Rail comes into sharp focus with the rise in the cost of seafreight

The reallocation of freight flows between modes of transport in the first three quarters of 2020 led to an increase in the importance of rail transport amid the decline in air and sea freight. Alexey Grom is CEO and Chairman of the Board of the United Transport and Logistics Company – Eurasian Rail Alliance (UTLC ERA) he explores the changing role of rail in today’s supply chain.

Rail services are now a stable element of international supply chains, equally efficient in comparison to sea transport, which traditionally offer lower transit costs, as stated in the regular report prepared by Drewry, a large international independent research company specialising in the shipping industry.

The cost of goods delivery by rail in September (according to the Eurasian Rail Alliance Index (ERAI) differs from the cost by sea (according to the World Container Index (WCI) by no more than US$100, taking into account the fact that the time of land transit is three times shorter than the sea. This makes it possible to create flexible services that are optimal in terms of price and speed of transportation.

The most important track of international multimodal cargo transportation is China-EU-China, the volume of supplies on which has consistently increased over the past nine months. According to various estimates, the B2B supply market in this direction will reach US$350.8 billion by 2024.

One Belt One Road
UTLC ERA has been consistently developing freight mobility between China and the EU for five years within the framework of the One Belt and One Road project. The company carries out cargo transportation between Europe and China through the territories of Kazakhstan, Russia and Belarus (transit route Brest / Bruzgi / Svisloch / Kaliningrad – Dostyk / Altynkol and vice versa) via wide 1,520mm gauge track.

The total traffic volume of UTLC ERA for nine months of this year exceeded 384,000TEU, which is far ahead the total annual indicator of 2019 that was equal to 333,000TEU. By the end of 2020, the company plans to ensure the transit of 550,000TEU an increase of 68% in comparison to the previous year. Currently, cargo trains travel at a speed of 1,100km per day using the company’s services and covering the distance from the Chinese to the European border in less than five days.

Thanks to the constant and proactive support of shareholders, over the past five years, UTLC ERA has significantly changed the technological parameters of container transit traffic, while remaining nearly the same prices for 15 years. Today the company imports 10 times more than for the entire 2015.

Kaliningrad – a promising direction
One of the most promising areas is Kaliningrad, the main advantage of which is the use of both a land route and an intermodal route (consisting of a land corridor and a sea lane). Freight traffic in this direction has grown by a factor of 10 as a whole in comparison with eight months of 2019 and is mainly used to optimise the services supply in the direction of the ports of Northern Europe and Scandinavia. The estimated throughput of the direction is four pairs of trains per day.

Despite the greater length of the route, the lower congestion of this corridor makes it possible to significantly reduce the delivery time of goods from China to Europe. Multimodal services connected to the ports of Northern Europe avoid the need to consolidate cargo at European terminals, which also faced increased loads due to restrictive measures to prevent the spread of infection. At the beginning of the year the number of trains in this direction did not exceed two pairs per week, but in July this traffic was already at least one pair per day. And there is a very good potential for further growth.

The tariff policy practically does not differ from the tariffs on the basic routes, and the possibilities for the development of capacity are much greater. The service that UTLC is developing in the Kaliningrad direction is attracting much more interest from partners. Just the capacity reserves of the Kaliningrad direction allow a further increase in the capacity of the corridor by another four pairs of trains per day due to the variability of use, both the land route and the intermodal route.

China-EU-China co-operation
Taking into account the advantages of the Kaliningrad direction, UTLC ERA together with Belintertrans-Germany GmbH (BIT-Germany) opened a joint end-to-end regular multimodal service on the Altynkol – Kaliningrad – Hamburg route. The corridor is synchronised within a single technological chain, in which every movement of freighters will correspond to a fixed schedule of the sea line and a vessel chartered for a specific volume of cargo.

UTLC ERA will provide 1,520mm gauge railway transportation from the Altynkol station to the ports of the Kaliningrad region and vice versa. In turn BIT-Germany will organise a regular sea link between the ports of the Kaliningrad region and the port of Hamburg. A pilot transport between Chongqing and Hamburg/ Duisburg was successfully operated in August and trains now run weekly on this new route. Several freight forwarders as well as platform companies have already expressed interest in the alternative service, and it is planned to extend the frequency to up to two trains per day in October.

This is not the first project of its kind in the pan-European and pan-Asian space. Earlier in September this year, test trials of a new regular container service between China and France were completed. Trains will depart twice a month from Hefei (a city in eastern China) to Durzh (a city in northern France) in transit through Kazakhstan, Russia, Belarus, Poland and Germany. The total length of the route is over 12,000km, that is planned to be covered in 16 days.

Trains will run on the new route on a regular basis -they will depart from China to France twice a month. Today it is planned to send household appliances along a new route, but in the future the range of goods may be expanded, including for the transportation of goods of wine producers.

Further development of the industry, its digitalisation, as well as simplification of customs procedures and harmonisation of the regulatory framework, including a wider application of a unified consignment note, is important to strengthen the positions that railway transport has taken today in connection with the redistribution of the structure of freight transit.

Thus, it can be noted that the geography of transportation on UTLC ERA services continues to expand. More and more customers from Western Europe and China are choosing the railway, including those from provinces and regions traditionally attracted towards the sea. And this is not a coincidence. The indisputable advantage of the railway delivery in transcontinental traffic is the optimal ratio of price and speed of transportation, which allows large businesses to respond faster and more flexibly to market changes and, as a result, businesses have more resources to control the situation. Container trains cover a distance of over 10,000km in just over two weeks, while the cost of delivery by rail is becoming increasingly competitive in relation to transportation by other modes of transport.

Alexey Grom is CEO and Chairman of the Board of the United Transport and Logistics Company – Eurasian Rail Alliance . Alexey has vast experience in the railway and transport industry. He previously worked as First Vice President of PJSC, Far Eastern Shipping Company (FESCO). He is a Member of the Board of OYI Nurminen Logistics (Finland) and Member of the Board of Directors of LLC Rail PRO.