Russia-China rail underperforms, RZD in search of alternatives
Russian Railways confirmed their diversification plans for rail freight routes, which the market has seen as unfolding patterns for some months. Sanctions, however, are not the only underlying reason for their approach since, as the company’s deputy head, Alexey Shilo, explained, RZD also faces issues with underused border crossings with China due to its neighbour’s strict Covid policy.
The expectations for rail freight services between Russia and China have looked completely different so far. The Russian railway company kept claiming for months after Western sanctions got in place that trade with China was growing, that eastbound transportation was not affected by restrictions and that a crisis in the context of sanctions and international isolationism was not about to happen.
Indeed, Shilo explained during the Eastern Economic Forum in Vladivostok that rail exports to China have increased. He used the example of timber, saying that timber shippers in this direction have doubled in 2022. However, he also highlighted something equally important: rail traffic between Russia and China is not doing so well, and RZD is looking for alternatives.
Chinas’s Covid policy a thorn
Shilo came to admit that rail freight traffic between Russia and China is not going as expected, and this is mainly due to China’s zero-covid policy that sees whole metropolitan areas shut down for days, and with them, terminals and border crossing infrastructure are also underperforming due to either closures or lack of workforce.
Consequently, he stressed that RZD is currently in the second phase of its supply chain diversification, attempting to find new routes focusing primarily on “deliveries through the Far East ports and the Azov-Black Sea basin, the North-South transport corridor,” and even multimodal routes using river transport.
Russia’s focus is clear regarding the International North-South Transport Corridor (INSTC). It tries to build closer ties with its equally isolated neighbour Iran to use it as a gateway on the way to the Persian Gulf, the Gulf of Oman and India.
As for the Azov-Black Sea and the Far-East ports, there are similar examples of how this solution could work. A few days ago, Russian company RUSCON launched a multimodal container service connecting the Chinese ports of Taicang and Qingdao with Istanbul by sea and then Istanbul with the Black Sea port of Novorossiysk by a feeder vessel. In this quite original approach, rail contributed only after cargo reached Novorossiysk.
A failing attempt?
As mentioned above, Russia’s focus on various alternative routes and gateways constitutes its second diversification phase; however, which was the first? The answer is China. Since the war’s beginning in Ukraine and the first sanctions in place, Russia turned towards its friend and ally as the market –and it’s a vast market– that could partially or fully replace lost westbound volumes.
Yet, despite initial plans and estimations, this approach does not seem to bear fruit. This is partly because of the lower-than-expected traffic due to China’s Covid policy and partly because of the insufficient infrastructure to implement these plans.
The question that comes to mind also resembles and confirms one of the latest reports published by RailFreight.com. Is the Russian rail sector moving towards recession this year? With the initial plans not performing as expected and further diversification demanding time, costs and proper planning, the answer could be yes. The Russian rail sector is currently stranded; it shows resilience and agility but is probably facing a decline.