On the Right Track: China-Europe rail’s explosive growth

As global air and ocean shipping lines went down during the COVID-19 pandemic, businesses turned to rail to keep supply chains between China and Europe open.

ENGINE FOR GROWTH: A freight train bound for Europe leaves Wuhan.

In 2020, global logistics were flipped upside down. Formerly fast and convenient modes of transport were hit by a lack of capacity, causing prices to go through the roof, while usually cheap and reliable shipping strategies became mired in extended and unpredictable lead times. As countries shut down their economies to combat the pandemic, and the world’s air and sea cargo lines became severely disrupted, the New Silk Road with its rail connections kicked in as the popular alternative.

China-Europe rail services, in particular, experienced an explosion in volume throughout the COVID-19 pandemic, thrusting them into the global forefront of logistics options – an unprecedented position of relevance.

“What happened last year was really unexpected,” says Thomas Kowitzki, Head of Chinarail, Multimodal Europe, DHL Global Forwarding. “From March onward, our time to shine came for rail. We really saw a record number of trains all year.”

Ahead of schedule

The China-Europe rail services arose out of a need for a middle-ground solution between fast but expensive air freight and slow but cheap ocean freight. Throughout the first decade of the 2000s, various logistics operators had been experimenting with innovative nonstop rail links between China and Europe along what was then called the Second Eurasian Continental Bridge, a multinational project to create a corresponding rail-driven transport corridor to the Trans-Siberian Express. But it wasn’t until 2013 that regular services were readily established. Since then, with the inception of China’s Silk Road Economic Belt, these transcontinental rail offerings have grown into a full-fledged, 30+ line network connecting more than a dozen cities in China with counterparts in Europe, giving customers from almost all industry sectors a way to ship their goods faster than sea and at a fraction of the cost of air from China to Europe and vice versa.

While volumes were rapidly rising from the outset, nobody could have foreseen the drastic increase that happened in 2020. Some 12,400 cargo trains traversed the Eurasian landmass in 2020, explains Kowitzki, moving over 1 million TEU (twenty-foot equivalent units) between two of the planet’s most dynamic economies – an almost 50% year-on-year rise from 650,000 TEU in 2019. In November 2020 alone, the number of China-Europe freight trains reached 1,238, up 64% year-on-year, to transport 115,000 TEU, up 73% from the previous year, the Belt and Road Portal reports. According to Martin Holst-Mikkelsen, Head of Europe Ocean Freight at Flexport, Asia-Europe rail volumes now command 5%-6% of the region’s total transport capacity.

A welcome alternative

The reasons for this boom in trans-Eurasian rail are directly related to other modes of transport being hamstrung by issues resulting from the COVID-19 pandemic.

“With the bulk of many passenger air fleets being grounded due to travel restrictions and falling demand, capacity was extremely restricted and costs were exploding everywhere,” Kowitzki says.

Consequently, explains David Smrkovsky, a former global logistics manager at HP and Foxconn, upward of 60% of the air cargo capacity between China and Europe and 80% between China and the U.S. went offline as the coronavirus pandemic shifted into high gear in the spring. Accordingly, prices rose exponentially and transit times often tripled.

This forced droves of customers to pivot to alternative shipping methods, and trans-Eurasian rail was where many of them turned. “Normally, the rail option between China and Europe is around eight times cheaper than air,” Kowitzki comments. “Today, it’s become an outright bargain.”

As with air cargo, the situation wasn’t looking very bright for ocean freight, either. A decrease in demand and an unprecedented dearth of containers led to a situation in which many ocean lines carried out more and more blank sailings – canceling stops and even entire routes.

30+

The number of rail lines connecting China with Europe

This led to a scenario in which ocean shipping not only had longer lead times but also became more unpredictable, driving more shippers to try out trans-Eurasian rail, the schedules of which have remained intact – in fact, capacities even grew to meet increasing demand. Rail rates have usually been only twice as expensive as sea transport between China and Europe – often a negligible difference when looking at the value of the products being shipped – and the added bonus of reliable 23- to 25-day delivery times have enticed many to make the change.

Container shortages in China also became an issue for rail in autumn 2020, but this did not detract from the very real benefits. “Rail has shown its value in 2020 and helped to keep supply chains running. While the sudden spike in volume also created some challenges due to equipment shortages, border delays and weather conditions, the bottom line is that rail went through with flying colors,” Kowitzki says.

The drivers

While the China-Europe rail network has been handling increased volumes in its usual sectors – technology, engineering and manufacturing, automotive and consumer goods – it has also become an ideal choice for the rapid transport of medical goods needed in the fight against COVID-19 – which President Xi Jinping has dubbed the "Health Silk Road."

These medical supplies are in large part being transported by rail. China’s foreign ministry claims that more than 27,000 tons of medical equipment, including masks and protective suits, have so far been thus conveyed to Europe – a 41% increase over 2019.

On track to the future

But can the growth of rail be sustained far into the future? Kowitzki says yes: “People who never thought about rail are now trying it and realizing, hold on, it works. This pandemic has helped customers get away from doubt over whether it would really be a viable option for them. Now that they know it works, they will have a completely different starting point than they did before.”

CHECK RAIL: Verifying supplies on a China-Europe freight train, an important part of the Belt and Road Initiative.

One of the main arguments for the long-term growth of trans-Eurasian rail is that it is among the least environmentally damaging forms of long-distance cargo transport. This is important, as many of the world’s governments are putting more emphasis on cleaner forms of transportation. The European Commission’s Green Deal, for example, heavily promotes the increased use of rail, and announced 2021 as the Year of Rail.

Once criticized as a vanity project that wouldn’t have much of an impact on global freight transport, trans-Eurasian rail became a lifeline for many companies during the COVID-19 pandemic. As air and sea cargo capacities dwindled, it was the train that held the logistics map together. —  Wade Shepard


Published: March 2021


Images: Xinhua News Agency/dpa; Xinhua/imago