China-Europe rail evolving into reliable, shipper-driven solution

Belarus Europe freight train.

This week Damco, Davies Turner, and Kerry Logistics all announced new, weekly rail solutions connecting China and the European Union. (Above: A freight train travels through Belarus.) Photo credit: Shutterstock.com.

Logistics providers are steadily adding new China-Europe rail services as the overland network continues its evolution from a simple point-to-point option to a more reliable end-to-end solution that allows shippers to focus on better planning cycles and lower inventory.

This week Damco, Davies Turner, and Kerry Logistics all announced new, weekly rail solutions connecting China and the European Union (EU), citing customer demand and the opening of a new route in Central Asia that made new markets more accessible. They followed services from JD Logistics, CH Robinson, and Dachser.

China-Europe rail: now a feasible transport option

The language from the third-party logisitics providers (3PLs) describing the rail alternative is all positive — “reliable and speedy,” “great success,” “very popular,” “excited” — but behind the sales pitch to shippers there is a lot to be positive about. Just three years ago the China-Europe rail service was little more than an interesting alternative to lengthy ocean shipping and expensive air freight. Much needed to be done to speed up transit times and rail gauge transfers; improve data collection, data accessibility, and reliability; improve container visibility; streamline cross-border documentation requirements; and cut customs processing times, as well as linking additional cities to the network at both ends.

Improvements in many of these areas have been made and the services are pouring in. According to China Railway Corporation, 6,300 block trains, westbound and eastbound combined, traveled between the two continents between 2011 and 2017, including, 3,200 trains in 2017 alone. Andre Wheeler, director of Wheeler Management Consulting, said China’s plan is to have 50,000 annual freight train journeys moving 2 million TEU of trade volume by rail by 2021.

Building on growing demand from its customers, Damco is launching a new weekly east-west rail service connecting China and France that will offer door-to-door solutions for both full containerload and less-than-containerload (LCL) cargo.

“We know the pressures our customers are under to reduce the time it takes to move their goods from source to shop. We’ve seen an incredible rise in demand for rail, which is a reliable and speedy alternative to ocean freight,” said Kasper Krog, global head of rail at Damco. Damco said the service will be 20 days faster than ocean freight.

Davies Turner’s LCL rail service will see consignments destined for China consolidated in the United Kingdom and transported by daily truck services to Hamburg. There, the shipments will be transferred to rail and travel to Wuhan in China. Ex-UK transit times to Wuhan range from 26 to 30 days, while customs clearance and delivery throughout mainland China averages five to seven days, dependent on the final point of delivery.

The global supply chain director for a German wholesaler told JOC.com that he shipped 150 to 200 FEU between China and Europe in 2017. “It is a super alternative to air freight. Very helpful to be at final destination in Europe in less than three weeks. It is going to stay and we will use this option, but because of the costs it will be an option used for things that are too late,” he said.

A switch from air cargo to rail

The transport and logistics head of a global electronics equipment manufacturer said three air freight shipments the company used to run every week out of Hungary to China had now switched completely to rail, bringing significant savings to supply chain.

“Making the decision easier was the chronic delays being experienced out of China during the recent 2017 peak air freight season. Shipments out of China in December took 15 to 20 days by air, with the pricing at $12 per kilogram [about $5.45 per pound],” he said.

While customer demand is behind the opportunity for 3PLs to offer new services, the China-driven construction of infrastructure is creating the physical platform allowing the rail network to expand and open up new markets.

Kerry Logistics used the newly built Baku-Tbilisi-Kars railway to launch cross-border intermodal services from China through Kazakhstan to Caucasus and Turkey to capture growing trade in the Central Asian markets and between those new markets and Europe.

Starting from Lianyungang in Eastern China, the westbound rail freight service will carry shipments across Kazakhstan and the Caspian Sea to multiple destinations in Turkey, using block trains and single wagons. With a transit time of 18 to 20 days, the main products to be moved will include electronic parts, electrical appliances, minerals, auto parts, and other industrial goods.

Interestingly, it is not just rail services that Kerry Logistics is offering. The Hong Kong-listed 3PL has also launched a trucking service along the same trade route from China to the Caucasus and Turkey and has added 50 trucks to the company's existing fleet. The trucking service offers a transit time of 12 to 14 days.

China-Europe rail downside: lack of capacity, especially in peak season

The downside to the popularity of China-Europe rail is the lack of capacity of the network, especially at peak periods. This was exposed during 2017 when the air cargo industry could not handle surging demand and shippers replenished depleted inventories and e-commerce took off. Europe shippers, unable to secure space on aircraft out of Asia, switched to rail, which soon began experiencing the same space constraints.

Congestion at key points where several rail services converge has become another problem. This can be seen in Kazakhstan and to a greater degree at the Belarus-Poland border were the Europe services meet.

Don Miller, vice president, global sales and marketing for Globe Tracker International, said delays happened where there are rail gauge changes on the China-Kazakhstan border and again at the Belarus-Poland border, but he pointed out that this was mainly because of train schedules and was rarely a customs-related issue.

However, more serious issues are to be found within the European Union rail structure itself. In a recent commentary on JOC.com, Pierre Liguori, director of supply chain consultancy Tokema International, said that 45 percent of inland transportation in the United States was done by rail in 2013, but rail freight accounted for just 17.8 percent of intra-European transport, a decline from the 19.7 percent share in 2000.

Liguori said the main structural weakness of the freight market in Europe came from the road transport supremacy for historical reasons. Despite significant funding for rail infrastructure development (€28 billion) provided by the European Union during the 2007 to 2013 period, EU member governments mainly played a conservative approach in Western Europe when Eastern countries used the EU development funds to develop their road networks, which accounted for 80 percent of investments in the 2000s. Countries such as France decided to put priority on passenger transport rather than rail freight, especially using European funds to develop high-speed train networks. France did not show any real political commitment to reduce the weight of road transport in the country.

Road transport continues to build its market share in Europe at the expense of rail freight. Liguori said national rules and regulations were not harmonized at the EU level with a lack of cooperation between each member country's infrastructure management body creating service disruptions. Rail freight trains in Europe achieve an average speed of 18 to 30 kilometers per hour (11 to 18 miles per hour), due to administrative constraints, waiting times, lack of central management, etc., when the average truck speed on European roads is 60 kilometers per hour. Road freight transport in Europe is simply cheaper and faster.

“The biggest challenge regarding attracting more shippers to use rail freight is cost reduction,” Liguori wrote. “It cannot be achieved only with additional volumes, more competition, and less bureaucracy. As infrastructure costs are paid by train slot, the length of trains and the related number of coaches is critical to decrease operating costs. Here again harmonization would be welcome. The average train length in Spain is 450 meters (1,476 feet) compared with 740 meters in France and between 1,500 and 2,000 meters in the United States.”

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

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