focus on their core activity,

system integration and outsource more work packages to suppliers inside and outside the EU.


Ecological trends facilitating a realization of the scenario:

• Reducing emissions: Aviation is one of the fastest-growing sources of greenhouse gas

emissions. The EU is taking action to reduce aviation emissions in Europe and working with

the international community to develop measures with global reach. (EC, 2017).


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• Reducing noise: Aircraft and airport noise are complex subject matters which have been

studied for decades and are still the focus of many research efforts today.

• Fuel efficiency: The cost of fuel is a challenge not only for airlines, but also for end users, who

suffer the fuel price fluctuation in the flight ticket prices.


• Globalization: As a consequence of globalization, air markets have been liberalized, the

networks that airline companies operate have changed, many new companies have entered

the market and new business models have arisen (low-cost). (OECD, 2009)


• Increasing population size and regional differences in the growth: World population is growing,

but while it has stabilized in Europe and USA, it still has a positive trend in most of the

developing economies such as India or countries in Africa and Latin America (EEA, 2011).

• Tourism: It is intrinsically linked to the transport realm; so any change in tourism trends has a

huge impact in air transport.

• Continuous need of new products: By definition, aerospace is at the forefront of technology,

and there will always be a need for lighter, more compact, more durable and more efficient

products — whether it’s actuators, ball splines, or stud roller systems.

Legal trends facilitating a realization of the scenario:

• Safety: Security and safety regulations have a great influence in aerospace development.

Technology developments which are facilitating a realization of the UseCase:

• Related with Electrical and Hybrid Aircrafts (Roland Berger, 2017):

• Battery performance: Reducing the weight and increasing the storage

capacity are key aspects both to all-electric and hybrid systems. It is generally

accepted that at least 500 Wh/kg energy density is necessary to satisfy the

market needs. Currently, highest commercial batteries range from 150-250

Wh/kg, with Tesla’s 21-70 battery having a reported energy density of 250-

320 Wh/kg. Even if that 500 Wh/kg mark is reached, it will be far from the

12kWh/kg delivered by jet fuel. So, considerable improvements are needed in

the next years.

• Battery safety: Another key aspect regarding batteries is safety, especially

hazard containment. Electric aircraft developers need to develop effective

hazard containment systems for batteries. The need for such systems is often

overlooked in the race for higher energy densities.

• Generators and motors: Hybrid and all-electric aircraft will require light,

efficient and high power density motors to fit in with the weight and size

constraints of an aircraft, particularly those that employ multiple distributed

fans to achieve high propulsive efficiency. Light, efficient and high power

density generators are also required to convert shaft power to electricity,

along with intermediate, lightweight gearbox to reduce the turbine’s high

rotational speed to a slower rate suitable for a generator.

• Related with open rotor and blended wing:

• New materials: New lightweight materials have to be developed with high

mechanical properties, such as composite materials, honeycomb materials or

hybrid composite-metal materials, and also capable of reducing noise

(Standrige, M., 2014).

• New manufacturing processes: The automation of composite parts

manufacturing is key for the development of this technology and increase its

competitiveness. (Wolff, I., 2016).


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Alternative energy sources are developed: other energy sources are being researched to provide the

necessary energy to the aircraft, like compact fusion reactor (Lockheed Martin, 2015) or natural gas

(Sobczak, B., 2013).

If compact fusion reactor was developed and commercially launched, the implications for aeronautic

industry will be great. For example, planes could have unlimited range and operate continuously for

more hours. This could change the mechanical requirements for almost all parts. Also, maintenance

would completely change.

Other options like natural gas or other sustainable biofuels would have a lower impact into current

value chain, as mainly only “minor” changes would be needed into engine configurations.

References

ATAG (2017). Factors & Figures. http://www.atag.org/facts-and-figures.html. Air Transport Action

Group. Accessed on 14 December 2017.

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2017.

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http://advancedmanufacturing.org/composites-for-aerospace-the-latest-developments/


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3.4 Attractiveness of business models in the perspective of emerging markets and growth

in economy


Time Horizon: 2050

Management summary

The rising of new emerging markets is involving changes in the global competitiveness of aeronautics

sector. In order to continue maintaining European aeronautics competitiveness new business models

are needed. The strategy for design new business models addresses customer orientation and market

needs as well as industrial competitiveness and the need to maintain adequate skills and research

infrastructure base in Europe.

European aerospace industry of the future will require standing out at integrating and managing global

supply chains, transferring production flexibly to emerging markets, refocusing on higher-value-added

activities, and forming and managing global alliances and partnerships.

The aerospace sector is rising as the most high tech sector in Europe. A wide range of products are

developed and manufactured by European Aeronautic industry; and around 12% of the turnover of

European aeronautics sector is directed towards R&D.


Despite emerging markets are getting more importance in aeronautic and this suppose significant

changes in competition, substitutes, and market needs, many companies continue to deploy the same

business and operating models they have for years.

When globalization, climate change, a growing scarcity of resources and a financial system in need of

reform, makes Europe facing many challenges; European air transport business models are directly

concerned by new challenges regarding its performance, sustainability and competitiveness. The

European manufacturing and service industry is strongly affected by globalization, new competitors in

emerging markets and the need for innovation. Research and innovation, not only in technology, but

also in business models, are key to maintaining Europe’s competitiveness and capacities and it is time

to align efforts towards a new long-term vision for this sector.

New business models in aviation must continue serving citizens, bringing people together and

delivering goods through seamless, safe and secure, cost effective transport chains, adding value

though speed, reliability and resilience in this global world, over any distance; and this all must be

done without any negative effects in the environment. European aviation also has to contribute to

society in other critical areas such as emergency services, search and rescue, climate monitoring and

disaster relief.

China, India, and Russia are likely to emerge as significant players over the next two decades, a

development that will give Western companies major short-term cost-reduction opportunities that they

must capture. (McKinsey, 2008). That´s why, it is time to think in innovative new business models in

order to not lose in competitiveness.

The strategy for design new business models in aviation addresses customer orientation and market

needs as well as industrial competitiveness and the need to maintain adequate skills and research

infrastructure base in Europe. By 2050, passengers should enjoy efficient and seamless travel

services, based on a resilient air transport system thoroughly integrated with other transport modes

and well connected to the rest of the world. This will be necessary in order to meet the growing

demand for travel and to cope more easily with unforeseeable events.


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Due to the general aging of the world population, airline customers are on average older than ever

before. Nevertheless, advances in healthcare mean that even though passengers are older, they are

not necessarily less mobile.

As regards younger travellers, they are significantly more aware of air travel and more worldly-wise

than previous generations. They are also much more technologically advanced than even before; and

this demand for technology is central to every aspect of their lives, and also for their travel experience.

But not only technology is essential for them, also price is something that these passengers take into

account when flying.

Business people still value their time above all else and are therefore willing to pay a premium for the

fastest available transport options.

Older travellers are seeking greater comfort and convenience, as well as a slower pace or travel. As

pension ages have steadily climbed, some retirees have had to become more price conscious than

others, but many view the journey as part of the experience as opposed to just a means of getting to

their final destination. And for this they are prepared to pay extra.


• In Europe:

Vahana: Airbus´s project that intends to open up urban airways by developing the first

certified electric, self-piloted vertical take-off and landing (VTOL) passenger aircraft.

CityAirbus demonstrator: a multi-passenger, self-piloted electric vertical take-off and

landing (VTOL) vehicle designed for urban air mobility.

Skyways drone (Airbus) is a fully autonomous octocopter that carries air transport

containers located on its underside and flies an equally fully automated route called

‘aerial corridors’ landing on a designated landing pad where it is automatically

unloaded.

E-Fan demonstrator: Airbus and its partners are opening a future for aviation with

fewer emissions, lower noise levels and higher operating efficiency.

• Worldwide:

Boeing ramps up push into the airplane parts business. (The Wall Street Journal, April

2016).

Boeing AnalytX powers these and other solutions tailored for commercial and

defence operators: Advanced Data Collection and Processing Capabilities,

Flight/Mission Optimization and Management (Flight Operations), Fleet Performance

& Reliability Analytics, Maintenance & Engineering Optimization, Supply Chain &

Inventory Optimization, Optimized Training.

Boeing HorizonX Ventures: Boeing´s investment team focuses on identifying start-

ups developing revolutionary concepts around the world. Bringing together a diverse

background of Boeing knowledge and larger market experience, the Ventures team

provides funding to chosen start-ups, connecting them with our global network of

Boeing resources to get their ideas off the ground.

Further specialization in design, manufacturing, and assembly is likely among both suppliers and

existing original-equipment manufacturers (OEMs)—such as Airbus, Boeing, and Bombardier—in

areas where they have unique value to add or a compelling cost edge. Specialization will go hand in

hand with more extensive collaboration, placing a premium on an organization’s coordination and

integration capabilities.


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Currently, the chief attraction of these nations, especially China and India, as suppliers is lower labour

costs. Our work with OEMs and suppliers indicates that even after accounting for transportation, the

complexity associated with coordinating management and supply chains, and the expense of

mitigating supply disruption risks, the cost of manufacturing typical aircraft structures (such as body

panels or fuselage sections) can still be roughly 20 to 25 percent lower in these emerging markets

than in more developed ones.

The cost of labour, which on average is three to five times lower in these countries than it is in the

developed world, also makes emerging markets attractive for labour-intensive maintenance and repair

services.

Winning in the aerospace industry of the future will require incumbents to excel at integrating and

managing global supply chains, transferring production flexibly to emerging markets, refocusing on

higher-value-added activities, and forming and managing global alliances and partnerships.

Because of the increasing global demand for different aeronautic and aerospace products (It is

anticipated that there will be 4.8% annual growth in passenger traffic in coming years (Boeing, 2016))

the European aerospace industry needs to make huge investments in the R&D sector in order to

maintain global competitiveness and meets demand of new emerging markets. The European

aerospace sector hence needs to be ready to meet the growing demand which includes fleet

enlargement, innovation to reduce the environmental impact, aircraft size and meets demand of new

emerging markets. Due to the difference between transport modes, it seems there is not a synergy

with other sectors.

The aerospace sector is rising as the most high tech sector in Europe. A wide range of products (aero

engines, helicopters, unmanned aerial vehicles, military and civil aircraft, systems and equipment) are

developed and manufactured by European Aeronautic industry. The European aerospace sector also

provides training and repair services elated to different aerospace products. The total turnover of EU

aerospace sector is €128 billion with the highest spending in R&D. Around 12% of turnover is directed

towards R&D in aerospace industry.

In order to maintain the global competitiveness, it is essential to continue investing in R&D to be able

to satisfy market´s needs and meet the growing demand.


Globalization trends facilitating a realization of the scenario:

• The air transport industry is now large – it accounts for about 1% of the GDP of both the EU

and the US – and is vital in many industries such as tourism, exotics, and hi-technology

(Button and Taylor, 2002).

• The economic growth rates in emerging markets such as Asia, Latin America, Africa and the

Middle East, are outstripping more economically developed regions. One significant effect is

that the middle classes in Asia are expected to quadruple in size by 2033 whereas globally

they will double from 33% to 63% of world population. As a result of increased urbanisation

and concentration of wealth, the number of aviation mega-cities worldwide will double to 91.

These cities will be centres of world wealth creation with 35% of World GDP centred there,

with more than 95% of all long haul traffic going to from or through them. (Airbus, 2014).

• Emerging economies which collectively account for six billion people are the real engines of

worldwide traffic growth. They will grow at 5.8% a year compared to more advanced

economies, like those in Western Europe or North America, which are forecast to grow

collectively at 3.8%. Emerging economies also account for 31% of worldwide private

consumption which will rise to 43% by 2034. (Economic Times, 2015).


77

• Growth in air travel is likely to be driven by domestic and regional flights in fast-developing

markets in Africa and Asia rather than existing international routes.

Demographic trends facilitating a realization of the scenario:

• In 2014, the total population of the EU-28 was 506.8 million inhabitants, an increase of almost

20 million (4%) from 2000 (Eurostat, 2010).

• In the 1950s, 30% of the world’s population lived in urban areas. In 2014 this figure was 54%.

By 2050 it could reach 66% (United Nations, Department of Economic and Social Affairs,

2014, p. 1).

• The global population is expected to reach 9.8 billion in 2050 with half the growth to 2050

coming from India, Nigeria, Pakistan, Democratic Republic of the Congo, Ethiopia, Tanzania,

the United States, Indonesia and Uganda. (United Nations, June 2017).

• Population and economic growth has increased the global volume of traffic markedly, to

around 16 billion passengers annually (compared to the 2.5 billion passengers in 2011). The

exploitation of the best air mobility options - diverse routes, locations and flight levels - for

passenger and freight transport avoids airspace congestion and bottlenecks. (European

Commission, 2011).


• New airports in Asia: Chinese government has already expressed its intention to capitalise on

this growth with plans to develop an additional 20 airports across the country by 2020, Hong

Kong International Airport’s (HKIA) three-runway system is now set to come into effect around

2024 (Business traveller, 2017).

Large models: continuing past trends, Airbus foresees larger models, with aircraft flying on long haul

routes and also on an increasingly wide range of regional and domestic sectors. As a result, Airbus

forecasts a requirement for nearly 9,300 wide body passenger and freighter aircraft over the next 20

years, valued at some US$2.5 trillion. This represents 30% of all new aircraft deliveries over the

forecast period and 55% by value. (Airbus 2014).

Alternative Future Use Case Scenario/ Wild Card

Although emerging markets in aeronautics come strong, high-speed trains are a potential substitute

when the speed advantage of aircraft becomes less important. Competitiveness in short-haul flights

would increase considerably. In consequence, it requires integrating and managing global supply

chains

References

European Aeronautics: A Vision for 2020. Meeting society’s needs and winning global leadership.

Report of the Group of Personalities, January 2001

Button, K.J. and Taylor, S.Y. (2000), “International air transport and economic development”, Journal

of Air Transport Management, 6(4), 209–222.

Airbus, 2014. http://www.airbus.com/newsroom/press-releases/en/2014/09/emerging-markets-and-

urbanisation-driving-air-traffic-growth.html.

Last visited 05/12/2017

Economic Times, 2015. https://economictimes.indiatimes.com/industry/transportation/airlines-/-

aviation/india-and-other-emerging-markets-to-drive-5-trillion-aircraft-demand-

airbus/articleshow/47688047.cms


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McKinsey, 2008. The growing role of emerging markets in aerospace.

https://www.mckinsey.com/industries/travel-transport-and-logistics/our-insights/the-growing-role-of-

emerging-markets-in-aerospace


United Nations, Department of Economic and Social Affairs. (2014). World Urbanization Prospects.

The 2014 Revision. New York: United Nations.

Eurostat. (2010). Demography Report 2010. Older, more numerous and diverse Europeans. European

Commission.

Business Traveller, 2017. Five upcoming airport developments in Asia.

https://www.businesstraveller.com/newsletter/2017/03/29/five-upcoming-airport-developments-asia/

Last visited 06/12/2017.

European Commission, 2011. Flightpath 2050, Europe’s Vision for Aviation.

The Wall Street Journal, April 2016. Boeing Ramps up Push into the Airplane Parts Business.

https://buy.wsj.com/wsjecybermonday17/?inttrackingCode=aaqqka26&icid=WSJ_ON_ESPG_ACQ_N

A&cx_adcreative=0000000164173c02&cx_ad=0000000164173c01&cx_adcampaign=0000000164173

bf5&cx_adspace=00000001614d2a5c&cx_campaign=WSJECyberMonday17


United Nations, June 2017. World population projected to reach 9.8 billion in 2050, and 11.2 billion in

2100 – says UN

http://www.un.org/sustainabledevelopment/blog/2017/06/world-population-projected-to-reach-9-8-

billion-in-2050-and-11-2-billion-in-2100-says-un/


Boeing, 2016. Current market outlook 2016-2035.


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4 Rail/Rolling stock

The following reserach topics have been investigated in terms of future demand trends impacting the

rail/rolling stock sector. For each topic, a scenario has been defined and anaysed (section 4.1 to 4.4)

with the overall purpose to answer some key research qurestions reported below.

• Security; cyber-security

If there are automated or autonomous trains, how can cyber security and on-board security be

guaranteed as critical features?

• Digitalization to enhance customer experience

Digitalization can not only benefit the passengers, but also logistic clients. Digitally trackable

stock enable more efficient planning, assembly of trains and tracking for customers. Further,

new business models for digital market places of free capacity in trains can fit the demand of

customers. How can the comfort on trains can be increased in terms of noise, seating, multi-

purpose design of cabins, temperature optimized for the comfort of the passengers?

• Efficiency of modal transfer; Multimodality; Multimodal hubs

How can inter-modality be improved? When it comes to inter-modality, new technologies can

help build necessary bridge stones for schedule planning of several modes of transport for a

vast variety of different user segments. The price for last mile transport needs to decrease and

the availability must be increased in order to make a door-2-door transport more attractive

compared to the private car. Universally designed vehicles can benefit the usage for a variety

of user segments.

• Hardware as-a-Service including Maintenance service

What requirements do train operators have for a beneficial hardware-as-a-service business

models with their suppliers? How can this business model be realized and what are the

benefits?


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4.1 Automated or autonomous trains, how can cybersecurity and onboard security be

guaranteed as critical features?

Sector/Mode of Transport: Railway rolling stock

Time Horizon: 2030

Management summary

By 2030, trains are becoming more and more autonomous, with the circulation of convoys

(passengers and freight) traveling without drivers on board and controlled from fixed positions.

Undoubtedly, the whole rail system is strongly impacted by automation, particularly in the areas of

ticketing, train operation, or maintenance activities.

In this context, the European railway industry, driven by its players (i.e., operators, integrators, and

suppliers) has been able to implement unique standards and efficient technologies in a cooperative

environment, enabling it to become the world leader in railway cybersecurity. Numerous industry-

research and multi-sectoral collaborations (e.g., with the aeronautics, nuclear, and military sectors)

have made possible the consolidation of this know-how. Even though the threats are numerous and

multifaceted, and progress is still possible regarding the harmonization of data for all European

systems, rail transport remains the safest mode of transport.


In 2030, Cybersecurity remains a crucial issue for the rail industry, requiring industrial players to

continuously adapt to societal changes and associated threats. Indeed, the development of Intelligent

Transportation Systems (ITS) integrating Information and Communication Technologies (ICT) in

previous decades, has led not only to the increase of services and functionalities but also to the

increase of the vulnerability of the system to various kinds of attacks. Railway systems have evolved

into smarter and connected systems, providing new opportunities for attackers and cybercriminals

(Masson, 2017).

For the rail industry, the major issues (in terms of threats / vulnerabilities) in cybersecurity have been

identified by the Department for Transport (UK) and can be summarized as follows:

Major issues in cybersecurity

• Cyber systems used on rail networks may be subject to unauthorized access through various

means:

o remotely, via the Internet, or unsecured telecom networks

o at close hand, through direct contact with infrastructure (e.g. through a USB port)

o locally, through unauthorized access to physical infrastructure, or insider threat (infiltration)

• Vulnerabilities are weaknesses in control systems, information systems, system procedures,

controls, or implementations that can be exploited by a threat source

• Vulnerabilities can result from many sources, including:

o policy and procedure

o architecture and design

o configuration and maintenance

o physical intrusion

o software development

o communication and network

o lack of training and awareness

Source: Rail Cyber Security – Guidance to industry, February 2016, Department for Transport,

Great Minster House, London.


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Cybersecurity research programs are becoming more ambitious. They mobilize researchers,

industrials and standardisation bodies to continually improve technologies and risk management

processes. At the European level, the Shift2Rail initiative has developed a framework for using

common standards, both for the harmonization of existing systems and for the development of new

solutions. This work has led to the establishment of a European Cybersecurity Law concerning rail

transport.

Autonomous trains, like the entire railway system, are exposed to cyberattacks. However, they are not

harmed, and their architectures have been developed from a "security by design" perspective. For

example, remote driving has been thought of very early in a cybersecurity context. No accidents have

been reported since the commissioning of autonomous trains in 2021. They even appear less

vulnerable than the older components of the railway system.

To be protected against cyber threats, the challenge for the European rail industry is therefore to

identify risks, protect infrastructures, detect threats and adopt an appropriate response to effectively

restore systems to normalcy. In this context, rail integrators offer a comprehensive product range and

cybersecurity services. This includes, for example, protection and surveillance services, and the digital

security of railway operations. Specialized companies also offer cybersecurity insurance plans, an

activity that has become very lucrative.

The solutions developed are intended for all components of the European railway sector.

Cybersecurity therefore concerns urban and suburban / mainline and high-speed / regional / freight

networks.


For the railway industry, automation makes not only possible the improvement of safety, and the

increase of operating flexibility and service quality but also the use infrastructure (which is usually

saturated and expensive) more intensively.

In this perspective, the autonomous train will become the norm in the future. The most important

railway companies are already showing particular interest on this solution (particularly in France and

Germany). This is also the case for national and European railway control and standardization bodies.

The autonomous train represents the ideal way to develop the railway.

Like the ERTMS system, a European product whose standards were adopted in China, the challenge

for manufacturers is to elaborate European standards that could give access to a global market for

autonomous trains.

Thus, at the European level, many industry-research collaborations are emerging. A specific focus

should be put on the Shift2Rail initiative. Shift2Rail is the first European rail joint technology initiative to

seek focused research and innovation (R&I) and market-driven solutions by accelerating the

integration of new and advanced technologies into innovative rail product solutions. The work

conducted within the Shift2Rail framework is structured, first of all, around five asset-specific

Innovation Programmes (IPs), covering all the different structural (technical) and functional (process)

sub-systems of the rail system:

IP1: Cost-efficient and Reliable Trains, including high capacity trains and high-speed trains;

IP2: Advanced Traffic Management & Control Systems;

IP3: Cost-efficient, Sustainable and Reliable High Capacity Infrastructure;

IP4: IT Solutions for Attractive Railway Services;

IP5: Technologies for Sustainable & Attractive European Freight.

In the framework of the IP2, activities started on September 2016 through the X2Rail-1 project, which

involves 19 partners from the railway sector coming from 9 countries (France, Germany, Belgium,

Austria, Britain, Sweden, Spain, Italy, and the Czech Republic). One of the work packages (WP) of the


82

X2Rail-1 project deals with Cyber Security for railways. Masson and Gransart (2017) identify the

major objectives of this WP as shown in the following box.

Cyber Security in the Shift2Rail context

The main objectives of the WP dealing with Cyber Security are to define both a Cyber

Security system dedicated to railway and a security-by-design standard with a railway

application. The definition of a Cyber Security system consists in the specification of

standardised interfaces, monitoring functions, protocol stacks and architectures for secure

networks based, among others, on a security assessment of existing railway solutions and

networks. The efficiency and robustness of the standardised solution have to be

demonstrated through a technical demonstrator. Security assessment, identification of

threat detection, prevention and response processes will be completed. A draft of the

Cyber Security system specification will be provided at the end of the project. The

definition of a security-by-design standard applicable to railway application consists in

specifying protection profiles and cyber security standards applicable to railway application

and in demonstrating their applicability in a technical demonstrator. The definition of

protection profiles and the identification of the cyber-secure development process will be

completed. A draft of the security-by-design standard will be provided at the end of the

project.

Source: Masson É., Gransart C. (2017) Cyber Security for Railways – A Huge Challenge –

Shift2Rail Perspective. In: Pirovano A. et al. (eds) Communication Technologies for

Vehicles. Nets4Cars/Nets4Trains/Nets4Aircraft 2017. Lecture Notes in Computer Science,

vol 10222. Springer, Cham

The entire European railway industry collaborates on topics of security and cybersecurity: operators,

integrators, suppliers, researchers, national and European authorities.

In a context of global urbanization and saturation of the roads, massive transport has undeniable

advantages. The challenge for railway systems is to improve service quality and accessibility for the

greatest number of people. Today, there is therefore a strong economic interest for companies to

develop systems and expertise to ensure the safety and proper functioning of the systems.

Cross-sectoral collaborations are essential, particularly between the aeronautics and rail sectors,

where actions already exist (for example the cooperation agreement between Airbus and Alstom since

201712

). Sectors other than rail seem to perform better in terms of tools and processes of

cybersecurity management. For instance, Companies like Thales are developing skills in several

sectors (e.g., railway, aerospace, and military defense).

Globally, the European rail industry appears to be very competitive on cybersecurity topics. This is

explained by the volume of industry-research collaborations, as well as by the experience of major

recognized equipment manufacturers, having developed multi-sector expertise for many years.



• Terrorist threat increasingly present in the world

12

http://www.alstom.com/press-centre/2017/04/alstom-and-airbus-sign-a-cooperation-agreement-in-cybersecurity/

http://www.alstom.com/press-centre/2017/04/alstom-and-airbus-sign-a-cooperation-agreement-in-cybersecurity/


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• Increasing population size from 2015 until 2030 in urban areas (e.g. Paris from 10,8m up to

11,8m; New York 18,6 up to 19.9m; Shanghai from 23,7m up to 30,8m) (UN 2015)

• Traffic: Europe´s countries with the highest congestion (Inrix 2016)

• Private Car Ownership: may drop by 80% but will be replaced by shared cars, having the

same (Business-Insider 2017b);

Policy drivers include:



• Establishment of a law on cybersecurity.

On the technological side, many technologies are now unavoidable and have a high potential in the

safety of autonomous trains. We can cite, for example, artificial intelligence, telecommunication,

sensors, geolocation, dependability, cybersecurity, modeling.


Although no accident has been recorded since the release of autonomous trains, the multiple

cyberattacks they have been subject of have led several times to the shutdown of the system,

resulting in several days of service interruption. In terms of quality of service and economic impacts,

the consequences are negative, especially from the point of view of modal competition.

Emergence of new digital-related professions, on which the rail industry has not yet developed a lot of

skills.

References

Masson É., Gransart C. (2017) Cyber Security for Railways – A Huge Challenge – Shift2Rail

Perspective. In: Pirovano A. et al. (eds) Communication Technologies for Vehicles.

Nets4Cars/Nets4Trains/Nets4Aircraft 2017. Lecture Notes in Computer Science, vol 10222. Springer,

Cham

Rail Cyber Security – Guidance to industry, February 2016, Department for Transport, Great Minster

House, London, 39 p

Websites:

• https://www.cenelec.eu/

• https://shift2rail.org/

• http://www.innovationrecherche.sncf.com/tech4rail-renouveau-technologique-sncf/

https://www.cenelec.eu/

https://shift2rail.org/

http://www.innovationrecherche.sncf.com/tech4rail-renouveau-technologique-sncf/


84

4.2 Digitalization to enhance customer experience

Sector/Mode of Transport: Railway rolling stock, cross-sectoral

Time Horizon: 2030

Management summary

Digitalisation is a disruptive factor in the organization of public transport services, and especially rail

services. It is affecting both the demand side and the supply side of the transport market, which needs

to adapt to stay competitive and take advantage of the new opportunities it may provide to improve the

customer’s experience. More generally, digitalisation is also an opportunity to change the way rail

systems are operated and maintained, thanks to the growth of enabling technologies, such as the

“internet of things”, robotics, vehicle-to-vehicle and vehicle-to-infrastructure communications and

autonomous driving (without on-board staff). This shall affect both passengers, goods and logistics

supply services. The use case focuses on the relationship with the customer.

Traditionally the interurban and international rail travel has been served on a modal basis, with major

incumbent companies (Deutsche Bahn, SNCF...) providing commercial services as „silos“ operating

on national markets, each company proposing its own services, applying its own fare policy, and

selling its own tickets.

Only local rail – metro, tram and light rail and to a lower extent suburban and regional rail – have been

operated from a multimodal perspective, gathering all local public transport modes – including buses -

in a global offer at the entire conurbation level („seamless stop-to-stop travel“) where urban rail is the

backbone of regular services operated under Public Service Requirements. This particular situation is

due to the fact that the local public transport activity is not self-supporting for many economic and

social reasons, and that as a consequence local authorities had to take the lead in the development of

urban public transport services. Local authorities have introduced for many decades in most of

European cities integrated fare policies which disconnect the price of the ticket from the real economic

costs of the services per mode. The local public transport activity is largely funded and financed by the

local taxpayer.

Digitalisation is fully transforming these two paradigms, since both long distance and local markets

have to face major changes regarding the requirements of the customers.

Local transport:

• the „local travellers“ – by far the largest number of passengers carried in Europe –

are now more and more „connected“ and want to remain connected before and

during their travel – they expect more than just being transported during their

travel, they want to be informed in real time and to communicate within their

personal networks wherever they are including on board vehicles. Some of them

may be open to the “shared economy” and may accept sharing some transport

modes – in terms of ownership and/or usage - with others.

• numerous new travel services and new mobility actors emerge taking advantage

of the digital environment, with new concepts such as ride hailing (e.g. Uber

services), Mobility as a Service (MaaS), Mobility on demand (sometimes going

beyond passenger travel and including the travel of goods), Pay-as-you-go,

carpooling, carsharing, bike sharing etc. These services are at the same time

complementing conventional transport services and competing with them.

Long distance and international transport:

• more and more citizens now leave their usual place of living, either to travel from

a city to another within their country or to cross borders throughout Europe. They

want to travel “seamless door-to-door” between the physical origin and the

physical destination of their trip. For most Europeans the territory for travel is


85

therefore no longer limited to cities or regions but enlarged to the whole of

Europe. This new travel perspective is favoring new institutional actors and fully

questions the European Union and the European Commission as well as a variety

of national and reginal/local actors.

• new long distance services based on a mutualisation of access to transport

services, like ridesharing (e.g. BlaBlaCar in France), are offering to passengers an

alternative to the use of train, and are becoming credible competitors to the rail

sector.

Therefore the rail transport sector - and more generally for local rail the local public transport sector all

modes included - have to answer the new customer’s expectations and adapt their services by making

them more user-friendly and increasing their efficiency and cost-effectiveness.

The rail industry is very successful in some rail segments, and less in others:

• High speed rail has been a very successful and innovative rail market segment for several

decades, and is often the preferred choice for journeys with distances of up to 700km, or a

door-to-door duration of up to 4 hours.

• Regional rail is already serving as a backbone for local public transport but is affected by

the competition with private car – and now ridesharing - and by the cost of operation

compared to coach and bus services, and therefore has to be made more attractive to

customers. What is mostly at stake is an improved coordination with other public transport

services (e.g. ticketing, clock-faced services, “rendez-vous”, information to passengers,

etc.) and a better integration in regional mobility strategies.

• Railway networks in urban and suburban areas play a prominent role in the transport

policies of major areas, as sustaining the viability of conurbations. The local rail segment

is serving the daily needs of urban populations and is the best alternative to the use of

private car in congested and polluted areas. It covers in fact several different groups of

systems, each of which playing its part depending on the traffic flows to be served, and on

the possibility to be protected or not from the road traffic or to be shared with or separated

from the mainline rail traffic. The major sub-segments are: tramways, which are not

segregated from general road and pedestrian traffic; light rail, which are partially protected

from road traffic; metros, which are fully segregated are also known as underground,

subway or Tube; suburban rail/regional metros, which are rail networks serving the

highest levels of rail traffic. All these systems are very successful, especially Light Rail

and automated metros.

• Light Rail (combined with low-floor modular train set) has been a major innovation

in urban rail all along the last thirty years. It has most often been designed not

only as an urban transport system, but as a way to reshape the urban centres and

to promote a new relationship between citizens and their town. Many European

countries have introduced Light Rail after a period following the dismantling of

former old tram systems. Light Rail has been a huge success in countries like

France (one new network every year along more than 25 years), UK, Spain, etc.

and has a bright future in all categories of cities over 100 000 inhabitants. Indeed,

light rail is the return of e-mobility in modern design to all city centers.

• Metros are able to serve a huge amount of traffic at very low headway (down to

60 seconds), and are key rail systems for cities over some hundreds thousands

inhabitants, in combination with tram/Light Rail, and suburban/regional rail in the

largest conurbations. Metros are very innovative, especially when operated with

no staff on board train (so-called “unattended train operation”). Such metros are

spreading worldwide extensively and shall speed up their development in the near

future (including the upgrade of exiting lines).

• For both Light Rail and metro, cost effectiveness, operational reliability, and increased

attractiveness benefit from improved accessibility, comfort, security and innovative

services (based on ITS and automation).


86


On the demand side, digitalisation shall benefit both to the customer and from the customer’s

experience:

In terms of benefit to the customer:

Multimodal travel information systems shall be generalized across Europe. Dedicated apps shall

inform the customers on all the transport options available for a seamless A to B door-to-door travel:

• A customer shall be invited in its own language to define its travel origin and travel destination,

and - if useful for him - some of the preferences associated to the trip (e.g. one way trip or

return trip, purpose of the trip, recurrence of the trip, constraints associated to the trip like the

period of travel and flexibility of the travel time, travel with heavy luggage or requirements for

people with reduced mobility, availability of some travel passes or concessionary fares).

• The customer shall receive information on the possible direct services from A to B (e.g. ride

hailing) and on the possible multimodal itineraries from A to B, including for each of them the

transport services available for the first and last mile, and the description of the sequence of

travel modes in-between (by air and/or rail).

• Each query shall receive a quote of the compound price of the travel services proposed on the

itinerary (and possibly other information like the impact on environment, weather conditions

along the itinerary…).

The customer shall be able to shop, book and pay the preferred itinerary and to store it in the cloud,

and after payment he shall receive the relevant contract of carriage (made ideally of only one

entitlement, a token and an embodiment).

If suited, the customer shall be accompanied by another app, the “Trip tracker”, guiding him at transfer

points and informing him in real-time about the possible incidents occurring during the travel as well as

on the alternative solutions to reach the destination or of re-routing (depending on the travel contract).

The customer shall be able to provide after trip his opinion on the travel conditions and in case of

incident shall receive assistance and compensation (based on the European legislation on passenger

rights for each transport mode).

All these attractive services for the customer shall prevent him using private modes and to shift to rail,

which is the most environmental friendly and the safest transport mode.

In terms of benefit from the customer’s experience:

The customer shall stay connected to his social networks and to the web services of the travel service

provider during travel, and shall be able to report in real-time on the quality of service (e.g. comfort,

noise, availability of seats) and on any abnormal situation which could help the transport carrier

improve the maintenance of the rolling stock and the operation in case of degraded situation.

On the supply side, the operator shall benefit from business analytics based on the information

collected on passenger movements (without prejudice to the protection of privacy and individual rights

of the traveller). This shall allow for adjustment of the public transport services to the evolution of the

transport demand.

Although not the main focus of this use case, it can be mentioned that digitalization shall lead to the

generalization of censors on board trains which shall measure passenger load, adjust accordingly the

Heating, Ventilation and Air Conditioning equipment in the cars, detect abnormal situation of the track

and/or the wheel, and measure traction energy consumption. In addition automation of train operation

– already achieved in the metro domain up to the grade of automation 4 (GOA4), which is the case of

“unattended metro operation” with no operating staff on board - shall allow for a drastic improvement in

the quality of service not only due to an increase in the commercial speed and regularity of train

movements, but also to a decrease in the headway allowing for additional capacity at peak period, and


87

as well to an increased frequency at periods of times which are usually very costly in terms of drivers,

which are off-peak and night period. Digitalization shall also allow for virtual coupling and uncoupling

of trains, contributing to an improvement of the quality of service (better adjustment to the level of

traffic) and a reduction of cost of operation (energy savings).

All categories of public transport passengers will use this kind of multimodal travel information apps,

since the apps shall offer a comprehensive overview of travel options and costs, and all transportation

modes shall be addressed.

The local traveller, familiar with his city of residence will be most interested in real-time information and

on information in case of incident.

As regards the overall set of information services, the most interested travellers groups shall be those

travelling on interurban and/or international itineraries and:

• who have a poor knowledge of the places at the destination

• who do not speak the language commonly spoken at the destination

• who travel occasionally - most often for business or for education or for leisure reasons

(tourism, sport, cultural event…)

Among these groups, many customers have also specific travel needs more complicated to satisfy all

along their international travel, like impaired mobility travellers, or people traveling with relatives and/or

with luggage.

In case of international travel the multimodal background is also more complex:

• In addition to long distance networks it has to cover the local networks on either end of the

transport chain, seen as the “first and last mile” components of the trip.

• Often the “travel package” has to include other services than only transport (hotel, special

event…).


The use case concentrates on digital innovations directy impacting the customers‘ experience, which

are mainly related to multi-modal travel information systems. It does not address the improvement of

the signalling and control-command sub-systems which benefits indirectly to the customer.

Numerous local public authorities and local operators have already developed and are regularly

improving multimodal apps providing real time information on public transport services to their local

customers accross their area of responsibility. The multi-modal travel information applications have

been developed either by local operators and/or local authorities, each of them using its own data

annotation system. In most cases the apps take into account only regular public transport services

(including in some cases on-demand services), and do not yet integrate all additional services which

are developing rapidly within the urban mobility territory (carsharing, bikesharing etc.) apart from a few

examples yet not widely used like Helsinki and the Mobility as a Service (MaaS) initiative13

. Many

cities have started embracing mobility in an overall approach (e.g. Hambourg14

, Barcelona15

, or

Paris16

), and the Netherlands have implemented a national travel planner17

(9292). For ticketing, some

13

http://maas.global/

14

http://english.welcome.hamburg.de/transport-and-mobility/

15

http://mobilitat.ajuntament.barcelona.cat/en/

16

https://www.iledefrance-mobilites.fr/l-innovation/

17

https://9292.nl/en/

http://maas.global/

http://english.welcome.hamburg.de/transport-and-mobility/

http://mobilitat.ajuntament.barcelona.cat/en/

https://www.iledefrance-mobilites.fr/l-innovation/

https://9292.nl/en/


88

countries have developed a national standardisation approach, like UK18

(ITSO) or Germany19

(VDV

Core Application). Another approach for ticketing interoperability has been followed by the cities

members of the Calypso Network Association (CNA) which developed their own standard20

.

There is one common worldwide approach applicable to multi-modal travel information systems, which

is called the General Transit Feed Specification - GTFS21

. GTFS defines a common, open data format

for public transportation schedules and associated geographic information which can be used by

public transit agencies to publish their transit data and by developers to write applications.

Some standardisation initiatives have been shared between international and European

standardisation bodies or by international associations like, for mainline rail, the UIC, the International

Association for Railways22

.

At European level, many initiatives have been lauched for coordinating the transport market, through

legislation, through standardisation or through European Research and Innovation Projects focusing

on specific transport modes (mainline rail, local public transport), or covering all modes.

Mainline rail sector:

• In line with the publication of the so-called “Railway packages”, which include technical

legislation applying to the interoperable European railway system, the Telematics

Applications for Passenger Services Technical Specifications for Interoperability (TAP

TSI) 23

have been published in 2011. The purpose of the TAP TSI is to define European-

wide procedures and interfaces between all types of railway industry actors and a general

architecture for a networking and communication system.

• Numerous standards have been produced by the European Standardisation Bodies

(CEN24

, CENELEC25

and ETSI26

) for mainline rail (see references).

• Specifications documents have been produced by UIC or the mainline industry, like UIC

leaflets (e.g. UIC 918 XML), railML27

, the Full Service Model28

...

Local public transport sector

The local public transport sector pioneered in the definition and use of open interfaces and common

data structures for providing and building passenger information systems. There are still mostly local

and proprietary implementations, but based on commonly known open data formats and structures.

The trend seems to be that the cities which have locally developed their own systems are now

18

https://www.itso.org.uk/

19

https://oepnv.eticket-deutschland.de/en/products-and-services/vdv-core-application/

2020

http://www.calypsostandard.net/

21

https://developers.google.com/transit/gtfs/

22

https://uic.org/

23

http://www.era.europa.eu/Document-Register/Pages/TAP-TSI.aspx

24

https://www.cen.eu/Pages/default.aspx

25


26

http://www.etsi.org/

27

https://www.railml.org/en/

28

http://www.cer.be/full-service-model-fsm

https://www.itso.org.uk/

https://oepnv.eticket-deutschland.de/en/products-and-services/vdv-core-application/

http://www.calypsostandard.net/

https://developers.google.com/transit/gtfs/

https://uic.org/

http://www.era.europa.eu/Document-Register/Pages/TAP-TSI.aspx

https://www.cen.eu/Pages/default.aspx


http://www.etsi.org/

https://www.railml.org/en/

http://www.cer.be/full-service-model-fsm


89

gradually moving to unified nationwide systems. Numerous standards have been produced by the

local public transport sector (see references).

Initiatives from the European Union (EU) and the European Commission (EC)

The EU and EC have been very productive during the last 15 years regarding data interoperability and

coordination between service providers (not always limited to transport). Examples of legislation are as

follows:

• The Directive 2003/98/EC29

on the re-use of public sector information, which is a core element

of the European strategy to open up government data for use in the economy and for reaching

societal goals. Revised by Directive 2013/37/EU30

(PSI Directive) in July 2013, it encourages

Member States (MS) to make as much material held by public sector bodies available for re-

use as possible to foster transparency, data-based innovation and fair competition. The

Commission is currently preparing an initiative on accessibility and re-use of public and

publicly funded data, and is at the same time further exploring the issue of privately held data

which are of public interest.

• Directive 007/2/EC of 14 March 2007 – so-called „Inspire Directive” – which aimed to create a

European Union spatial data infrastructure to enable the sharing of and public access to

spatial information (including information related to transport networks) across the Union.

• The Directive 2010/40/EU31

- so-called „ITS Directive“, which represents a policy and legal

framework to accelerate the deployment of innovative transport solutions across Europe. The

directive focuses on intelligent transport systems for road and its interface with other modes of

transport. It empowers the Commission32

to adopt ´Delegated Acts´ to define technical,

functional and organisational specifications in relation to priority actions and priority areas.

• The Regulation (EU) 1315/2013 which defines the transport infrastructure and telematic

applications that are part of the trans-European transport network, as well as measures

promoting the efficient management and use of such infrastructure and permitting the

establishment and operation of sustainable and efficient transport services.

• The EC communication COM (2017)134 final33

adopted on 23 March 2017 on the „European

Interoperability Framework“ , an EU approach to the delivery of European public services in an

interoperable manner. It defines basic interoperability guidelines in the form of common

principles, models and recommendations in order “to issue an agreed interoperability

framework to support the delivery of pan-European eGovernment services to citizens and

enterprises”. This framework addresses information content and recommends technical

policies and specifications to help connect public administration information systems across

the EU.

• A proposal COM(2017)495 for a regulation on a framework for the free flow of non-personal

data published on 13/09/2017. The proposal focuses on three key provisions: a new principle

of free movement of non-personal data, which would entail the prohibition of any data

localization requirements; data availability for regulatory control by competent authorities

which would make sure Member States can reasonably have access to data stored abroad for

29

http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:02003L0098-20130717&from=EN

30

http://eur-lex.europa.eu/legal-content/en/TXT/?uri=CELEX:32013L0037

31

Directive 2010/40/EU of the European Parliament and of the Council of 7 July 2010 on the framework for the deployment of

Intelligent Transport Systems in the field of road transport and for interfaces with other modes of transport.

32

Article 7 of the ITS Directive in accordance with Article 290 of the Treaty on the Functioning of the European Union

(TFEU).

33

Communication from the Commission to the European Parliament, the Council, the European Economic and Social

Committee and the Committee of the Regions: European Interoperability Framework – Implementation Strategy. 23 March

2017.






90

regulatory purposes; and finally the development and implementation of codes of conduct by

service providers and professional users detailing the information on data porting conditions.

• A proposal COM(2017)477 for a regulation of the European Parliament and of the Council

on ENISA (the "EU Cybersecurity Agency") and repealing Regulation (EU) 526/2013, and

on Information and Communication Technology cybersecurity certification (''Cybersecurity

Act''). Indeed a failure to protect the devices which will control the transport power grids,

cars, transport networks and communication network could have devastating

consequences and cause huge damage to consumer trust in emerging technologies.

The European Commission has also made big efforts to promote semantic interoperability among

organizations by, for example, funding EU projects, creating the EU interoperability framework or

developing a generic data portal for storing datasets.

The most important European initiative reagrading Research and Innovation has been the formal

adoption of the Shift2Rail Regulation No 642/2014 on16 June 2014 by the EU Transport Council

establishing with a total budget of EUR 920 million the Shift2Rail Joint Undertaking34

(S2R JU). The

S2R JU has been established „with a view to managing and coordinating all rail-focused research and

innovation activities funded under Horizon 2020. The main task of the S2R JU is to develop, integrate,

demonstrate, and validate innovative railway technologies and solutions with the objective to improve

the competitiveness and attractiveness of the European Railway Sector.“

According to the Shift2Rail Master Plan, the work conducted within the Shift2Rail framework is

structured around five asset-specific Innovation Programmes (IPs), covering all the different structural

(technical) and functional (process) sub-systems of the rail system. One of them is IP4 – IT

SOLUTIONS FOR ATTRACTIVE RAILWAY SERVICES, which objective is to face one of the 10 main

goals of the coming years identified by the European Commission in the White Paper for Transport

2011: “By 2020, establish the framework for a European multimodal transport information,

management and payment system”. Several research projects on this topic have been launched since

2016, as follow-ups of the „lighthouse project“ IT2RAIL started in 201535

as a first step towards

providing through IP4 a new seamless travel experience, giving access to a complete multimodal

travel offer which connects the first and last mile to long distance journeys. IP4aims at the creation of a

shared domain Ontology - an explicit, formal, shareable, machine-readable and computable

description of the associated data and exchanges. It will allow a higher degree of automation of

distributed processes across multiple data formats and protocols, spanning unspecified actors. The

provision of a set of semantic interoperability services that can be deployed in multiple architectures

and configurations.

The use case scenario shall impact all the stakeholders which are part of the industry value chain:

• the rail manufacturers, infrastructure managers and railway undertakings

• the local public transport operators and the local public authorities defining the public

service requirements

• the European institutions

• the Standardisation bodies

• the transport representative associations at EU level and various industrial bodies

• the new actors developing commercial tools for the „Web of Transportation“ (software

designers...)

• the new travel services providers (already mentioned like ridehailing, carsharing and so

on)

34


35

http://www.it2rail.eu/


http://www.it2rail.eu/


91

All of them shall have to coordinate to participate in the creation of a digital seamless European travel

market.

The current business models have been set up:

• either as „silos“ business models by the rail and air sector at national and/or international,

• or at the city, conurbation or regional level as business models imposed by local

authorities contracting operators under contarcts following public service service

requirements,

• or as „niche“ business models for some categories of transport services (e.g. UBER or

BlaBlaCar) or travel services (apps developers)

They do not fit into the new requirements of the connected traveller intending to use travel services

which are not limited to the local conventional regular public transport services proposed at the Local

level, and which need to combine multi-modal travel services for travelling across Europe.

Cross-sectoral collaboration is required between all the main stakeholders in order to join an

interoperable framework for multi-modal travel information systems. This framework is strongly

influenced by public authorities, since the business at stake is not only commercial travel, but travel as

an activity of genreral interest which has to follow requirements defined by the relevant authorities at

local, national and European levels without prejudice to the political responsibilities of each territorial

level.

Europe has the technology, applications and expertise, but disseminated between modes and

territories and actors. Some knowledge has still to be developed to allow for the adoption of a

„semantic interoperability“as proposed by Shift2Rail IP4 projects. The major issue is the coordination

and cooperation required throughout Europe between all stakeholders including public authorities.

Global trends & technology developments facilitating a realization of the UseCase

The global trend facilitating a realisation of the Use Case is answering the expectations of the

connected customers, a growing part of the society made of all those people born with internet in the

nineties (the „millennials“, „Generation Y“, „Generation Z“...) or who have adopted internet in their daily

life. They shall be largely predominent between 2030 and 2050.


• Apart from the technology developments associated to the devices used by the connected

customers, it shall be necessary to develop tools available for the „digitally impaired“ parts of

the population, which cannot satisfy their mobility needs because they have not the aptitude or

possibility – for whatever reason - to use smartphone or similar devices while they would like

to travel. Example or such tools are robots able to answer in whatever language queries

related to travel options, fare payment, ticketing validation… which could be experimented first

in multimodal travel stations and later widely disseminated across mobility stops within cities.

Alternative Future Use Case Scenario/ Wild Card

There are several alternative possible scenarios for the use case, depending on the territorial level at

which initiatives are successful:

• The local level, where multimodality could be fully achieved over the territory of a Mobility

authority” in case all travel service providers would cooperate with local authorities to

implement a widely shared mobility policy defined at the conurbation or regional level. In

such a case most travelers would find a solution for most of their trips, including

occasional ones, whatever their trip purpose. The most challenging topic is the integration


92

of services and fares so that all categories of population can find a solution to benefit

properly from the urban activities to be made accessible to all local citizens.

The non-residents would not have full access to these integrated set of services if they are

not familiar with the city, and could not get a one-stop-shop answer for international travel.

• The national level, where different cities or travel service providers could accept sharing

data and services and ticketing distribution channels. This could allow a customer to shop,

book and purchase altogether some services to be used for interurban travels including

the first and last miles. Most probably not all types of local fares could be opened to all

travellers in such an alternative.

• The international level, where some international travel services providers such as airlines

or railway undertakings could agree between them and/or with local travel service

providers to sell customers a bunch of multimodal travel services. It is already the case

between some airlines or rail companies selling a journey ticket combining the long

distance journey and the access to the local public transport for the last mile. For high

income class travelers, there are already air companies offering to catch their client from a

given place to bring them at the airport…. This alternative is restricting the travel services

to a limited number of options and would be accessible to a limited number of travellers.

A limited number of new actors could join the travel market in each of these alternatives.

Cyber-attacks producing fake data about travel services or fake information during travel could

discourage the customer to travel by public transport and for short and medium distance and make

him revert to private car use.

References

Most references are presented as footnotes in the text.

Other references:

Mainline rail standards:

• CENELEC standard EN IEC 61375 series which defines the structure and technologies of

an on-board Train Communication Network (TCN)

• CENELEC standard EN IEC 62580 series which aims at defining requirements in order to

ensure interoperability between on-board multimedia and telematics subsystems (OMTS)

Local public transport standards

• CEN standard CEN/EN 12896 – TRANSMODEL which defines the Public Transport

Reference Data Model36.

• CEN standard CEN/EN 28701 – IFOPT (Identification of Fixed Objects in Public

Transport) which defines a model and identification principles for the main fixed objects

related to public access to Public Transport (e.g. stop points, stop areas, stations,

connection links, entrances, etc.).

• CEN Technical Specification CEN/TS 16614 which deals with Public transport - Network

and Timetable Exchange (NeTEx). NeTEx is dedicated to the exchange of scheduled data

(network, timetable and fare information).

• CEN Technical Specification CEN/TS 15531 called SIRI, which details a Service Interface

for Real-time Information relating to public transport operation.

36

http://transmodel-cen.eu/

http://transmodel-cen.eu/


93

4.3 Efficiency of modal transfer; Multimodality; Multimodal hubs

Sector/Mode of Transport: cross-sectoral

Time Horizon: 2030

Management summary

Multimodality is a major characteristic of the public transport world since many years. It has always

been the case in the air sector, where air transport cannot offer a trip door-to-door to the traveller: in

most cases the access to the airport was performed with private cars or taxis or shuttle bus. Long

distance rail travel was a similar case. However, due to the increased competition between air

companies and between air and high speed rail, the air sector had to adapt the organization of air

services through the creation of airlines hubs. Both modes had also to develop efficient connections in

airports or rail stations with local transport modes by rail (metro, tram, light rail, suburban rail), by bus

and by private or shared road modes, in order to minimize the overall travel time door-to-door.

In parallel, in major cities with several hundred thousand inhabitants, now even multimillion cities, a

hierarchy between public transport modes has to be introduced in order to take the better advantage

of each mode, with urban rail as a backbone of urban mobility. It is also necessary to adapt the public

transport services to make them an alternative to the use of private cars in congested areas. The

efficiency of modal transfer can be considered within a multimodal station between the various

connecting modes with a view to minimize the transfer time between modes by physical and

operational measures: by shortening the transfer distance (physical layout design) and by coordinating

the departures and arrivals of connecting modes (functional coordination of services). Improvements in

inter-modality can also be brought in these multimodal stations through the implementation of multi-

modal information devices and web-based services.

The efficiency of modal transfer can also be seen in terms of modal shift from private car to public

transport thanks to more environmental-friendly modes concentrated in rail stations (including park-

and-ride).

The use case concentrates on rail stations in urban environment. Two factors now more and more

influencing the stations design were not so relevant years ago:

• the cost of rail stations in urban environment has dramatically increased;

• it is no longer possible to create big road infrastructure in dense urban areas.

These factors had two consequences:

• the function of rail stations has evolved. No longer dedicated exclusively to (multimodal)

transport, rail stations design (and operation) now embraces a variety of commercial activities

allowing to generate additional resources contributing to funding and financing the transport

activities (including the so-called Land-Value Capture, LVC)

• the relationship of the stations with the surrounding urban fabric has changed, in order to

minimize the need for use of private car (so-called Transit Oriented Development, TOD, born

as a label 25 years ago37

).

Therefore the challenge of multimodality is changed into a challenge of multi-functionality.

The incumbent stakeholders which are mostly impacted are:

• The public authorities in charge of (i) transport – introducing the new perspective of

“mobility”; (ii) traffic and parking management, and (iii) land use planning and

development.

• The former “Public Transport Authorities” are replaced by authorities with a wider scope

of responsibilities (e.g. the Paris area public transport authority, formerly named “Syndicat

des Transports d’Ile-de-France, has been renamed “Ile-de-France Mobilités”; and the

Authority in charge of transport within the Greater London, formerly a “Passenger

37

Peter Calthorpe, 1993.


94

Transport Executive” applying the decisions of the Greater London Council, has been

given enlarged responsibilities: Transport for London – TfL – is responsible for the three

mentioned above activities: transport, traffic and land use)

• The rail operators. They have to diversify their competence to provide non-transport

services and sometimes even act as real-estate promoters.

New stakeholders are emerging, the stations managers/developers, who in some cases can be

associated in the financing of rail stations through Public-Private-Partnership.

The multimodal stations have also to provide new mobility services, following the concept of “Mobility

as a Service” associating to public transport new services which can be partially hosted in multimodal

stations like car-sharing, carpooling, ride-hailing, bike-sharing etc.

The surrounding population living near the future stations –and sometimes all local citizens – are more

and more consulted in the design of services to access stations and egress from them (including

“active mobility” by foot, or bike…).

The multi-modal status of mainline rail stations is a well-established concept in Europe and worldwide.

The integration between land-use and transport was initiated with the creation of the first mainline

railway lines in the nineteenth century (e.g. the Canadian Pacific38

railway, or the first railway line in

the Paris area leading to the creation of new residential areas). It has been largely used in the

twentieth century (e.g. the creation of the five New Towns in the Ile-de-France region, connected with

Paris through both a network of expressways and through the creation of new rail lines, the RER,

Regional Express Network, also serving Paris as a huge capacity metro network).

However in Europe during the last century metro stations have not been designed to serve commercial

purposes, e.g. through the creation of shopping malls within stations or of buildings above the stations,

contrary to what happened in South America (e.g. Santiago de Chile) or in Asia (Japan and Hong

Kong).

The situation has changed in the last quarter of the twentieth century and is now booming, with a rising

expertise in Europe in the creation of multi-functional stations. As an example, Transport for London

has identified in 2015 opportunities to grow non-fare incomes from 1,9 billion GBP to 4,5 billion GBP

(at the time 2,6 to 6,2 billion EUR) over the next 10 years, with an objective of reinvesting commercial

assets while reducing public funding (grants and loans). Activities envisioned cover: Property

partnership to generate 2,7 billion GBP creating 9,000 residential units during the next 10years;

Enhancement of commercial and retail activities; Development of a digital hub (Old street).


As mentioned above the two main concepts in the design and operation of multi-modal rail stations are

land-value-capture (LVC) and Transit-Oriented Development.

The starting point is that urban rail is now largely recognized as the most efficient transport mean for a

dense multimillion inhabitant city when properly coordinated with other transport modes and urban

policies, and that rail transport generates value for citizens, business and public authorities beyond

transport services which lead to land value increase around stations, part of which can be used for the

development of local infrastructures and services through “Land Value Capture” – LVC – mechanisms.

LVC is a financial mechanism used to finance part of a rail project investment by returning the

increases in property prices arising from the project to the source of investment – the taxpayer.

Studies made in UK have shown that proximity to rail station brings a premium in land value which,

38

In 1881 the Canadian Government granted the Canadian Pacific Railway Company $25 million and 25 million acres of land in

exchange for building a transcontinental rail line linking Canada's populated centres of the East with its relatively unpopulated

West.


95

compared to the prices of property located 1500 m from a station, is 10,5% at 500m, 7,6% at 750 m,

and 4,9 % at 1000 m (2014).

Three main mechanisms of LVC can be identified:

• Betterment Tax, which is a value capture levy on property that has benefited from transport

infrastructure gains. It is a tax based on the increased property value directed at the

beneficiaries of PT investment (also known as Benefit Assessment)

• Tax Increment Finance –TIF, which is an economic development incentive package.

• Joint Development, which is a cooperative system between public sector and private

developers.

As an example of a “Betterment Tax”, in London, for the creation of the regional line Crossrail 1 (now

Elisabeth line), a special increase in business property tax has been levied since 2011 for the next 24

years on all businesses in Greater London. It should bring an expected revenue of 4,1 billion GBP out

of a total cost of 16 billion GBP for the new line. The business rates are 2 pence per 1GBP of

“rateable” value39

, which is the open market rental value on 1 April 2008, based on an estimate by the

Valuation Office Agency (VOA). Each business can estimate its business rates by multiplying the

rateable value by the correct ‘multiplier’ (an amount set by central government).

Tax Increment Financing is a tool extremely popular in the United States. By providing incentive for

development or issuing bonds against future property tax increases, TIF can be seen as a support

mechanism in schemes known as the ‘Transit-Oriented Developments’ (TOD is a component of New

Urbanism and Smart Growth), which results when a transit station provides a catalyst for dense urban

development which combines various types of land use - residential, employment, commercial,

services and leisure – deterring but not prohibiting the car and promoting walking and transit mobility

mixed-use, walkable land use patterns, sometimes called an “urban village”.

A local legislation is needed to: enact the creation of a TIF area; designate the parcels or incentive

District eligible; delineate the public infrastructure improvements to be made that will directly benefit

the parcel; specifiy the equivalent funds to be created. Only those improvements are eligible for TIF

financing.

Examples of TIF applied to TODs can be in the form of grants such as the ‘Livable Centres Initiatives’

in Atlanta, the ‘Livable Communities Demonstration Account’ in Minneapolis, St Paul, and the

‘Transportation for Livable Communities Program’ in San Francisco, which provides grants from 75000

USD up to 2 million USD for construction activities. TIF initiatives for TODs may also be in the form of

incentives such as: the fee rebate on development application fees and the employer incentives zones

implemented in South East Queensland; and the ‘Smart Growth Fund’ established in San Francisco.

Joint Development:

In a joint development project a local authority or government, in order to finance and create a source

of revenue to maintain the public transport systems, encourages property development (residential

and/or commercial) close to stations on the premise that improved accessibility leads to higher land

value. The advantage of using joint development is that it is not necessary to identify direct and

indirect impacts of the transport investment, as must be achieved in the betterment tax or tax

increment financing, since there is a voluntary legally-binding agreement between the public agency

and the private developers, either through revenue payment by the private sector to the public sector,

or through shared construction costs.

An example of Joint Development is the “One Vanderbilt” Tower in New York: the New York City

Council has allowed construction of a 63-story tower in exchange of 220 million USD in Grand Central

39

Businesses with a “rateable” value of 50,000 GBP or less are exempted.

https://www.gov.uk/introduction-to-business-rates/revaluation

https://www.gov.uk/calculate-your-business-rates


96

Terminal upgrades (new subway entrances, pedestrian plazza, public hall in the lobby…).

These tools have been largely used in Europe since thirty years. An example is France is the creation

of the Euro Disney amusement park: In 1987 a concession has been awarded for 30 years (extended

to 2030 in 2010) to Walt Disney Company in the East of Paris Ile-de-France region over 1945 ha (now

2230 ha) for a joint development with local authorities (“SAN du Val d’Europe” until 2016) and a State

owned development institution (Epafrance). The private company has – except on some land reserve

e.g. for High Speed Line- a priority for purchase of areas where public utilities are set up by the State,

and sell them later to private promoters. Disney developed 2 recreation parks, 67 ha are devoted to

public facilities (sport, school, public services…) and created 10000 dwelling units (urban

development) plus 7000 private housing (hotels etc.) (Disney & private promoters invested 1,8 billion

EUR). The agreement included the provision by public authorities of an extension to the site of RER

Line A over 5 km (2 rail stations). However, since one of the station (Marne-la-Vallée – Chessy) was

mixed with a new High Speed Train station, the private promoters brought a funding of 38 million EUR

as part of the total cost of the High Speed Station cost of 125 million EUR.

In Copenhagen, which has been planned according to TOD since 1947, Joint Development has been

recently used to finance the Northern Harbour Line and the City Ring. The prerequisite conditions

were for the developer: the land ownership; a political prioritization of land use; the creation of a

publicly owned company to carry the debt burden. The model developed over time from public land

sale and operations surplus to supplements from private land owners and Public-Private-Partnerships.

The first beneficiaries of the creation of multi-modal and multi-functional stations are obviously the

travellers, which are offered not only a wide variety of connecting transport modes but also additional

commercial and leisure/health activities within the station. Conversely, for the companies offering non-

transport services, the business case is largely dependent on the number of travelers using the

station. In addition, the station can become in itself a generator of activities used not only by travelers

but by the population living in the surroundings.


The change in paradigm from a rail transport project to a multifunctional project associating non-

travellers to the financing of a rail station is impacting the creation of new rail lines, either through new

taxation schemes or through Public-Private-Partnerships.

The concept is also used for the upgrade of existing facilities: e.g. when old depots are refurbished,

opportunities for the creation of additional square meters above or around the depot are now

analysed, and various opportunities for creating an added value from the rail assets are investigated

before launching the reconstruction works (e.g. solar panels on roofs generating power for the

operation of the depot).

There is no “technology path” for the creation of rail stations, apart from some trends presented above.

Each station case is different but some shared guidelines are applied. Indeed the functionalities of

new rail stations have to be defined along various territorial, functional, technical and financial

perspectives:

• At the city level, the rail stations have to be seen as a component of a trans-institutional short-

mid-long term holistic vision of sustainable urban mobility with urban rail as a backbone. This

approach is supported by a city-wide Master Plan integrating transport and land use as well as

by Sustainable Urban Mobility Plans developed at entire city level or over some corridors. It

requires a proper coordination between various institutional levels in order to build up political

support and dedication from politicians and public officials.

• The decision makers at political level have to acknowledge that stations property is a great

resource with huge potential and adds high value to both the rail operator company and the

city. They have to consider the part which the station can play in urban regeneration

programs, social inclusion, environmental protection, climate resilience, economic growth and

cultural development, and more generally in improvement of quality of life, involving increased


97

cooperation with and between local authorities.

• The project design has to consider the creation of extra spaces in/above/around the stations

to make maximum use of site location, and the potentiality for multimodal functions generating

synergetic effects (to be carefully analysed) for railway business, other transport business and

other activities.

• The project has to define a financial and regulatory scheme supporting public as well as

private investments under which the future rail operator can generate a positive operating

cash flow and allocate it to carry out its own initiatives in participation with the private sector

(joint development).

• The project implementation has to be accompanied by a marketing strategy for property

development and property management.

The new approach in the design of multifunctional rail stations is bringing changes in the business

cases of the traditional actors in a rail project development, and new actors not specialised in transport

are becoming part of the project:

• The rail project requires more careful analysis and studies at the feasibility study stage:

surveys, modelling, forecasts are no longer limited to transport data but cover as well land

occupancy (open/built areas, type of use, grade of use, mix of use, quality of public spaces)

and commercial opportunities in and around the rail stations. New skills might be necessary

for this purpose.

• The project has to develop a variety of impact assessment studies (environmental impact,

social impact) and safety and security analyses, at various stages of the project development

including in the construction and operation phases. This includes impacts of construction on

traffic congestion, and on population and business resettlement.

• The project requires a proper coordination by a Project Implementing Authority supported by

consultants which has to be empowered with the required financial and staff resources.

• The organisation of the project delivery has to address the intended split of responsibility

between constructors and sub-systems procurement manufacturers as well as of private

investors, and has to consider possible alternatives of PPP. The choice of construction and

procurement delivery method and the role of the future rail operator are also fundamental

issues.

• The detailed design has to optimize the added value from a multi-modal and multi-functional

approach.

Other topics which become more complex are as follows:

• Project management and risk management (more activities generate additional risks)

• Assessment of business opportunities and private sector involvement (supply or investors)

• Funding and financing of project design and build – project affordability and risk allocation

• Coordination of project construction – inside and outside

• Funding and financing of project Operation & Maintenance

• Project acceptance by authorities and citizens at local and city level.

The current business models are still valid from a transport point-of-view: the rail operator and public

transport authorities have still to attract as many travellers as possible, serving all categories of

populations whatever their age, revenue, travel needs and physical conditions. Improvements in the

current business models have still to be brought in terms of universal access to platforms and vehicles

and reduction of overall travel time door-to-door.

However the current models are partially questioned by expectations regarding the success of new

commercial activities: the flows of passengers might be channeled in a way bringing them closer to the

retail shops or attracting them to new services offered in stations like restaurants or activity centers.

Consequently, in some cases the access to platforms might no longer be the shortest one, or the

transfer distance and transfer time between modes within the station might be extended.


98

More and more collaborations are required between the different travel service providers, in order to

answer all categories of mobility needs. This collaboration is not only between companies providing

transport services but includes as well companies offering new travel information services to the

“connected” customers.

New collaborations are also required between the transport sector and other sectors: constructors,

equipment manufacturers, real-estate developers, financing bodies, and all those able to implement

activities generating revenue for the station construction and/or operation.

Europe has certainly all the required technologies and expertise, the issue is for rail station traditional

decision-makers to succeed in inventorying and bringing together the various new skills required for

optimizing the rail stations projects development.

Global trends & technology developments facilitating a realization of the UseCase

Sustainable mobility is now a primary objective of the public authorities and of a majority of citizens,

who no longer believe that private car is the solution for urban transport. This new trend is a great

incentive in favor of the development of attractive rail systems. And part of rail station attractiveness

lies in the provision of new services within the stations, so that travelers feel safer and more secure

and consider stations as pleasant living places providing a variety of non-transport activities. These

activities could even be used by customers not primarily interested in transport services and living

nearby the stations.


• Digital services and real-time information are essential for the travelers, and need to be

developed as much as possible to gain the loyalty of the existing patronage and to attract new

customers.


Another possible scenario would be a lack of financing for new rail services, a reluctance of the rail

sector to adopt a more commercially oriented vision of its activity, and a priority given by authorities to

the adoption of automated electric driven cars for servicing urban transport needs.

This alternate scenario would negatively impact the value chain of rail manufacturers and public

transport operators, and create traffic congestion preventing the evolution of cities towards more

friendly ways of living in cities like those new ways currently adopted in some places (smart cities,

urban villages…).

Urban rail stations are places where it is not possible to implement police controls like in airports, due

to the very high number of users. A drawback is that rail stations are potential targets for terrorist

attacks, as in has already been the case in several European cities (Paris, London, Madrid…).

Such events are changing at least for some time the behavior of citizens which fear using public

transport and revert to private modes or renounce travelling, with a negative economic impact not only

for the rail industry but for the city as a whole.

References

• Calthorpe, Peter; 1993 “The Next American metropolis: Ecology, community, and the

American Dream”; Princeton Architectural Press.

• Jeffery J. Smith and Thomas A. Gihring with Todd Litman; 2011. “Financing Transit

Systems Through Value Capture”. Victoria Transport Policy Institute.

• Salat, Serge and Gerald Ollivier, 2017. “Transforming the Urban Space through Transit-

Oriented Development: the 3V approach” (Node Value; Place Value; Market Potential

Value), Washington, DC: World Bank Group.


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• Suzuki, Hiroaki, Robert Cervero, and Kanako Iuchi. 2013. “Transforming Cities with

Transit: Transit and Land-Use Integration for Sustainable Urban Development.”

Washington, DC: World Bank

• UITP sources


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4.4 Rolling stock OEMs providing more train transportation services than just trains

Sector/Mode of Transport: Railway rolling stock

Time Horizon: 2030

Management summary

In 2030, rolling stock manufacturers have moved from a product-based business model to the offer of

advanced train transportation services. This change has the potential to increase the robustness of the

supply chain and increase the attractiveness of rail transport. European rolling stock manufacturers,

who were pioneers in offering train availability services, will undoubtedly enjoy the first-mover

advantage capitalised through learning-by-doing competences that will allow them to secure further

contracts and remain the global leaders in the provision of train availability services.


In 2030, rolling stock manufacturers are competing more in the ability to sell train transportation

services than just trains.40

Selling trains, the focus of the business in the older days, is not as profitable

as providing service-based solutions. These solutions can include, for instance, on the one side, a

manufacturer who guarantees a reliable operational fleet available on a determined frequency basis

(e.g., daily), under conditions of use to be respected, with retained ownership. On the other side, the

customer (e.g. an operator), instead of purchasing trains, pays a usage charge only when they are

available for use.41

“No-train, no-pay” contracts, which started to be timidly used back in the 1990s, are now the rule

rather than the exception. Only those manufacturers who accumulated enough experience in providing

total life-cycle services in the past are now competitive in advanced service provision. The inherent

risks of this business model (e.g., penalties based on train’s performance and reliability) require long-

lasting expertise that can only be acquired through learning by doing.

This business model change has brought significant advantages to end users, both passengers and

freight, including increased availability and reliability of services and lower cost per seat/ton-km. This,

in turn, has increased the attractiveness of rail transport. Regarding benefits for the value chain

structure, this change allowed the enhancement of cooperation between rolling stock manufacturers,

their suppliers and their clients and resulted in the increased robustness of the supply chain,

enhanced sectoral coordination and further vertical integration. Other benefits include the

improvement of the rolling stock life-cycle regarding its sustainability, utilisation, maintenance, re-use

and disposal.

Two primary demand drivers led to this business model change. Fist, the arrival of new customers with

limited capabilities in train maintenance, such as new railway operators, leasing companies and

private investors. Second, the concentration of traditional and well-established railway operators on

end-user services. These drivers were facilitated by a series of regulatory measures encompassing

the liberalisation of rail markets, the standardisation of rolling stock and the adoption of policy

measures to attract private investment to the sector. On the technological side, enablers include the

improvement in remote real-time monitoring of vehicle condition and intelligent data analytics, which

allowed rapid development of both condition-based and predictive maintenance.

40

A well-known example of service provision is IBM who, beyond designing and installing IT hardware and software, provides IT

solutions for large business and government customers in the form of services and support during the life cycle of the

products.

41

A detailed example of an advanced service solution in the rail industry is illustrated in Baines and Lightfoot (2013, pp.114-

116).


101


The long lifespan of rolling stock assets offers a market opportunity for extended relational services,

with the benefit of offering continuous revenue streams. By expanding the product scope to include

downstream services, manufacturers can capture the whole life-cycle profits associated with the asset.

As will be shown later, there is a current heterogeneous and changing customer landscape that is

pushing rolling stock manufacturers to adapt their product-based offer to high-value holistic solutions

tailored on the customer’s particular business and operational requirements (e.g., leasing, asset

investment, and railway operation). As rolling stock OEMs ensure that a wide variety of components

and subsystems (either produced in-house or outsourced) meet the overall architecture of their trains

and interfaces, they are in a strong position to provide the experience, services, and long-term

solutions that their customers demand.

Providing services is, of course, no new for rail vehicle manufacturers. Aftersales services, such as

maintenance and spare parts, have traditionally been part of rolling stock OEMs’ support functions, on

top of existing rail products. However, offering a complete train transportation service with retained

ownership is much more than selling trains and providing their maintenance. In offering advanced

services, the manufacturer becomes a service provider that looks to improve the processes of its

customers through a business model (rather than product-based innovation) and to exploit its design

and production-based competences to give extensive improvements in efficiency and effectiveness to

the customer (Baines and Lightfoot, 2013).

Today, there are only a few rolling stock manufacturers that have innovated in providing advanced

train availability services. Table 2 summarises service innovation in train availability contracts of three

major rolling stock OEMs: Alstom, Bombardier and Hitachi.

Table 2. Service innovation of selected rolling stock suppliers

Source: Based on Visnjic, Turunen and Neely (2013), Davies (2003) and Davies, Brady and Hobday

(2007)

Company Before service

innovation Service innovation After service innovation

Alstom

Shift from a product-

oriented business to a

service-oriented

business model.

Creation of a Service

Business with a focus

on maintenance

(1998).

A 20-year train availability

contract for 96 trains (1995*).

Maintenance and operational

service innovation led to

more than 250 design

modifications of a (106-train)

easy-to-maintain and easy-

to-use fleet.

Additional service innovation:

“Total Train Life

Management” offering

turnkey solutions that include

project management,

financing, maintenance,

renovations, parts

replacement and servicing of

train systems.

Bombardi

er

Grounded in a product-

oriented business

model where services

used to be seen as a

support function.

A multi-year train all-in

performance contract priced

by km, for more than 70

trains. Maintenance process

innovation, investments in

train monitoring centre led to

impressive turnaround to the

best service contract in the

UK.

Business model innovation

towards service-oriented

business model and

associated investments in

leadership.

Further service innovations

towards monitoring and in-

train service under

development.


102

Hitachi

Change from product-

oriented to service-

oriented business

model (from selling

trains to selling train

availability).

A 9-year train availability &

reliability performance

contract for 27 trains (2005*).

Additional service innovation:

“Train as a service”. A 27-

year contract on train

availability with retained

ownership for 122 trains, paid

on the basis of train availability

and reliability (2012*).

Product design innovations for

better endurance and

serviceability.

Additional service innovations

contemplated: energy-

efficiency performance

contract.

* Year the contract was signed.

Notes: This table builds on Visnjic, Turunen and Neely (2013), who conducted a comprehensive study

of the Bombardier and Hitachi cases with information validated by company representatives. Dates

and some details were added based on companies’ data. Information from Alstom was added based

on Davies, Brady and Hobday (2007) and Davies (2003).

Table 2 reveals that European rolling stock manufacturers have been pioneers in offering train

availability services and are well positioned globally. Alstom is usually cited as a successful example in

the servitisation-related literature (see, for instance: Baines and Lightfoot, 2013; Davies, Brady and

Hobday, 2007; and Davies, 2003). European rail vehicle makers are certainly capitalising their first-

mover advantage by leveraging learning-by-doing competences that will allow them to secure further

contracts. Beyond experience and reputation, the knowledge acquired also functions as a catalyst for

other types of innovation in both service- and product-oriented business (see Visnjic, Turunen and

Neely, 2013).

Although making trains is becoming less profitable, and the provision of high-value services offers a

new high-margin source of revenue with low volatility given the long-term nature of the contracts,

challenges and risks in service provision also exist. These services imply uncertainty over long periods

of time and often also assume risk-taking on the provider’s side, such as the extended responsibility to

manage train performance (Visnjic, Turunen and Neely, 2013). In the cases of Bombardier and

Hitachi, for example, the implementation of a service-oriented business resulted in an initial decrease

of profitability (arising from operational challenges) which was overcome over the long term (Visnjic,

Turunen and Neely, 2013). Taking on responsibility for availability means designing the service,

adopting performance measures focused on outputs, developing a new and diverse skill-set of

workers and acquiring a complete knowledge and understanding of diverse issues that are not

necessarily part of the core business activities of OEMs (e.g., fleet management and specific

regulatory frameworks for maintenance). Shifting from a product-oriented to a service-oriented

business brings, therefore, significant complications at the company level. For instance, when the

manufacturer remains engaged in conventional production and the sale of products, tensions can

arise between the responsibilities for production and service delivery. According to Baines and

Lightfoot (2013), these tensions have led some organisations to split into two somewhat independent

business units, with one part of the organisation being production centred and the other service

centred.

At the company level, also of critical importance is the need to command electronic information and

communication technologies (ICTs) to monitor assets remotely and advance actions of maintenance,

repair and use. Nevertheless, the use of more sophisticated enabling technologies and systems

increases service delivery costs. According to Baines and Lightfoot (2013), these costs can be

counterbalanced by two factors. First, the visibility of asset operating characteristics can help to


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mitigate some of the risks imposed by service provision and relieve contract delivery costs. Second,

improvements in product reliability and availability can also reduce both service delivery cost and the

need for manual observation and intervention within the delivery system. According to Roland Berger

(2016), if digitisation is adequately understood and implemented in the rail sector, it has the potential

to lower maintenance costs (which accounts for a significant portion of operating costs) by around

20%. Table 3 summarises some of the initiatives of the industry in the field of predictive maintenance

of trains. It can be seen that European manufacturers have been straightening their service offering

and research efforts in predictive maintenance activities.

Table 3. Use of digital technologies in the field of predictive maintenance of selected rolling

stock OEMs

Source: Author’s elaboration based on Sadler (2016), Surferlab (2017) and Frost & Sullivan and

Hitachi (2015)

Company Current predictive maintenance initiatives

Alstom

HealthHub is Alstom’s predictive maintenance solution which makes it possible to

determine the status of rolling stock, infrastructure and signalling automatically, and

to identify any components that need to be repaired or changed and the replacement

date. TrainScanner (a component of HealthHub) automatically analyses the data

gathered by laser or 3D camera measurement systems using a diagnostics portal

through which the train passes. It collects information on the condition of certain

equipment and then predicts its remaining service life (Sadler, 2016).

Bombard

ier

Surferlab is a joint R&D laboratory between Bombardier Transport, the software

SME Prosyst and the French University of Valenciennes & Hainaut-Cambresis

(UVHC), dedicated to exploring innovative industrial solutions in the field of

embedded digital technology with the ambition of making transport safer and more

intelligent. Research topics focus on three priority areas: connected and predictive

maintenance, learning and models in artificial intelligence, and product life-cycle

design and optimisation (Surferlab, 2017).

Hitachi

Hitachi is currently working on the use of on-board and real-time data management

solutions, to allow centralised and condition-based management of inspections and

faults, and therefore the advance planning of necessary repairs. This condition-based

regime is expected to enable preventive maintenance, optimised planning of

inspections and long-term trend analysis to underpin continuous improvement (Frost

& Sullivan and Hitachi, 2015).

From a value chain perspective, several impacts can be foreseen.

Further vertical integration of the value chain. Providing advanced train transportation services, under

performance-based contracts, moves the OEM to take over part of the activities traditionally carried

out by the operator. Failure to deliver the promised performance results in penalties on the contract.

Such contracts, featuring a long-term relationship with the customer, require, therefore, the OEM to

seek similar contracts with its suppliers. If the supplier is not reactive enough in the case of a

subsystem failure, it is the OEM (who is measured on the performance of its trains) who incurs in

penalties. This close coordination is, of course, difficult to attain and can result in the OEM

reintegrating the manufacture and re-engineering of some of some subsystems.42

Beyond coordination

with its suppliers, the OEM also needs to build a close and long-lasting relationship with the clients

being served. Effective cooperation and collaboration between the OEM and its client allow realising

the full benefits on both sides. Without any doubt, train service provision by OEMs has the potential to

42

See, for instance, Baines and Lightfoot (2013) for an example of Alstom who reintegrated the manufacture of some

subsystems, including air-conditioning units, window wiper motors and even coffee machines, after gaining experience in

advanced service provision.


104

enhance the cooperation between the OEM, its suppliers and clients and result in the increased

robustness of the supply chain and an enhanced sectoral coordination.

High efficiency and value added through the whole life cycle of the rolling stock. Having responsibility

for reliability, availability and efficiency of the trains prompts the manufacturer to design rolling stock

that maximises these aspects over their life cycle (from design to recycling). As the manufacturer

involves more comprehensively in train service delivery, it acquires a better knowledge of the asset in

the operational phase which spurs on train design enhancements. Moreover, the implementation of

condition-based and predictive maintenance allows improved operational efficiency and maximised

fleet reliability and availability which are not only beneficial for the manufacturer and its clients (e.g.

operators) but also to end users. Baines and Lightfoot (2013) note that, in the case of high-value

capital assets (such as rolling stock assets), management of the supply chain will benefit from further

research into technologies that enable more accurate through-life costing, the provision of through-life

engineering services and self-healing technologies for electronic and mechanical components and

subsystems.

Further development of skilled workforce in both ICT and service-relationship domains. To manage

digital data and technology, the rail supply industry needs skilled employees with expertise not only in

IT systems but also in the rail sector (Roland Berger, 2017a). Similarly, the process of servitisation

demands staff (e.g., project managers, account managers and field engineers) who are skilled in

relationship building and service centricity (Baines and Lightfoot, 2013). Even if in the long run, the

deployment of a new skill-set of employees will be beneficial for the value chain, in the short run it can

represent a challenge. The IT-sector is currently experiencing a skill shortage worldwide, and

considerable investment from the manufacturer will be required to develop the right technical and

humanistic skill-set internally.

Data ownership and confidentiality can rise further challenges. Although an efficient service delivery

needs the involvement, over time, of both the service provider and the client, concerns about the

ownership and confidentiality of data can arise. Visnjic, Turunen and Neely (2013) report, for instance,

that when entering into advanced service provision, Bombardier and Hitachi had to sign risky contracts

because of a lack of information-sharing on the clients’ side. They claim that the customer needs to

have sufficient trust and confidence in the service provider and be prepared to work closely with it, in a

collaborative manner, to reap the benefits of the learning effects that occur over time.

Price pressure from the demand side (see next subsection on demand trends). According to McKinsey

& Company (2016), the increase of private investments in rolling stock assets opens up growth

opportunities in the aftersales and services businesses but, at the same time, puts significant price

pressure on OEMs and suppliers. This is because these customers demand fewer tailor-made rail

products and have a keen eye on positive financial returns. The demand for customisation of rail

products was rather profitable for OEMs in the past, but this has decreased with the standardisation of

rolling stock.

Global trends & technology developments facilitating a realisation of the Use Case:

There is a number of current demand trends pushing towards servitisation in the rolling stock industry.

Customer’s requirements are changing from demanding just trains to demanding “trains as a service”,

with high expectations about the levels of availability and reliability. This change has arisen for two

major reasons. On the one side, the base of private investors in rolling stock assets (e.g., leasing

companies and financial investors) is increasing, but these players lack in-house maintenance

capabilities. On the other side, traditional operators are outsourcing more and more on the operational

side and retaining only end-user business (such as marketing, ticket sales and train operation). This


105

increasing demand for services is set to last as rail markets continue to liberalise and rolling stock to

standardise.43

Currently, leasing companies and private investors are mainly present in the freight market and only to

a limited extent in the passenger market. A recent analysis by McKinsey & Company (2016) estimates

that private investments are currently dominating the US freight railcar segment (with a market share

of 60%) and are also increasing their market share in Europe (passing from around 10% in 2005 to

25% today). By 2025, private investors are expected to make up around 70% of sales in the US and

40% in Europe. The study identifies three major characteristics of financial investors. First, a high

incentive to maintain their assets well to realise the full value over their lifetime. Second, a lack of in-

house rolling stock maintenance capabilities compared to incumbent rail operators. Third, a tendency

to look for the best and most cost-efficient provider of maintenance services. Based on these facts, the

study predicts that the after-sales and service segment will become an important business for rolling

stock OEMs, with an estimate real-term growth of around 45% over the next decade whereas the new

vehicle business is expected to remain constant. This means that, by 2025, rolling stock

manufacturers would be making half of their revenue from selling vehicles and the other half from

aftersales and services.

Similarly, a recent study by Rolland Berger (2017), estimates private financing in funding rolling stock

acquisitions in Europe at about 20% of total market volume in the period 2013-2015 (against 13% in

the period 2011-2013). The study shows that whereas private financing has considerable importance

in the purchase of Locomotives (42%), Coaches and Wagons (35%), and EMUs and DMUs (24%), it is

almost inexistent for the high-speed (5%) and urban segments (<1%). The highly regulated high-

speed and urban segments fall behind regarding private financing. Market segments with a higher

degree of liberalisation, such as the freight segment, demonstrate a higher proportion of private

financing (e.g., locomotives and wagons). Marked differences are also observed at the country levels

(especially between Western and Eastern Europe). Although not quantified, a significant growth of

private financing of rolling stock in Europe is expected based on the further liberalisation of passenger

rail markets, the increasing budgeting problems of the public sector and the implementation of policy

measures that make private financing of rolling stock more attractive (e.g., the Luxembourg

Protocol44

).

Contrary to Europe and the US, in Asia private investments in rolling stock seem less likely. For the

freight segment, for instance, rail operators still dominate as the owners and purchasers of their

vehicle fleets (SCI Verkehr, 2017).

Rail operators, on the other side, are confronted today with a wide variety of challenges arising not

only from financial pressure and rising operational and maintenance costs from older fleets but also

from more complex modern rolling stock to manage. A recent survey conducted by Nomad Digital

shows that operational and maintenance costs (closely followed by operational efficiency) are the

major concerns at present for rail operators, maintainers and fleet owners. Similarly, a recent survey

by Rolland Berger (2016) identifies that efficiency of operations along with profitability and financial

sustainability are the top priorities for railway stakeholders. Some of the key challenges for operators

regarding fleet availability are the maintenance regimes, reliability and spare parts. If the fleet misses

the high availability targets defined by the fleet operator (e.g. 93-95%), there are negative

consequences such as penalties by transport authorities, cost of renting or purchasing additional

vehicles or revenue losses. This means that a substantial increase in availability helps reduce the total

43

See Deliverable D4.1 of this project for a description of how the liberalization of rail markets and increased standardisation

can increase the “liquidity” of rolling stock as an asset and attract private investments in the sector.

44

This protocol (currently seeking for ratification by the EU MS) aims at establishing a global system for recognition and

registration of security interests in rolling stock. Its ratification could help reducing risks and costs for private investors financing

rolling stock (Finger, Bert, and Kupfer, 2014).


106

fleet size and thus realise cost savings. Even if this survey points towards an increasing outsourcing-

of-maintenance trend (around 24% of respondents identified it as the main trend), full outsourcing or

consignment warehousing seems a less likely prospect (only 4% of respondents identified it as an

important trend). McKinsey & Company (2016) reports, nevertheless, that some small and new railway

operators are running their business model with reduced in-house maintenance capabilities, and

sometimes none at all.

On the technological side, the major trends facilitating the servitisation of the rolling stock industry are

the development of digital technologies and management of data. These developments allow the

implementation of condition-based and predictive maintenance. Remote access to information on

condition and operating characteristics of the asset facilitates more timely awareness of faults to

provide faster maintenance and repair and can lead to improved equipment design, operation

behaviour and less need for manual observation in the field. The resulting improved responsiveness in

service provision has a positive impact on asset performance and availability, while the improvements

in design and operation behaviour have a positive impact on reliability (Baines and Lightfoot, 2013).


Well-established rail operators strengthen and expand their maintenance services and start providing

them to other actors in the value chain, including those with limited maintenance capabilities. This

would limit the possibilities of rolling stock manufacturers to fully develop a business model based on

the provision of advanced services.

As shown in the Deliverable D2.1 of this project, railway operators and other maintenance providers

are currently capturing around a quarter of revenues in the value chain through the provision of vehicle

maintenance services. An alternative future use-case scenario could be one in which well-established

and experienced rail operators strengthen their maintenance capabilities instead of outsourcing more

and more these services. In 2014, the consultancy firm SCI Verkehr claimed that rail vehicle

manufacturers and railway operators were fighting over the aftersales market (see: SCI Verkehr,

2014). The authors note that, in response to the forceful arrival of manufacturers in this market

segment, railway operators were consolidating their position by increasing the efficiency of their

maintenance divisions, reducing overcapacities in the medium term, and increasing the services

offered to third parties. Partnerships between operators and manufacturers (taking advantage of

synergy effects in vehicle maintenance) were also reported. Nevertheless, the authors state that the

inking of maintenance contracts with the delivery of new vehicles would lead to growing market shares

for manufacturers in the future. It is worth noting that, the authors estimated that, in 2014, between 60

and 70% of the aftersales market were accounted for by rail operators carrying out maintenance of

their vehicles. In 2016, McKinsey & Company estimated the part of operators in the aftersales and

services market to be between 45 and 50%. The comparison of these figures suggests a decreasing

part of operators in this market.

References

Baines and Lightfoot (2013). Made to serve. How manufacturers can compete through servitization

and product–service systems. John Wiley & Sons, Ltd., UK.

Baines T. and Lightfoot H. (2013a). How Manufacturers can Compete Through Servitization and

Product Service Systems. John Wiley & Sons. Apr 9, 2013

Davies A. (2003). Are Firms Moving "Downstream" into High-Value Services? In: Tidd J. and Hull F.

M. (2003), Service Innovation: Organizational responses to technological opportunities and

market imperatives. pp. 321-340 Imperial College Press, London.

Davies A., Brady T. and Hobday M. (2007). Organizing for solutions: Systems seller vs. system

integrator. Industrial Marketing Management 36 (2007) 183-193.


107

Finger M., Bert N., and Kupfer D. (2014). Rail infrastructure and rolling stock: investments, asset

renewal and regulation. European Transport Regulation Observer. Florence School of

Regulation.

Frost & Sullivan and Hitachi (2015). Social Innovation in Transport and Mobility Whitepaper.

McKinsey & Company (2016). Huge value pool shifts ahead – how rolling stock manufacturers can lay

track for profitable growth.

Nomad Digital (2015). Rail industry survey: Major challenges facing rail operators, maintainers &

owners and the role of ICT.

Roland Berger (2016). On the digital track. Leveraging digitization in rolling stock maintenance. Think

Act Beyond Mainstream. Munich, June 2016.

Roland Berger (2017). Private financing of rolling stock. Market analysis for Western and Eastern

Europe. Munich, March 2017.

Roland Berger (2017a). Rail supply digitization. January 2017.

Sadler K. (2016). UK’s second predictive maintenance TrainScanner enters operation. Global Railway

Review, 25.04.2016. Retrieved from

https://www.globalrailwayreview.com/news/27197/predictive-maintenance-trainscanner/

SCI Verkehr (2014). Fierce battle for market shares: pressure growing in the highly heterogenous

market for railway vehicle After-Sales – highest growth in metro segment offers good prospects

for the industry. Press Release 15.09.2014.

SCI Verkehr (2017). Freight wagons worldwide: Ownership structure is chainging in a growing but

volatile market. Press Release 13.12.2017.

Surferlab (2017). Inauguration of the joint R&D laboratory Surferlab. Press Kit. 25.10.2017.

Visnjic I., Turunen T. and Neely A. (2013). When innovation follows promise. Why service innovation is

different, and why that matters. Cambridge Service Alliance.

https://www.globalrailwayreview.com/news/27197/predictive-maintenance-trainscanner/


108

5 Shipbuilding

5.1 The development of cooperation inside shipbuilding sector and between the European

shipbuilding sector and shipowner will be a relevant factor in increasing the

competitiveness.

Sector/Mode of Transport: Shipbuilding

Time Horizon: 2030

Management summary

Shipyards are mainly assembly companies. Considering the fact that in the shipbuilding process from

several hundred up to sometimes even 1000 cooperating enterprises is involved, the future

competitiveness of European producers will be largely determined not only by technological skills,

operational efficiency or organizational efficiency, but also by the development of network of co-

operators and mutual cooperation. Especially that currently many European shipyards do not build

whole units, and, for example, only their hulls. Collaboration and interoperability have become

important, key factors for success and there is no indication that in the perspective of 2030 there have

been any significant changes in this respect. Therefore, this chapter focuses on the characteristics of

cooperative relationships that connect the shipyards with the shipowner and ship designer, but also

with other entities. Areas of this cooperation, requirements and its barriers were identified. It was also

pointed out the importance of digitization on the example of the shipyard's cooperation with the ship

designer (cooperation between the shipyard and the shipowners has been described in the sub-

section on the methods of financing shipbuilding). Strategic cooperation, partnerships and

acquisitions, globalisation activities and consolidation programs from EU shipyards and marine

suppliers were shown on the selected examples. The chapter closes the identification of some of the

most important levels of current and future integration and the characteristics of the areas of future

changes.


Shipbuilding is a typical One-of-a-Kind-Production (OKP), Design-To-Order (DTO), and Engineer-To-

Order (ETO) industry. OKP industry is the industry, where each product is designed and manufactured

based on specific customer requirements to a large extent, according to an Engineer To Order (ETO)

approach. OKP industry is characterized by a low level of repetitiveness, and each product is designed

and manufactured based on customer requirements.45 46

DTO and ETO are characterized by low-volumes, high degrees of customization and project-based

processes.47

In the European shipbuilding industry, there are many companies which are diversified in terms of

size, geographic coverage, as well as the specifics or areas of functioning Here, on the one hand, we

deal with production and renovation shipyards, on the other with such entities as the owners of

45

Adrodegari F., Bacchetti A., Sicco A., Pirola F., Pinto R. (2013): One of-a-Kind Production (OKP) Planning and Control: An

Empirical Framework for the Special Purpose Machines Industry. Christos Emmanouilidis; Marco Taisch; Dimitris Kiritsis. 19th

Advances in Production Management Systems (APMS), Sep 2012, Rhodes, Greece. Springer, IFIP Advances in Information

and Communication Technology, AICT-398 (Part II), Advances in Production Management Systems. Competitive

Manufacturing for Innovative Products and Services. 46

Hong, G., Xue, D., Tu, Y. (2013): Rapid identification of the optimal product configuration and its parameters based on

customer-centric product modeling for one-of-a-kind production. Computers in Industry, 61(3). https://hal.inria.fr/hal-

01470678/document. 47

Gosling J., Naim M.M. (2009): Engineer-to-order supply chain management: A literature review and research agenda.

International Journal of Production Economics, 2009. 122: p. 741-754.


109

vessels, shipowners, suppliers of raw materials, semi-finished products, ship sections, equipment,

design offices, R&D&I centers, and many other.48

Figure 1. Physical View of Shipbuilding.

Source: Xiaofei XU, Dechen ZHAN, Lanshun NIE: Collaboration and Interoperability in Production

Management of Ship-Building Industry. http://slideplayer.com/slide/7640951/, p. 6.

“Ship manufacturing is currently a complex multi-phase system where a number of shipbuilding

companies, as well as companies, enterprises and institutions from other manufacturing sectors of the

regional and global economy are involved. This process consists of several phases that are divided

into multiple stages. Its characteristic features include, among others, are: very large products with

complex product structure and multi-functional systems, thousands of materials, devices, and

components come from suppliers, the relationships across multiple enterprises, multiple stages and

multiple specialties are complicated, the lead time is very long while the due-date is tight”49

. Physical

View of Shipbuilding has been shown at Figure 1.

Cooperation between all of them is a prerequisite for maintaining and improving the competitiveness of

European shipyards. As the need for effective cooperation between them appears already at the stage

of making a decision to build a new unit and continues throughout the life of the ship, one can even

talk about networks, which arises between these entities. The high degree of shipyard production

outsourcing is a characteristic feature of this industry, and the number of subcontractors can oscillate

around 1000.

Ship manufacturing is based on collaboration and interoperability in shipbuilding (See Figure 2).

48

Keltaniemi A., Karvonen T., Lappalainen A., Gustafsson J., Hekkilä A., Hillgren E. (2013): The Challenges and Best Practices

of Structural Change in the European Maritime Industry. MariTime Hubs; Turku, 29th November 2013.

https://www.utu.fi/fi/yksikot/mkk/hankkeet/PublishingImages/MariTimeHubs_final%20report.pdf 49

Xiaofei XU, Dechen ZHAN, Lanshun NIE: Collaboration and Interoperability in Production Management of Ship-Building

Industry, http://slideplayer.com/slide/7640951/.


110

Figure 2. Requirements of collaboration and interoperability in shipbuilding.

Source: Xiaofei XU, Dechen ZHAN, Lanshun NIE: Collaboration and Interoperability in Production

Management of Ship-Building Industry, http://slideplayer.com/slide/7640951/, p. 9.

Collaboration and interoperability inside and outside of enterprises are critical for shipbuilding. Typical

interoperability problems in ship-building industry are50

:

• Interoperability between:

Product design and production engineering,

Production engineering and product manufacture / assembly,

Batch manufacture and project oriented product assembly,

Manufacturers and strategic suppliers( e.g. engine suppliers, steel material suppliers),

Manufacturers and sub-contractors,

Manufacturers and customers,

• Interoperability requirements:

Information level -- data exchange,

Order data,

Planning data,

Progress/Execution data,

Design data,

Quality Check data,

Business level – process coordination,

Collaborative production planning,

Collaborative order processing,

Collaborative quality checking,

Collaborative order bidding,

Vendor Managed Inventory,

Event-based execution controlling and coordination,

50

Ibidem


111

• Barriers and difficulty in interoperability:

Inconsistency in naming,

Multiple meanings for single terminology,

In-compatible data format,

Un-unified units for goods, currency, …,

Multiple standards of products and business/manufacturing processes,

Mismatching between business processes,

Multi-production modes and business processes,

Heterogeneous platforms, languages and technologies of existing IT system,

Un-transparency and low openness of existing IT systems.

Digitalization in collaboration between shipowner, ship designer and shipyard

The key actors in this process are the shipowner, the ship designer and the shipyard. The shipowner

makes key decisions regarding the ship utility features and therefore also its technical design, with a

decisive influence on the target shape of the vessel. This process is therefore the first phase of the

ship manufacturing system. And the shipyard’s main responsibility is production and assembly. In

addition, it carries out purchasing and engineering, which are typically split between the ship designer

and the yard to varying degrees. The shipyard is either chosen by the customer or in collaboration with

the ship designer51,52

. However, the ship designer is responsible for the overall concept and final

design of the ship. It is his work that affects the final functionality of the ordered unit. This applies not

only to its physical shape, but also to its productivity, operational efficiency and overall transport

capabilities.

Designing new units includes 5 main stages, namely: conceptual, preliminary, functional design,

transitional and detail design, which require the use of other types of software.

The early stage of ship design (pre-design process) does not require extensive use of IT instruments,

although some researchers of this problem suggest computerization of this phase as well53

. The

AutoCAD system is widely used. For the needs of detail design, apart from AutoCaD, software such as

TRIBON, FORAN or NUPASS is used.

The prevalence of knowledge-based expertise on the early stages of ship design rather than on the

phase of the detailed projection is of key importance. In the process of work on the new ship creation

or modernization of the existing vessel, information is exchanged among several actors [Solesvik M.Z.,

2008, p. 1-2]. Bronsart R. et al. elaborated a model of information system in ship design and

production [Bronsart R. et al., 2005]. M.Z. Solesvik extended this model. She added several key

participants into the model: shipbrokers, national and international organizations [Solesvik M.Z., 2008,

p. 2]. See Figure 3.

51

Gotteberg Haartveit D.E., Semini M., Alfnes E. (2012): Integration Alternatives for Ship Designers and Shipyards. In:

Advances in Production Management Systems. Value Networks: Innovation, Technologies and Management. IFIP WG 5.7,

International Conference, APMS 2011, Stavanger, Norway, September 26-28, 2011. Editors: Jan Frick,Bjørge Timenes

Laugen. Revised Selected Papers. Publishers: Springer, Berlin, Heidelberg 2012. https://hal.inria.fr/hal-01524245/document. 52

“An increased body of literature focuses on cooperative design issues. N. Cheng divides the collaboration design research

into two main categories. She argues that one part of studies concentrates on information technology problems assisting

collaboration, such as information flow and data organization. The second group of researchers investigates social issues of

cooperative work” [Cheng N.Y., 2003] T. Kvan defines two modes of collaborative design. “First, close coupled design process,

when parties interface tightly on design. Second, loosely coupled design process, when each participant contributes within

his/her scope and expertise. Examples of both close and loosely coupled design processes in collaborative design can be

found in the area of shipbuilding” [Kvan T, 2000]. 53

Krömker M., Thoben K.-D. (1996): Re-engineering the Ship Pre-design Process. Computers in Industry. 31. p. 143-153


112

Figure 3. Information system in cooperative ship design and production

Source: Solesvik M.Z. (2008): Collaboration Model for Ship Design. Y. Luo (Ed.): CDVE 2008, LNCS

5220, p. 245-246. https://link.springer.com/chapter/10.1007/978-3-540-88011-0_34#citeas;

https://www.researchgate.net/publication/220938033_Collaboration_Model_for_Ship_Design

The design of the ship is two-dimensional. The first dimension is cooperation between the shipyard

and the classification society, shipowner, owner and broadly understood suppliers (external, intra-

organizational collaboration, Table 1). The second dimension is the intra-organizational cooperation in

the shipyard (interdisciplinary cooperation, Table 2)54

.

Table 1. Inter-organizational cooperation in ship design.




54

Solesvik M.Z. (2008): Collaboration Model for Ship Design. Y. Luo (Ed.): CDVE 2008, LNCS 5220, p. 2.

https://link.springer.com/chapter/10.1007/978-3-540-88011-0_34#citeas;



113

Table 2. Interdisciplinary cooperation in ship design.




However, cooperation in the shipbuilding industry requires a much wider, than just the design phase,

computer-aided teamwork between the owner, shipowner, designer and shipyard. Interoperability of

software and hardware is needed. Researchers of this problem55

underline that manufacturers of

various CAD tools are reluctant to develop software compatible with the competition software, which

makes this process difficult56

.

Strategic cooperation, partnerships and acquisitions, globalization activities of European shipbuilding

sector (examples)

Assessment of strategic cooperation, partnerships and acquisitions, globalization activities and

consolidation programs from EU shipyards and marine suppliers has been done by BALance

Technology Consulting GmbH in co-operation with Shipyard Economics Ltd. and MC Marketing

Consulting. The following examples provide an overview on the motivation and recent activities of

shipbuilding groups, major naval groups and also marine suppliers with regard to assessment of

strategic cooperation, partnerships and acquisitions, globalization activities and consolidation

programs [Note: all examples have been directly taken from: BALance Technology Consulting GmbH

in co-operation with Shipyard Economics Ltd. and MC Marketing Consulting, 2015, p. 108-114. Below

are examples of operational and capital cooperation of selected European capital groups of the

shipbuilding sector

1. Shipbuilding groups - Typically, two or more companies form a strategic partnership when each

possesses one or more business assets or have expertise that will help the other by enhancing

their businesses. Strategic partnerships can develop in outsourcing relationships where the parties

desire to achieve long-term mutual benefits and innovation based on mutual goals. Research has

shown that strategic partnerships and co-operation are assuming greater significance in the EU

shipbuilding sector. The following are some examples:

1.1. Fincantieri / Italy.The Italian Fincantieri Group is now the largest shipbuilder by revenue in

the Western world (meaning Europe and North America) and one of the most dynamic and

diversified players in the industry, being focused on high value-added segments with high-

tech content and high unit values. It has twenty shipyards across Europe, Americas and Asia

with a workforce of 19 000 people, 60% of these outside Italy:

• It follows a clear strategy with defined action plan to seize opportunities and address the

issues of shipbuilding, offshore and equipment, systems and services. There is

55

Bronsart R., Gau S., Luckau D., Sucharowski W. (2005): Enabling distributed ship design and production processes by an

information integration platform. In 12th International Conference on Computer Applications in Shipbuilding (ICCAS). 56

Solesvik M.Z. (2008): Collaboration Model for Ship…, p. 1-2


114

significant development of commercial and industrial synergies with the Norwegian

subsidiary for the offshore business.

• Significant development of commercial and industrial synergies is evident with its Vard

group in Norway (Offshore Business).

• Fincantieri and CSSC Cruise Technology Development Co., Ltd, founded a joint venture

to build two cruise ships for a cruise company joint venture established between

Carnival Corporation, CSSC, and Shanghai Waigaoqiao shipyard,) for operation in the

Chinese market. The contract has an assumed value of USD 1.5 billion and includes an

option for four additional cruise ships. The contract aims at developing and supporting

the growth of the Chinese cruise industry. Giuseppe Bono, CEO of Fincantieri, stated.

1.2. Damen / Netherlands. Damen has grown to include 32 shipyards and numerous related

companies involved in the construction, maintenance and repair of ships, of which18 yards

are located outside the Netherlands. Since 1969 the company has delivered over 4 000

custom-built marine vessels with export to over 117 countries.

• By the end of 2015, a total of 50 different companies represented the global presence of

the Damen Group, 23 of them in the Netherlands, 27 in the rest of the world.

• Romania’s Damen Shipyards Galati (DSGa) is the largest of Damen Shipyards Group’s

shipyards, repair yards and related companies worldwide. While Damen’s international

sales organization takes care of product development, self-managed DSGa has

developed into a highly efficient production shipyard with a significant output.

• In 2012 Damen Shipyards Group acquired French ship repair yard Arno Dunkerque, the

only operator for ship repair and conversion in Dunkerque, to expand its ship re-pair and

conversion services.

• In 2015 Damen Shipyards Antalya in Turkey has added new capacity dedicated to

building their popular Fast Crew Supplier 5009 design. This is12 000 m² facility and is

the second development in Antalya where Damen has operated a shipyard since 2013.

• In May 2016, the Damen Shipyards Group (DSG) announced the opening of a new

branch office in Houston, Texas, under the name of Damen North America, to meet the

increasing demand for Damen’s unique shipbuilding concepts and repair and conversion

services. STUDY ON NEW TRENDS IN GLOBALISATION IN SHIPBUILDING AND

MARINE SUPPLIES – CONSEQUENCES FOR EUROPEAN INDUSTRIAL AND TRADE

POLICY CONTRACT N° EASME/COSME/2015/005 PAGE 110 OF (179)

• Damen Shiprepair & Conversion took over the management of the Curaçao Droogdok

Maatschappij as of February 1st, 2017. The facility will operate under the name of

Damen Shiprepair Curaçao. Damen plans to invest approximately 40 million USD in a

third floating dock and the yard’s infrastructure and equipment.

• Damen Song Cam, a brand-new yard founded in 2014, is one of the largest in the Group

and is Damen’s first formal joint venture yard in Vietnam. It is a state-of-the-art shipyard

applying western shipyard practices and European HSE standards into a Vietnamese

environment. The yard is designed to produce around 40 ships p.a. in the first phase.

• Nakilat Damen Shipyards Qatar was established in 2010 as a joint venture between

Qatar Gas Transport Company and Damen Shipyards Qatar Holding a wholly-owned

subsidiary of DSG. Located in the north-eastern corner of Qatar, the yard is ideally

located in the middle of the Arabian Gulf and is capable of building ships up to 170

metres in length.

• In September 2014 Damen Shipyards announces that it has established three strategic

partnership agreements with major Ballast Water Treatment (BWT) system suppliers -

Trojan Marinex, Bio-UV, and Evoqua Water Technologies. These systems, are included

in Damen's worldwide One Stop BWT Retrofitting Service. This service gives

shipowners peace of mind in complying with ballast water regulations in a time and cost-

effective way. Damen has chosen to include BWT systems manufactured by its strategic

retrofit partners.


115

• In January 2015; the Swedish defense and security company Saab and DSG signed an

exclusive agreement to work together in pursuit of the potential Walrus-class submarine

replacement program for the Netherlands. They will also explore ways in which they

might bid jointly on other submarine procurement programmers in the international

submarine market. Through its acquisition of Kockums, Saab acquired extensive

experience in the design and manufacture of submarines and surface vessels for a

global customer base, integrating advanced systems and using a range of ultra-modern

materials and construction techniques.

• In2016 DSG and GustoMSC announced a strategic collaboration to produce a range of

self-propelled and non-self-propelled jack-up platforms for the offshore industries – the

DG JACK range. The collaboration will be based on GustoMSC’s strong track record in

the design of jack-ups and provision of jacking systems, combined with Damen’s

extensive experience in shipbuilding and vessel optimisation, financing and worldwide

after-sales services.

• Damen is working with its supplier base to developing new and innovative products to

ensure they can offer fully integrated, compatible solutions. An example of this is the

letter of intent signed with the Norwegian company TeamTec in 2016 to supply and

service the AVITALISTM BWT system. The system combines filtration and a proven,

eco-friendly chemical treatment solution optimized for medium-sized to large vessels in

water of any salinity, turbidity or temperature. The intention is to advance to a full

partnership by the end of 2016.

2. Marine suppliers:

2.1. Technip / France (strategic cooperation, partnerships and acquisitions):

• In May 2016 Technic combined with FMC Technologies (of Houston, USA) to form

TechnipFMC with the following stated strategic objectives: o Create a leader in subsea,

surface and onshore/offshore, driven by technology and innovation. o Build a

comprehensive and flexible offering across each market from concept to project delivery

and beyond. o Accelerate growth: broader portfolio of solutions will increase innovation,

improve execution, reduce costs and enhance customer success. • In January 2017, the

new company started operations with a combined 44 000 employees with headquarters

in Houston, London and Paris.

2.2. Inmarsat / UK (strategic cooperation, partnerships and acquisitions):

• Inmarsat provides global mobile connectivity on land, at sea and in the air. Their vision is

to meet the remote and mobile connectivity needs of their customers, giving them what

they need to connect – reliably, securely and globally. Examples of initiatives include:

• Strategic partnership in2016 with Singapore Telecommunications Ltd (Singtel) to

enhance maritime cyber security using Trustwave’s Unified Threat Management (UTM)

solution.

• Strategic alliance with Marlink in2016 which will see Inmarsat’s new Fleet Xpress service

integrated into Marlink’s existing service portfolio.

2.3. Wärtsilä / Finland (globalization activities and consolidation programs):

• 2014: Agreement between Wärtsilä and China State Shipbuilding Corporation (CSSC) to

establish a joint venture for manufacturing medium speed and dual-fuel engines. This

built upon their previous collaboration from 2004 when they formed Wärtsilä CME

Zhenjiang Propeller a company producing fixed and controllable pitch ship propellers.

• 2015: Acquisition of L-3 Marine Systems International/SAM Electronics of the USA.

• 2015-2016: In 2015, Wärtsilä finalised a joint venture with CSSC, for its 2-stroke engine

business - to be known as Winterthur Gas & Diesel (WinGD). with, CSSC taking 70% of

the shareholding and Wärtsilä the remaining 30%. The head office of WinGD remains in

Winterthur, Switzerland and the company has subsidiaries in China, South Korea and

Japan.


116

• In 2016, Wartsila sold its remaining shareholding to CSSC which now owns 100% of

WinGD. 2016: Wärtsilä and CSSC established a new joint venture company focusing on

China’s growing market for electrical and automation solutions for marine applications.

The has new production facilities located in Lingang, Shanghai.


In order to meet the growing expectations of ship owners, their owners and crews, as well as legal

requirements with regard to the safety of the ship, crew and the marine environment, shipyards, like

other entities, enter into cooperative relationships not only with suppliers of raw materials, materials or

ship's equipment, but also in the system of interaction with universities, various types of research,

development and innovation centres.

Cooperation of science and industry allows, on the one hand, a systematic development of knowledge

about contemporary economic entities and ways of their functioning on the market, which enables

constant verification of current scientific dogma and the construction of new models, theories or

economic concepts, on the other hand achievements in the research, development and innovation can

be applied to business practice and influence the improvement of the competitive situation and the

development of enterprises, and more broadly - industries, and even entire economies57

. Therefore,

above mentioned interdependencies nowadays take the form of a bilateral knowledge transfer, which

requires cross-sectoral collaboration at the same time.

Taking into account the requirements of future demand, it can be said that the European shipbuilding

industry is well prepared for them, and the business model developed by modern entities based on

network cooperation, extensive cooperation relationships and a very wide range of shipbuilding

production outsourcing, technological and organizational skills will also work well in the future.

In the future, the improvement of the competitiveness of the European shipbuilding industry will

essentially take place on several levels.

The first one may include the creation of completely new forms of cooperation between the shipyard,

shipowner and ship designer. It may take the form of new organizational and legal solutions (e.g. joint

venture, strategic alliance), but not only (e.g. corporate networks).

The second level will cover broadly understood cooperation between these entities possible thanks to

current and developed communication technologies that use new / updated and developed software

and hardware that allow not only direct communication, but also, and perhaps above all, the possibility

of real-time cooperation. Their current example can be systems such as CIM, PSL and PSM. This will

require the development of interactive cooperation between the shipyard, designer and ship owner at

the stage of financing its construction (which is described in point ...), through design work,

construction of new units, including cooperators in this process, and subsequent repair works during

the unit's operation .

The third level includes the development and intensification of cooperation related to technological

progress, thanks to which ever more modernized systems supporting business management, including

mainly shipbuilding production, are being created. Their current example in the production area can be

MRP / ERP / SOA systems; IFS Applications system for project management; EAM company assets

management software and for technical service, repairs and maintenance - MRO with project

management and product life cycle adjusted to the needs of shipbuilding production.

The fourth level includes the changes resulting from technological development, which allows

introducing the latest construction solutions in the construction of the ship itself. Their goals are to

improve the operational efficiency of the ship, reducing construction costs, protection the environment

and improving the safety of use both for the ship and for the crew.

57

Brózda J., Marek S., Otoczenie przedsiębiorstwa in: Podstawy nauki o organizacji. Organizacja jako system gospodarczy.

PWE, Warszawa 2008 p. 115


117

Due to the specificity of the shipbuilding industry, the main beneficiaries of these changes will be the

shipyards themselves, their co-operators, owners, shipowners, ship crews, as well as the natural

environment.


The shipbuilding industry “is characterized by site production, temporary work organization, high

degrees of customization and project organizations. The shipbuilding process is usually an endeavor

lasting several years. During the process customer specifications, technological advances and other

factors change the design of the ship. These changes demand collaboration between, and integration

of, actors in order to be successful. Different levels and types of integration affect crucial business

factors which imply different advantages and drawbacks. Choosing the right integration alternative

should therefore be made in a systematic, informed way”58

.

“From the shipowners point of view, the intention is to specify a ship that will have acceptable

capabilities in transporting certain types of cargo with as low investment as possible. In other words,

the aim is to maximize the net present value of the investment by minimizing the initial capital outlay.

From the design office’s point of view, in turn, the intention usually is to start from existing designs and

modify them, if necessary, to meet the requirements of the particular case at hand. In other words,

both parties, the design office and the future shipowner, rely on existing ways of working and dominant

designs instead of abandoning previous assumptions and exploring novel ideas”59

.

Over the past three decades, the number of contracts concluded between shipbuilding enterprises has

increased, which proves the important role of cooperation in shipbuilding, and it is expected that its

significance will grow even more in the future. Currently, we are dealing with various forms of this

cooperation, starting from strategic alliances, through joint ventures, creation of consortia operating in

the area of R&D&I and enterprise networks60

.

Competition in the industry has thus entered new areas. In principle, it can be said that the competitive

struggle is currently not so much between individual shipyards, but rather between entire networks of

entities (allies) centered around the construction of new ships. These tendencies are also visible in

other industries, such as automotive, telecommunications, multimedia, and biotechnology61

. The

development and strengthening of this cooperation is considered an important factor in the current and

future competitiveness of European ship producers62

. Cooperation takes place not only in the design

phase of the ship, but also in other functional areas, including63

:

58

Gotteberg Haartveit D.E., Semini M., Alfnes E.: Integration Alternatives for Ship Designers …. p. 309-316 59

Gustafsson M., Tsvetkova A., Ivanova-Gongne M., Keltaniemi A., Nokelainen, V.S. Herrera T.: Positioning report. Analysis of

the current shipping industry structure and a vision for renewed shipping industry ecosystem, Åbo Akademi University, PBI

Research Institute, fimecc, 2015. https://www.abo.fi/fakultet/media/9465/positioningreporteng.pdf. p 24 60

Reuer J.J. (2004): Strategic Alliances. Oxford, Oxford University Press 61

Smith K., Carroll S.J., Ashford S.J. (1995): Intra- and interorganizational cooperation: Toward a research agenda, Academy of

Management Journal 38(1).; Dussauge P., Garrette B. (1999): Cooperative Strategy: Competing Successfully through

Strategic Alliances. Chichester, John Wiley&Sons; Schaan J.L., Kelly M.J. (2007): Cases in Alliance Manegement. Building

Successful Alliances, Thousand Oaks, Sage Publications.; Solesvik, M.Z. (2011): Interfirm Collaboration in the Shipbuilding

Industry: The Shipbuilding Cycle Perspective. Int. J. Business and System Research, Vol. 5, No 4.

https://www.researchgate.net/publication/264812917_Interfirm_collaboration_in_the_shipbuilding_industry_The_shipbuilding_

cycle_perspective, p. 388-405 62

Wergeland T. (1999): A resource-based view of the firm, Strategic Management Journal 5 p. 171-180; Bruce G.J., Garrard I.

(1999): The Business of Shipbuilding, London, LLP 63

Encheva, S., Kondratenko, Y., Solesvik, M. Z., Tumin, S., Simos, T. E., & Psihoyios, G. (2008): Decision support systems in

logistics. In AIP Conference Proceedings, Vol. 1060, No. 1.; Encheva, S., Tumin, S., and Solesvik, M. Z. (2007a): Decision

support system for assessing participants reliabilities in shipbuilding. In Proceedings of the 9th WSEAS international

conference on Automatic control, modelling and simulation, World Scientific and Engineering Academy and Society (WSEAS).

p. 270-275; Encheva, S., Tumin, S., Solesvik, M. Z. (2007b): Intelligent decision support system for evaluation of ship

designers. In Knowledge-Based Intelligent Information and Engineering Systems, Springer Berlin Heidelberg. p. 551-557


118

• cooperation with ship owners and managers in order to obtain new contracts and in order to

secure orders;

• cooperation between the shipyard and its clients: forwarding companies, shipbrokers,

investors and governmental organizations;

• production cooperation and partnership with subcontractors;

• shipyard cooperation with other shipyards or enterprises from other sectors to provide work for

all of its employees during periods of recession.

„There can be little doubt that interfirm cooperation in this industry represents a vast potential to

increase competitive advantage of firms in shipbuilding industry64

. Very little literature, however, has

directly addressed the process of interfirm cooperation in the context of shipbuilding industry. Interfirm

collaboration supports competitiveness of the shipbuilding firms. Competitiveness in the shipbuilding

context is narrow defined as ‘the ability to win and execute shipbuilding orders in open competition

and stay in business 65

” 66

.

There are “several cooperation dimensions of interfirm cooperation in functional areas. The first is

market collaboration that is cooperation with shipowners and shipbrokers in order to get new

contracts. The market collaboration for securing orders is vital for shipbuilding companies, especially

in the periods of recession and market trough. Advanced shipbuilding groups start seeking

collaborative agreements for orders guarantee before downturn starts: when first signs of market

saturation become apparent. Cooperation agreements in shipbuilding vary from the equity contracts to

looser non-equity treaties. Market collaboration may be executed between a shipyard and its

customers: shipping companies, shipbrokers, investors and government organizations67

. On the other

hand, when a shipyard still does not have enough orders to secure job for all its core employees, it will

seek cooperation with other shipyards or firms from other industries in order to keep core

competences and experienced people in the intermediate period, in other words, to retain temporary

negative (non-productive) resources with the aim of future benefits or competitive advantage. The

second direction of collaboration is production work which includes partnership with subcontractors.

The production cooperation is essentially domestic. The third dimension is procurement. Purchasing

and material management are important vectors of shipyard’s strategies since equipment, materials

64

Wergeland T. (1999): A resource-based view of the firm, Strategic Management Journal 5 p. 171-180 65

Bruce G.J., Garrard I. (1999): The Business of Shipbuilding, London, LLP 66

Solesvik, M.Z. (2011), Interfirm Collaboration in the Shipbuilding Industry: The Shipbuilding Cycle Perspective. Int. J.

Business and System Research, Vol. 5, No 4, pp. 388-405,


cycle_perspective. Solesvik, M.Z. (2009), Interfirm Collaboration in the Shipbuilding Industry: The Shipbuilding Cycle

Perspective. Paper presented at the IAME 2009 International Conference: Understanding Shipping Markets. Copenhagen 24-

26 June, 2009, p. 2.

https://www.researchgate.net/publication/280065284_INTERFIRM_COLLABORATION_IN_THE_SHIPBUILDING_INDUSTRY

_THE_SHIPBUILDING_CYCLE_PERSPECTIVE 67

Encheva, S., Tumin, S., and Solesvik, M. Z. (2007a) Decision support system for assessing participants reliabilities in

shipbuilding. In Proceedings of the 9th WSEAS international conference on Automatic control, modelling and simulation (pp.

270-275). World Scientific and Engineering Academy and Society (WSEAS); Encheva, S., Tumin, S., and Solesvik, M. Z.

(2007b) Intelligent decision support system for evaluation of ship designers. In Knowledge-Based Intelligent Information and

Engineering Systems (pp. 551-557). Springer Berlin Heidelberg; Encheva, S., Kondratenko, Y., Solesvik, M. Z., Tumin, S.,

Simos, T. E., & Psihoyios, G. (2008) Decision support systems in logistics. In AIP Conference Proceedings (Vol. 1060, No. 1,

p. 254).


119

and sub-contractor services constitute from sixty to eighty per cent of the shipyard’s production

costs”68

.

Global trends facilitating a realization of the Use Case


• agglomeration, urbanisation and industrialisation – as economies develop manufactured

goods are exported and imported worldwide generate demand for ship services, which should

be more efficient and faster;

• discovery of new constant and liquid sources of energy – it could generate demand for new

technologies in shipbuilding;

• ecological awareness – it’s the pressure of the society forcing the use of ships powered by

green energy and reducing of emission of exhaust gases and elimination of other ways of

environmental pollution in the ship's operation process which could generate demand for new


• climate changes (new trade routes through the Arctic Sea which have to be considered in

projecting new building ships and can generate demand for new technologically adopted

vessels);

• advances in living standards increasing the middle classes and generates demand for

consumer goods, resources and services;

• cross-border e-commerce - generate demand for ship services, which shpuld be more efficient

and faster;

Demographic trends facilitating a realization of the scenario:

• population growth – demand for new, more efficient and faster vessels;

Policy trends facilitating a realization of the scenario:

• growing safety and security also environmental requirements which generate demand for new

vessels adapted to that requirements;

• growing requirements of safety and quality of: work on the ships, navigation, maintenance,

cargo operations, managing and operations which generates demand for adapted to that

requirements new vessels;


• growing economic activity of the world (GDP) and share of emerging markets in the world

GDP and seaborne trade – it could generate demand for ship services, which should be more

efficient and faster;

• growing energy consumption and demand;

• increase in the volume of transport carried out by sea;

• development of market and increase of competitive battle which make a pressure on

shipowners for building a vessels powered by green energy, reducing of fuel consumption and

emission of exhaust gases (pressure for reducing the operating costs);

• intrinsic pressure for reducing the operating costs (development of market and increase of

competitive battle make a pressure on shipowners for building vessels powered by green

energy, reducing of fuel consumption and emission of exhaust gases);

68

Solesvik, M.Z. (2011), Interfirm Collaboration in the Shipbuilding Industry: The Shipbuilding Cycle Perspective. Int. J.

Business and System Research, Vol. 5, No 4, pp. 388-405,


cycle_perspective. Solesvik, M.Z. (2009), Interfirm Collaboration in the Shipbuilding Industry: The Shipbuilding Cycle

Perspective. Paper presented at the IAME 2009 International Conference: Understanding Shipping Markets. Copenhagen 24-

26 June, 2009, p. 16.

https://www.researchgate.net/publication/280065284_INTERFIRM_COLLABORATION_IN_THE_SHIPBUILDING_INDUSTRY

_THE_SHIPBUILDING_CYCLE_PERSPECTIVE


120

• the owner’s need to be more competitiveness which generate demand for LNG/LPG carriers

powered by green energy, reducing of fuel consumption and emission of exhaust gases and

need to reducing the operation costs.

• advances in shipbuilding technology (construction, propulsion etc.) make ship operations more

efficient which generate demand for new vessels;

Technology developments which are facilitating a realization of the Use Case (Figure 4):

• first arena – internal developments:

shipbuilding: higher level of automation, software integration, data visualisation, additive

manufacturing, adaptive hull form and less/no ballast design;

propulsion and powering;

smart ships – transformation effect: TechnoMax Ships 2030;

• second arena – external developments:

advances materials: materials fine-tuned at micro- or nano-scale, thriving composite materials,

bio-inspired and bio-based materials,

big data analytics: data’s multiple connections between different sources in the marine

industry: design, material performance and inventory, condition monitoring, meteorological

and oceanographic data, accident or incident, cargo, communication and navigation

inspection and maintenance,

robotics: cognition, versatile, imitation, senses, adaptability,

sensors and communications: engine room, hull, bridge, cargo.

Figure 4 . 8 Transformational Technologies.

Source: Höfnell A., Lloyd’s Register, OinetiQ and University of Southampton 2030 (2015a), p. 9.

Strategic alliance in the maritime industry

“Firms can reduce their risk exposure by developing interfirm collaborative relationships, particularly

with regard to the generation and exploitation of novel technologies69

. Further, partners engaged in

collaborative relationships can reduce their cost bases. Joint marketing agreements may enable

collaborating firms to reduce their communication and advertising costs. Joint R&D is a mechanism to

reduce costs related to the generation of new innovations and new product development”70

.

69

Wildeman, L. (1998), Alliance and Networks: The Next Generation, International Journal of Technology Management, 15 (1-2): 96-108. 70

M.Z. Solesvik: Strategic Alliances in Maritime Industry – the Norwegian Experience, 2010, p. 66-79, In book: Regional Networking as Success Factor in the Transformation Processes of Maritime Industry Experiences and Perspectives from Baltic Sea Countries, Edition: Wismar Discussion Papers, Chapter: Strategic Alliances in Maritime Industry - the Norwegian Experience, Publisher: Wismar Business School, Editors: Gunnar Prause, pp.66-80; https://www.researchgate.net/publication/279962420_Strategic_Alliances_in_Maritime_Industry_-_the_Norwegian_Experience


121

“Shipbuilding firms (shipyards, ship design firms, and suppliers) collaborate with each other and they

also collaborate with shipowners, financial institutions, and shipbrokers. Interfirm collaboration in

shipbuilding can relate to functional areas such as sales, marketing, production, engineering and

technical support procurement, and financing (Table 3). Further, interfirm collaboration can be linked

to issues associated with the value chain in shipbuilding. The first stage relates to the concept and

sales. Here, a shipowner might cooperate with a ship broker, a ship design firm and / or shipyards.”71

Tab. 3: Interfirm collaboration in functional areas

Functional area Nature of interfirm collaboration

Sales Cooperation between shipowners and shipbrokers in order to obtain new

contracts. Market collaboration may be executed between a shipyard and its

customers: shipping companies, shipbrokers, investors and government

organizations.

Marketing Joint marketing agreements.

Production Alliances with subcontractors (e.g. metal cutting, hull production, welding,

painting, and electrical installations).

Engineering and

technical support

Interfirm collaboration in ship design, computer-aided design and computer-

aided manufacturing with naval architect firms and ship consultants.

Procurement Purchasing and material management are important vectors of shipyard’s

strategies because equipment, materials and sub-contractor services

constitute between sixty to eighty per cent of a shipyard’s production costs

(Bruce and Garrard, 1999). Collaboration in the procurement area may vary

from very simple forms relating to long-term contracts to buy goods and

services toward complicated forms relating to the outsourcing of parts

production and joint new product development.

Financing Different forms of collaboration relating to bank consortia (Stopford, 2009)

and joint ventures between shipping companies, shipyards and ship design

firms.

R&D Joint R&D projects among shipowners, ship design firms, suppliers,

shipyards and research institutions.

Source: M.Z. Solesvik: Strategic Alliances in Maritime Industry – the Norwegian Experience, 2010, p.

66-79, In book: Regional Networking as Success Factor in the Transformation Processes of Maritime

Industry Experiences and Perspectives from Baltic Sea Countries, Edition: Wismar Discussion Papers,

Chapter: Strategic Alliances in Maritime Industry - the Norwegian Experience, Publisher: Wismar

Business School, Editors: Gunnar Prause, pp.66-80;

https://www.researchgate.net/publication/279962420_Strategic_Alliances_in_Maritime_Industry_-

_the_Norwegian_Experience

“Some shipowners have cooperative relationships with ship design firms and shipyards72

.

Collaboration might be informal or formal with reference to a joint venture. Shipyards might collaborate

horizontally with reference to a joint marketing agreement, which shares the marketing costs. With

reference the basic design and detail engineering stages, collaboration between ship design firms,

shipowners, suppliers of equipment and shipyards is realized. The third stage relates to procurement.

71

Ibidem 72

Hervik, A., Oterhals, O., Bergem, B. G. and Johannessen, G. (2009), Status for Maritime Næringer Gjennom Finanskrisen, Molde, Møreforskning AS.


122

The shipowners and suppliers cooperate with each other and develop joint R&D projects73

. Supplier

alliances can become more popular (Kannan and Tan74

, 2004). Suppliers outsource production in

order to reduce costs, enter new markets and / or to address resource and competence gaps. The

next stages relates to fabrication and production. Here, both horizontal and vertical collaboration is

realized. In Norway, hull production and outfitting is frequently performed by different shipyards.

Usually hull shipyards and outfitting shipyards cooperate with each other through frame contracts to

deliver specified amounts of tonnage75

. The hull shipyard might collaborate with its sub-contractors”76

.

“During the outfitting stage, an outfitting shipyard cooperates with suppliers of equipment and sub-

contractors. Finally, during the commissioning stage, the ship systems are checked and tested before

the vessel is delivered to the shipowner. With reference to each stage of the shipbuilding production

chain, ICT solutions are applied to facilitate coordination between partners77

”78

“In order to secure a competitive advantage and to reduce the negative effects of shipbuilding cycles,

Norwegian shipbuilding firms consider developing cooperative relationships with other firms. Some

shipbuilding firms engage in collaboration proactively if their managers anticipate resource and

competence shortages or surpluses with reference to the next phase in the shipbuilding cycle. This

allows them to be engaged in cooperative arrangements earlier than other shipbuilding firms. These

firms could potentially reap first-mover collaboration benefits. Proactive and reactive cooperative

strategies are illustrated in Table 4.”79

Tab. 4: Description of cases

Case Countries Type of

collaborative

agreement

Number of

interviews

Goals Type of

shipbuilding

firm’s

strategy

A Multinational

shipbuilding

group

International JV

consisting of three

shipyards in

Germany and

Ukraine

6 New market entry,

securing of new

orders

Proactive

B Poland

Norway

Frame shipbuilding

contracts

3 To secure new

orders

Defensive

C Norway Joint venture

(between a

shipyard, a ship

3 Goals of shipyard

and ship designer

were to secure new

Defensive

73

Teng, B.-S. and Das, T. K. (2007), Governance Structure Choice in Strategic Alliances: The Roles of Alliance Objectives, Alliance Management Experience, and International Partners, Management Decision, 46 (5): 725-742. 74

Kannan, V. R. and Tan, K. C. (2004), Supplier Alliances: Differences in Attitudes to Supplier and Quality Management of Adopters and Non-Adopters, Supply Chain Management, 9 (4): 279-286. 75

Solesvik, M. (2009), Interfirm Collaboration in the Shipbuilding Industry: The Shipbuilding Cycle Perspective, 17th International Conference of International Association of Maritime Economists (IAME 2009), Copenhagen, June 24-26, 2009. 76

M.Z. Solesvik: Strategic Alliances in Maritime Industry – the Norwegian Experience, 2010, p. 66-79, In book: Regional

Networking as Success Factor in the Transformation Processes of Maritime Industry Experiences and Perspectives from Baltic

Sea Countries, Edition: Wismar Discussion Papers, Chapter: Strategic Alliances in Maritime Industry - the Norwegian

Experience, Publisher: Wismar Business School, Editors: Gunnar Prause, pp.66-80;

https://www.researchgate.net/publication/279962420_Strategic_Alliances_in_Maritime_Industry_-_the_Norwegian_Experience

77

EUROMIND (2008b), Issues Faced by the European Shipbuilding Industry (www. standards.eu-innova.org/Files/Tools/cdromEUROMIND/datas/ch2.pdf). 78

M.Z. Solesvik: Strategic Alliances in Maritime Industry ……….. 79

Ibidem


123

design firm, and a

shipping company)

orders.

The aim of shipping

company was to

save costs on

newbuildings

D Norway Joint R&D between

four firms

2 To develop new

type of supply

vessel using fuel

cells

Defensive

E Norway

Ukraine

International joint

venture

7 Joint venture

between a

Norwegian and

Ukrainian shipyards

and Norwegian

painting firm to fill

the competence

gap in painting

workshop

Proactive

Source: M.Z. Solesvik: Strategic Alliances in Maritime Industry – the Norwegian Experience, 2010, p.

66-79, In book: Regional Networking as Success Factor in the Transformation Processes of Maritime

Industry Experiences and Perspectives from Baltic Sea Countries, Edition: Wismar Discussion Papers,

Chapter: Strategic Alliances in Maritime Industry - the Norwegian Experience, Publisher: Wismar

Business School, Editors: Gunnar Prause, pp.66-80;

https://www.researchgate.net/publication/279962420_Strategic_Alliances_in_Maritime_Industry_-

_the_Norwegian_Experience

“Interfirm collaboration can relate to mergers and acquisitions, market transactions, and internal

development80

. Collaborative arrangements enable firms to reduce costs, to obtain new knowledge,

and to secure a strong market position81

. In the uncertain shipbuilding industry, firms are forced to

adapt quickly to changes in the environment and to changes in the demand for ships. It is often difficult

for a firm to internally develop or purchase necessary resources and competences required to deal

swiftly with changes82

. To ensure competitive advantage, some Norwegian shipbuilding firms will

select an interfirm cooperative strategy with other firms to ensure necessary resources and

competences can be leveraged”83

.

80

Parkhe, A. (1991), Interfirm Diversity, Organizational Learning, and Longevity in Global Strategic Alliances, Journal of International Business Studies, 22(4): 579-601. 81

Child, J., Faulkner, D. and Tallman, S. B. (2005), Cooperative Strategy: Managing Alliances, Networks, and Joint Ventures, Oxford, Oxford University Press.

82

Burgers, W. P., Hill, C. W. L. and Chan Kim, W. (1993), A Theory of Global Strategic Alliances: The Case of the Global Auto Industry, Strategic Management Journal, 14 (6): 419-432. 83

M.Z. Solesvik: Strategic Alliances in Maritime Industry – the Norwegian Experience, 2010, p. 66-79, In book: Regional

Networking as Success Factor in the Transformation Processes of Maritime Industry Experiences and Perspectives from Baltic

Sea Countries, Edition: Wismar Discussion Papers, Chapter: Strategic Alliances in Maritime Industry - the Norwegian

Experience, Publisher: Wismar Business School, Editors: Gunnar Prause, pp.66-80;

https://www.researchgate.net/publication/279962420_Strategic_Alliances_in_Maritime_Industry_-_the_Norwegian_Experience


124

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5.2 Market share developments of EU cruise ship shipyards


Time Horizon: 2030

Management summary

The demand for cruise travels has been steadily growing in recent years and is expected to continue

its positive development. This development on the demand side for cruise shipping has had positive

impacts on the cruise shipbuilding sector which is still dominated by shipbuilding companies from the

EU. The cruise shipbuilding sector has benefited from the increasing demand for cruise travels

reflecting in a high number of new vessel orders leading to filled order books – particularly for EU

shipbuilding shipyards.

China has recognised its national shipbuilding sector as a strategic key industry in order to become an

economical and political world leader. With regard to the cruise shipyard sector, China aims to

increase significantly its market shares in order to become the market leader – similar to the previous

development in the bulker, tanker and container shipbuilding industries.

Therefore, the main idea of the use case is to scrutinise the Chinese activities to increase their market

shares in the cruise shipbuilding sector and the potential development of the EU cruise shipbuilding

industry and its targets to maintain its current strong role in the cruise shipbuilding market.


The cruise sector has experienced a strong market growth in the recent past. From 2009 to 2017, the

number of worldwide cruise passengers grew by from 17,8 mio passengers to 25,8 mio passengers

which means a growth by 45% in total and by 4,2% on an annual basis. The outlook for the future is

even more positive as a total growth rate from 2017 to 2030 with 55% has been estimated leading to

around 40 mio passengers.

This development on the demand side for cruise travels has had positive impacts on the demand for

cruise vessels benefiting the cruise shipbuilding industry – and particularly the EU cruise shipyards.

For 2017, market shares in cgt add up to 95% for EU shipyards compared to 1,6% for China and 0,2%

for Japan. In terms of total numbers, the share for EU shipyards shows 83 vessels while 16 for China

and 2 for Japan.

With regard to the fleet and berth capacity in the period 2010 to 2017 the number of vessel increased

by 5,5% while the number of berths grew in the same period around 33% proving the trend towards

increasing cruise ship sizes.

In order to strongly benefit from the outperforming situation on the cruise shipbuilding sector, China

has been intensively striving to improve its competitiveness in this sector in order to maintain

significantly higher market shares – finally aiming at becoming a market leader position.

The development of the Chinese market for cruise travellers has been very dynamic – leading to more

than 1 mio passengers in 2015 and moving towards 4,5 mio. guest in 2020 which ranks China in the

second position after the United States. Such a development shall be used to advance the domestic

cruise ship manufacturers and local cruise businesses. Therefore, part of China’s strategy for

becoming market leader in cruise shipbuilding is to focus on the Chinese and Asian market which can

be also easier influenced by national industry policies – followed by attracting additional market shares

in other cruise markets.

Against this background, cruise shipbuilding companies in the EU have to concentrate on measures to

maintain their competitiveness and leading role in cruise shipbuilding through technology advances

and proving environmental standards.


127

The user group will be cruise shipping operators who offer the cruise travel including all related

services.84

As cruise shipping operators define their individual strategies with regard to geographical

markets, price segments, services, environmental standards, they are determining the requirements

on the shipbuilding sector.


The Chinese government (inter alia the Minister of Industry) announced – and this is also stipulated in

the 2016 Action Plan on "Ship industrial deepening structure adjustment to accelerate the

transformation and upgrading of action plan (2016~2020)" that a national shipbuilding industry is a

strategic key essential for national defense construction, shipping transportation and marine

development. Roughly 85% of China’s ship building capacity is state owned. Hence, it is an important

industrial base for safeguarding national security and safeguarding maritime rights and interests.

Moreover, accelerating the development of shipbuilding industry has an important strategic

significance for strengthening the modernization of national defense, promoting the development of

related industries and strengthening the equipment manufacturing industry. In order to respond to

overcapacities in the shipbuilding sector, the Chinese government established a ‚white list’ with 59

shipyards which shall be supported through mergers and acquisitions and governmental financial

subsidies. These shipyards has an market share of about 90% referring to the total of shipbuilding

orders in China.

As China's cruise ship market expands rapidly, the Action Plan foresees to foster the cruise

shipbuilding industry as high-technology sector to advance China’s domestic cruise ship building

industry, the adjacent cruise business and offshore route development. – moving towards expansion

of international market share.

The clear strategic aim is that by 2020 China will build a shipbuilding system on par with the advanced

countries, i.e. an increase in market share of China high-tech ship exports from 35 to 40 per cent. In

order to achieve these a number of measures have been undertaken, like governmental support for

financing research and development; strengthening backbone industries; direct and indirect financing

instruments; extension/maintaining of shipyard capacities instead of reduction of capacities; linking the

shipbuilding masterplan to other national strategies (e.g. OBOR); supporting cooperation between

energy exploitation, maritime engineering, shipbuilding industry and financing as well as between food

industry, fishing industry, shipbuilding industry and financing; establishing of innovation alliances;

encouraging backbone enterprises to actively carry out overseas mergers and acquisitions; shape

international shipbuilding rules and regulations and increasing the direct financing support to shipping

industries.

This bunch of measures shall lead to five to six national producers with international influence,

supported by specialized national subcontractors and to design and system integration with Chinese

components and standards - and finally an efficient and competitive high-tech shipbuilding industry –

with a strong focus on cruise vessels.

A crucial step for improving the competitiveness of the Chinese shipbuilding industry for the cruise

sector has been the cooperation between the state-owned China State Shipbuilding Corp. (CSSC)

and Italian shipshipyard Fincantieri. The aim of this cooperation is to build two cruise vessels for the

U.S Carnival Group until 2023 for operation exclusively in the Chinese and Asian market – with an

option for further four vessels. While the Shanghai Waigaoqiao Shipbuilding Shipyards as part of

CSSC will build the vessels, Fincantieri will provide its know-how and the technology platform. In this

context, a further cooperation was established between the shipyard China Merchants Industry

Holding (CMIH) and the U.S cruise vessel operation SunStoneShips for the construction of four

vessels (and an option for six additional vessels). Also CMIH is supported by European shipyards from

Norway and Finland.

84

The top ranked 15 cruise operators are Carnival, RCCL, NCL Group, Mediterranean Shipping, TUI Group, Genting Group,

Disney Cruise Line, Viking Ocean Cruises, Silversea Cruises, Cruise & Maritime Voy, Fred Olsen Cruise Line, Phoenix

Reisen, Louis Group, SkySea Cruise Line and Windstar Cruises


128

The Chinese policy and the examples for cooperations among Chinese and European shipbuilding

companies bear clearly the risks that technology and knowledge transfer will strengthen the

competitiveness of the Chinese cruise shipbuilding sector which finally leads increasing market shares

- similar to the development in the container, bulker and tanker markets in the past also strongly

supported by state support. At present, the Chinese shipbuilding industry made already progress in

the construction of high-tech components.

Even if the example of failure of the Japanese shipbuilding company Mitsubishi revealed that it is

definitely challenging to build large cruise vessels. However, it is expected that China is able to go a

longer distance to gather relevant know-how and experiences. Moreover, since China is a growing

market for cruise travels meaning that cruise vessels for the Chinese and Asian markets will be

required. The cruise vessel operators also depend on good cooperations with local Chinese

authorities and the Chinese government to get market access – which in turn is a pressuring medium

to induce cruise vessel order to Chinese shipyards.

This will require also in the EU a industry policy that will support the shipbuilding sector towards

comprehensive state-driven industry policies in China – but also in South Korea and Japan. Such a

EU industry policy shall support technological and environmental standard driven developments

allowing to maintain the current advance of the EU cruise shipbuilding sector taking into account the

current focus areas on emissions, efficiency and energy.

The cruise travel industry which represents the demand side for the shipbuilding industry has

acknowledged that environmental protection is essential for a further successful business

development and for its societal acceptance. Therefore, the cruise travel industry has started to

improve its environmental performance with regard to water pollution, air and noise emissions and

CO2 output. Hence, the recent and current development on the demand side towards a better

environmental performance has allowed the EU shipbuilding sector to maintain its advance with regard

to the focus on emissions, efficiency and energy a key issues for environmental friendlier cruise

tourism.

The future demand from cruise operators will focus even more on environmental protection as with the

growing of the cruise sector in terms of vessels sizes, number of passemgers and increasing services,

also the environmental footprint will develop. For example, ballast water, grey and black water,

chemical pollution, solid waste and oil residues as well as air and noise pollution are furthermore huge

challenges for cruise operators. Triggered by a number of negative incidents with impacts on the

image of the whole cruise business, the operators are assumed to become more proactive and

forward-thinking beyond the relevant MARPOL regulations. Further essential regulatory changes that

may come in the future will be pushing the cruise operators towards a more environmentally friendly

business.

This development will provide a chance for the EU cruise shipbuilding sector to keep it market shares

by using its technological advance, business know-how and experience and to resist against the

aggressive Chinese shipbuilding policy and their efforts to gain higher market shares in the cruise

shipbuilding sector. Here, environmental key issues like further air emissions reductions, advanced

waste water treatment systems, solar panels, heating, energy efficient ventilation and air conditioning

systems or technologies for alternative fuels are only some examples mentioned by the Cruise Lines

International Association (CLIA).

In recent years, there has been a strong trend towards cross-sectoral collaborations in the cruise

shipbuilding sector. In the cruise shipbuilding industry an increasing share of the value added has

been achieved through high-expensive technology and high-class facilities and interiors. At present,

about fifty percent of the value added of a cruise vessel derives from sectors that are hardly assigned

to traditional shipbuilding – particularly the share of electronic and electronical elements. This

development has started to trigger not only a trend towards cross-sectoral collaboration but also a

movement showing traditional shipbuilding locations lose their leading role in the business process as

these high-technology industries are not necessarily bound to coastal areas.


129

Based on figures from October 2017, the EU cruise shipbuilding industry had a share of around 95%

in the new building order book in terms of cgt while China had merely a share of 1,6 %. Following the

loss of the container, tanker and bulker market, the EU shipbuilding industry managed to become

market leader in the high–complex and technology-driven cruise vessels niche. The sector is aware

about the risk that the China is aiming at market shares in this profitable cruise shipbuilding sector and

that it is of utmost importance to maintain its expertise and technology-based advance. However, the

current cooperation between European and Chinese shipbuilding companies present clearly a threat

to lose this advance. Moreover, China is an increasing market for cruise travel with regard to

passengers which will strengthen China’s role towards cruise operators and consequently on their

business process – also related to placing vessel orders. Therefore, it has to be regarded as unlikely

that the EU cruise shipbuilding industry will able to maintain its current dominating market position until

2030.



• Increasing importance of the Chinese and Asian domestic cruise markets due to a growing

number of Chinese passengers in cruise shipping.

• Increased societal environmental awareness influencing the ‘green development’ of cruise

operators


• Tightened environmental requirements on cruise vessel operators from national and supra-

national authorities (e.g. IMO, EU)


• Technological know-how transfer from Europe to China


An alternative scenario is that the Chinese strategy to win market share on the cruise shipbuilding

market will fail – comparable to the attempt of Mitsubishi Heavy Industries. After a huge loss of more

than 2,5 billion $ by the cruise ship division of Mitsubishi Heavy in the order for constructing two large

passenger vessels for a U.S cruise operator Mitsubishi announced its retreat from building cruise

vessels.

The construction of these vessels was finally more considered as constructing a hotel and equipment

parts required by the European customers had to be imported from Europe. Despite some knowledge

on cruise vessel building from the past, relevant trends in ship design and specifications and related

management processes could not fulfilled by Mitsubishi.

Due to the complexity of building cruise vessels, an alternative might be that the Chinese strategy to

attract market shares in cruise shipbuilding will be only feasible on a lower level. Particularly since also

Chinese shipyards made heavy losses in recent years, e.g. Rongsheng Heavy Industries and STX

Dalian in the conventional vessel markets, as both surpassed the loss of Mitsubishi with 3,1 billion and

3,8 billion $ respectively. This negative case of Mitsubishi and the losses of Chinese shipyards in


130

5.3 Production of an autonomous ship will be a key factor for further creating the

competitive advantage of the European shipbuilding sector.


Time Horizon: 2030

Management summary

The production of an autonomous vessel by the European shipbuilding sector shall be a further step in

further creation of a competitive advantage of the European shipbuilding industry in groups of vessels

with a high level of complexity (cruisers, ferries, ro-ro vessels, multi-purpose vessels) using the latest

technologies and the latest technological solutions . Vessels, where in production processes various

Tier suppliers use the latest technologies of materials production and technologies of constructing

elements that make up subsystems and ship systems, and where shipyards also use the latest

technologies and techniques in the construction of this vessel.

According to information obtained from external experts cooperating with the Maritime University of

Szczecin in the SCORE project, the process of producing an autonomous vessel in Europe is in the

design phase. Moreover, the selection of the most important suppliers of subsystems and systems has

already been made. It is anticipated that in two years the ship will be handed over to operation. Its

construction will be possible, on the one hand, thanks to the implementation by the European

shipbuilding industry of the latest technological solutions related to the transmission and processing of

data, and on the other hand, thanks to the completion of the process of automation of all technical and

operational processes of the vessel carried out for decades.

Over the last 20 years, shipbuilding in Europe has completely changed its functioning. The lost

competitive struggle with Asian yards in the construction of simple vessels (bulk carriers, tankers,

container vessels), where the cost of employees is most important, forced the European shipbuilding

industry to focus on production of ships and offshore high added value vessels, where the

manufactured structures are characterized by a high degree of complexity, application of the latest

technologies and the latest technical solutions. Hence, today's European shipbuilding industry is a

world leader in the production of ships with the above features and prepared for the production of

autonomous vessels.


The production of the first autonomous vessel by the European shipbuilding sector is a fact85

. It will be

a small container ship with electric drive with a range of up to 100 km. The decision about its

production was dictated by economic and environmental considerations. In one trip, the ship will cover

a distance of several dozen kilometers while navigating between the fertilizer plant in Porsgrunn and

the container terminals Larvik and Brevik. Economic and environmental factors, which are the basis for

decisions on the production and operation of a vessel of the above type, were based on the idea of

replacing road transport of fertilizers (lorries) with sea carriage by an eco-friendly ship with electric

drive.

Calculation of the economic efficiency of handing over of this type of vessel to operation assumes a

reduction in operating costs by nearly 90% in relation to the costs of operating a conventional ship with

a combustion drive. Such a significant reduction of costs is to be the result of the liquidation of direct

personnel costs (salaries, insurance, other costs related to wages and insurance, training costs and

other) and additional costs related to the crew (residential part of the ship, crew safety systems, meals,

etc.). Lack of crew will also allow to increase the loading space at the expense of the crew space.

85

The ship called "Yara Birkeland" is a joint project of the Norwegian fertilizer manufacturer Yara International and the

Kongsberg Gruppen group


131

The environmental factor associated with handing over of the above-mentioned vessel to operation is

on the one hand the replacement of road transport (40 thousand lorries per year) with sea and an

electric ship. According to Holsether Svein Tore, head of Yara International, thanks to the new

autonomous vessel the fertilizer transport will be transferred from the roads to the sea, resulting in a

reduction of noise and emissions of carbon oxides and nitrogen oxides, as well as improving safety on

local roads. In addition to the reduction of the emissions of oxides resulting from the resignation from

road transport, there should be added ecological benefits related to the fact that sea transport will be

carried out by an eclectic ship, which, according to the authors of the project will translate into a

reduction in CO2 emissions by 678 tons per year. Assuming, of course, what is the fact in Norway,

that the electricity used to recharge the ship's battery will come almost entirely from hydropower.86

.

Another example of the activity aimed at handing over of autonomous vessel to operation is a joint

project of such companies as: Rolls-Royce, Deltamarin, Inmarsat, DNC GL, NAPA. The project

assumes the several-phase introduction of new-generation cargo ships into operation:

2020 r. – reduced number of crews thanks to the introduction of remote support (support for steering

ship systems from land sea fleet control and management centers and),

2025 r. – remotely controlled unmanned ships in coastal shipping

2030 r. – remotely controlled unmanned oceanic vessels

2035 r. – autonomous, unmanned oceanic vessels.

Another example of an action to build autonomous vessels is the partnership of shipbuilding and IT

sector companies that established One Sea - Autonomous Maritime Ecosystem. The company was

established by such companies as: ABB, Cargotec (MacGregor and Kalmar), Ericsson, Meyer Turku,

Rolls-Royce, Tieto and Wärtsilä. The companies will be additionally supported by the Finnish agency

Tekes, led by the Finnish Ministry of Employment and the Economy. The aim of the project is to build

by 2020 an unmanned vessel intended for the Baltic Sea and until 2025 to create a network of

shipping connections for cargo transport in this sea based on autonomous vessels. If the goal is

achieved, it will be the first network of that type in the world87

.

Another example demonstrating the very high technological advancement and technical solutions

enabling the construction of autonomous vessels within a few years is a remote ship control test

carried out on August 21, 2017 in the North Sea by the Wärtsilä concern. For the remote control test, a

marine mining supply vessel, type PSV88

, "Highland Chieftain" was selected, which was built in 2013

at the Gdańsk Shipyard Remontowa Shipbuilding SA for Gulf Offshore NS from Aberdeen, ie the

Scottish branch of the American shipowner GulfMark Offshore, Inc. from Houston.

The vessel designed and built in Poland was located in the North Sea and was controlled from a

distant by 8000 km maneuvering computer workstation with a DP system interface89

, located in

California. During the experiment, the 80 meter ship was introduced into a series of maneuvers, both

at low and high speeds, using a combination of dynamic positioning and manual control of the joystick.

Of course, the ship is equipped with a number of positioning systems as well as propulsion systems

enabling very precise maneuvering of the vessel. This experiment has shown that existing technical

solutions on ships built in Europe, combined with new IT technologies, allow remote control of these

ships. And this is the introduction to autonomous ships. 90

.

86

http://nt.interia.pl/technauka/news-norwegia-inwestuje-w-autonomiczne-

statki,nId,2392472#utm_source=paste&utm_medium=paste&utm_campaign=chrome (15.01.2018) 87

http://www.gospodarkamorska.pl/Stocznie,Offshore/statki-autonomiczne-rozwiazaniem-przyszlosci.html, (15.01.2018) 88

Platform supply vessel 89

Dynamic Position 90

http://www.portalmorski.pl/stocznie-statki/36903-autonomiczny-statek-ze-szczecina-drony-z-trojmiasta (15.01.2018)

http://nt.interia.pl/technauka/news-norwegia-inwestuje-w-autonomiczne-statki,nId,2392472#utm_source=paste&utm_medium=paste&utm_campaign=chrome


http://www.gospodarkamorska.pl/Stocznie,Offshore/statki-autonomiczne-rozwiazaniem-przyszlosci.html

http://www.portalmorski.pl/stocznie-statki/36903-autonomiczny-statek-ze-szczecina-drony-z-trojmiasta


132

The activities of the European shipbuilding sector aimed at producing an autonomous vessel are very

advanced and will proceed according to the following sequence:

i. Production of an autonomous vessel in a version adapted to both crew service (reduced stock

by automating all operational processes), remote control by land-based management centers

as well as autonomous operation.

ii. Unmanned short-sea shipping vessels controlled by land management centers, ultimately

designed for autonomous operation,

iii. Autonomous unmanned short-sea shipping vessels controlled by land management centers,

iv. Remotely controlled unmanned oceanic vessels controlled by land management centers,

ultimately designed for autonomous operation,

v. Autonomous unmanned oceanic vessels controlled by land management centers,

Handing over to operation of autonomous vessels will lead to the replacement of ships currently in use

in the maritime cargo and passengers transport sectors. The pace of handing them over will depend

only on legal aspects related to the issues of maritime safety and environmental aspects regarding the

possible pollution of the sea. As previously indicated from a technical and technological point of view,

autonomous vessels could be handed over to operation in the next 3-4 years. The current obstacles

are the provisions related to maritime safety, which refer to the issues of human behavior at sea,

recognizing his key role in creating safety of navigation, both related to the carriage of cargo and

passenger transport. Therefore, the first autonomous vessel will be built in a doubled version. These

will be fully automated vessels directed by the crew on board, which can be replaced at any time with

an autonomous module. In this variant, the ship will be autonomous in all operational functions but its

supervision and necessary interference in its operation related to its remote control will be done by

operators in vessel control and management centers.

The shipping beneficiaries can be divided into two groups. The first consists of shippers, that is owners

of cargo ordered for sea transport. The second group of beneficiaries are passengers using maritime

transport. Both the first and second groups of beneficiaries enter into contracts for transport directly or

using intermediary companies. In the case of shippers, intermediaries are forwarders and intermodal

transport operators. In the case of passengers, intermediaries are travel agencies and intermediary

agencies in the purchase of tickets.

In maritime transport of passengers and cargo, in the context of groups of stakeholders and forms of

maritime transport, we can identify subsectors of:

• cargo transport in short-sea shipping (e.g. European short-sea shipping) and ocean shipping,

where cargo is transported in regular (linear) and irregular (tramp) shipping,

• passenger transport in local and short-sea regular ferry services (sea ferries of various types)

and tourist sailing (passenger ships of various sizes from several hundred passengers to

several thousand in one tourist trip),

• passenger and cargo transport in regular local and short-sea transport where different types of

passenger-car ferries are used, designed for simultaneous transport of passengers and rolling

units (two-wheelers, passenger cars, buses, lorries) at distances from several hundred meters

to several hundred kilometers,

• irregular cargo and passenger and cargo transport in short-sea shipping related to the supply

of marine structures for exploration of sea resources (exploration, mining, storage and

processing of oil and gas, other marine structures requiring supply).

Based on discussions with experts cooperating with consortium members, the results of expert

workshops that were carried out as part of the SCORE project, expert surveys, available studies and

the fact that consortia and special purpose companies in recent years have created autonomous

vessels, the first ships will be cargo ships in short sea shipping. The example described above is a

ship that is being built at the Norwegian shipyard and is expected to be handed over to operation in

2018 and will transport fertilizers in containers between three ports in southern Norway, from the

fertilizer factory Yara Porsgrunn to the ports of Brevik and Larvik, from where the fertilizers of that


133

producer are exported further by sea. The ship called Yara Birkeland is a joint project of the

Norwegian fertilizer producer Yara International and the Kongsberg Gruppen group91

. This joint

initiative of the fertilizer production sector and one of the largest suppliers of solutions in the maritime

shipbuilding technology sector will lead to the first autonomous vessel being handed over to operation.

In the first months of operation, the ship will operate with the crew, in 2019 a part of the operation is to

be carried out autonomously. In 2020, the ship is to become an autonomous vessel92

.

Analysis of previous studies, expert surveys, results of workshops, information from the shipbuilding

sector, implemented projects for the construction of unmanned ships, the first beneficiary of the launch

of autonomous ships will be cargo handlers or shippers. This is mainly related to such issues as:

• shipping safety, where in transports of cargo there is less threat to human life at sea because

autonomous ships will be unmanned vessels,

• increasing the profitability of transport as the effect of increasing the cargo space of a ship

with a size adequate to a traditional ship,

• increasing the profitability of transport by reducing the operating costs of vessels resulting

from the lack of crew (wages, food, maritime safety systems).

When analyzing the issue of construction and operation of autonomous vessels, it should be stated

that, from a technological point of view, there are no technical barriers to their construction. Handing

over of autonomous ships to operation is a legal problem related to the provisions of the maritime law

regarding safety of life at sea.


To market a launch in next ten years of remotely-controlled and autonomous vessels for maritime

transport exploitation will not fundamentally change the business model of the European shipbuilding

sector aimed at continuous tightening of cooperation with shipowners. Its coordinated activities, both

within the sector where we have close cooperation within the triangle: shipowners, shipyards, Tier 1

and Tier 2 suppliers, as well as the shipbuilding sector with cargo handlers, IT and R & D sectors,

have enabled us to build a competitive advantage in the global shipbuilding market in the area of

implementing new technical solutions and new technologies. Technologies arising in the shipbuilding

sector as well as technologies arising outside the sector. Here, it is particularly important to include the

shipbuilding sector in EU measures to improve the competitiveness of the European economy through

technological development (Strategy 2020).

As already described in this project within strategic management the European shipbuilding industry in

last 20 years has introduced several key competitive strengths, tools and management strategies

which allowed to gain an advantage competitive advantage in selected segments of the world

shipbuilding industry. Key solutions include:93

1. The strategic segmentation, where the European shipbuilding industry has concentrated its

resources (human, financial, material, information) on selected shipbuilding segments; this will

advance its development into the design and construction of highly complex technical vessels

using the latest R&D technology.

2. Clustering organization of shipbuilding where, at Tier 2 (subsystems), Tier 1 (systems) and

Shipbuilding levels, a number of contractors specialized in shipbuilding, assembly or system

integration are involved in the implementation of the processes. These companies are linked

together in a variety of horizontal and vertical technical, organizational and commercial

91

http://nt.interia.pl/technauka/news-norwegia-inwestuje-w-autonomiczne-

statki,nId,2392472#utm_source=paste&utm_medium=paste&utm_campaign=chrome, (15.01.2018) 92

http://www.gospodarkamorska.pl/Stocznie,Offshore/statki-autonomiczne-rozwiazaniem-przyszlosci.html, (15.01.2018) 93

D2.1 Mapping of the current status of dynamics of value chain of European transport manufacturing industry, 5.4.4.



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134

relationships to form a cluster capable of making a ship and offshore structures for the marine

shipping, marine construction and marine industries94

.

3. The specialization of manufacturers of components, subsystems, systems, system integrators

on a narrow range of activities allows them to concentrate their resources on the development

of new technical solutions and technology deployment, thus providing added value at various

stages of the shipbuilding value chain. On the other hand, the existing potential of European

shipyards allows for the construction of a wide range of offshore vessels, but also advanced

technical structures for other sectors of the economy. As a result, using the clustering nature

of shipbuilding companies and long-term strategic cooperation within the established supply

chains, the European shipbuilding sector has a strong ability to adapt its market potential and

demand to the changing demand of shipowners and customers in other maritime industries. .

4. In the European shipbuilding industry there are many links between the civil and military

sectors. These are the capital, organizational and legal relationships that result in mutual

know-how flow which creates synergies. This allows the civil sector to gain access to

technology originally created for military use, increasing its ability to build ships using

advanced technology. The transfer of technology from the military to the civil sector and the

principle of cooperation between the two sectors was taken from the American economy.

The European shipbuilding industry uses the latest tools and strategies in management to achieve a

competitive advantage in selected shipbuilding sectors, where the implementation of management

innovation has allowed for a dominant position in the global shipbuilding market in selected market

segments. As a result Europe is the long-time leader in cruise and passenger ferry ship construction.

Middle of 2016, about 84 per cent of all ordered cruise/passenger tonnage (CGT) was placed on

Italian, German, Finnish or French yards. But in European shipyards are manufactured many

miscellaneous vessels too. Examples for highly specialized ships built in Europe are:

• passenger-car ferries gas-powered or electrical-powered,

• double sides ferries (double-ended ferries) and shuttle ferries,

• combined LNG, LPG and ethylene vessels,

• fishing vessels,

• tugs and cargo sea barges,

• seagoing luxury yachts,

• arctic ships with ice class,

• boats made using the technology of carbon fiber and fiberglass,

• the individual offshore to service offshore oil fields and gas and floating units of large,

• floating construction for maritime industries,

• the construction of wind farms at sea,

• warships.

The manufacturing of an autonomous vessel is the final stage of a several-hundred-year technological

development process of ships, where the kind of revolutions were technological and technical

solutions, such as:

• use of a steam engine as a propulsion unit and ships with a steel hull,

• use of an combustion engine instead of a steam engine and a steam turbine, which enabled

the change of fuel from hard coal to heavy fuel oils,

• introduction of power generators in the system of a combustion engine - generator and

related development of the electric power supply system of ship devices,

• sensor systems enabling remote control of selected ship devices,

• automation of ship equipment operation processes and centralization of management of all

devices and ship engine room systems as well as centralization of ship's energy system

management in the control and maneuvering center,

94

The role of Maritime Clusters to enhance the strength and development of European maritime sectors. Report on results.

Policy Research Corporation. November 2008 Commissioned by the European Commission (DG MARE)


135

• automation of the operation of the ship engine room and remote management of devices and

systems, including the management of the ship's energy system, from the navigating bridge

and other selected places of the ship,

• maritime navigation systems based on technologies of radio navigation, positioning and data

exchange over long distances, starting from Loran systems, through GMDSS technology

systems to satellite systems (INMARSAT and GPS),

• automation of the operation of all ship systems with a central ship control system from the

navigating bridge,

• systems of continuous data exchange in the Big Data technology, allowing continuous

transmission of ship-related data to ship control centers as well as to ship management

centers.

Short-term key new technologies and technical solutions in marine vessels presented above made it

possible, from a technological point of view, to manufacture a stand-alone vessel in Europe. When

comparing Europe, North America and Asia in the area of using new technologies, it should be noted

that European shipbuilding is a leader in solutions in both civil and military technologies, USA in

military technologies, where both economies cooperate in implementing newer technologies related to

remote control of airplanes or ships. Shipbuilding in Asia is not as innovative as European or North

American, using in shipbuilding technology technical solutions previously implemented in Europe or

North America.

An important element of the business model of the shipbuilding sector in Europe, as discussed above,

is the universality of its potential. As a result, many suppliers in the sector offer the production of

systems and their integration not only to ship owners of transport vessels (passengers and cargo) but

also to the offshore sector. These are not typical transport vessels, but the technical solution and new

technologies used in them are similar to those used in transport ships. Such a business approach of

the European shipbuilding sector, leading to the versatility in the production of various types of vessels

mentioned above, enriched by the ability to build various offshore structures, determines that the

European shipbuilding industry is a global leader in specific segments of ship production. The

construction of autonomous vessels should strengthen the competitive advantage of the European

shipbuilding autonomous vessel sector. Adopting the perspective of 2030, these vessels will be built

for cargo ship owners and maritime offshore companies (e.g. various types of service units in the oil

and gas industry) service ships for offshore wind farms). Thus, the construction of autonomous

vessels will be strengthened by the current business model of the European shipbuilding sector.

Another factor strengthening the European shipbuilding sector, which is the effect of constructing

autonomous vessels and handing the over to operation, will broaden the sector's offer to control and

manage the technical side of autonomous ships operation by suppliers involved in system integration,

particularly the integration of remote control systems for marine automation. The introduction of

vessels controlled remotely and in the next step, autonomous vessels will require the construction of

land control centers and management of technical systems of ships (remotely serviced vessels, which

already takes place and remote control of non-crew ships) and supervision of ship systems and taking

over, if necessary, autonomous vessel control. This process of extending the offer by system

integrators has already begun. An example is the Kongsberg Gruppen concern, which has already

launched two centers for remote servicing of ship systems and technical advice for ship crews.

Handing over of autonomous vessels to operation will require the construction of many land-based

control centers for remotely operated as well as autonomous vessels.


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Figure 6. The future diagram of dependencies and connections between the shipbuilding

sector and the shipowner after handing over to operation of remotely controlled vessels and

autonomous vessels

Source: own work

The future diagram of dependencies and connections between the shipbuilding sector and the

shipowner after handing over to operation of remotely controlled vessels and autonomous vessels

presented in Figure 6 illustrates the changes that will occur in relations between the shipbuilding

sector companies and the shipowner. This will especially apply to Tier 1 suppliers who are already

actively involved in the construction of an autonomous vessel. These suppliers, as the integrators of

control systems in a fully automated ship, working with broadband IT system vendors, create the first

centers for remote diagnostics and management of ship systems. An example is the Kronsberg Group,

which has already created such centers by cooperating with shipowners in the processes of remote

supervision of ship systems and advising ship crews in emergency situations.

As already indicated, the handing over of unmanned ships will be carried out in two stages, which can

be divided into those related to the introduction of unmanned vehicles to the navigation operated from

outside by operators working in control and ship management centers. And those related to the

introduction of autonomous ships requiring the supervision and reaction of operators in emergency

situations. As indicated in Figure 6, these centers will primarily create integrators of control systems in

a fully automated ship – Tier 1 suppliers which will mean that shipowners' cooperation with the

shipbuilding sector will be continuous cooperation throughout the ship's life cycle and this means a

change in the business model in relations shipbuilding - shipowner. The business model from the unit

co-operation system during the ship's construction cycle to the model of strategic alliance in the

triangle: shipowner - suppliers of integrated ship management systems - shipbuilding production and

renovation.

The innovative potential of the European shipbuilding sector is currently so significant that it can cope

with the future demand for remotely controlled vessels and autonomous ships. This is the result of a


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long-term process of increasing the competitiveness of European shipbuilding where a detailed

analysis in this respect was made in D2.1. M.4. As a result, the ability of shipbuilding in Europe to

implement new technical solutions and implement technology at a level allowing the construction of

autonomous ships and implementation of organizational and technological solutions allowing remote

supervision and management of autonomous ships in crisis situations was estimated.

An important element of today's competitive advantage of European shipbuilding in the construction of

ships with advanced technical solutions and using the latest technologies is cooperation not only

within the sectoral enterprise of various levels in the value chain but also sectoral cooperation,

especially in the area of R&D&I. It should be clearly stated that without the use of new technologies

and new technical solutions created in other sectors of the economy, especially in the European R&D

sector, it would not be possible to build autonomous ships and plan to introduce them to the shipping

market.

The new technical and technological solutions for the ships and their construction processes can be

divided into areas that are developed by the shipbuilding industry and associated R&D centres

(Internal development):

1. Shipbuilding.

2. Propulsion and powering.

3. Smart ship.

and areas that are developed by other industries and associated R&D centres and used by the

shipbuilding industry in the shipbuilding process (External development):

4. Advance materials.

5. Big data analytics.

6. Robotics.

7. Sensors.

8. Communication.

The above set of areas clearly indicates the technological and technical level of the European

economy, which is important for the technological and technical development of the European

shipbuilding sector, where the pace of development is driven by the R&D sector of the European

Union. Much of the new technology used by the shipbuilding industry and the technological

development of the ships is generated outside shipbuilding industry. Therefore, the overall

technological and technical level of the European economy, which is the key factor for growth in this

sector, is based on the efficiency of the R&D sector.

As a result, European shipbuilding has the required technologies, the potential to implement new

technical solutions and employees capable of implementing all activities and processes related to

design, construction of remotely controlled and autonomous vessels and subsequent technical

supervision during the operation of ships of the above generations.


It should be recognized that global external factors having a significant impact on the development of

subsequent generations of ships, including autonomous ships, are:

i. New technologies allowing the manufacturing of more and more complex ships with an

increasingly higher level of automation of ship operation processes. The second area of

technology that allows data transmission and processing and remote control of processes.

The third IT technology known as “artificial intelligence” that allows the manufacturing of an

autonomous vessel where the automation of the ship's operational processes is managed

by integrated IT systems.

ii. The policy of economic development implemented by a number of countries or regions. In

Europe, a key element for the construction of autonomous ships is the EU 2020 Strategy,

through the implementation of which the European economy has raised its technological

level in order to catch up with the US economy and distancing itself in many areas, including


138

shipbuilding, from the Asian economy (with the exception of Japan ). As a result, European

shipbuilding is today a leader in the manufacturing of specialized and highly technologically

advanced vessels in selected sectors.

iii. Environmental policy of the IMO95

and the European Union aiming at the continuous

reduction of the negative impact of transport on the environment, where the growing

awareness of the societies of many European countries favors this environmental policy.

The EU's environmental policy enforces the introduction of technical solutions (new fuels,

hybrid drives, electric drives) that reduce the negative impact of sea-going vessels on the

environment. Examples of environmental policy in this area are: SECA zone96

, in which

ships are obliged to use fuel, in which the sulfur content does not exceed 1% per unit of

mass97

or the objectives included in WHITE PAPER 2011 - Roadmap to a Single European

Transport Area - Towards a competitive and resource efficient transport system.

The mentioned external factors are pull factors.

An example of the possibility of manufacturing autonomous vessels within a few years recalled earlier,

and conducted on August 21, 2017 in the North Sea by the Wärtsilä concern, is a remote control test

of the ship. A seagoing supply vessel, PSV98

type, "Highland Chieftain" was selected for this test. It

was built in 2013 at the Gdańsk Shiprepair Shipyard SA for Gulf Offshore NS from Aberdeen, ie the

Scottish branch of the American shipowner GulfMark Offshore, Inc. from Houston. During the

experiment, the 80 meter ship was introduced into a series of maneuvers, both at low and high

speeds, using a combination of dynamic positioning and remote manual joystick control. This is one of

the first similar tests carried out on an offshore service ship. In order for the test to be carried out, the

ship was equipped with the Wärtsilä Nacos Platinum navigation system, automation and dynamic

positioning system, as well as a thrust system consisting of two main propulsions, Schottel Combi

Drive, 2MW main propulsion, two Scana thrusters at 0 9 kW and four generator sets based on

Caterpillar 3512 diesel engines with a capacity of 1.7 MW (the latter manufacturer is represented by

Eneria Ltd - stand 5.05). Also appropriate software has been added to the DP system on the ship, so

that data transfer between it and the onshore workstation can be carried out using standard

broadband satellite communication99

.

When assessing what technologies are necessary to build and operate an autonomous vessel, it is

necessary to indicate two groups:

i. The first group are technical solutions and technologies used in them that enable the

manufacturing of ships capable of independent shipping, i.e. ships referred to as "smart

ships". Vessels of this generation equipped with subsystems and systems operating in an

automatic system (advanced materials, sensors, robotics, subsystems of automatic control of

individual processes) will additionally be equipped with a master diagnostic and control system

(IT technologies: large data sets processed at high speed from decision support software)

integrated into the management system of all operational processes of the ship.

ii. The second group includes technical solutions and technologies used that enable remote

control of a smart ship generation ship, and in the case of autonomous ship generation,

remote control of operational processes and ship management in crisis situations. It is

necessary to replace the communication system using the standard broadband satellite

connection that allows the transmission of large amounts of data. The example of remote

95

International Maritime Organisation 96

Sulphur Emission Control Area 97

However, from 2015 in accordance with the IMO regulations contained in Annex VI of the MARPOL Convention (in 2012

transferred to the European Union through Directive 2012/33 / EU of the European Parliament and of the Council of 21

November 2012 amending Council Directive 1999/32 / EC in terms of sulphur content in marine fuels) this content cannot

exceed 0.1% per unit of mass 98

Platform supply vessel 99

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control of the ship presented above illustrates the level of technological development of

broadband satellite communication systems enabling the transfer of large amounts of data so

that the remote diagnostics of ship systems takes place in real time. This technology, in turn,

is possible thanks to the Big Data system enabling fast data processing in a very short time.

The technology that will combine the above two groups of technical solutions and technologies

enabling not only design and manufacturing but also the operation of autonomous vessels will be an

IT system referred to as "artificial intelligence", which will replace man in controlling and managing the

ship.


In view of the fact that the first autonomous ship in Europe is already being manufactured and more

are being designed, there are currently no alternatives to autonomous vessels. According to

information obtained in expert interviews, autonomous ships will be built because there is a demand

for them from ship owners. However, due to the lack of provisions regarding the operation of sea-

going vessels until the time of their admission in the IMO forum, autonomous ships will be built in a

duplicate version, adapted for centralized management of ship systems by a two-three-man crew

(smart ship) and for the ship's automatization as soon as maritime regulations allow for it. Of course,

for the safe operation of an autonomous vessel, it is important to protect the artificial intelligence

system of the ship as well as the system of sending data against cyber-attacks. In this respect, the

problem is general and applies not only to autonomous vessels. It means that security systems, as it

happens since the creation of the Internet and data exchange systems, will be further developed and

the problem of possible cyber-attacks will not stop the development of autonomous vessels.

References

1. The role of Maritime Clusters to enhance the strength and development of European maritime

sectors. Report on results. Policy Research Corporation. November 2008 Commissioned by

the European Commission (DG MARE),

2. Załącznik VI konwencji MARPOL (IMO),

3. Directive 2012/33 / EU of the European Parliament and of the Council of 21 November 2012

amending Council Directive 1999/32 / EC as regards the sulphur content of marine fuels,

4. http://www.wirtualnemedia.pl/artykul/autonomiczny-statek-transportowy,

5. http://nt.interia.pl/technauka/news-norwegia-inwestuje-w-autonomiczne-

statki,nId,2392472#utm_source=paste&utm_medium=paste&utm_campaign=chrome,

6. http://www.portalmorski.pl/stocznie-statki/36903-autonomiczny-statek-ze-szczecina-drony-z-

trojmiasta,

7. Expert interviews conducted at the SCORE project workshops,

8. Expert interviews conducted during the SCORE project from January 2017 to January 2018


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5.4 Development of alternative fuels in shipping


Time Horizon: 2030

Management summary

Using Heavy Fuel Oil for shipping as residual of oil manufacturing processes has been a low-priced

solution and allowed also a nearly complete utilization of scarce oil stocks. With regard to the

increasing environmental demand on the shipping sector also the issues of Heavy Fuel Oil as high

pollutive driver for emissions and hence alternative fuel option has occurred. Here, LNG has been

accepted as low-emission fuel alternative providing environmental benefits and will be prevailing for at

least the next two decades.

The advantages of LNG as fuel has strong impacts on the shipbuilding sector as the sector provides

retrofitting measures for existing vessels for dual use options or newbuildings can be directly equipped

with LNG driven engines.

The EU shipbuilding industry has developed essential innovations in the area of NOx and Sox

abatement technologies and are therefore well-positioned with regard to solutions using LNG as fuel

alternative – but there are also strong efforts the Asian shipbuilding sector to enter this market.


Heavy fuel oil (HFO) has been used as dominant fuel type in the past as due to low costs for ship

operators. With the ‘greening’ of the shipping sector and the awareness of the fact that shipping is an

essential driver for GHG emissions as well as for NOx, SOx and PM with their local impacts,

environmental regulations by national and supranational authorities have been implemented in order

to reduce environmental pollutions from the shipping sector. A number of additional regulations to

reduce emissions from shipping will be in force in the next years and further regulations are under

discussion at national, EU and IMO level. Crucial in this context is the global limit for sulphur in fuel oil

used on board ships of 0.50% m/m (mass by mass) from 1 January 2020 set by the IMO. This will

significantly reduce worldwide the amount of SOx emissions from shipping and furthermore support

LNG as ship fuel which lowers SOx emissions by 90-95%. A comparable picture can be seen with

regard to required NOx reduction according to Tier-III standards. Here, LNG leads to a reduction of

around 75-85% of NOx emissions from ship operations.

Therefore, LNG has been widely accepted as technology to be used as alternative shipping fuel to cut

emissions. However, there are still a number of framework conditions that are to be improved in order

to facilitate the use of LNG as ship fuel. Some issues refer to regulatory and some to market driven

framework conditions. An essential regulatory issue is the provision of uniform safety regulation

onboard and in ports regarding LNG handling. A mainly market driven issue is the provision of

adequate bunker infrastructures in ports in order to provide sufficient bunker flexibility for ship

operators and the price development of LNG as shipping fuel.

In order to facilitate the development of LNG as fuel alternative for HFO, the shipbuilding sector

provides retrofitting measures for existing ships. Retrofitting of operating vessels with LNG propulsion

systems can be achieved through installing new dual-fuel engines or converting diesel engines into

specific LNG driven engines. Here, it has to be taken into account that operating vessels have reduced

flexibility in design as well as also limited available space on board. Hence, the opportunities for

retrofitting of operating vessels are subject to detailed analysis of any vessel individually.

Newbuildings of LNG driven vessels instead of retrofitting existing vessels is the second option which

is benefiting the shipbuilding industry. Again here, newbuildings can be equipped with dual-fuel

engines or purely driven LNG engines.

The user group will be ship owners and ship operators who have to follow national and international

regulations aiming at a reduction of GHG, NOx and SOx emissions from ship operations at sea and in

coastal and port areas. With regard to retrofitting measures, practically all ships can be equipped with

dual-fuel or purely LNG driven engines under the precondition that sufficient space for LNG tank is


141

available. However, currently the focus is on roro/ropax, cruise and ferries, product/chemical tankers,

container vessels, bulkers and service vessels of public authorities.


As the requirements on the shipping sector to become ‘greener’, i.e. more environmental friendlier –

particularly with regard to reductions of GHG emissions on a global level and SOx and NOx on a local

level – LNG has been introduced already into the shipping and consequently into the shipbuilding

industry as alternative for Heavy Fuel Oil.

However, the total number of vessel using LNG is limited compared to the total world fleet with about

55,000 commercial vessels. Currently, around 100 vessels are operating world wide using LNG with

around additional 100 on order. Most of these vessels are ro/ro, ro/pax and ferry vessels – often

operating in Emission Controlled Areas (ECAs).

Remarkable is the fact that the number three in the container carrier ranking CMA CGM has ordered

nine ultra-large container vessels which will be geared with a propulsion system allowing the vessel to

operate with LNG. These ULCC are among the first commercially operating ships deployed in

deepsea trades.

The most essential implication is the creation of new business opportunities for the whole value chain

– either in the retrofitting market or in the newbuilding segment.

However, as the issue of developing LNG as alternative fuel in shipping is driven by the development

of LNG fueled propulsion systems, engine manufacturers play an essential role here in this process.

Furthermore, the development towards a greening of shipping is triggered by a societal demand for

environmental protection. Hence, research and development becomes an essential part for innovative

and efficient technology-based solutions to reduce pollution from ship operations. This has lead to

strong public support from national governments and the EU for research activities in the shipbuilding

sector. However, as the innovative LNG technology bears some risk in terms of ship safety issues, it is

essential to involve the whole maritime supply chain into the research activities. This shall ensure that

all relevant aspects along the chain will be covered by competent high-tech companies.

Currently, the LNG technology is not fully developed. Safety issue as well as supply of bunker

infrastructures for ship operators are not fully addressed and solved. Moreover, the price development

for LNG compared to HFO and MGO is still uncertain which of course affects the decision of ship

owners on environmental friendly technology investments. The current number of LNG driven vessels,

incl. vessels fixed in the order book, is very low compared to the total number of commercially

operating vessels.

However, it is expected that the demand for LNG driven vessels will increase significantly. Hence, also

the innovative technologies will further develop –like the development of LNG driven auxiliaries for a

complete provision of the vessel with electricity from LNG.

And also the framework conditions will improve as safety regulations will be standardised on board

and in ports. Bunker infrastructure will develop positively as the number of ports offering LNG facilities

is steadily growing – either by offering truck-to-vessel, vessel-to-vessel or bunker station-to-vessels

services. Furthermore, the EU has put pressure on Member States with its ‘Directive of the European

Parliament and of the Council on the deployment of alternative fuels infrastructure’ which is part of the

Clean Power for Transport Package and requires an adequate network of LNG refuelling stations by

2025.

The demand for emission reduction measures in shipping is heavily depending on international

regulations that are forcing ship owners and ship operators to invest in environmental friendlier

technologies. Therefore the introduction of Emission Controlled Areas for NOx and SOx as well as the

introduction of the global sulphur cap in fuel from 2020 requires high investments in adequate

technologies.


142

For the period 2015 to 2030 a market potential for NOx reduction measures (incl. technology

alternative technologies like scrubbers) of about 20 bn EUROS has been estimated taking into

account existing Emission Controlled Areas for NOx (NECA) in the US and potential NECAs in the

Baltic Sea, North Sea and Mediterranean. Such a market potential from international regulatory

frameworks towards NOx abatement is regarded as essential for the shipbuilding industry as the

potential refers here mainly to newbuildings .

The global market potential for SOx reduction technologies in shipping is estimated at around 10 to 31

bn EUROS taking into account the existing Emission Controlled Areas for SOx in the North and Baltic

Sea. Assuming that also the Mediterranean will be declared as SECA the market potential increases

by additional 7-18 bn EUROS – leading to a total market potential of 17-49 bn EUROS for the

shipbuilding industry – again here incl. alternative emission abatement technologies. With regard to

short term investments until 2020, mainly retrofitting measures on operating vessels are assumed to

be used while for the following decade until 2030 investments in new vessels are expected.

Looking at the current LNG fuelled fleet with about 100 vessels operating and 100 on order an

increase to 400 to 600 LNG fuelled vessels in estimated to be globally operating until 2020 by DNV-

GL. The impact from the decision of IMO to cap the global sulphur content in fuel to 0.5 % has not

been included in the forecast

The development of LNG as shipping fuel is heavily depending on a number of parameters beyond the

influence from the shipbuilding industry. Legislative framework conditions are required to ensure safety

standards for handling LNG as fuel on vessels and in port areas.

The development of a reliable LNG bunker infrastructure network in ports is essential to provide ship

operators with sufficient LNG bunker facilities along their trading routes. This issue is also considered

as hen and chicken problem as ports are hesitant in investing in LNG bunker infrastructure if the

development of the demand for LNG from ship operators is uncertain. On the other hand, are ship

owners reluctant in investing in LNG driven vessels if they are unsure whether ship operators can

bunker LNG in ports vessels are calling. In order to stimulate demand for LNG, it is necessary to

further stimulate LNG as energy source also in other industries beyond the shipping sector. This

requires a cross-sectoral collaboration which needs to be initiated, supported and guided by national

governments and the EU.

The EU shipbuilding sector is highly competitive with regard to technologies using LNG as shipping

fuel. The biggest part of currently operating LNG driven fleet which is mainly deployed in services in

short sea operations has been built on Shipyards in Europe.

Hence, the most important players in the development of LNG as shipping fuel are European

companies, mostly engine manufacturers like MAN, Wärtsilä and Caterpillar/MAK. Despite the fact that

European companies have the highest market shares in the LNG market, there are a number of

competitors from Asia which have been also entering the market for LNG as ship fuel whereof Hyundai

and Daewoo are the most relevant ones.

A crucial point for the leading role of European companies is the high level development in

environmental protection in the EU compared to other regions in the world. Triggered also by a

societal demand for a greener shipping industry, research and development of highly innovative

technologies have been strongly supported on a national and on an EU level (e.g. the EU Leadership

2020 program). This has lead to the current strong position in the development of LNG technologies.

Moreover, the European shipbuilding sector has learnt from the loss of the container, tanker and

bulker newbuilding markets to Japan, South Korea and China that it is a key issue for the European

shipbuilding industry to focus on high-technology based niches markets.


143


Society trends facilitating a realization of the scenario:

• Increasing societal environmental awareness influencing the demand for a ‘green shipping’


• Tightened international environmental requirements on the shipping sector to reduce

emissions from shipping operations

• Policy support for an increased use of LNG as energy sources in the overall industry, not only

related to the maritime industry


• Development of LNG propulsion systems for other industry sectors than the maritime one

• Development of auxiliaries driven by LNG producing electricity for all powered units on vessels

• Technological solution for minimizing or avoiding methane slip, i.e. ’emissions from unburnt

methane


An alternative scenario is that ship operators and ship owners use predominantly exhaust gas

treatment system (like Selective Catalytic Reduction (SCR) or scrubbers) as emission abatement

technologies or use Marine Diesel Oil as fuel for reducing emissions due to the fact that uncertainties

linked to the use of LNG as fuel can not be timely solved (e.g. bunker infrastructure, LNG price level)

The implication of the alternative use case would be that the market on LNG technologies and related

newbuildings would decrease or be limited to geographical areas where LNG fuelled vessel are

deployed already today.

However, the current demand for existing technological solutions like exhaust gas treatment system,

i.e. Selective Catalytic Reduction (SCR) and scrubbers would increase as ship owner and operators

are legally forced to meet the environmental regulations. So, it would be a shift within abatement

technologies which the shipbuilding industry offers to the shipping sector.


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6 Push-Pull Factors for future demand of the European Transport Manufacturing industry

As described the realization of the futuristic scenario is pulled either by global trends (societal,

technical, economic, political and/or ecological) and/or pushed by (disruptive) technology

developments (Push-Pull Factors100

) into the market. Within the provided template each research

chapter analysis these factors for the respective demand aspects in detail. Results of the individual

research topics are collected and aggregated within this concluding chapter.

Also the individual factors influencing future demand for the European Transport Manufacturing

Industries vary substantially between the different topics and even more between the different industry

sectors, some similarities could be identified.

There are several technologies pushing new products, mobility services and business models

into the market. The electrification of propulsion technologies and the realization of emission-free

mobility is one of the main technology push factor influencing all sectors and therefore the transport

industry as a whole. Besides that, Digitisation technologies including Big Data Analytics, Deep

Learning, Digital Twins, platform technologies or other applications enable new Servitisation potential

for all industry sectors regarding e.g. sophisticated preventive and predictive maintenance services.

The respective solutions and services vary naturally between the different sectors, services and

business models but depend on modern internet technologies as a common basis. One of the most

dominant and most discussed technology trends enabled by digitisation technologies is probably the

development of self-driving cars.

Furthermore global trends and developments require and therefore pull new transport

solutions, services and business models. The most dominant trends influencing more or less all

transport modes and industries is the growing population with an accompanying increase of

globalization. This results in an increased demand for travel and freight logistics. Increasing

population size and urbanization leads to higher concentration of people in cities and metropoles and

thereby to less space for Road Transport and higher congestion. This trend also might increase

demand for both inter- and intra-city freight and passenger transport, putting pressure on public roads

and highways and therefore demand new concepts enabling sustainable mobility for all citizens.

6.1 Aggregated Push-Pull factors for Automotive Manufacturing Industry

Technology developments pushing on the market and influencing future demand

• To realize MaaS business models, collaborations are essential. With new technologies like

automated shared vehicles, intelligent algorithms and block chain, all partners of a platform

together can achieve that objective.

• Technology developments facilitating a realization of the scenario “Flying cars”: Horizontal

acceleration, Vertical take-off & landing, IT-Platform technologies offering on-demand mobility

• IT-Platform technologies offering on-demand mobility (ride-sharing/ ride hailing/ carpooling

services)

• The bulk of the technology required for self-driving cars is not futuristic, but it is the

combination of different sensors with advanced computer vision systems that makes it work.

• The most complex part of an autonomous car is the software that collects the data, analyses it

and actually drives the vehicle. It has to be capable of recognizing and differentiating between

cars, bikes, people, animals and other objects as well as the road surface, where the car is in

100

(2008) Pull vs. Push — Strategic Technology And Innovation Management For A Successful Integration Of Market Pull And

Technology Push Activities. In: The Boundaries of Innovation and Entrepreneurship. Gabler


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relation to built-in maps and be able to react to the environment. As in many areas the

systems have to shrink further in physical size and costs to get widespread deployment. On a

positive note, hardware capabilities regarding artificial intelligence and deep learning made big

leaps in recent years.

• Battery technologies and their charging capabilities have evolved in recent years. This

development is expected to continue in the years to come.

• In freight transport, BEV’s have also experienced a sharp increase in range and freight

capacity over the last years, but the battery technology is not yet mature enough to compete

with conventional freight vehicles in terms of range, loading capacity, or price.

• Technologies for platooning receive a lot of attention because of their commercial and societal

benefits. Platooning has the potential to increase capacity on road intersections by a factor of

two to three (Lioris et al., 2017..... By 2030, developments in connectivity technology and

automated driving support systems have enabled the wide-spread and multi-brand application

of vehicle platooning on public roads. This could be an important step forward to fully

autonomous vehicles, both for freight and passenger transport. The technology for platooning

is under rapid development. Using radars, cameras and vehicle-to-vehicle (V2V)-technologies,

the vehicles in a platoon can now drive safely at as close as 0,3 seconds apart under testing

conditions (TNO, 2017). In addition, a wider use of GPS-tracking of vehicles and internet-

based logistics operations management, might improve vehicle platoon matching on the fly.

Global trends pulling technological solutions into the market and shaping future demand

• Society is changing: More and more young people, and young to middle-aged adults find

MaaS attractive because it gives them the freedom to leave there car at home or not even to

buy a car at all. Increasing user belief: Travelling time should be quality time.

• Increasing population size and urbanization leads to less space for own car and higher

congestion.

• Politics: Promotion of sustainable transport solution across EU. One approach is congestion

taxes and other instruments to reduce traffic in metropole city centers. Politics starts to act in

dense urban areas. Governments at both national and local levels are promoting electric

vehicle charging infrastructure through different forms of subsidies, grants, and public-private

partnerships. Buyers demand easy access to publicly available fast charging infrastructure

and a vast network of fast-charging stations

• Beyond that, autonomous driving will help to make the traffic more efficient and will counteract

the increasing congestion.

• The worldwide population in urban areas is going to grow considerably and the annual number

of cars sold remains growing as well. This combination leads inevitably to more congested

roads unless new mobility concepts are developed and is fertile ground for new mobility

services.... Therefore there is still an urgent need to tackle these problems with innovative

(disruptive) technological measures.

• Furthermore, urbanization leads to increased concentration of people in cities and metropoles,

both in Europe and globally. This trend is expected to continue towards 2050 (BBVA

Research, 2016), and might increase demand for both inter- and intra-city freight and

passenger transport, putting pressure on public roads and highways.

• As urbanization and transport demand continue to increase towards 2030, authorities and

transport companies need to adopt new technologies for more effective utilization of existing

road infrastructure and the reduction of vehicle emissions.

• Several benefits of platooning might emerge from better capacity utilization of existing

infrastructure, potentially lower labor costs, increased road safety, and reduced energy

consumption, leading to both transportation cost savings and reduced emissions for

transportation operators and society at large.


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• Considering that greenhouse gas emission regulations have also been tightened over the last

years, new technologies such as platooning might provide a solution for many countries to

reduce their emission from transport.

• Over the coming decade, a transition is expected from vehicles with internal combustion

engines to electric vehicles. Driven by policy, technological, and economic developments,

manufacturers will have to adapt their development and supply chains and increasingly source

materials for lithium-ion batteries (seen as dominant technology for the coming decade)

against the backdrop of increasing raw material prices. Particularly for the essential lithium

and cobalt inputs, (temporary) shortages may occur. Policy makers in different regions (e.g.

EU, China and the United States) have introduced more and more disposal bans or

mandatory collection schemes for lithium-ion batteries, or are in the process of doing so. This

implies that waste disposal as end-of-life option will effectively be cut off in most important

regions.

6.2 Aggregated Push-Pull factors for Aeronautics Manufacturing Industry


• The main aim is to conserve revenue. Digitization will not just lower cost, but improve

manufacturing processes effectively by removing bottlenecks associated with complex

discrete manufacturing systems in the aerospace industry….The key issue the industry

currently faces is the ability to deliver their orders in time as any delays could result drop in

orders or shift to competitors, which is quite common in the aerospace industry. Thus

digitization will contribute to effective performance both operational and economic.

• Digital Twin: These are virtual models of a system, sub-system or a component which has the

ability to capture and predict the life of these components. This platform will help raise the

fidelity of the product’s through-life and is currently under the infancy stage. It is supported

heavily with IoT and artificial intelligence to predict early or premature failure of a component.

• Internet of Things (IoT): The organizations overall equipment effectiveness (OEE) can be

monitored through sensors and radio frequency ID (RFID) tags and assist in monitoring the

asset under operation. Various groups and organizations are coming up with IoT based

solutions to optimize performance of the asset, be it in monitoring the on-board entertainment

system, passenger seats or the flight speed data.

• Big Data Analytics: With the growing number of sensors comes the burden of data

management. In other words, how much data is being produced, which data is relevant, what

the data represents in real terms etc., are few of the questions that are currently being taken

up. The industry is now investigating the application of novel and innovative algorithms,

machine learning and data-mining to realize the value from the data and thus lead to effective

and enhanced decisions. Utilizing real-time data for effective delivery is being regarded as key

to improved performance.

• Virtual Certification: With a large number of certifications and process still paper based,

digitizing them could help automatically determine the level of uncertainty and thus ensure

conformity and compliance of the product. This will also help simulate scenarios effectively,

directly impacting the pace and expenditures occurring during the development of the aircraft.

• Also leading to Future concepts such as … - all-electric, blended wing, open rotor and hybrid

air vehicles


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• Again, the biggest impact has been due to growing middle classes globally, and more

specifically in emerging economies, where by the demand and propensity to travel has caused

the industry to look for alternate solutions. Further, increased connectivity and rise of

megacities have led to liberalization of the airspaces. Low-cost carriers continue to drive the

demand for air travel.

• Reducing emissions: Aviation is one of the fastest-growing sources of greenhouse gas

emissions. The EU is taking action to reduce aviation emissions in Europe and working with

the international community to develop measures with global reach.

• Reducing noise: Aircraft and airport noise are complex subject matters which have been

studied for decades and are still the focus of many research efforts today.

• Globalization: As a consequence of globalization, air markets have been liberalized, the

networks that airline companies operate have changed, many new companies have entered

the market and new business models have arisen (low-cost). (OECD, 2009)

• Increasing population size and regional differences in the growth: World population is growing,

but while it has stabilized in Europe and USA, it still has a positive trend in most of the

developing economies such as India or countries in Africa and Latin America (EEA, 2011).

• Tourism: It is intrinsically linked to the transport realm; so any change in tourism trends has a

huge impact in air transport.

• Continuous need of new products: By definition, aerospace is at the forefront of technology,

and there will always be a need for lighter, more compact, more durable and more efficient

products — whether it’s actuators, ball splines, or stud roller systems.

• Safety: Security and safety regulations have a great influence in aerospace development

• The economic growth rates in emerging markets such as Asia, Latin America, Africa and the

Middle East, are outstripping more economically developed regions. One significant effect is

that the middle classes in Asia are expected to quadruple in size by 2033 whereas globally

they will double from 33% to 63% of world population. As a result of increased urbanization

and concentration of wealth, the number of aviation mega-cities worldwide will double to 91.

These cities will be centers of world wealth creation with 35% of World GDP centered there,

with more than 95% of all long haul traffic going to from or through them.

• Emerging economies which collectively account for six billion people are the real engines of

worldwide traffic growth. They will grow at 5.8% a year compared to more advanced

economies, like those in Western Europe or North America, which are forecast to grow

collectively at 3.8%. Emerging economies also account for 31% of worldwide private

consumption which will rise to 43% by 2034.

• Growth in air travel is likely to be driven by domestic and regional flights in fast-developing

markets in Africa and Asia rather than existing international routes.

• In 2014, the total population of the EU-28 was 506.8 million inhabitants, an increase of almost

20 million (4%) from 2000 (Eurostat, 2010)…In the 1950s, 30% of the world’s population lived

in urban areas. In 2014 this figure was 54%. By 2050 it could reach 66%...The global

population is expected to reach 9.8 billion in 2050 with half the growth to 2050 coming from

India, Nigeria, Pakistan, Democratic Republic of the Congo, Ethiopia, Tanzania, the United

States, Indonesia and Uganda.

• Population and economic growth has increased the global volume of traffic markedly, to

around 16 billion passengers annually (compared to the 2.5 billion passengers in 2011). The

exploitation of the best air mobility options - diverse routes, locations and flight levels - for

passenger and freight transport avoids airspace congestion and bottlenecks. (European

Commission, 2011).

• New airports in Asia: Chinese government has already expressed its intention to capitalize on

this growth with plans to develop an additional 20 airports across the country by 2020, Hong

Kong International Airport’s (HKIA) three-runway system is now set to come into effect around

2024.


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6.3 Aggregated Push-Pull factors for Rail/Rolling stock Manufacturing Industry


• Many of the technologies needed for innovative … are already available and have a high

potential in the safety of autonomous trains. Those are for example artificial intelligence,

telecommunication, sensors, geolocation, dependability, cybersecurity, and modeling.

• Digital services and real-time information are essential for the travelers, and need to be

developed as much as possible to gain the loyalty of the existing patronage and to attract new

customers.

• On the technological side, the major trends facilitating the servitisation of the rolling stock

industry are the development of digital technologies and management of data. These

developments allow the implementation of condition-based and predictive maintenance.

Remote access to information on condition and operating characteristics of the asset

facilitates more timely awareness of faults to provide faster maintenance and repair and can

lead to improved equipment design, operation behavior and less need for manual observation

in the field. The resulting improved responsiveness in service provision has a positive impact

on asset performance and availability, while the improvements in design and operation

behavior have a positive impact on reliability.

• Local transport: numerous new travel services and new mobility actors emerge taking

advantage of the digital environment, with new concepts such as ride hailing (e.g. Uber

services), Mobility as a Service (MaaS), Mobility on demand (sometimes going beyond

passenger travel and including the travel of goods), Pay-as-you-go, carpooling, carsharing,

bike sharing etc. These services are at the same time complementing conventional transport

services and competing with them.


• Traffic: Europe´s countries with the highest congestion (Inrix 2016)



• Establishment of a law on cybersecurity.

• Long distance and international transport: more and more citizens now leave their usual place

of living, either to travel from a city to another within their country or to cross borders

throughout Europe.

• Local transport: the „local travelers“ – by far the largest number of passengers carried in

Europe – are now more and more „connected“ and want to remain connected before and

during their travel – they expect more than just being transported during their travel, they want

to be informed in real time and to communicate within their personal networks wherever they

are including on board vehicles.

• Sustainable mobility is now a primary objective of the public authorities and of a majority of

citizens, who no longer believe that private car is the solution for urban transport. This new

trend is a great incentive in favor of the development of attractive rail systems. And part of rail

station attractiveness lies in the provision of new services within the stations, so that travelers

feel safer and more secure and consider stations as pleasant living places providing a variety

of non-transport activities. These activities could even be used by customers not primarily

interested in transport services and living nearby the stations.

• There are a number of current demand trends pushing towards servitisation in the rolling stock

industry. Customer’s requirements are changing from demanding just trains to demanding

“trains as a service”, with high expectations about the levels of availability and reliability. This

change has arisen for two major reasons. On the one side, the base of private investors in

rolling stock assets (e.g., leasing companies and financial investors) is increasing, but these

players lack in-house maintenance capabilities. On the other side, traditional operators are


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outsourcing more and more on the operational side and retaining only end-user business

(such as marketing, ticket sales and train operation). This increasing demand for services is

set to last as rail markets continue to liberalize and rolling stock to standardize.

6.4 Aggregated Push-Pull factors for Shipbuilding Manufacturing Industry


• shipbuilding: higher level of automation, software integration, data visualization, additive

manufacturing, adaptive hull form and less/no ballast design;

• innovative and sustainable propulsion and powering technologies;

• advanced materials: materials fine-tuned at micro- or nano-scale, thriving composite materials,

bio-inspired and bio-based materials,

• big data analytics: data’s multiple connections between different sources in the marine

industry: design, material performance and inventory, condition monitoring, meteorological

and oceanographic data, accident or incident, cargo, communication and navigation

inspection and maintenance,

• New technologies allowing the manufacturing of more and more complex ships with an

increasingly higher level of automation of ship operation processes. The second area of

technology that allows data transmission and processing and remote control of processes.

The third IT technology known as “artificial intelligence” that allows the manufacturing of an

autonomous vessel where the automation of the ship's operational processes is managed by

integrated IT systems.

o robotics: cognition, versatile, imitation, senses, adaptability,

o sensors and communications: engine room, hull, bridge, cargo.

• Development of LNG propulsion systems for other industry sectors than the maritime one

• Development of auxiliaries driven by LNG producing electricity for all powered units on vessels

• Technological solution for minimizing or avoiding methane slip, i.e. ’emissions from unburnt

methane


• agglomeration, urbanization and industrialization – as economies develop manufactured

goods are exported and imported worldwide generate demand for ship services, which should

be more efficient and faster;

• ecological awareness – it’s the pressure of the society forcing the use of ships powered by

green energy and reducing of emission of exhaust gases and elimination of other ways of

environmental pollution in the ship's operation process which could generate demand for new


• climate changes (new trade routes through the Arctic Sea which have to be considered in

projecting new building ships and can generate demand for new technologically adopted

vessels);

• advances in living standards increasing the middle classes and generates demand for

consumer goods, resources and services;

• cross-border e-commerce - generate demand for ship services, which should be more efficient

and faster;

• population growth – demand for new, more efficient and faster vessels;

• growing safety and security also environmental requirements which generate demand for new

vessels adapted to that requirements;

• growing requirements of safety and quality of: work on the ships, navigation, maintenance,

cargo operations, managing and operations which generates demand for adapted to that

requirements new vessels;


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• growing economic activity of the world (GDP) and share of emerging markets in the world

GDP and seaborne trade – it could generate demand for ship services, which should be more

efficient and faster…increase in the volume of transport carried out by sea;….development of

market and increase of competitive battle which make a pressure on ship-owners for building

a vessels powered by green energy, reducing of fuel consumption and emission of exhaust

gases (pressure for reducing the operating costs);

• intrinsic pressure for reducing the operating costs (development of market and increase of

competitive battle make a pressure on ship-owners for building vessels powered by green

energy, reducing of fuel consumption and emission of exhaust gases);

• Tightened environmental requirements on cruise vessel operators from national and supra-

national authorities (e.g. IMO, EU)…Environmental policy of the IMO and the European Union

aiming at the continuous reduction of the negative impact of transport on the environment,

where the growing awareness of the societies of many European countries favors this

environmental policy. The EU's environmental policy enforces the introduction of technical

solutions (new fuels, hybrid drives, electric drives) that reduce the negative impact of sea-

going vessels on the environment…Increasing societal environmental awareness influencing

the demand for a ‘green shipping…Tightened international environmental requirements on the

shipping sector to reduce emissions from shipping operations

• Policy support for an increased use of LNG as energy sources in the overall industry, not only

related to the maritime industry


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7 Appendix

Future Use Case Scenario title Sector/Mode of Transport: <Which sector is the use case addressing mainly?>

Time Horizon: <2030 or 2050>

Management summary

<Please, give a brief overview.>

• What is the main idea described in the Use Case?

• What are the implications for the affected industry sector?

• How competitive is the EU-transport industry from today´s perspective?

Description of the Future Use Case Scenario (=reference scenario)

<Please construct a plausible (not desirable) use case scenario for the selected topic and give a rich

description so the reader can understand what the future could look like. Please consider

environmental aspects and positive and/or negative impacts for users and society>

• What are the main concept/business model and the novelty of the solution in the use case?

• Which user groups will use the solution and why?

(e.g. passenger transport, freight, freight-passenger fusion, public transport…)


<Please, derive the impacts and conclusions for the industry>

• What is the current state of the UseCase in Industry? What does the industry & academia

undertake today to meet that future demand? Are companies already providing pilot solutions

in this area or have a unique selling point as competitive advantage (e.g. by offering platform

services like UBER). How has the technology in the use case evolved until today (are there

different technology paths…)?

• In Europe

• Worldwide

• What are the implications of the described Use Case Scenario on the industry value chain?

• How does the demand in the Future Use Case Scenario (reference scenario) correspond to

current business models?

• Are cross-sectoral collaborations required?

• How competitive is the EU-transport industry today in order to meet the future demand (Does

Europe has the required technologies, applications, expertise)?


<Please, not external trends (societal, technical, economic, political and/or ecological) and industry-

internal developments based on references you counted into the construction of the use case.>

• Global trends (societal, technical, economic, political and/or ecological) facilitating a realization

of the UseCase (e.g. urbanization, gender shift, silver society, protectionism,

individualization…)

• Technology developments which are facilitating a realization of the UseCase (3D-printing,

Cyber-physical systems, Artificial Intelligence, Block chain, cloud computing …)

• …


<Since we are no fortune tellers, please display plausible alternatives to the use case described

above>

• Please describe another possible scenario for the UseCase?

• What are the implications for the industry value chain & business models?


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OR

• What events/developments with low probability but very high impact could change the demand

drastically (e.g. substitutes, cyber-attacks…)?

• What are the implications for the industry value chain & business models?

References

<complete list of references>

<Expert interviews with stakeholders>

score d3.2 push and pull factors for industry as derived from...

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