China’s rail reform aims to compete with air and road transport

As logistics providers such as DHL and DB Schenker begin to offer rail services from China to Europe, China is working towards reforming its domestic rail freight service. Earlier in 2013, the country’s Ministry of Railway was split into three groups and the China Rail Corporation (CRC) was formed with the purpose of overseeing the commercial aspects of the rail industry, including passenger and freight transport.

According to the CRC, the popularity of rail freight in China has steadily declined as air and road transport have become the preferred methods, despite higher rates. This change in modal preference was attributed to the railroad’s extra fees, complicated booking procedures and poor service. As a result, in June 2013, the CRC undertook reforms to make the railroad more competitive. The results, according to the group, were positive. For July 2013, almost 260m tonnes of cargo was transported via the country’s railways, a 2.5% increase over July 2012.

One of its first initiatives was the introduction of door-to-door freight transport. This allows shippers to arrange to have freight collected at their door either by contacting CRC customer services or online. This new option eliminated complicated procedures including liaising with various departments for transport and loading, and submitting request plans. Included within this initiative is small parcel delivery. The intended plan is for small parcels to be transported on the first high-speed train of the day to allow for same day or next day delivery to final destination.

The reforms that are underway with China’s rail should eventually help to ease the country’s high logistics costs, particularly as it continues to develop its domestic transportation network. It is likely that intermodal options combining rail and truck solutions will be encouraged to further promote efficiencies and provide alternative options; much like that which has occurred in the US. Companies that offer road freight solutions, such as CEVA, could benefit from this possibility.

Perhaps, what is most interesting is CRC’s attempt to compete within the express industry. According to China e-Business Research Center, 80% of the country’s domestic express parcels are moved by truck and 15% by air. Those moved by other means, including rail, come in at less than 5%.

According to an industry expert, for shipments moving over 1,000 km, air transport is preferable to rail and for those moving over a few kilometres, road is more flexible. Another expert, from Beijing Jiaotong University, has also identified that while the reform is a good start, it exposes the railway authority to problems. Firstly, it must update its information systems to provide customers with real-time tracking. Secondly, it must also provide flexible rates to meet changing market conditions. In addition, it must offer scheduled services to enhance reliability.

Reform within China’s rail industry is seen as a positive move and one that could help lower the country’s high logistics costs. While no one questions the benefits of moving bulk items such as coal and grain via rail, the movement of small parcel is raising some eyebrows. Ambitious, certainly, and a move that could definitely link China’s various regions together much like the e-commerce company, Alibaba, hopes to achieve with its own logistics plan. However, it has a long way to go to prove itself as trucks remain the transport mode of choice.