Contrasting rail freight trends between China and Europe

12.27.2023

The China-Europe rail freight market is undergoing a major transformation, with the notable emergence of the Middle Corridor, despite significant operating constraints.

In 2023, in light of geopolitical uncertainties and a gloomy global economy, freight volumes on the new Silk Road Corridor via Russia («Northern Corridor») keep falling. At the same time, shipments via the Trans-Caspian trade corridor ("Middle Corridor")- bypassing Russia— started to burgeon.

The Northern Corridor

In contrast to the fluctuations recorded in 2022, rail freight volumes remained relatively stable in 2023. By the 3rd quarter of 2023, volumes were 44% below the 2022 level in the eastbound direction (to China), and down 51% in the opposite direction. Besides the geopolitical uncertainties and collapse in ocean freight rates, the global slump in consumer electronic goods in particular, also took a toll on the westbound demand (to Europe).

In the meantime, the exponential development of the China-Russia trade has led to a boom in shipments on this route. On the Northern Corridor, China-Russia trade has now overtaken China-EU trade as the dominant source of volumes for the China Railway Express.

Amid the downturn of the rail freight market between China and the EU, the non-electronic consumer products have appeared to be more resilient. This is particularly true of products that can be linked to the post-pandemic resumption of social activities, such as the cosmetics and fashion industry, like textile and leather products.

Among the top commodities Westbound, plastics goods appeared more resilient and showed better signs of recovery. For example, plastic goods in September 2023 had already reached the pre-Russia-Ukraine conflict level (2021), though less than 2022’s volume.

Passenger vehicles are another consumer product that saw positive growth in 2023. Particularly as rail transport to China of vehicles manufactured in Europe (mainly in Germany) has resumed, after having ceased completely in 2022. Efforts have been made to restore shippers’ confidence.

The Development of the Middle Corridor

In contrast to the Northern Corridor, the Middle Corridor recorded favorable results this year. In the first half of 2023, it reported a 77% increase in tonnage, reaching 1.3 million tons. This dynamism can be observed in the surging throughput in the Port of Constanta in Romania since the fourth quarter of 2022, this port being the main entry point to the EU for the current Middle Corridor — from Poti in Georgia. Meanwhile, volumes on the Northern Corridor in tonnage have dropped by 56%. As a result, the gap between the two routes is narrowing. In the first half of 2023, volumes on the Middle Corridor represented around 18% of those on the Northern Corridor compared with just 6% in 2022.

However, the future of the Middle Corridor still faces several challenges: long lead times (50-60 days), higher costs due to the multimodal nature of the route which induces load breaks, and additional administrative costs due to the greater number of countries crossed compared to the Main Route. As an outcome, despite bypassing Russia being an attractive option, this rail corridor does not offer significant advantages when competing with sea transport between Asia and Europe, given current operating conditions.

Outlook for the future

Looking forward, there is no doubt that geopolitical considerations will continue to create uncertainty in this market. For example, the new EU sanction package aimed at cracking down on the shipping of dual-use products via Russia has added additional compliance costs. At the same time, the rail freight between China and the EU is adapting to the collapse in ocean freight rates and the long-drawn-out conflict in Ukraine.

The positive demand on the Northern Corridor is likely to continue to be generated by the service consumption driven economy in both China and the EU.

As for the development of the Middle Corridor, the interest shown by both the Chinese and European governments could drive the infrastructure improvement and shipping facilitation. In China’s Belt and Road Initiative Summit in October, the Chinese government, for the first time, formally announced the development of the Middle Corridor. Since the outbreak of conflict, China and the EU have not shown the same degree of interest in developing the Middle Corridor. Europe is obviously more eager to tap into the Middle Corridor, which bypasses Russia.

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