BETA
This is a BETA experience. You may opt-out by clicking here

More From Forbes

Edit Story

Why The China-Europe 'Silk Road' Rail Network Is Growing Fast

Following
This article is more than 8 years old.

“This was all started one hundred years ago by the Russians,” DHL’s Konrad Godlewski stated as he pointed to a long line that extended across a giant map of Eurasia which was prominently displayed at the front of an office in the Suzhou Railway Consolidated Freight Station, a bonded logistics zone in the east of China. “The Trans-Siberian,” he continued, “is what began this whole idea of shipping by rail between Europe and Asia.”

Now, a century later, this idea has been exponentially intensified as a new network of rail routes are being forged between east and west. As a key component of the Silk Road Economic Belt, the overland portion of China’s Belt and Road initiative, direct cargo trains are now connecting together an ever-increasing number of cities in China and Europe. With key improvements in route options, performance, and customs protocols, trans-continental rail transport is set for a renaissance.

The map on the wall was published by China Railways, and it was the master plan of the emerging rail routes that are now spanning across Eurasia. Suzhou is now directly connected by rail to Warsaw, Lianyugang to Rotterdam, Chengdu to Lodz, Chongqing to Duisburg, Yiwu to Madrid, Zhengzhou to Hamburg. In all, more than twelve Chinese and nine European cities are now hubs for these 12,000+ kilometer trans-continental direct trains. Currently, these trains travel along one of two main routes: either going due north from China and connecting with Russia's Trans-Siberian or going west across Kazakhstan and feeding into the Trans-Siberian at Yekaterinburg, a place that is best known for being located on the dividing line between Europe and Asia. Although there was also a very ambitious, though pending, third rail route outlined on the China Railways map, which stretches south from Kunming, the capital of China's western Yunnan province, through Myanmar, Bangladesh, India, Pakistan, Iran, and Turkey, before terminating in the heart of Europe at Hamburg, thus completing a great cycle of commerce that wraps up Eurasia like the stitched lacing around the contour of a baseball.

It now seems as if every sizable city in China is vying to have their own China-Europe direct train, as these rail lines have quickly become part of the criteria for evaluating how well-connected a city's infrastructure really is, which is an important factor for luring business and investment. “When investors look for new places to invest in China now there is one more factor for them to consider,” Godlewski explained. “So it's getting more attractive because there is another good option for transportation to Europe.” If the current trend continues, before long nearly every province in China will more than likely have at least one Europe-bound train.

This renaissance in rail transport began on October 6, 2008, when a train arrived in Hamburg, Germany, 17 days after departing from Xiangtan in Hunan province. Although this service was ground-breaking, it was also too inconsistent and too slow to gain any real market appeal.

“It was different,” Godlewski explained. “It was much slower. Another problem with it was that it was quite unstable because the train departure depended on the volume. When there was no volume the train operator would say, 'Okay, let's wait one, two, three days until we have a full train.' The real change happened in 2013 with the Chengdu-Lodz train that opened. It was like a breakthrough. They published their departure time and had a direct line. That's how we convinced the customers and the markets."

Now, with these new standards, most China-Europe direct trains are now making the journey in under two weeks each way, and the market for them is growing fast.

"This year we will achieve 42,000 containers between China and Europe," said Erkin Zhusanbayev, an administrator with KTZ, Kazakhstan's national railway. "In 2011, maybe we had two thousand containers."

Typically, in China the hubs for these Europe-bound trains fall within the much broader development and infrastructure frameworks of the cities that have them. As these trains are mostly shipping high value added merchandise, it is no coincidence that most of them originate from cities like Chengdu, Chongqing, Zhengzhou, and Suzhou, which all have very large and kinetic high-tech zones.

“The economy in Suzhou is very developed, we have a lot of cargo to Europe, a lot of cargo to Russia,” Lu Yingji of Far East Land Bridge, an international freight forwarding company, explained. “We believe that we will have more and more trains to Europe. Our target is to have one train everyday. The more frequently we have departures the more cargo we will get. Then it won't be necessary for products to wait in the warehouse.”

The rail line from Suzhou is called Su’Man’Ou — “Su” for Suzhou, “Man” for Manzhouli, the border city with Russia, and “Ou” for Ouzhou, the Chinese name for Europe. Each and every Sunday this train departs and generally takes between twelve and fourteen days to get to Europe — although Godlewski predicts that they will get this down to ten days this year.

Products can now be shipped overland to and from cities in China and Europe in nearly a quarter of the time it takes to send them by sea, at a cost that’s upwards of 65% less than shipping by air. While 30 to 60 days for ocean freight is acceptable for most industries, there is a growing fringe — such as in the high-tech and high-end fashion sectors or companies who need essential equipment for their day-to-day operations — that want their products as fast and as cheap as possible. Previously, trans-Eurasian freight forwarding was caught in logistical conundrum: slow and cheap or fast and expensive. Now there is a third option.

“The economic benefits [of the China-Europe trains] are such that they are a middle ground solution, a compromise between expensive air freight and the slow speed of ocean. So we give customers a middle ground, a multimodal freight option between standard air freight and ocean,” said Michael White of UPS, who uses these China-Europe rail lines as part of their multimodal freight solutions.

Trade volume between the European Union and China is totaling more than US$600 billion per year, and by 2020 it is expected to top the US$1 trillion mark. The EU is China’s biggest trading partner, with a full third of what the country produces being shipped there. While nearly half of what the EU imports comes from China, which is also the second biggest market for EU exports.

Three major transitions have driven the development of rail being used to ship a growing portion of this China-Europe trade volume. The first is the fact that a strong push from China's central government to develop its inland cities has lead to manufacturing epicenters being moved west. This geographic re-positioning has created a new demand for western export routes to Europe, as it now seems redundant to manufacture products in western cities like Chengdu just to ship them all the way east across China to be loaded onto a ship and moved back west again. The second is that China is transitioning from merely being the “world’s factory” to a country that designs and manufactures more high-end, high value added products that the West wants fast, which makes them economically viable to ship by more expedient means. The third is the growing hunger of Chinese middle and upper class consumers for European luxury goods, which are often perishable (flowers, cheese) or worth enough to warrant the additional shipping costs to get them delivered faster.

The Chinese characters for “Su Man Ou” were printed upon large signs on the back wall of the warehouse where cargo for partial container loads is collected for the weekly Suzhou to Warsaw train. DHL and other freight forwarding operations now offer their customers the option of shipping entire containers or only renting out part of a container on a China-Europe train. The later option proved to be a real game changer.

“We have one customer that makes ATM machines,” Steve Huang, the CEO of East Asian operations for DHL, told me earlier. “Unless a branch of a new bank is opening, a normal order is one machine or two machines to replace the ones that are out of order. In the old times, you had to wait for six to eight weeks to get it on the European side. If you have an ATM out of order the customers start to complain and you have to replace it as soon as possible, so you can only fly it. One ATM machine is 800 kilos, so that's going to cost you a lot of money. Now, you can ship by our service and in three to four weeks you can have the ATM machine ordered and installed. They don't have to wait for a whole container load, they can ship just one ATM machine.”

I walked through the neatly arranged aisles of the warehouse and peered at what was being sent to the other side of the world: a massive industrial printer, a robotic assembly arm, a crate of boxes full of cooling fans, a stack of 3D printers. It was all packaged in shrink wrap or wooden crates. This stuff wasn’t run of the mill, mass-produced fodder bound for dollar stores in European strip malls, but was premium, high-end merchandise. Much of it was for B2B sales — equipment for use in factories and other commercial or service operations. Although most of the content of this train is shipped in by the full container, which are already locked, sealed, and are deposited directly at the loading dock.

I asked Steve Huang what kind of products were being shipped to Europe from China. “All kinds,” he replied. “All the way from high-tech to telecommunications to automotive, retail, garments, pharmaceuticals, wine, spirits.”

Going the other way on these trains are European car parts, wine, cheese, chocolates, flowers, and other Western luxury goods that the Chinese consumer is now craving.

The exit customs inspection for the Su’Man’Ou trains is done on-location in the bonded zone. The next time these containers will need to go undergo a customs inspection will be at the border of the EU, and they will typically not be opened until they arrive at their destination.

“The first phase of the One Belt One Road is completed,” Steve Huang told me. “That means the customs. So throughout this Silk Road the customs is taken care of. So you don't wait for customs at every border.”

Michael White of UPS echoed this sentiment. “It has been very smooth, especially with the Chinese government working with other customs authorities across the continent.”

A potential misconception about these trans-continental trains is that they are, in fact, traveling across continents. They’re not; only the containers are. Like how on the ancient Silk Road products were relayed through a series of transporters between China and Europe, the same is true today. Trains originating in China will go to the border of Russia, Mongolia, or Kazakhstan where they will pass off their cargo to awaiting trains which will take them to Europe, where they will again be relayed on to European trains. These transfers are not just for logistical style but are absolutely necessary: the track gauges of former Soviet countries are different from those in China and Western Europe, so one train physically cannot travel the entire route.

These cargo relays are generally very simple procedures: the incoming train and the outgoing train are lined up side by side and a crane moves the containers from one to the other. At Khorgos Gateway, a new junction on the Silk Road Economic Belt on the border of Kazakhstan and China, this transfer can be done in just 47 minutes.

Although Steve Huang admitted that there are limits as to what these trans-continental rail lines can aspire to. “In terms of price rail can never compete with ocean,” he said. “In terms of transit time rail will never catch up with air freight. So it's an option in between, in terms of transit time and transportation cost.”

The fact of the matter is that these overland transport routes can only hope to attract a niche portion of the market that wants to ship products between China and Europe fast(er) and cheap(er). To be clear, a 50-container train is not going to compete with a 11,000 container freighter ship in terms of price. Right now, it’s roughly five times cheaper to ship via ocean than by these new rail lines, and it’s been predicted that even when mature these China-Europe rail line will only shave one to two percent off maritime cargo. Where the impact will really be felt is in the air cargo industry, as more importers and exporters realize that they can ship between Europe and Asia quickly via rail for a much lower cost.

Taken altogether, the freight volume that China-Europe rail will eventually command will be significant. Khorgos Gateway predicts that within five years they will be processing a million TEU worth of cargo per year — enough to rank them with some big sea ports in the world. Trans-continental rail transport is back.

Follow me on Twitter or LinkedInCheck out my website or some of my other work here