On the rails: Growth in Asia’s slower lane

Last October the British and Chinese governments agreed to allow more than double the number of passenger flights between the two nations and threw the door open to unlimited cargo flights. To date, however, no air carrier has availed itself of the opportunity. Instead, rail, as well as rival ground-based modes, have risen in popularity.

The new year saw the launch of the first freight train service from Yiwu in China’s Zhejiang province to London, a 12,000-kilometer journey, which was covered in about 18 days, passing through four Asian and four European countries before entering the U.K. There are two corridors for such connections on this well-worn route between Europe and China: One going through Mongolia and Russia, and the second through Kazakhstan and Russia. Most rail services from China terminate in Germany, but the reach across Europe is spreading. Last year, Kerry Logistics entered the rail arena with a large-scale project that involved two block trains plus a number of full containerloads moving to Spain.

At the Asian end, the number of origin points has climbed steadily in the last decade, creating a greater threat to air cargo options. Over the past couple of years, DHL Global Forwarding (DHL-GF) established rail-ferry connections from Japan and Taiwan to Europe, as well as a link from Korea. In September, DHL-GF started services from Japan to Germany; Vietnam to Europe; and Chengdu to Istanbul. According to Charles Kaufmann, DHL-GF’s CEO for North Asia and head of value-added services for Asia-Pacific, the introduction of less-than-containerload services has been well-received, as it offers greater flexibility and speed – making it more competitive with air – and allows clients to export low-volume shipments.

Block-train journeys from Asia to Europe have climbed from 72 in 2013 to an estimated 1,200 last year, according to forwarder TransXpress. Panalpina, which has seen double-digit growth in this segment, moved almost 900 forty-foot containers in this corridor last year, reported Sng Peng Koon, Panalpina’s country head of overland/subcontractor management in Greater China.

The collapse of Hanjin last summer was initially thought to be a boon for air cargo, but rail seems to have been the real beneficiary, as shippers suddenly faced a shortage of marine capacity, said Caspar Lum, manager of trade development at Kerry. Hellmann Worldwide Logistics also reported a shift to rail after the Hanjin bankruptcy. The migration of manufacturing to China’s interior has been a factor in the growth of overland links to Europe, as has been Beijing’s muscular support of the “One Belt, One Road” initiative.

The strongest factor, though, has been the modal option itself, positioned as an alternative to air and ocean, with lower cost than the former and shorter transits than the latter. While transit times vary between 14 and 22 days, multimodal routings can reduce cost by up to six times, DHL-GF said. Rail service also has a reduced impact on the environment, Kaufmann added.

Kerry has targeted mostly shippers that have used ocean routes so far, but Lum also sees potential with traditional airfreight users, although it takes longer to get them attuned to the transit times and gain confidence in rail, he said. Clients from the electronics, industrial machinery, consumer products and automotive sectors have been strong users of the rail option from China to Europe, but more recently, fashion and garment makers have put their goods on trains. In the opposite direction, Kerry has moved automotive traffic and also food shipments from Spain.

There are some notable downsides that limit rail’s attractiveness. For instance, perishables that require more complex cool-chain protocols are not yet a viable option, as the proper refrigeration technology on rail is prohibitively expensive, Lum said. Differences in rail gauges between China, Russia and Europe force cargo trains to shift twice to different rail chassis along the way. While customs clearance is still challenging, he said, it still creates only minor delays.

Some forwarders have claimed that rail service to Europe would not be competitive were it not for Chinese government subsidies to support One Belt, One Road. Lum said he expects Beijing’s pro-rail stance to continue.

Kerry has been building up its rail capabilities, setting up a consolidation hub in China, and developing full and less-than-containerload (LCL) services. “This will be one of the key priorities for Kerry in the coming years,” Lum said. Panalpina is also beefing up its rail service by “setting up self-operated LCL services along the route at strategic locations in China,” Sng said.

“Multimodal rail service is an important focus,” DHL-GF’s Kaufmann added. “We will continue to explore more services in the near future.”