Rocketing Asia-Russia container rail volume spurs investment calls

Rocketing Asia-Russia container rail volume spurs investment calls

 

A freight train travels in Russia.

China-to-Europe via Russia rail transport has been in an uptrend since 2013, and global growth and consumer trends point to even stronger growth ahead if rail officials can meet the infrastructure and related needs of shippers. (Above: A freight train travels in Russia.) Photo credit: Shutterstock.com.

Asia-Europe rail container volume jumped 60 percent in 2017 from 2016, hurting criticism that the mode has little potential and reinvigorating demands that Russia upgrade its infrastrucure — if it hopes to benefit from comparable or stronger volume growth in the decade ahead. 

Russia rail officials predict that Asia-Europe rail container cargo volume growth through Russia is likely to increase into the next decade, even as shippers and officials in China argue a systemwide infrastructure upgrade will be necessary to achieve that goal, along with more-favorable rail transport rates.

According to Russian officials and others familiar with the transport mode, Russia is providing good, safe rail transport for Asian shippers to the European Union.

Further, the latest Russian Ministry of Transport data show that, despite market skepticism by some analysts, Asian cargo transit through Russia is steadily growing.

Currently, Asian container cargo through Russia is primarily transported via rail. The highest-used corridors and directions are: China to Europe via the East-West International Transport Corridor and India to Europe via the North-South Corridor. The first corridor accounts for 75 percent of rail transit through Russia.

The East-West corridor routes

Concerning the East-West corridor, it comprises several routes, and boasts mainly container cargo from China to Europe: the western one, via Kazakhstan, Russia, and Belarus; the eastern one, via Chinese Manchuria through Russia; and a central one, via Mongolia. Of these, the western route is one most demanded by shippers.

Expert Morsky Vesti Rossy, author of frequently cited Russia shipping papers, said in 2017 278,700 TEU were transported through the East-West corridor, an 82 percent surge from 2016. However, another corridor has an even larger growth rate, albeit from a lower base. According to the Ulan Bator Railway (UBZhD) spokesperson, Mongolia/China to Russia to Europe transport grew sixfold in 2017, to 60,000 TEU from 10,000 TEU in 2016. Also, the number of trains increased to 552 from 169 in the same period. And the torrid growth pace continued in the first quarter of 2018, with 362 trains already having made the transit. Just as significant, volume would have been larger, had it not been limited by the route’s infrastructure.

Overall in 2017, rail container cargo transit on the corridors mentioned jumped 60 percent from 2016 to 415,000 TEU. And, likewise, the uptrend continued in early 2018: in the first four months 140,000 TEU was transported via rail, up 26.5 percent from the same period in 2017.

What’s more, analysts predict rail transportation will total 500,000 TEU in 2018. Of this total, about 231,000 TEU will be via the Kazakhstan-China borders (Dostyk and Altynkol points); 76,000 TEU through Zabaikalsk, and 165,000 TEU on other routes.

Since 2013, a rail transport uptrend

Russian Ministry of Transport experts say rail cargo flows from China and Asia-Pacific countries to Europe through Russia began to grow in 2013. During this time, the average territory covered per day on the Russian Railway monopoly (RZD) trains increased from 356 kilometers (221 miles) per day to 490 kilometers per day. Delivery time on the Vladivostok-Moscow route, one of the busiest routes on Asia Pacific-Russia trade, declined from 11 days to seven days. (This route encompasses part of the famous Trans-Siberian Railway, also called the “Transsib.”)

RZD deputy director Alexander Misharin said by 2020 rail container cargo transportation through Russia via this corridor will exceed 1 million TEU per year. Misharin cited global e-commerce growth, as well as the statuses of China and the European Union, as the world’s largest producers and consumers of goods, respectively, as the primary drivers of the forecast TEU rail transit growth.

Meanwhile, the president of Russia’s leading transport company FESCO is even more optimistic, believing rail container cargo transport through Russia via this corridor will rise to 1.5 million TEU per year by 2020, the majority of which will transported on the Trans-Siberian Railway. 

Misharin said current Asia-to-Europe rail container cargo growth is 5 to 6 percent per year. According to his forecast, the total, annual rail container cargo volume in the westward direction for the 2020 to 2023 period will be about 25 million TEU. And the above forecast does not take into account the Primorye-1 corridor (the route from Manchuria and Heilongjiang provinces to Russia through the customs points Suifenhe-Grodekovo, Dunnin-Poltavka, and Khabarovsk on the Great Ussuri island); or the Primorye-2 corridor (the route which connects Chinese provinces of Changchun, Jilin, and Hunchun in northeast China with the Russian ports of Zarubino, Slavyanka, and Posiet).

Improved, expanded rail infrastructure needed

However, in order to deal with such enormous cargo volumes, a new transport infrastructure is needed. According to China experts, the current Russia rail infrastructure and related support systems cannot handle existing China shipper demands, let alone the projected, substantial demand increase for the years ahead.

The most promising opportunity for China to Europe rail container cargo transport growth is Manchuria province. In order to begin regular use of his route, China’s authorities recently proposed to Russia’s officials a new role for the Suifenhe-Grodekovo checkpoint (the major checkpoint within the MTC Primorie-1). If it is agreed to by the parties and begins operation, Primorye-1 will become the most important hub on the China-Western Europe route.

China's Heilongjiang Province Deputy Chairman Li Haitao believes the development of infrastructure will allow up to 500,000 TEU to be transported via Primorie-1.

Further, according to a Suifenhe City spokesperson, the city annually transports more than 10 million tonnes (11 million tons) of cargo. According to his analysis, if there is a full-scale launch of Primorie-1, at least half of this volume could be redirected to rail. These include cargo supplies that are currently, mainly delivered to the Chinese seaports of Shanghai, Guangzhou, and 15 other southern ports in the country, as well as outside the country, to the independent nation of Taiwan.

Concerning Primorie-2, the key link on the route is the Russian seaport of Zarubino, where the only container terminal, a seaport in Troitsa Bay, currently operates. Presently, the terminal has a weekly sea container service to Busan, South Korean. Current transshipment in Zarubino is no more than 1.2 million tons of cargo per year, and the port’s designed capacity is about 3 million tons per year. At the same time, China’s shippers hope to transport up to 1.5 million TEU per year through the port. However, volume this large would need a railway from Hunchun to Zarubino with a Chinese rail gauge of 1,435 millimeters; it is in the planning stage and construction of the new rail section may start in September-October.

China-Europe transport costs and time

Concerning costs and delivery time, sea transport from the majority of China’s seaports to Hamburg port in Germany takes about 40 days and costs $2,200 per TEU. Rail transport takes 10 to 14 days and costs $4,500 per TEU.

Similar rates are charged by transport companies from other busy destinations on the Asia-Pacific-Europe route, such as Shanghai-Rotterdam and selected others.

Concerning air transport, rates are $2 to $5.30 per kilogram (about $0.90 to $2.40 per pound), which  converts to about double the cost per TEU via rail container cargo transport. However, air transport is very quick: 10 to 12 hours for most destinations.

High tariffs remain one of the major obstacles to China-to-Europe via Russian rail container cargo transit.

With the above in mind, China’s shippers have already asked Russia’s RZD officials to reduce tariffs, and in return China’s officials have promised substantial higher cargo volume. So far, however, Russia’s officials have rejected the tariff reduction request.

Russia Federation Deputy Minister of Transport Alan Lushnikov believes the current rail container cargo tariffs through Russia are quite competitive and shippers are ready to pay a higher price. According to him, a tariff reduction is economically unreasonable, since the Russian government funds the development of the country's railway infrastructure at the expense of the federal budget.

The Russian government believes the high price for rail container cargo transit is justified, as there is an imbalance between freight flows from China to Europe, with lower volume on the backhaul. (Some shippers and transport companies argue that when the backhaul, Europe to China, features loaded containers, rail companies will be able to lower tariffs.)  According to state analysts, only a few categories of cargo are suitable for China-to-Europe surface transportation: those sectors for which the speed is important — luxury clothing, auto parts, aluminum, and selected other items.

Contact Eugene Gerden at gerden.eug@gmail.com.

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