Downer EDI has signed a new five year agreement with locomotive company Electro-Motive Diesel that will see locomotive manufacture slowly move offshore.
The two companies have worked together for more than sixty years supplying and maintaining locomotive.
Earlier this week the two companies were awarded a contract by Fortescue Metals Group to supply 19 new locomotives to its Pilbara operations.
It also won another contract earlier this year for rolling stock at BHP Billiton's iron ore operations in the Pilbara.
Downer uses locomotive parts made by EMD, such as diesel engines, traction motors, turbo chargers, generators, and software, to manufacture Downer design3ed locomotives.
The contractor also purchases EMD locomotives offshore for sale in Australia.
Due to the current boom in mining demand for haulage and increased offshore competition, the two have changed how they operate.
Grant Fenn, Downer's CEO, explained that with this new agreement the two would move to a competitive locomotive supply model.
"Downer and EMD have taken action to ensure we have a sustainable business model that will give our customers an advantage," Fenn said.
EMD chief Billy Ainsworth added that "this agreement is another example of our responsiveness to customers globally".
Under this new agreement EMD will now manufacturer all locomotives for the Australian market with Downer selling these trains and after market products, as well as spare parts.
It will also manufacture all the locomotives as one its low cost overseas facilities.
However "during the transition period, which is expected to take between 12 months and two years, Downer will continue to manufacture locomotives in Australia," the company said.
While "the demand for locomotives in Australia remains strong …this new agreement with EMD means Downer will be better positioned to meet our customers' demands for better value and shorter lead times," Fenn said.
"We will have a sustainable locomotive business as we exit high cost manufacturing and concentrate on sales, repairs, and maintenance and whole of life asset management."