Eurasian Railway Breakthrough
12.08.2020

The considerable increase in China-Europe railway shipping volumes has positively influenced the development of the entire Russian transport system over the past few years. Enhancing Russia’s transport and transit potential will increase the revenue of manufacturing/processing companies, the budget and the income of employees and have major geopolitical implications

Despite the ongoing global economic crisis due to the COVID-19 pandemic, this year has once again seen outstanding results for the Khorgos «dry port» on the border between Kazakhstan and China, which links China with Central Asia, Russia and Europe. A significant event took place on October 6, 2020 when after less than five years of its opening, the 10,000th train crossed the border. This year is also breaking records in terms of freight volume. According to official statistics, 3,243 trains have carried over 4.7 million tonnes of freight across the border in Khorgos from January through September. This is 32 percent more than in 2019.

Freight rail traffic is an alternative to faster but expensive air shipping, as well as sea shipping which is cheaper but takes much longer. It takes five to nine days to airlift cargo from a Chinese terminal to a European terminal. A one-way train trip takes from 15 to18 days, and it takes from 37 to 50 days to deliver cargo by sea.

Rail transport is a favourable alternative in terms of environmental considerations as well because trains produce much less carbon emissions relative to trucks and aircraft. According to Fujitsu and Siemens, their «green trains,» which run between China and Germany, emit 95 percent less carbon monoxide, non-methane hydrocarbons and nitrogen oxides into the atmosphere than aircraft do.

China has been moving northwest as they relocate manufacturing facilities inland. Production plants in these provinces help reduce workforce and material costs compared with the coastal areas. Thus, more companies are relocating to inland regions. Additional opportunities for reducing these plants’ logistics expenses are gained through direct rail routes to Europe. Rail is much more efficient than moving goods to port for shipping to Europe via sea and then once again transloaded to reach the end point. Shipping by sea can increase delivery costs and times.

The sustainable development of commercial ties with Europe need to depend on market mechanisms; the subsidies need to stop. The Chinese media reports that state subsidies for European-bound railway traffic was as high as 50 percent in 2018. However, subsidies were reduced to 40 percent last year and are about 30 percent this year. The authorities expect that all subsidies will end by 2022. According to logistics analysts, rail traffic volumes need to reach about 1.5 million TEUs to feasibly end government support.

There are the reasons behind the significantly increased freight rail traffic on the China-Europe route. First, the Chinese economy is becoming more competitive, and the country is thus exporting more to European markets. Second, China is exporting more expensive goods that can justify the cost of faster rail shipping over sea shipping. Third, the Chinese government has been relocating production inland and has been focusing on the development of the landlocked central and western provinces that facilitate cheaper and faster rail traffic to Europe. Fourth, the people of China are becoming more affluent; more consumers want expensive, high-quality European goods, including wine, food and cars. Again these products justify faster but reasonably priced deliveries to the Chinese market. Fifth, the establishment of the Eurasian Union has facilitated the free movement of goods, and logistics management companies now have access to reliable, fast and cost-effective rail shipping.

Most analysts believe that container volumes will continue to increase in the near future. The considerable increase in China-Europe railway shipping volumes has positively influenced the development of the entire Russian transport system over the past few years.

Further expanding the share of China-Europe transits via Russia is the next step. There are plans to increase volumes to an impressive 10 ̶ 15 percent of the freight traffic by 2025. This goal will be achieved by boosting the competitiveness of rail transport versus sea routes, by subsidising rail.

Russian Prime Minister Mikhail Mishustin signed a government resolution on subsidising container shipping via Russian Railways for this purpose on August 21. Subsidies will be approximately 25,000 to 27,000 roubles per container, depending on the type of container and the destination.

These subsidies are needed to make the country more competitive on the transport-logistics services market. This would make it possible to further reduce national rail freight rates, bringing them closer to sea-based shipping rates.

Oleg Belozyorov, Russian Railways Chief Executive Officer — Chairman of the Executive Board, recently said that it was possible to deliver two million TEUs annually and even more in freight transshipments between China and Europe. For this purpose, Russian Railways is planning to reduce container delivery schedules from Russia’s Far East to its western borders, to seven days. The railway also plans to implement ambitious projects, including rebuilding the Baikal-Amur Mainline (BAM) and the Trans-Siberian line. This will make it possible to increase the average speed of container trains allowing them to cover from 1,150 km to 1,500 km daily.

Author
Djoomart Otorbaev
Prime Minister of the Kyrgyz Republic in 2014–2015
Release date
11.05.2020
Analytics on topic
Article
02.10.2020
Pharmaceutical Logistics in the Asian Pacific Region
The growing Asian markets have proven to be of utmost interest for the pharmaceutical industry. At the same time, logistics providers are facing diverse market conditions depending on the maturity of the market and its political system.
Article
07.11.2019
How to Make CO2 a KPI for Freight Transportation
With maintaining the same rate of increase in demand for freight transportation, CO2 emissions can reach high values. To prevent this, a method has been developed, that allows supply chains participants to make CO2 emissions a KPI.