Coronavirus Has Been a Boon for China’s Railways

Date: Friday, May 15, 2020
Source: The Wall Street Journal

With the pandemic choking sea and air freight, companies turn to the trains revived as part of Beijing’s Belt and Road Initiative

SHANGHAI—The coronavirus pandemic is boosting a core element of China’s Belt and Road Initiative, as rising prices and disruptions in sea and air shipping force companies to turn to trains.

Railways that China has revived in recent years, connecting the country to Europe through Central Asia, just notched their busiest month yet. China Railway Corp., which operates the trains in China, said it recorded 976 trips in April, a 47% increase year-over year. The trains were carrying cargo equivalent to the capacity of four of the world’s largest container ships.

“Since February we’ve had some new customers coming to us who were desperate,” said Jacky Yan, vice president at Chinatrans International, a logistics company based in Shenzhen that helps clients book slots on China-Europe trains.

Shipments of personal protective equipment accounted for part of the additional demand, but clothing suppliers aiming to ship spring collections to European retailers, and auto-parts suppliers fulfilling rush orders from car plants in Germany and the Netherlands, were among those using the rail service for the first time during the pandemic, Mr. Yan said.

“We’ve been sending everything,” he said.

Ocean shippers have been canceling sailings because of the pandemic’s disruption to global factory output and a slump in consumer demand for many goods. Air freight rates surged as companies sought alternative shipping modes and as global airlines slashed passenger flights, which typically carry some commercial cargo.

That all played into the hands of the railways, which have so far relied on heavy subsidies from Beijing. Since trains only haul a few dozen containers, in contrast with a ship that might hold several thousand, the rail services proved easier to maintain and expand in response to fresh demand.

Alongside infrastructure projects, Eurasian rail has emerged as an important thread of the Belt and Road Initiative, which China launched in 2013 to open up foreign markets to Chinese companies while deepening the country’s strategic influence through the financing and building of infrastructure.

The intention was to establish regular rail-freight services from Chinese cities, setting up westward trade corridors to Europe via Central Asia as an alternative to trucking goods to eastern seaports for ocean carriage.

While the railway lines had existed physically for many years, long-distance freight services passing through multiple countries barely operated until China began organizing the new routes.

Branding the service the China-Europe Express, China has managed to corral support from its Central Asian neighbors and fashion an expanding rail network that appeals to a subset of companies requiring something faster than sea shipping but cheaper than air freight.

Manufacturers such as HP Inc., which was eager to ship China-made products to European stores within a couple of weeks, helped pioneer the service. Auto makers also regularly use the trains, with Volvo Cars sending China-built cars west, and Daimler AG and Porsche AG among those ferrying European cars east.

Last year, 8,225 cargo trains plied the Eurasian routes, a 10-fold increase in the space of four years. Most westbound trains depart the central-western Chinese hubs of Chengdu, Chongqing, Xi’an and Zhengzhou; at the European end, the western German city of Duisburg, Hamburg in northern Germany and Poland’s Warsaw are among the main destinations.

“The services have been one of the most politically effective aspects of the Belt and Road, even if their commercial outlook is still uncertain,” said Jonathan Hillman, a senior fellow at the Center for Strategic and International Studies, a think tank in Washington, D.C. In contrast, many of China’s costly efforts to build high-speed railways, highways and power plants have sparked a backlash in countries such as Malaysia and Sri Lanka.

The push to update the old camel caravans with goods trains “is designed to give the impression of a development that is nonthreatening and commercially driven,” Mr. Hillman said.

Yet the commercial prospects for the heavily subsidized service looked uncertain early this year when the Chinese government started to reduce its financial support, making an initial 10% cut, with analysts questioning the viability of the China-Europe Express once subsidies end.

To send a container from China to Germany by rail, a shipper needs to pay about one-third of the total $7,500 cost, Mr. Yan said, with the Chinese authorities paying the rest.

At pre-coronavirus rates, sending a container by sea cost about $1,500, or $20,000 by air, Mr. Yan said. Air rates have since soared: The cost of flying cargo between Shanghai and Europe, for example, quintupled between March and May to over $10 per kilo, according to the TAC index, which provides price information for air freight.

The new business that has flocked to the railways could fall away again as logistical networks return to normal after the pandemic, Mr. Hillman said.

But others believe that enough companies now rely on the railway to sustain it in the future, as the service improves and costs fall.

Transit time from China to Germany has fallen to 11 days from 17 days thanks to new routes and quicker customs procedures, while a serious limitation imposed by Russia, which previously refused to allow food and some other cargoes to pass through its territory, has recently been lifted. That compares with about one week for air freight—factoring in customs checks, collection and delivery times—and six weeks for ocean shipping.

“Customers have seen the reliability of the service during the time of coronavirus compared to ocean and air freight, and I’m positive they’re going to choose this option long term,” Mr. Yan said.


Read from the original source.