Evolution of freight rail and how it may affect sea freight..
Located on the new Chinese Silk Road and the economic belt of the Yangtze River, the city of Chengdu is the capital of Sichuan province with a population of around 14 million.. Chengdu, is a vital cog in China’s economic growth and is an important free trade area seen as an industrial hub for international trade and logistics..
Situated on the Danube river, Vienna is the capital city of Austria with a population of around 1.8 million.. Vienna is the 7th largest city by population in the European Union (EU) and is considered to be an important international hub for the EU..
As the crow files, Chengdu to Vienna is a distance of 7,365 kms and takes 13.5 hours by air..
By sea, it is a distance of 11,098 nautical miles and at 15 knots speed, it would a ship about 30.8 days of pure sea transit not counting any waiting time, transhipments etc..
On the 27th of April however, the first intermodal freight train from Chengdu arrived at the South Container Terminal in Vienna IN JUST 14 DAYS covering a distance of 9,800 kms..
This 600m long train left Chengdu on the 12th of April carrying 44 containers with various types of goods such as tyres, machinery, electronic equipment, lighting materials, day to day commodities and other general household goods..
The train’s 14 day journey took it through Kazakhstan, Russia, Ukraine and Slovakia before reaching Vienna..
This Chengdu to Vienna train is one in the long list of containerised freight trains on the China – Europe route.. The first China-Europe line was launched in 2011 between southwest Chongqing and Duisburg in Germany..
As per China Railway Corporation, China-Europe freight trains have made around 1,000 trips in the first three months of 2018 which is up by a massive 75% percent compared with the same period last year..
As per the company, they attribute this growth to the increase in the number of routes between the two continents and also the increase in train speeds on the Chinese side.. As of this article, this cross-continent rail network connects 43 cities in China with 41 cities in the European Union spanning 13 countries totaling more than 7,600 trips since March 2011 when the cooperation started..
For its part, Rail Cargo Austria is said to be planning in the region of 400-600 journeys per year competing with sea freight..
Chengdu handles most of the trains from China to Europe.. The success of these rail freight ventures cutting transit times between these two continents at least by half compared to sea freight has made both sides confident about their capability to handle more on these routes in the future..
Not just in to Europe, but the China-Europe freight train service is also being extended into Southeast Asia.. In March 2018, one of the trains on the return journey from Europe picked up a cargo of mechanical and industrial equipment and carried it to Hanoi..
On its return from Hanoi, this train carried Vietnamese fruit, rice, coffee and electrical commodities..
More of the China-Europe lines are expected to connect more South East Asian countries such as Thailand, Laos and Singapore..
As per the Chinese National Development and Reform Commission, 3,673 trains were loaded from China to Europe in 2017 and the transport of goods from China to Europe has rapidly increased, both in terms of the number of trains and the value of the goods.
In less than two years, their travel time has been cut from 20 days to 12, while operational costs have decreased by 40 percent.
A container ship that cannot pass through the Suez Canal takes about 24,000 kms to reach Europe while the China-Europe train takes less than 11,000 kms to reach the same place..
The scope of the goods delivered has also been extended to include clothing, automobiles, grains, wines, coffee beans and wood, as well as electronic goods such as computers and mobile phones.
The China-Europe freight train service is being considered as the vanguard of China’s Silk Road ambitions and forms a part of the Chinese Government’s Belt and Road initiative..
As part of this initiative, the Chinese government is also encouraging multinational companies to use their inland provinces for manufacturing their products after which these companies may use the rail network to move their products to other continents..
Of course in terms of cost comparison with sea freight, the participants in this freight rail initiative are aware that this will not be possible without the heavy cost subsidies provided by the Chinese Government..
It has been reported that the subsidy may be as high as USD3500/40’ which sea freight cannot compete against..
So how significant will the freight rail revolution be over sea freight..
As per industry reports, on an optimistic basis, the volume of containers on the China-Europe rail corridor is expected to reach around 742,000 TEUs by 2027..
While these volumes may hardly put a dent in the sea freight volumes, the creation of these rail freight service and routes give customers the opportunities for multimodal shipping..
Shipping lines who have a good foothold in the multimodal shipping markets in China and Europe may also offer rail-ship options to their key customers.. Some of the freight rail operators are also exploring the options of offering LCL/Groupage cargoes to cater for smaller shippers.. Sounds very much like a sea freight movement..??
From out of almost nothing in 2013, there has been a significant rise in cargo volumes and values moved using freight rail.. CSIS reported that although maritime transport remained dominant, the volume of freight rail shipped during the first half of 2017 increased by 144% compared to the same period in 2016..
Although these freight rail services have been around since 2011, it is only now the momentum and impact on the trade seems to be picking up..
Eventually such competition between rail and sea will be good for the customer because they can have the option to choose between rail freight and sea freight.. High volume customers may choose the slower but substantially cheaper sea freight option whereas customers who ship high value and transit sensitive cargoes may choose the rail option..
Of course the fact remains that while the rail freight network can beat sea freight transit times convincingly, rail freight network cannot compete against the sheer volume that a ship can carry..
For example the freight trains on the China-Europe route carry between 41-44 FEUs (Forty-foot Equivalent Units) or 82-88 TEUs (Twenty-foot Equivalent Units) as opposed to currently the largest ships carrying about 21,000+ TEUs..
Of course, there is still a long way to go for rail freight option to pose a substantial challenge to sea freight transport..
Continuation of Chinese subsidies, trade imbalance, improvements in air freight movements, infrastructure developments along the freight rail route, lack of credible rate and volume data are some of the factors that need to be considered in the future of freight rail and how significant will the freight rail revolution be over sea freight..
All I can say is that interesting times are ahead for the shipping and freight industry.. Stay tuned..
What are your thoughts and opinions on this..??
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