[080120.EN.BIZ] New Silk Rail Route May Yet Surpass Maritime Silk Road in Importance

PUBLIC discussion surrounding the New Silk Road rail route has become more focused since it may serve as a "high-speed internet for the transport of physical goods", says Dachser CEO Bernhard Simon (photo).

"Politically, it could boost China's standing on the global stage,” said the chief executive of the German forwarding giant, reported Fort Lauderdale's Maritime Executive.

This transcontinental route was not the brainchild of China's President Xi Jinping -goods have been rolling along the Trans-Siberian route from China to Europe since 1973.

Nowadays, there are two routes out of northern China, which head via Mongolia, Kazakhstan and Russia to European terminal stations like Duisburg or Hamburg in Germany.

China's western region, home to the megacity of Chongqing, is also connected to the northern routes. This route means that cargo from the inland west no longer needs to be transported eastward to China's coasts.

How significant are these rail links for logistics? In 2017, 2,400 trains moved 145,000 TEU between China and Central Europe. This corresponds to the cargo of seven large container ships. The International Union of Railways (UIC) anticipates this will grow to 670,000 TEU - equivalent to 33 containerships - within a decade.

In spite of this anticipated growth, the existing rail links between China and Europe are likely to remain niche options. McKinsey logistics expert Steve Saxon said: "Compared to sea freight, the volume of goods transported to Europe overland will always remain small.?

This is chiefly a matter of cost. Transporting a standard container between Shanghai and Duisburg by rail costs between US$4,500 and $6,700; compare that to the cost of sending a similar container from Shanghai to Hamburg by ship, which is currently $1,700.

This difference is simply too great for the railway transport to be truly competitive against ocean transport, even though trains move the cargo at twice the speed. Efficiency improvements will not have a big enough impact to shift cargo from ocean transport to rail.

Another factor is that at the moment, China heavily subsidises these international rail connections. Once that support ends in 2021, competitiveness will erode further.

China is planning a new railway line in its southern region, which will transport cargo to Europe via Central Asian countries, as well as Iran and Turkey, bypassing Russia entirely. This route is, geographically speaking, very similar to the "old?Silk Road, a trade route for camel caravans that crossed Central Asia on its way to the eastern Mediterranean.

Source : HKSG.