January 19, 2016

Asia - Europe railfreight set for further rapid growth?

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EAST-WEST railfreight, specifically bulk intermodal between China and Europe, is an industry success story of the last few years and will continue to grow at pace in 2016 as new trains are added and existing services evolve and mature.

Chinese manufacturers' desire to improve the speed and reliability of exports by up to 20 days compared with sea, and reduce costs by up to 65% compared with air, is driving this trend along with the Chinese government's "One Belt One Road" strategy to increase western trade from industrialising inland cities.

Since the trial of the inaugural service between Beijing and Hamburg in 2008, 15 Chinese cities now boast a regular European railfreight service, with many others served by block trains. According to data compiled by the International Union for Road-Rail Combined Transport (UIRR), railfreight traffic between China and Germany reached 1.6 million tonne-km in 2014, and UIRR says it expects growth of 20, 30 or even 40% in the next few years.

Indeed intermodal traffic using the Trans-Siberian railway between China and Russia rose by 89% in the first nine months of 2015, and some carriers say they expect triple digit growth; DB Schenker, DHL, Geodis Wilson, Gefco and UPS are all key players and many have added new services in 2015, with further additions expected in 2016.

Such impressive growth follows the addition of less-than-container loads (LCL) as well as relaxation of tariffs and improvements to customs procedures; Russian Railways (RZD) says the rate for 40 foot containers to and from China fell by 42% in 2014, a condition that was retained in 2015. The rate for 20 foot containers fell by 50%.

"Rail between Asia and Europe is now a very reliable service and we have no challenges with customs or security," says Mr Charles Kaufmann, DHL Global Forwarding's CEO for North Asia and head of value-added services for Asia Pacific. "We use transit documents so the containers don't need to be cleared until they reach the EU."

Improvements in rail infrastructure on the region's key corridors are also critical and Russian Railways' (RZD) president Mr Oleg Belozerov says RZD will continue to enhance its eastern infrastructure so "the transport of goods along the Trans-Siberian is reliable, fast, and cheap for our customers."

Attract traffic

Railways in central Asia are engaged in similar infrastructure enhancement schemes as they look to attract traffic. The Asian Development Bank says it is supporting the 10 members of the Central Asia Regional Economic Cooperation programme to develop six multimodal transport corridors to improve links with each other and rest of the world.

Even Korail says it is keen to join the east-west freight party by reintroducing services on the inter-Korean railway, and supporting RZD's efforts to build a new port at Rason, North Korea.

These improvements will increase the ability of carriers to offer combinations of sea-rail and rail-air freight to their customers from more locations. However, the precarious political situation on the Korean peninsula shows the fragility of these plans, and highlights the region's instability, particularly Russia's seemingly deteriorating relationship with the west.

It also puts the problem of eastbound freight under the spotlight. While volumes on these routes are growing - DB Schenker increased its Hamburg - Wuhan service to five days per week from one in 2015 - many containers are still returning to China empty,­ with Russia's current restriction on European food imports hindering shippers' ability to close the gap.

Political events in 2015 may not have affected demand. However, long-term stability is a concern, which makes predictions about future prospects almost futile. The railfreight sector and businesses may appear optimistic heading into 2016, but in reality they are quietly holding their breath.

Kevin Smith

Kevin Smith joined IRJ in 2009 as features editor and since then has travelled the world reporting on developments in the world's railways. Before joining IRJ, Kevin worked for several local newspapers in the United States and as a freelance technical writer for a university engineering magazine. Kevin graduated with a first class honours degree in American Studies from Lancaster University, Britain, in 2006, and with a Master's degree in American Studies from Purdue University, United States, in 2008.