Traffic Growth Creates Eurasia Development Preconditions
General Director of United Transport and Logistics Company – Eurasian Railway Alliance JSC (UTLC ERA), Aleksey Grom, told about the prospects for the development of transit container traffic between China and Europe.
– In 2020, global supply chains between Europe and Asia were at risk of disruption due to the COVID-19 pandemic. It was during this period that the railway became almost the only uninterrupted supply channel between China and the EU.
This period is characterized by such a phenomenon as “modal shift “ – the traditional role of rail transport as a complement to sea transport in global supply chains has changed, and we are seeing an active shift in traffic volumes to transit rail services.
For six months in a row, the trend of growth in traffic volumes on regular services of UTLC ERA has been maintained. For the first time, a twofold increase was recorded in April of this year – then the volume of traffic amounted to 41,2 thousand. TEU. At the same time, more than 56,000 TEUs were transported in August.
Since the beginning of the year, the volume of container traffic on the China – Europe – China route on the transit services of UTLC ERA has already amounted to more than 450 thousand. TEU. By the end of the year, we expect to reach and exceed the important mark of 500 thousand TUE and move on to a million containers.
During the period of restrictions on international air and sea transport, rail transport has proved itself to new customers as a reliable, efficient and profitable mode of transport. And here I would like not so much to focus on the reasons, but to emphasize the regularity of the railway being the least susceptible to crisis phenomena mode of transport. For shippers, rail transit is a guarantee of stability and predictability of business processes tied to the timely delivery of goods, which is especially important against the background of general uncertainty in the world.
– What trends can be identified in the trade turnover between China and Europe?
– Undoubtedly, an important trend is the shipment of goods of regional production directly from the region on the China-Europe route. This allows manufacturers to significantly reduce logistics costs by using railway resources and using less amount of documents. This opportunity is being realized, among other things, thanks to the emergence of new logistics centers in China.
Another trend that I would like to note is the formation and dispatch of special trains for products of a specific category. These are trains for e-commerce products, automobiles, or certain food products. So on September 1, a special B2B export train for international e-commerce was arranged from Chongqing, and on September 6, a train with 5,000 refrigerators and freezers was sent from Hefei to Durj. This is The 18th special train to transport LONGi photovoltaic modules from Xi’an to Europe on the Chang’an trip.
I would also like to note such a trend as turning to the railway when it is necessary to send exclusive goods on the China-Europe route. Recently, containers loaded with clothing made from eco-friendly cellulose wood fiber were sent by train from Linz to Xi’an. This is not just an exclusive product from a fashion brand – it is also an environmentally friendly product with a certain philosophy. “And the railway certainly meets this philosophy as the most environmentally friendly transport. It is the only mode of transport that has been continuously reducing CO2 emissions since 1990 while increasing traffic volumes”, he emphasized.
– What is the current difference in rates on the sea route from China to Europe and on the railway route?
– Our work to reduce rates has already led to the fact that low-cost goods are also switching to railway transport. And if earlier transport by rail was economically justified for a container with cargo, which was estimated at $150 thousand, now this figure may be less than $100 thousand. So, we are now focusing on cellulose producers in Europe and commodity cotton producers in Southeast Asia. If we can persuade to transfer at least a small percentage of shippers from this sector to the railway, we expect a good return later. Appetite, as you know, comes with eating.
And to estimate the difference in numbers, we launched the Index1520 portal with the ability to calculate the cost of transportation by rail or sea online. The portal presents a special calculator that allows you to calculate, depending on the cost of cargo and the money involved, which is more profitable in each case – railway or sea transportation.
Currently, railway services are a stable element of international supply chains, equally effective in comparison with sea transport, which traditionally offer a lower cost of transit. The observations are confirmed by a report from Drewry, a large international independent research company specializing in the marine cargo transportation industry. To date, the cost of cargo delivery by rail based on the Eurasian Rail Alliance Index (ERAI) and by sea based on the World Container Index (WCI) differ by no more than $ 200, taking into account that the land transit time is 3 times shorter than the sea one. This makes it possible to create flexible services that are optimal in terms of price and speed of transportation. It can be agreed that we are seeing a strengthening of the position of railway transport in transit between Europe and China.
Yes, railway transport will always be complementary to sea transport. The railway does not have the task to transfer everything “from boats to rails”, and there are no opportunities either. It is impossible to satisfy all customers of the Eurasian trade with a railway service. The pie is too big – more than 23 million TEUs a year. But 10-15% of this traffic volume could be an interesting and ambitious task for a reliable and competitive service of the railway infrastructure of Eurasia. And the fact that it is reliable is rarely in doubt.
– However, many experts believe that when Chinese subsidies for rail container transportation are canceled, which should happen within the next two years, the market will change significantly. Are the UTLC ERA ready for such changes?
– Subsidies are quite an important factor in international transit transport, but they have been gradually declining for several years. Last year, China almost stopped subsidizing empty transit containers, while the volume of traffic is still showing growth. We expect that our work to reduce the cost of transportation and improve its quality will offset the negative factor of reducing subsidies.
In addition, almost all parties and participants in transportation subsidize them to some extent by providing special tariff conditions, although not to the same extent as China. At the time, the Chinese authorities told us about the need to bring the tariff conditions in the China-Europe corridor to 0.50 Euro cents per 1 cont. / km. We have brought this indicator on the 1520 gauge to the desired value not due to additional subsidies, but by increasing the speed of movement, optimizing costs and introducing new transportation technologies. Therefore, in order to remain competitive even in the face of reduced subsidies, we must continue to work together on costs and quality of service.
– Will there be enough capacity to reach the target figure of one million TEU in the coming years?
– This issue is one of the most important and it is given maximum attention, primarily from infrastructure companies that are building development plans for future growth. We have reserves. In particular, thanks to technological solutions that are already widely used in the 1520 mm gauge. These include combined trains and dual cargo operations at border terminals. And, of course, speed, which also affects the throughput of routes. And there are also new corridors that create a good margin of safety on the 1520 mm gauge for future growth. For example, a multi-modal route through Kaliningrad ports or promising projects in the Scandinavian direction involving border crossings of the Oktyabrskaya railway. Our initiatives to increase traffic are also supported by the EU border administrations. For example, we see the implementation of the Polish program for bridging bottlenecks on the border with the Belarusian railway.
The more traffic, the better the prospects for the development of the whole of Eurasia. This is a real economic and environmental driver for the development of many States. When neighbors have a good collaborative development project, it mobilizes them to achieve good results together.
The volumes of container traffic on the China –Europe – China route on transit services of UTLC ERA in January-September 2020 amounted to 384.4 thousand TEU. This exceeds the last year’s similar index by 68%. In September 2020, the volume of traffic on UTLC ERA services amounted to 50.6 thousand TEU, showing an increase of 63% compared to the reporting period last year.
Since the beginning of the year, more than 5,000 trains have operated on UTLC ERA services.
The following events should be noted separately:
• in July, a new Semiglaviy-Mar / Ozinki junction was put into operation for the movement of loaded trains in the direction of China-Europe, which made it possible to relieve the main joints; train was sent from Altynkol station to Baltiysk station, which traveled the network territory (excluding Kaliningrad road section) at a speed of 1394 km / day, which is a record this year for this section;
• on September 22, Kaliningrad railway reloaded and dispatched four container trains.
The geography of transportation in the services of UTLC ERA JSC continues to expand; transportation was carried out for the first time on the routes Hefei – Durzh, Xi’an – Milan, Vienna – China and Brno – China in the third quarter of 2020.
The development of new projects and directions is underway, among which the following can be noted:
• opening of a multimodal service UTLC ERA jointly with BelInterTrans on the route China – Kaliningrad (KMTP) – Hamburg; since August, a regular service has been launched with weekly departure of oncoming trains from China and Germany;
• resumption of transit of Audi and Porsche cars in container trains from Europe to China;
• resumption of transit service through the Bruzgi / Kuznitsa border crossing;
• development of transit of sanctioned goods from Europe to China: more than 50 containers were transported in the current quarter;
• development of transport technologies within the framework of multimodal traffic through Kaliningrad using the unified CIM / SMGS consignment note. In the future, it is planned to implement in practice the possibility of transportation on the basis of the electronic unified CIM / SMGS consignment note, which will be used as a single multimodal document.
From the point of view of the nomenclature of goods, an increasing demand for the transportation of e-commerce goods can be noted, in particular for clothing, toys, electronics and household appliances, as well as for products to fight the epidemic.
UTLC ERA JSC with partners is working on development in the field of digitalization. It is proposed to implement, on the basis of the infrastructure of carriers of the China – Russia – Europe route, the development of an automated decentralized system for management of transit rail container cargo transportation, including using blockchain technology designed to digitalize the interaction of carriers, forwarders, car owners, agents involved in the processes of cargo transportation. UTLC ERA JSC, already being an international company, can become a pilot testing ground for the application of blockchain technology for international logistics services. Digitalization of processes can reduce the cost of transportation and increase the speed of transportation (while ensuring reliability), which will induce a significant share of additional volumes.