Eurasian rail services grow exponentially – but it’s not plain sailing

The Eurasian land bridge, a key facet of China’s ‘Belt and Road Initiative’ surpassed another milestone last week, as the 10,000th cargo train completed its journey along the line.

The project which began in 2011 has grown rapidly over the last two years. Around 70% of the trips taken between 2011 and 2018 occurred in this time frame. Recent estimates show that in the first half of 2018, 2,947 freight trains rang along the line, up 69% year-on-year.

Although the growth rates are high, the actual volumes are still very low when compared against sea freight volumes. China-Europe rail freight volumes now account for around 1% of the volume of trade between the pair, according to Eurostat. However, the increasing scale of trade starting to pass along this route now poses questions about the next stage of its development.

The service now connects 48 Chinese cities with 42 European ones, which is a substantial rise even when viewed against the situation at the beginning of the year (35 Chinese cities and 34 European cities). Nevertheless, the service is seeing bottlenecks and congestion at various stages. DB Schenker’s Greater China chief executive, Christopher Pollard, told the Loadstar that on average, trains take 12 days to reach Poland, but 17 days to take Germany. This is “two days slower than the lead time could be at best, due to efficiency issues along the route. One of the main congestion hot-spots is in Malaszewicze, Poland. At this border terminal between Russia and the EU, gauges are changed which causes delays due to the lack of infrastructure there. In addition, wagon resources fall short at the terminal”.

The land bridge has a number of lines, but to complete a shipment between China and Europe, trains must change gauge at least once. On another line, this occurs in Khorgos, Kazakhstan, a key gateway in China’s Belt and Road Initiative. Kazakhstan ranks 79th out of 139 countries in the World Bank’s Global Competitiveness Index for burden of customs procedures, and delays are commonplace. A lack of cranes needed to transfer containers to trains on the right gauge and corruption scandals have also made efficient running of the logistics facility problematic.

A number of logistics providers have begun providing offering Eurasian rail services recently, including Kerry, Damco and M&M. These companies are able to offer lower rates to shippers, which are subsidised by the Chinese state and provincial administrations. According to various reports, these subsidies could range from $1,000 to $5,000 per FEU. This has been a good way of promoting the service, but as more shippers utilise the line and as it becomes a more mainstream form of transport, those subsidies are set to run down.

Imbalances on the trade lane are also problematic. According to Wilhelm Patzner, CEO of Far East Land Bridge, “The challenge for the whole market is that we have two-thirds westbound, one-third eastbound [volumes]. The key for further growth is finding European goods that you can put on the train to help equalise westbound and eastbound traffic. Empty containers have also become scarce in Asia – two years ago we paid around $300-400 for a container one-way to Europe. Now the market rate is $1,200.” This issue is by no means an issue exclusive to rail.

Overall, the rate of reduction in lead times (and to a lesser extent, cost) in recent years has been impressive, though there is further room for improvement. However, as the service scales up, the problems mentioned above will need addressing in order to sustain the high growth rates from the past two years.

Source: Transport Intelligence, September 11, 2018

Author: Andy Ralls


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