Rail freight could be the long-term modal beneficiary of Covid-19 lock downs on the Asia-Europe trade, with capacity and volumes growing fast and investments continuing to improve its competitiveness and attractiveness, according to Martin Holst-Mikkelsen, head of Europe ocean freight at forwarder Flexpor
He said during Covid-19 lockdowns, the unreliability of ocean freight services as lines withdrew capacity had combined with soaring air freight prices to push shippers to trial rail shipment options from China into Europe.
“Covid 19 restrictions have accelerated growth and shifted cargo from the ocean towards the railway,” he said. “A lot of [ocean] blankings came in, a lot of capacity was taken out of the market and ocean freight overall became more unreliable for the customer.
“It forced shippers to look for alternatives for their transport and that’s what rail is benefiting from now [because of its status as] an option in between ocean freight and air freight. At the same time, we also saw air freight rates climbing quite significantly in connection with the [stampede to export Personal Protective Equipment] out of China. That also drove part of the air freight to rail.”
He said that Asia-Europe volumes had been doubling for several years. In April, the latest month for which reliable statistics are available, Holst-Mikkelsen said volumes were up to an estimated 90,000 TEU, representing some 5-6% of Asia-Europe transport capacity.
Explaining the long-term attraction of rail options, he said for Asia-Europe shippers on the route, ocean freight services take 25-35 days depending on origin and destination. From China to Europe, transit times are around 18 days to central Europe.
“If you consider some of the manufacturing sites are located inland in China, quite far away from main ports where you either have to use trucks or waterways to get to a base port, then that transit time difference becomes even more pronounced,” he said. “So, you easily can see that you have 10, maybe 15, days upside in many cases.”
He also said the cost of rail was increasing its attractiveness. “It’s maybe twice the cost of all-in ocean freight, terminal to terminal, so it’s not massively more expensive than ocean freight if you consider the time saving of 10 to 15 days. So, on a port-to-port cost level, it’s cost-competitive.”
He said further growth was likely as investments in infrastructure continued, enabling China to reduce subsidy levels.
“All the terminals operators that are involved in this trade are investing heavily in building out terminals, building our infrastructure, and we are also seeing that is increasing both capacity and reliability at a very fast pace.
“So, rail has emerged as a product that’s growing and it looks like it’s here to stay and grow even further.”
Lloyd’s Loading List also reported earlier this month that China’s rail freight shipments to Europe had risen to record levels as demand has surged for Chinese-origin goods to the backdrop of COVID-19. July saw 1,232 cargo trains travel from Chinese cities to European destinations – the most ever in a single month and an increase of 68% on the same month a year ago, according to The South China Morning Post (SCMP) which quoted the latest figures from the China State Railway Group. Also, the trains are getting longer as 113,000 standard cargo containers were shipped last month, a year-on-year increase of 73%.
In the first seven months of 2020, freight services between Chinese cities and destinations along the Eurasia trade routes tallied 6,354 trips, an increase of 41% from a year earlier, the rail group said.
Chinese export surge
Despite the coronavirus having hit global demand overall, analysts have pointed to strong shipments of medical supplies and work-from-home equipment as driving factors behind surging exports since China restarted its vast manufacturing apparatus after bringing the coronavirus under control at home. In July, China posted a trade surplus of US$62.33 billion, with exports surging 7.2% as imports fell 1.4%
The freight service along the so-called ‘belt and road’ trade routes was once regarded as ‘ornamental’ in terms of China’s trade flows, and many Chinese exporters were even found to have shipped empty containers on the railway route to claiming government subsidies, SCMP noted. However, the coronavirus, which has grounded many flights and made cross-border truck transport more difficult, has seen many exporters turn to railway transport.
Yiwu, an export hub in east China’s Zhejiang province, sent 33,452 containers to central Asian and European countries by train in the first seven months of 2020, three times the level of January-July the previous year, while exporters from Chengdu, in central China’s Sichuan province, dispatched about 1,200 trains on the China-Europe railway – a year-on-year increase of 58.6%, SCMP reported.
Even Guangzhou, southern China’s manufacturing hub with easy access to maritime ports, is stepping up northbound railway transport, SCMP noted, with the city launching a new rail freight service to Russia earlier this month.