Rapidly increasing rail-freight volumes between China and Europe since the launch of OBOR could pose a threat to sea and air freight.
The unfolding New Silk Road rail-freight network, part of China’s vast One Belt One Road (OBOR) initiative, offers companies an option for transporting goods that is faster than sea and cheaper than air, via a land route that traverses Central Asia. In 2016, more than 500,000 tonnes of freight travelled between China and Europe by railway, up from barely a trickle prior to 2013, when OBOR was launched. This number continues to rise. Ronald Kleijwegt, Managing Director at Netherlands-based logistics firm Jusda Europe, said that Western firms are embracing rail freight, as it helps them to lower costs.
The biggest increases in rail freight volumes between China and Europe have been in raw materials, machinery parts and automotive, followed closely by technology and consumer goods. Railways are typically favoured when the cargo being transported is valuable and somewhat time-sensitive, such as new consumer electronics.
According to The Economist, “Airlines and shipping firms are watching things closely.” But how real is the competitive threat? Kazakhstan plays an important role along trans-Eurasian routes connecting China to Europe. Its national rail company, KTZ, estimates that it will have capacity for 1.7 million containers to pass through the country each year by 2020. This is a tenth of the volume currently transported by sea and air. Once fully modernised, the main three rail routes could produce 3 million containers a year in capacity.
It is unlikely that rail freight volumes between China and Europe will continue to rise at the current rate. The Chinese government plans to phase out subsidies for additional rail-freight capacity starting in 2020. This will undoubtedly curb the network’s expansion. Soren Skou, Chief Executive of Maersk, the world’s biggest container-shipping line, believes that sea freight is unlikely to suffer in the near term, though he concedes that rail freight transport could take some future growth away from the shipping industry.
Air cargo may have more to worry about, since the overall volume of cargo it transports is considerably smaller than that of ships. The 180,000 tonnes of cargo transported to Western Europe from China by train last year represents a much larger proportion of the total 700,000 tonnes carried by air, versus the 52 million tonnes transported by sea. Jusda Europe’s Kleijwegt believes much of this could switch from air to rail.
