Emerging Markets, Frontier Markets

China’s Next Big Opportunity In Supply-Chain Logistics: Container Shipping By Rail

China and Kazakhstan Cargo RailThe transportation of containers by rail could grow substantially in China, particularly if the nation continues to adopt operating practices and regulatory reforms that have boosted the development of the North American rail network, according to a new research paper from The World Bank.

Measures that include the ability of rail operators to tailor service offerings that include pricing, routing, and delivery time to client needs, as well as “mainstreaming” of specialization in the value chain, according to the paper, titled Customer-driven Rail Intermodal Logistics: Unlocking a New Source of Value for China.

“A more intense use of rail as part of the country’s containerized freight delivery logistics system could be a game-changer for Chinese manufacturers and consumers alike, as we have seen in North America,” said Luis Blancas, a World Bank Senior Transport Specialist and lead author of the paper. “That’s because more and more manufacturing has moved to China’s western provinces, which increases the distance of international and domestic shipments. At the same time, China’s highways are becoming more congested, making it difficult to deliver goods and get value-for-money in trucking services.”

According to the report, since 1998 freight container traffic in China has grown faster than the rate of economic growth. While container traffic on trucks and ships has increased, the use of trains for part of the journey – which is known as rail intermodal logistics – decreased in the same period. A 2013 study found that only 1.3 percent of container traffic through China’s ports involved trains, with 85 percent of all containers entering or leaving the ports on trucks and the rest on ships.

Faced with similar challenges, the United States partially deregulated a stagnated rail transport industry unable to innovate in response to growing demand. By eliminating government-regulated tariffs in order to promote competition and paving the way for rail carriers to design their networks and collaborate with other transport service providers in the supply chain, regulatory reform in the U.S. rail transport sector empowered rail operators to become critical players in international and domestic supply chains.

This experience now resonates in China, as North America shares many of China’s economic geography features, and many of the supply chains served by rail intermodal in the U.S. originate in China.

China Railway Corporation, China’s national rail operator, began reforms in 2013 to improve operational efficiency and customer service, with more flexibility in setting rates and offering services based on market forces of supply and demand.

Such initial reforms can clear the way for a broader adoption of some of the approaches that helped make North America a world leader in rail container transport, according to the paper.

The world's longest railway, connecting China to Spain.  Image courtesy of  The Independent.

The world’s longest railway, connecting China to Spain. Image courtesy of The Independent.

The longest rail link in the world, the Yixin’ou rail line, which links China to Spain, recently began service.

The railway, dubbed the ‘21st-century Silk Road’ is the latest landmark investment by China aimed at improving the infrastructure along the old trading routes between east Asia and Europe. The European Union is China’s biggest trading partner.

The new Yixin’ou rail line spans from China and runs through Kazakhstan, Belarus, Poland, Germany, and France before finally reaching Spain in a round trip journey that takes nearly four months to complete.

A cargo train recently completed a maiden round trip journey of 16,156 miles between China and Spain on the Yixin’ou rail link.

Prior to the opening of the Yixin’ou line, goods that were traded between Europe and China were at the mercy of inefficient sea or air transportation, which meant higher prices in Europe.

“The cargo train will boost economic exchange between Yiwu, the world’s largest small commodity market, and Madrid, Europe’s largest small commodity market,” according to Li Huihuan, the manager of Yiwu CF International Logistics, whom operates the train.

The new Yixin’ou rail line is 450 miles longer than the previous record holder, the Trans-Siberian Railway, which connects Vladivostok in the east of Russia, to Moscow.

Hopes are running high that the new rail service will boost trade between the European Union (EU) and China, which currently stands around €1bn per day, as the train provides a vastly faster and superior service for shipping in comparison to that of seaborne shipping and is substantially cheaper than air cargo.

China’s eastern city of Yiwu, is the world’s largest wholesale market for small consumer goods according to Xinhua, a booming example of modern China, as the city’s small commodities market is growing at an exponential rate with  combined imports and exports valued at $23.7 Billion, a 28.6 percent increase year-over-year.

China began a cargo train service to Kazakhstan in February that links its eastern port city of Lianyungang in the Jiangsu Province and Kazakhstan’s largest city and its financial hub, Almaty.

The railway will be a new path for goods from central Asian countries for global shipment and will be a boost to the construction of the Silk Road Economic Belt (SREB).

“The transportation time and cost can both be reduced by the cargo train, which will boost the proposed Silk Road Economic Belt and the economies of the countries along the belt,” said Liu Bin, the general manager of China-Kazakhstan logistics international.

Railway system in Kazakhstan.  Photo courtesy of Pixabay - CC0

Railway system in Kazakhstan. Photo courtesy of Pixabay – CC0

In Kazakhstan, a new railway that connects Central Asia with the Persian Gulf through Iran was officially launched in December 2014, a move which will turn Kazakhstan into a transit hub between China and the Middle East.

The new international railway line now offers direct passage for Chinese goods to Iran and on to the Gulf, as well as Europe via Turkey.

The line is part of the international North-South corridor. The length of the Kazakh section of the railway is 146 kilometers, Turkmen 700 km and Iranian 82 km. The parties signed the agreement on the construction of the railway link in 2007 and construction started in 2009.

The project means that Kazakhstan now has a direct line to Turkmenistan and Iran, bypassing Uzbekistan and cutting the route by hundreds of kilometers. Together with the new east-west railway line from Beyneu to Zhezkazgan opened by President Nazarbayev in August, the lines will drastically cut the transit time for Chinese goods to Europe via Russia and the Middle East.

In addition to rivaling sea routes for Chinese cargoes, the new rail lines should spur the development of Kazakhstan’s central and Aral Sea regions, hopefully attracting investment in raw minerals and industrial projects. The Beyneu-Zhezkazgan rail line will enable Chinese cargo to cross Kazakhstan along an almost straight east-west line, cutting the transit route across the country by around 1,000 km. The 1,036 km line, which cost KZT561bn ($3.6bn) to build, will now link to the new Kazakhstan-Turkmenistan-Iran line.

China has also been working intensively on a $242 billion (1.5 trillion yuan) high-speed rail link between Beijing and Moscow. The aim is to cut the journey time from five to ‘two days’.

The railway will be 7,000 kilometers long. It will go through Kazakhstan and make travel easier between Europe and Asia.

Russia’s New High Speed Train (Source: business insider)

Moscow – Beijing High Speed Train. Image courtesy of Business Insider

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