Improving transit times and favorable rates give air and ocean shippers another option China-to-Europe transportation options for automotive and high-value electronics shippers are much like that famous fairly tale about a blond-headed upstart and three bears. Ocean shipping is and was the slowest and cheapest mode, with a transit time of about 30 days but at roughly a tenth the price of air cargo delivery. And air cargo offers much faster delivery, but the expediency comes with far steeper prices that many supply chain managers would like to shake.
Enter what some in the industry see as the “just right” solution: containerized rail transport.
“We think it has a lot of momentum because it is going to give customers clearly a choice,” said Joseph Frank, vice president of FedEx Trade Networks Asia. “They can move by air, which is one to four days, or they can move by ocean, which is in the 30-day category, and now they have a third choice, which is intermodal, where they can do it anywhere from 10 to 15 days.”
Essen, Germany-based global logistics provider DB Schenker says it can deliver a notebook computer from Chongqing to the Netherlands via rail connections in 22 days. Delivering the same notebook would take 38 days via ocean, 22 days using combined air-ocean transport and four days via air. The rail pricing is attractive to air cargo shippers — a 40-foot container via rail can run as little as $9,000, up to 25 percent less than the cost of air delivery. Prices for containerized rail transport are as much as 50 percent higher than ocean shipment, Frank said at The Journal of Commerce’s 7th Annual TPM Asia Conference in Shenzhen, China, in October.
Rail pricing will become even more competitive as volume and services increase, said Rotella Lo, transport director for Greater China at CEVA Logistics. The cost of shipping a 40-foot container door-to-door from Shanghai to the Netherlands runs $9,000 to $11,000 currently, “depending on where the service is terminated and what kind of transit time the customer is looking for.”
But she expects economies of scale and competition between providers to push down prices if China Railway, which has increased its fees 10 to 13 percent in the last two years, doesn’t add to the door-to-door burden. “With increased volume for charter trains, it is forecast to be cheaper,” she added.
The two major routes from China are from central China through Kazakhstan and the more northern route via the Trans-Siberian Railway. The former tends to draw traffic from central and western China, while the latter pulls from Northeast China. Japanese and South Korean shippers also can ship their goods via ocean or air to the Chinese hubs for final transport toward Europe. Shippers can arrange their own block trains or load their goods on regular services.
Major shippers, including Hewlett-Packard, BMW, Audi, Volkswagen and Samsung, already have embraced China-to-Europe routes, with the help of CEVA, DHL Global Forwarding, Panalpina and Geodis Wilson.
The mode makes even more sense for shippers as Chinese production shifts west in pursuit of lower labor costs. Dell, Lenovo, Wistron and Foxconn, a major supplier and assembler for Apple, produce in western Chengdu, while HP, Acer and Asus have increased production in nearby Chongqing.
Expanding energy production out of the “stans” — Tajikistan, Kazakhstan, Turkmenistan, Tajikistan and Kyrgyzstan — is driving demand for consumer goods, giving shippers an incentive to route their goods through the southern Asia-Europe rail route.
Although a decline in air freighter capacity out of Asia and rising jet fuel prices are helping to fuel the trend, plenty of challenges to the emerging landbridge remain, Frank notes. Inclement weather, including temperatures that can hit minus-40 degrees, can stall services, and interconnecting rail lines have different gauges, requiring cargo to transfer between trains.
There is also less freight heading eastward, although there has been some growth in auto parts traffic from Europe to China, Frank said. The infrastructure isn’t there yet, either, with volume causing bottlenecks, a Panalpina spokesman said in June.
“Time and huge investments are needed to overcome this,” he said. “In the end, the aspect of reliability will decide how rail will develop.”
Customs delays, along with bribe-hungry and sticky-fingered border agents, are also a challenge for Asia-Europe rail routes. Kazakhstan, for example, requires 11 documents to import and export each shipment, compared to Hong Kong and Singapore that require four for outbound and inbound moves, said Tatiana Serova, commercial director at A.R.T. Logistics, a Central Asia specialist forwarder.
When factoring the total cost and time of importing and exporting, Kazakhstan scores a 2.1 out of 100, compared with Hong Kong and Singapore’s ratings of 80.9 and 91.5, respectively, according to the World Bank’s 2013 rankings. But customs procedures are getting better, largely because the joint customs union between Russia, Belarus and Kazakhstan is streamlining paperwork processing, Serova said.
The Asia-Europe rail links don’t threaten ocean liners, and air cargo carriers can stay competitive on some routes, said Frederic Campagnac, general manager of Beijing-based transportation and logistics consultant Clevy China. Rail doesn’t provide the flexibility or certainty that air cargo does, he added.
Costs depend greatly on whether shippers are moving goods from China to Russia or to western Europe. “For example, transportation from eastern China to western Europe is predominantly seaborne, as low transportation costs overweigh any possible time savings, especially under current circumstances in the sea shipping market,” Andrey Zhemchugov, Transcontainer’s director for capital markets and investor relations, said in July.
“The situation changes if a container is to be transported from central and western China to eastern or central Europe,” he said. “In that case, rail transportation is not only faster — about 20 days by rail compared with circa 50 days by sea — but also much more competitive in terms of pricing, especially given value of time, if valuable goods are transported.”
The cost of shipping goods via rail from Chongqing to Moscow is nearly equal to going by ocean, but the transit time is half, he said. Intermodal traffic on overland routes in Asia and Europe nearly tripled last year to 90,000 20-foot-equivalent container units.
Clearly, some shippers are finding the rail option is “just right,” but the question remains just how much air cargo traffic the rail routes can still grab.