New Silk Road in 2019: more trains, less empties and lots of politics
The year 2019 was a turbulent year for Eurasian rail freight traffic. Whereas the first six months were relatively calm, the second half was marked by major changes in Chinese support measures, Russian politics and a rapidly developing market.
“We have never seen so many requests like this year for China rail. Customers seem to have realised that it is possible to get goods to China by rail”, said Thomas Kowitzki from DHL Global Forwarding at the European Silk Road Summit, held this November in Venlo. He answered the question what he found most notable a development this year.
“We have seen a drop in the number of empty containers going east. This time last year, we were sending hundreds of empty containers east”, said Dmitrij Hasaenkampf of DB Cargo Eurasia, answering the same question, while Roland Hawranek of DBO Bahnoperator pointed out the faster transit routes – like via Kaliningrad.
The three experts summarised a positive development on the New Silk Road. The volumes are growing and the quality of the services improving. Unfortunately, we do not have the official numbers of 2019 just yet. According to China Railway Container Transport Corp., Ltd (CRCT), more than 6,700 trains have traveled to and from China between January and October 2019. Last year’s figure was 6,300. This indicates a growth rate of 6.3 per cent.
Furthermore, there are now 22 cities in China which have railway connections with Europe. China Railway Express connects 56 cities across these two continents. In 2018 370.000 TEU was transported across the corridor. The forecast is that this will increase to 820.000 thousand in 2020 and 1.1 million in 2035 (Prognos). The numbers of 2019 will most probably not deviate much from these forecasts.
No more empties
A noteworthy development in 2019 was, as mentioned by Hasenkampf, the improved east-west balance of trains running between Europe and Asia. A lot more cargo was generated in eastward direction this year. That was in part due to increased efforts from many stakeholders. On the other hand, the traffic moving in westward direction has become more controlled, to prevent empty train runs from China to Europe.
“Late 2018, China State Railway Group restricted the quantity of empty containers to the maximum ratio of 10 per cent of all containers in each block train. According to China Railways, the ratio of laden containers on westbound trains all exceeded 94 per cent in Chongqing, Chengdu, Zhengzhou, Wuhan, Suzhou, Yiwu and Xi’an in the first half of 2019. Block trains that departed from those 7 locations have taken up 73 per cent of the total block trains departing from China”, explained Hawranek.”
Most experts agree that the Chinese measures described above have been positive for the market. It has filtered out the services that were not stable enough, while the strong players have remained. “It is expected that those trains with only one departure each week will come to a halt” Hawranek said. Although challenging at first, the market in the second half of 2019 looked more consolidated and mature.
The second remarkable development was that of the Chinese subsidies. In October the government more or less announced that it would continue with its plan to reduce the financial support for Eurasian rail freight. Reportedly, local governments may not subsidise train journeys to Europe by more than 30 per cent of the original price in 2020. In 2022 the subsidies should be phased out altogether.
Although the effect will only be seen in 2020, the anticipation of this news was huge. While some argued that the New Silk Road was not yet mature enough to withstand the subsidy decline, others considered it good news, as the market would finally become healthy and the prices more realistic. “The market will definitely change, but the phase out of subsidies is necessary in the long run, railway consultant Rob Brekelmans said. “Continuing with these rates would not work. This is the only way to be competitive as a transport option on a realistic level.”
Russian sanctions lifted
Away from the Chinese regulations, the Russian government has also managed to shake the Silk Road community with the news that it would soon allow for transit of fresh goods from European countries to third countries, as long as they did not end up on the Russian market. It made these announcements on 1 July, however, it failed to come up with a supportive regulation until now.
The most important piece of the puzzle that still remains unsolved is how to fulfill the requirement that all transit cargo is sealed electronically and monitored. The Russian government is currently working out new legislature to enable this transit, and it looks like this will not be released in the early months of 2020. However, the anticipation is huge, as the fresh market is promising, especially when it comes to eastbound traffic. So far, this type of cargo would be moved by air or sea, or via the Middle Corridor.
Another good news: the transit times increased considerably. This is a notable difference compared to 2018, logistics companies claim. Whereas rail was still seen as the slow competitor to air freight, the lead times are now offering customers new perspectives. Improved lead times are mostly accomplished through new routes, other border crossings and improved infrastructure.
A good example was the new service Xi’an-Hamburg-Neuss, a cooperation between DHL Global Forwarding and Xi’an International Inland Port Investment & Development Group Co. Ltd. In October they announced cutting transit time from 17 to between 10 and 12 days on this route. This significant lead time reduction was made possible by travelling through the Mamonovo-Braniewo railway border between Russia and Poland.
Staying with new routes and links, the multimodal connection should also be marked. Kaliningrad, a Russian enclave between Poland and Lithuania, is gaining importance and not only as a rail transit country, but also as a maritime gateway. For example, in November 2018 UTLC inaugurated the multimodal connection between the Chinese city of Chengdu and the port of Rotterdam. This includes the facilities of Kaliningrad seaport. First, the containers are delivered to Kaliningrad by rail, where they are put on a ship for the delivery to Rotterdam by sea.
At the same time Gdansk joined the New Silk Road. In November, the Polish port inaugurated its first container train service to/from China. It provides a faster connection than ocean shipping between the Chinese city of Xi’an and the Polish seaport: the train makes the journey in just 12 days. The delivery time could be reduced up to 10 days.
Multimodal links also offer new opportunities to reach the markets of Japan and Korea. Although still in its early stages, it is expected that these countries will become major players on the New Silk Road, with especially export products bound for Europe. FESCO has already operated several journeys including a sea leg to the port of Vladivostok in Russia, and further on by train to Europe. The Trans-Siberian route is an important element in this, and transit times on this route should be increased in order to reach its full potential.
Last but not least, it is worth taking a look at the Middle Corridor that runs via Turkey and Azerbaijan, crossing the Caspian Sea. Also this route is less frequented and still requires a lot of work, especially in terms of cost reduction, there were some notable developments in 2019. A new unique rail freight service has been launched from Xi’an in China to the Czech capital of Prague via Turkey in October.
It was a novelty in the sense that it ran uninterrupted from Baku to Europe, thanks to its passage through the Marmaray Tunnel. This tunnel in Istanbul was previously only open to passenger trains. Now that freight trains may cross the Bosporus Strait via the tunnel, the train journey from Baku to Europe can be carried out without a single stop, contributing to the efficiency of the service.