Hutchison UK: Asia-Europe rail won’t dent ocean volume

Hutchison UK: Asia-Europe rail won’t dent ocean volume

There are 30 trains a week on the Silk Road providing a total weekly capacity of around 4,000 TEU.

The China-Europe rail alternative to container shipping that has seen a rapid growth in volume in the last three years was placed firmly in context at a London forum covering the Belt and Road trade initiative.

Capacity limitations on the overland route and the higher costs mean there will be little impact on the volume moving by sea, said Clemence Cheng, executive director of Hutchison Ports and CEO of the Port of Felixstowe.

“While the rail demand will grow, it will not be enough to make a sizeable dent in ocean volume,” Cheng told delegates at the Belt and Road forum, a gathering hosted by Norton Rose Fulbright as part of London International Shipping Week.

“There are 270,000 TEU of weekly ocean capacity between Asia and Europe, and that will increase to 300,000 TEU per week next year as the mega-ships are deployed. By contrast, there are only 30 trains a week on the Silk Road providing a total capacity of around 4,000 TEU per week, less than 2 percent of the shipping capacity.”

This sentiment was shared by Harry Theochari, Norton Rose Fulbright’s head of global transport. “Trade is conducted primary by ships, and 80 percent of cargo is moved by ocean. It doesn’t matter how many railways are established, rail will never take over from container shipping,” he said.

The rail option between China and Europe is growing in popularity among shippers, and services offered by a multitude of forwarders include whole block trains, full container load, and less-than-container loads. However, Asia-Europe rail capacity is struggling to keep pace with demand.

Delays were reported through the summer on the European end on the Chiongqing-Duisburg route and at the Poland-Belarus border, and HP strategic procurement manager David Smrkovsky said this was damaging the transit time advantage that train should bring vs ocean.

Dachser Far East Managing Director Air and Sea Logistics Asia Pacific Edoardo Podesta also reported delays on the China-Europe route.

“In a way, the train service is a victim of its own success, going from a niche to kind of mainstream means of transportation with bottlenecks emerging at terminal level,” he said. “The main factor seems to be that infrastructure is not coping too well with a very accelerated growth in the number of block trains.”

Another factor that could limit the popularity of rail was its additional cost compared with ocean. Cheng said to ship a container by rail from China to Europe would cost $6,000 to $7,000 per 40-foot container, as opposed to $1,500 by sea, although at 15 to 19 days, the rail transit time was half that of ocean.

However, Cheng said he could see how rail might even benefit container shipping. “A number of leading UK retailers, such as Tesco, are using rail for shipping cargo from China to continental European destinations and then switching to short sea shipping for the last leg. It offers shippers a third option, and one that is quicker than conventional shipping but cheaper than air freight.”

While rail has its capacity limitations, there is no such problem on the maritime leg of the China trade initiative. China trade accounts for more than 50 percent of all containers handled at Felixstowe, and Cheng said 33 of Hutchison’s 49 ports were in 19 countries along the Belt and Road. Throughput from those ports represented 80 percent of Hutchison’s total annual throughput of 84 million TEU.

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