Beijing moves to better regulate China-Europe rail network

Beijing moves to better regulate China-Europe rail network

A freight train travels across China.

Asia-Europe rail is a trade transport mode in demand. Asia-to-Europe rail transit is currently around 18 days compared with more than 30 days by ocean, and the land option is about six times cheaper than air. (Above: A freight train travels across China.) Photo credit: Shutterstock.com.

Chinese authorities are determined to better regulate railway operations on the China-Europe network, focusing on routes where demand justified the rail services and increasing supervision and management of local financial subsidies that were offered to train operators.

This is part of the reasoning behind the move to subsidize only full trains leaving China for Europe from early 2019, according to DSV China, as Beijing moves to improve the overall quality of the railway market suppliers.

Subsidies range from $1,000 to $5,000 per FEU, according to the Center for Strategic and International Studies (CSIS) in Washington, DC. Westbound rail rates for an FEU weighing about 9,600 kilograms (10.5 tons) are in the $6,000 to $8,000 range. In comparison, that same shipment via ocean carrier would cost about $3,000.

Shipper demand for a faster alternative to ocean freight is driving the rising volume and rapid development of new services on the intercontinental rail route. Asia-to-Europe rail transit is currently around 18 days compared with more than 30 days by ocean, and the land option is about six times cheaper than air. 

A spokesperson for the Denmark-based logistics service provider, which has a large Chinese presence, told JOC.com that its feedback from the market has revealed several trends that have begun to emerge as Beijing more tightly manages the rail network.

Services streamlining plan

Among those trends are that some high-frequency rail operators will cancel one to two departures in specific weeks or merge contiguous departures, the DSV China spokesperson said. This will have the result of streamlining services and ensuring full trains, but a question is whether fewer scheduled departures will impact the expected rise in volume.

Another trend was that some rail operators with low frequency now prefer to make charter deals with stable volume clients, as it can help them spread the risk.

DSV China also noted that freight reduction was a big trend. “Every rail operator hopes to attract more cargo sources, but at the same time will spend more time on local markets to try to build specified supply chain solutions for local enterprises,” the spokesperson said.

But as China becomes more confident with its rail strategy, and demand becomes more sustainable, arguably the most important trend is that new routing development will become more and more prudent.

“The blowout trial development in previous years will be curbed. Only delivery services that can match client demands will survive,” said the DSV China spokesperson.

This could slow volume growth in the China-Europe network, which because of its popularity with shippers has been growing at breakneck speed.

The network — giving shippers a faster option than ocean shipping and a cheaper alternative to air cargo — has evolved from a series of single shipper-driven services to more than 50. Even as growth decelerates, shippers’ embrace of the mode deepens, with volume rocketing from 1,400 TEU in 2011 to nearly 319,000 TEU in 2017, according to figures from mainland China rail entities and state media.

David Smrkovsky, former head of rail logistics for Foxconn-owned Chinese forwarder JUSDA, said that although the full-train rule has been in place since 2011, the local regulations on subsidies came later and, varying by city, stipulated that every container must be loaded or no subsidy would be given.

“This was creatively bypassed by rail companies putting one pallet per container on their LCL,” he said. At the JOC’s Container Trade Europe conference in Hamburg in September, Smrkovsky gave an example where a rail company bought five pallets of German bottled water and loaded one pallet each per container so the five boxes would make up the 41 containers required to fill the train before it could leave for Germany.

“If this rule now comes into force on whole China level, I expect it will be bypassed in a similar way. If not, one can indeed see quite some trouble with schedules and last minute cancelled departures, especially on eastbound trains, where the empties are quite frequent today,” he told JOC.com.

Smrkovsky said the number of departures would be reduced with longer end-to-end lead time, but if cargo waited even a week longer before departure, on certain ocean lanes the transit times would be far more comparable. “However, I expect rail platform companies will find workaround and continue as today,” he added.

Contact Greg Knowler at greg.knowler@ihsmarkit.com and follow him on Twitter: @greg_knowler.