Rail freight from China to Europe is growing rapidly
Alongside air and sea freight there is now an increasingly attractive way of sending goods between China and Europe: rail. The rail journey from terminal to terminal currently takes between 15 and 18 days for trains to transport containers from northern and central China to Europe. This transit time is expected to come down to around 10 days in the near future. In this white paper we look closely at the advantages of this method as well as the challenges.
Two decades ago, trade between China and Europe was still in its infancy, a strong contrast to the situation today with the two forming one of the largest economic partnerships in the world. In this short time, the two have become financially interdependent and no one can imagine it coming to an end.
Optimising supply chains between China and Europe
The physical distance between China and Europe is large, and can be a challenge for businesses wanting to optimise their supply chains when it comes to transit times and costs.
As sea freight offers the lowest costs, it is currently the preferred method of shipment to and from China. However, transit times are long, so when there is a need to save time then air freight comes into play, even though the costs are much higher.
In the past few years, rail has positioned itself directly between sea and air, being less costly than air freight and faster than shipping by sea.
Rail service is now available directly to many countries in Europe, in some cases with the last leg of the journey being by truck or short sea routes.
China is investing heavily in Rail Freight
In order to strengthen economic ties with Europe, the Chinese government has revived the overland route between Europe and China over recent years.
There are two main routes for freight trains, with a number of sub-routes. The southern route through Kazakhstan and southern Russia is most suited for freight to and from central China, for example the regions surrounding Chengdu, Chongqing and Zhengzhou. The northern route through Siberia
is ideal for container transport for the northern regions around Beijing, Dalian, Suzhou and Shenyang. In Europe the most important terminals are Duisburg and Hamburg in Germany.
Rail is ideal for businesses whose goods have a lifespan that is too short to allow shipment by sea. It is also interesting for low-margin products where air freight is too costly.
In addition to full container loads (FCL), less than container loads (LCL) have recently become available, with logistics providers arranging the consolidation of several customers’ loads to make full containers. This makes rail an attractive solution for smaller shipments.
Frequencies and volumes up
In 2017, the bilateral trade volume between Europe and China as almost EUR 600 billion (source: EU). Although a relatively small part of that was moved by train, the volumes are rising. In 2017 there were over 3000 goods trains between China and Europe, a tenfold increase in just a few short years. Frequencies are increasing, and new routes are coming online regularly.
An average goods train has 41 containers, equivalent to 9 Boeing 777s. But compared to ships, things look very different: the largest container ships sailing today can carry more than 21,000 twenty-foot equivalent containers – equal to more than 400 goods trains.
Intermodal goods shipment: from door to door
When the same container is transported by more than one method during a shipment, it is called intermodal transport.
Just as with air and sea freight, you need to take the pre- and post-shipment movement of your goods into account with rail too. For rail, you need to have the goods packed in a container which can be rented at the rail operators’ container depot.
Compared to sea ports, rail operators have much smaller depots. So you need to give careful consideration to the transport to and from the depot as storage space there is more limited. If your warehouse is close to the container depot, it can be advantageous to move the goods by road to the depot for transfer to containers there rather than renting an empty container to load at your premises.
On arrival at the destination depot, the same applies in reverse. The container has to be returned to a depot once you have unloaded it, so you need to consider whether to unload the container at the depot or to have the container brought all the way to the final destination by road.
Speed advantages with rail freight
The transit time is around 10 to 18 days, depending on the route. That is half the time it takes to move a container by ship, especially since the introduction of “slow steaming” in order to save fuel. Thanks to these shorter transit times, businesses can react more quickly to changing market demands.
In addition, shorter transit times leads to more rotations and thus less stock in the supply chain. In other words: businesses can free up working capital and lower their capital costs.
Cost savings on interest payments on stock are another consequence. Rail is therefore an attractive alternative to sea freight for high-value electronic goods, for example.
Cost advantages with air freight
A train is of course slower than a plane, but on the other hand the transport costs are much lower. Businesses whose goods literally “miss the boat” from China have previously been obliged to book expensive air freight to get their goods to their destination on time. Rail now offers a solution for getting goods
to Europe which is several times cheaper than air.
How do the costs look for rail compared to air and sea? Of course, it depends on the departure point, destination and volume, but a simple rule of thumb is that transporting a container from door to door by rail is twice the price of sea freight and a quarter the price of sending the goods by air. This
is partly thanks to the Chinese government keeping rail costs artificially low.
A 40 foot container can hold 22,000 kg of goods. By train the cost will be around USD 8000. By sea the same load would cost around USD 4000 and by air € 32,000.
More environmentally friendly than air freight
Sea freight remains the most environmentally-friendly method of transport, but the CO² emissions are significantly lower than for air freight, an argument which is becoming increasingly more important.
That the rail link between China and Europe has a future is shown by the announcement made by President Xi Jinping at the beginning of November 2015. He revealed that China was willing to invest US$ 40 billion in the rail link between China and Europe. The money is being pumped into the Silk Road
Fund and used to give financial support to Asian countries wanting to invest in rail infrastructure on the route.
And China is investing more and more in its own terminals and rail lines. Investments which will mean even shorter transit times and even lower costs.
More possibilities are on the way. In future, reefer (refrigerated) containers will be able to be used on a much greater scale. Perishable goods, such as flowers and fruit, will be able to be handled more efficiently as a result. Currently, air freight is the primary means of shipment, which is an expensive solution.
The potential for shipping non-standard size containers and dangerous goods is also being looked into.
Some countries along the route are subject to sanctions or boycotts by European countries and vice-versa, which means that some goods can be subject to prohibitions for certain countries. The Russian infrastructure is also very old and the level of investment much lower than in China, for example.
There is also the fact that several borders between countries without mutual trade agreements need to be crossed. So in order to avoid delays, it is essential that paperwork be in order.
Whenever goods are shipped by train, there are large ambient temperature differences over short time periods which need to be taken into account. In China it can be very warm, while in Russia well under freezing. These temperature changes can cause problems for some goods.
Rail can be a reliable, fast and efficient alternative to existing methods of transport. You can also save money compared to air freight and see efficiencies for your stock costs compared to sea freight.