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China-Europe rail

A number of new reefer services have launched on Europe-Asia rail routes, but uncertainty over the future of Chinese rail subsidies threatens growth.

Growing eastbound volumes could prove instrumental to the long-term sustainability of Asia-Europe rail freight. The railways are heavily subsidised by China, but there is no guarantee they will continue indefinitely, despite the strong emphasis by the government on its One Belt, One Road policy.

Indeed, one China-based source told The Coolstar the subsidies could end as soon as 2019.

She added: “It’s a big problem as it could double the price. The uncertainty may cause some shippers to think twice about rail and go by ocean or by air. One option to keep the price down will be to implement double-blocktrains, like the US system.”

However, Henrik Christensen, chairman of Silk Route Rail, argued any sudden termination of the subsidies was unlikely, despite his personal opinion that they are unnecessary.

“There have been rumours about subsidies for years and I do not believe anyone knows when they will be removed.

“But in my view, they should be removed as soon as possible, as rail is sustainable without subsidies. It’s not meant for cheap plastic toys but as a replacement for airfreight.”

Silk Route Rail bills itself as the first independent and private transcontinental rail operator. Mr Christensen said the current uncertainty over subsidies was putting off potential investors.

“It is the very reason that we have not been able to raise funding to acquire reefer containers for the route, as no investor is willing to invest until they know what will happen to the subsidies.”

And despite the reefer services currently on offer, Mr Christensen argues that a cheaper solution is needed.

“The key missing factor is the solution for the reefer cargo, food and pharmaceuticals, and a year-round service for all goods.

“At the moment there is only the grossly overpriced diesel-electric container. There are far smarter and better solutions, such as the automatic wheel gauge wagons, electric cabled railway wagons with gensets, kinetic energy power on wagons, even lithium ion batteries to power the normal electric reefer containers.

“However, decisions by railways, and there are a lot of them between China and Europe, takes many years. Then you have the politics in each country which makes the geopolitical problem a huge obstacle as well.”

Meanwhile, since 2012, when Hewlett-Packard (HP) pioneered the use of reefer blocktrains for China-manufactured laptops and notebooks destined for Europe with the help of Unit45 diesel-electric reefer containers, other hi-tech consumer manufacturers have caught on, as well as shippers of other high-value cargo such as automotive spares.

There are now 18 separate rail services operating between China and Europe, marking a faster pace of growth for the mode than many expected.

With the influx of reefer units on westbound trains into Europe – HP alone is said to be shipping 5,000-6,000 teu a year – new opportunities have opened up for European perishable exports on the backhaul leg for increasingly affluent Chinese consumers.

For example, railway operator Far East Land Bridge recently completed the first rail shipment of Swiss dairy products to China, which included raclette and fondue cheeses, milk chocolate and prepared milk.

And in February, Kuehne + Nagel launched its KN Eurasia Express service, which includes less-than-container load (LCL) temperature-controlled shipments from Europe to Asia.

KTZ Express, the logistics subsidiary of Kazakhstan’s national rail company, operated 400 eastbound trains in 2016, roughly half of its westbound volume.

“This is a good balance nowadays, because we can provide a good price for our clients after the wagons are turned around. Our goal is to further develop the eastbound reefer market,” said KTZ Express director Daulet Kakim.

Cargo shipped back to China included milk powder, wine and beer from France and Italy, and plastics from Germany. Overall, KTZ Express operated 1,200 trains, or 98,400 teu in 2016 and is aiming for 2,000 trains this year.

 

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