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Maximising the benefits of rail’s spending boom

A dependable pipeline demanding true local manufacturing would ensure local businesses
are able to capitalise fully on substantial rail spending across Australia and New Zealand.

INFASTECH ENGINEERED FASTENING managing director, Glenn Heffernan, has seen his fair share of market shifts. From the mining boom, just beginning when he joined as the company’s financial controller in 2003, to the shrinking and reshaping of manufacturing which influenced his acquisition of the business through a management buyout in 2017, Heffernan has substantial experience navigating peaks and troughs in his company’s target markets.

Heffernan, now managing director of the business, sees the growth already underway in the rail sector and believes his business is poised to take advantage. But he says the unpredictable nature of spending from federal, state and territory governments in Australia
and New Zealand can create challenges for businesses like Infastech and its customers.

“The trend over the last few years has been growth, but it’s been spasmodic,” Heffernan told Rail Express. “Governments have made a lot of announcements over the last five years with varying levels of certainty, but it doesn’t seem there’s a long forecast of projects in the pipeline, and when they do happen, they come across very quickly.”

Heffernan is not the first to raise this issue. The Australasian Railway Association (ARA) has repeatedly called on governments to commit to a unified pipeline for major rail projects, to allow the private sector to better prepare itself with adequate skills and equipment to ensure contracts are executed as efficiently as possible. The ARA recommended the federal government resource the Australia & New Zealand Infrastructure Pipeline in its 2019-20 Budget Submission as part of this.

Despite this push from industry, the politicised nature of spending on major infrastructure projects means companies are operating with a significant level of uncertainty across the region. Even the largest, most financially stable international rollingstock manufacturers have identified the sporadic nature of spending as a limiting factor in their commitment
to the local market.

Heffernan is seeing this trend not from the perspective of a tier one manufacturer or engineering firm, but from deep within the rail supply chain. The companies Infastech serves with fastening tools, equipment, parts and maintenance are often contractors or suppliers of the tier one companies delivering rollingstock or rail infrastructure projects under major government contracts. And he says the lack of proper commitment to long-term planning makes it difficult for everyone to deliver.

“The ideal would be to have a long pipeline of specific projects, and detailed requirements of those projects. But at the moment it seems to be a short pipeline, and very little notice between when a project is identified or announced, and when it goes ahead,” he said.

“This means we’re holding stock to support these programs when they are announced, without any security of demand. That insecurity flows down the whole line, because it makes it difficult for our customers to speak to their customers, and their customers are some of the biggest companies in Australia – or in the world – and it’s very difficult to
communicate some of these things. What might seem to be a minor issue to them could turn into a major issue if you can’t get the stock in time.”

Infastech works hard to accurately estimate the needs of the market for each of its products, anticipating a 12 to 24 month outlook, and keep stock on hand accordingly. “We try to work with our customers the best we can to judge their future needs,” Heffernan said, “but more often than not their reply to us is, ‘We can’t give you a forecast because we’re at the mercy of our customers.’”

Given most of the parts come from the US or other overseas markets, filling empty stock in a short window can be a complex and costly process.

“At times a supplier or customer buying parts from overseas may need to pay break in charges or expediting charges to get them on time. That means they could be buying the part at an exorbitant cost if they’re going to meet the requirements of their project. And even if you pay break in charges, it varies from supplier to supplier; you might be able to bring an order forward but it still might not be enough to satisfy the customer’s requirements, which becomes very messy.”

Matt Thomas, Infastech’s business development manager responsible for Queensland, New South Wales and New Zealand, says the company has been impacted several times by sudden surges in project spending.

“Because of the lumpy nature of these projects, we may be holding what we think is 12 months’ stock, but that can all be consumed in one order with rail customers,” Thomas said. “We’ve had several examples where that’s happened. We’ve been sitting pretty and
then we’ve had two or three orders in quick succession which have cleared us out in a matter of weeks, and then we’re left with a six-month lead time. It’s very difficult to manage.”

“Murphy’s law,” Heffernan added. “You go from a slow-moving stock scenario, to being out of stock in as little as one order. Then you have to reach out to overseas suppliers, but Australia is still small in terms of the world economy, and our suppliers are delivering
stock for big projects overseas, all around the world.”

Local content – the smaller the better
Despite their desire for a more reliable pipeline for infrastructure, both Heffernan and Thomas are immensely positive about new and ongoing government commitments to rail infrastructure spending. The commitment in states like Victoria and Western Australia for local manufacturing of rollingstock is of particular note – but both agree governments should prescribe as fine a level as possible when it comes to local content guidelines.

“Once these projects are announced you see more confidence in the market; confidence in Australian manufacturing and capabilities, and that really does make everything more buoyant, when companies like mine think the government is supporting them,” Heffernan said.

“The reality is, though, a lot of components for these projects are manufactured overseas and brought into Australia for assembly. For a supplier which supplies specific tools and parts, local ‘assembly’ can eliminate most of the actual manufacturing.”

Thomas, who has experience in the defence sector, believes governments could look to contracts in that space as a potential model to further enhance the level of local content in rollingstock procurement.

“In defence contracts, Australian content is commonly specified right down to the steel source where that manufacturing capability exists within Australia” Thomas said.

“More often for rollingstock, Australian content specification allows for rollingstock to be Australian assembled, but the components are coming in pre-made from overseas even when those components can be manufactured locally. If we’re able to instead take an all-encompassing approach, that would be better. Where that really helps us is in supplying the
tier two customers, who are supplying the tier one manufacturers; the large-scale engineering shops and so on. They’re the ones that largely miss out with the current setup.”

Reliability and certainty a focus
While it continues to navigate an unpredictable market, Heffernan says Infastech is doing its part to remove uncertainty and unnecessary delays as much as possible for its customers.

“We hold spare parts for pneumatic and battery tools at our head office in Melbourne, and we have a repair house here,” he explained. “We also have a loan tool service, to ensure our customers production is not interrupted while their tools are being repaired.

“On a larger scale we have a partnership with Enerpac, the rig that runs our tools for most of
the installation of rail-related fasteners. Enerpac has an Australia-wide repair network, with sites in all major cities. That’s a very high-quality product, and the network of service centres further enhances that reliability.”

Heffernan believes this approach to reliability is a must for a sector like rail.

“The industry is very risk-averse regarding tools. It’s such a mature industry. For us that’s good and bad: ongoing clients are getting a good product and are happy, but it can be hard to win new business, because once a contractor has its supplier it can often be hesitant to change.”

One source of work Heffernan hopes to continue to tap is the region’s growing rail infrastructure and rollingstock maintenance task.

“You won’t send a bogie overseas to be repaired, for example, so we see the repair and maintenance side of rail as big for us, especially into the future,” he said. “That’s a huge industry that’s getting bigger.

“Any fastener that’s in our range can be used in some part of rail infrastructure or rollingstock. From things like bogies, all the way to fixed infrastructure around the railway itself. In one case, we supplied fasteners for sound walls during the construction of new elevated rail lines and stations in Melbourne. And our engineering department is trained to go in and look at the required application and specify the best fastening solution in terms of both performance and cost effectiveness.”