17 October 2019

Inside the industry: China sees rail freight as pivotal to the success of the Belt and Road Initiative

The emphasis on rail freight as a viable logistics solution on an intra Europe scale is gaining momentum. But for many European companies and governments, a strong consensus is also building that rail will be a driver of the anticipated increase in trade with China and other east Asian markets.

 

The China market has attracted attention with its Belt and Road Initiative and the Chinese government has made a strong commitment to boosting rail freight service and infrastructure into the EU.

There are now 11 rail routes between 56 Chinese and 49 European cities. Most freight journeys are between German and Chinese cities, but the rail network is widening to other major European destinations.

The impetus for the development of the rail system has come from China, which runs a $176bn trade surplus with the EU.

However, Europe exports almost $200bn of goods to China a year, and there is currently a 350% annual increase in European goods making the return trip east by rail.

Many of the major European lines and other logistics players are ramping up their efforts to move containers to China and back on dedicated freight trains which are viewed as having a smaller environmental footprint and can be faster than seaborne freight and cheaper than airfreight.

 

Rail is central to the Belt and Road Initiative

From the other direction the Chinese government sees rail as central to the BNR initiative and the country is on track to achieve its target of 5,000 westbound freight train movements per year this year, as shippers’ use of the mode increases, with volume jumping from 1,400 TEU in 2011 to nearly 319,000 TEU in 2017 (last available figures), according to figures from mainland China rail entities and state media.

The growth in rail freight is also being partly fuelled by exporters from Japan, South Korea, and Taiwan who use ocean freight to ship cargo to China where it is trans-shipped onto freight trains to Europe.

Analysts conclude that rail freight to and from central Europe to China is one third of the cost of airfreight and takes 16 to 19 days compared with ocean of 30 days.

There are significant operational advantages, but the Chinese ‘move to rail’ is still heavily subsidised. It is estimated that without subsidies firms would have to price the service at about $10,000 per container to be profitable, while subsidies allowed them to cut the price to between $3,000 to $6,000 per container.

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China wants better regulated railway freight operations

Chinese authorities are determined to better regulate railway operations on the China-Europe network, focusing on routes where demand justifies the rail services and increasing supervision and management of local financial subsidies offered to train operators. This is part of the reasoning behind the move to subsidize only full trains leaving China for Europe from this year as Beijing moves to improve the overall quality of the railway market suppliers.

Several of the major European logistics companies and lines are now eying  three new routes between China and Europe that China Railway Container Transport (CRCT) is planning to open up to avoid bottlenecks at the existing gateway at Malaszewicze in Poland.

CRCT said earlier this year that one rail link would run southwards, connecting the Black Sea to link the southern part of Europe and Turkey. Another would run through northern Poland.

The Europeans are anxious bystanders in the ongoing trade dispute between the US and China, but economists note there is still robust growth in the Chinese economy despite the friction.

There is plenty of evidence of this as the figures show. China-Europe freight services continued to show strong growth in the period up to August 2019 according to CRCT.

The number of trips from China to Europe reached 2,845 with a total of 250,000 TEUs while figures from Europe to China stood at 2,421 with 210,000 TEU, according to CRCT data released in September 2019.

With its environmental advantages allied to the cost and speed efficiencies of freight by rail, it is clear that railways will be a core part of European-China trade to an increasing extent.

 

 

This article is part of CS WINdow, Contship Italia Group's quarterly newsletter, featuring insights on the global supply chain, with a focus on European intermodal logistics. You can subscribe to learn more:

 

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