Container lines see opportunity in China-Europe rail

Container lines see opportunity in China-Europe rail

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Hearing about European shippers’ appetite for China-Europe container rail service at the 2017 JOC Container Trade Europe Conference in Hamburg in mid-September, the words of writer Victor Hugo echoed: “Nothing is stronger than an idea whose time has come.”

This is a great way to describe the breakneck growth, in which the number of weekly eastbound services has increased from less than 10 several years ago to more than 50 today, connecting eight Chinese terminals with six in Europe. The number of westbound services from Europe also has soared to 23.

Rather than feeling threatened, ocean carriers see the development as part of an integrated network. “It is not big enough to be a threat, but there is a huge opportunity to integrate this offering,” said Johan Sigsgaard, Maersk Line’s head of European services. “We are looking at it at Maersk Group. The main purpose is how to integrate rail with the supply chain.”

The Chinese government’s plan to double the number of annual trains to 5,000 no longer looks ambitious but realistic. “We think it’s going to grow 100 percent for several years after that,” Peter Odintsov, president of Hansa Global Advisors, said at the Hamburg conference. 

It is on track, considering one or two new routes are added every three months, said Igor Tambaca, president and founder of China-Europe rail provider Rail Bridge Cargo. 

Media reports rightly focus on how the hundreds of millions of dollars the Chinese government is investing in the rail networks of a myriad of central Asian countries is part of its roughly $8 trillion Belt and Road initiative to strengthen ocean and surface links among Asia, Europe, Africa, and the countries in between. What often gets lost, however, is what the attraction is for beneficial cargo owners. For some shippers, air cargo is simply too pricey — roughly $37,000 for a 9,600-kilogram load — to justify the less than 24-hour transit. Although that same load would cost closer to $3,000 via ocean, the 30-day-plus transit along with uncertain reliability does not work for shippers of high-value items that can’t take on that much risk. For those shippers, the rail option, with 12- to 15-day transits at $4,000 for a similar shipment volume, could be just right.

High-value electronics — including those produced by HP in Chongqing for delivery to Duisburg, automotive parts, and industrial equipment — were among the first shipments to move via the rail network. Now, the hottest growth is coming from e-commerce, with Alibaba moving consumer goods to Europe and other major e-commerce players considering whether to do the same. 

The track ahead for China-Europe rail holds plenty of turns and challenges, though. Security concerns have faded, thanks to container tracking, seals and fewer stops at stations along the way, where cargo is most vulnerable to theft. Tthere are still growing pains, with the surge of peak-season cargo this year clogging some terminals. New routes, however, will increase opportunities for operators to route cargo away from pinch points. So-called smart engines that alert operators when maintenance is needed, as well as improved braking and dispatch systems, can improve efficiency and capacity without costly double-tracking. 

As more European cargo finds its way to China — including agricultural goods, food, and wine — Chinese subsidies on the backhaul will be phased out.  

Perhaps, even US exporters and importers from the East Coast will drive rail and trans-Atlantic transport combinations that can offer better reliability than ocean routings via the Suez and Panama canals to and from Central China. All-water services to the East Coast from Asia are in the 26- to 30-day range, depending on port of call, but the truck trip to and from Central China to the ports adds at least another three days. 

Odintsov estimates a joint rail and trans-Atlantic routing would take about 27 days. Trains are getting faster and ocean carrier reliability is better on the trans-Atlantic than on Asian services. Will Belt and Road become a Ring?

Contact Mark Szakonyi at mark.szakonyi@ihsmarkit.com and follow him on Twitter: @szakonyi_joc.