China-Europe rail shipments, shunned amid Ukraine war, have triggered a train reaction

“So, the client hopes to explore a Caspian Sea route,” said Liu, managing director of Shanghai-based Toprail International Logistics, referring to what’s known as the Middle Corridor, or the Trans-Caspian International Transport Route.

The route spans from China to Kazakhstan, across the Caspian Sea, and through Azerbaijan and Georgia before splitting into two lines – one through Turkey, the other across the Black Sea – then arriving in Europe.

“To be honest, [that route] makes no economic sense for now,” Liu said.

“But from the perspective of political significance, if any government would like to invest in it, I would love to help explore,” she added, referring to the feasibility of making the Middle Corridor a viable route for intercontinental transport that doesn’t go through Russia.

But when Russia invaded Ukraine in February 2022, everything changed.

Many European traders, out of fears of sanctions or of being perceived as friendly with Russia, started scrambling for ways to avoid the country – either by going back to the sea or exploring alternative land corridors.

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Still, based on official figures reported by China Railway, the state-owned rail operator, the cargo volume transported via the China-Europe Railway Express increased by 23 per cent in the first eight months of 2023, compared with a year earlier.

But in reality, industry insiders say most of the Chinese goods are simply not making their journey beyond Russia. And this, they contend, has effectively turned the international freight network into the “China-Russia Railway Express”.

“There was already a decline [in cargo trains bound for Europe] in 2022, and the decrease has been continuing this year,” said Milosz Witkowski, rail-freight director with the Polish Forwarding Company.

In Malaszewicze, a major boarding point between Poland and Belarus that 90 per cent of Europe-bound trains pass through, the cargo volume has been halved since the war started, Witkowski said.

“And the eastbound [flow of goods] has decreased even more,” he added.

In June, the European Union imposed a new ban on transporting certain European goods through Russia and Belarus to any other third country, further deterring European exporters from using the rail.

According to the Eurasian Rail Alliance Index provided by UTLC – operator of the broad-gauge railway in Russia, Kazakhstan and Belarus – the total cargo volume transported between the EU and China via that region from January to August, year on year, decreased by 48.95 per cent to 149,360 TEUs, a standard unit of measure for shipping containers.

That was only 11.8 per cent of the total volume reported by China – 1.26 million TEUs – in the same period. Last year, the share was 25.7 per cent. And in 2021, it was 42.3 per cent.

The arrival points in Europe have also been reduced to five countries – Belgium, Hungary, Poland, Germany and Netherlands, down from 11 in the last two years, according to the index.

Since the war started, Liu from Toprail has lost 75 per cent of her old clients – mostly European and big brands – on the route between China and Europe.

“The China-Europe Railway Express – in the narrow sense – has sort of returned to the state of when it was initiated more than 10 years ago,” Liu said.

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New China-Europe Railway Express line faces challenges amid Russia-Ukraine war

New China-Europe Railway Express line faces challenges amid Russia-Ukraine war

The bleak situation stands in sharp contrast to the railway’s rapid expansion before the war. Thanks to considerable government subsidies, the intercontinental freight trains had established a reputation as an alternative to sea and air freight among Chinese and European traders since the first train departed in 2011.

From China to European countries, train shipments cost a fifth of the price of air shipments and are 75 per cent faster than sea shipments, according to China Railway.

This makes rail an attractive option for some high-value products in high demand, including electric cars and e-commerce goods.

Riding high before the hold-up

But now, as shipping volumes to Europe have dwindled, the rail’s advantage in speed has fully manifested in the absence of so much traffic, with express trains reaching Germany in 12 days, said Andrew Jiang, general manager of Shanghai-based Air Sea Transport.

“Now there are still many customers choosing the train, despite the lower [sea] shipping costs and the war. So, I think there is some irreplaceability about it,” he said.

He added that many local-level governments across China have slashed or ceased their direct subsidies that long supported the China-Europe Railway Express, giving way to the market.

And he speculated that the railway could have flourished “without the Ukraine war”, with less government intervention and by allowing it to evolve largely based on rising supply and demand.

Even though many freight forwarders in China are reallocating resources and their attention toward meeting demand from Russia, whose imports from China have soared while ocean-transport capacity has dwindled due to Western sanctions, Jiang is not optimistic about the long-term reliability of the Russian market.

“Firstly, the market of Europe is much bigger than that of Russia,” he said. “Secondly, once the war ends and sanctions stop, I believe the Russians will go back to importing from the Europeans, instead of China.”

The purchasing power from Russia has been already on the decline, with the war weighing on its economy while the rouble continues to depreciate, noted Lois Mo, commercial manager at New Silk Road Intermodal, a Sichuan-based provider of transport solutions to customers in belt-and-road countries.

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Before the war, 80 per cent of the company’s overall cargo volume went to Europe, and the rest went to Russia. But those figures have since reversed.

“I’m afraid this will be a long-term trend if the war does not end,” Mo said. “And even if the war ends, the sanctions may not stop for a while.”

With the dipping demand from Russia, Mo’s firm is trying to target new business growth points. And Central Asia is highest on the agenda.

Enter the Caspian Sea

Suddenly, the Middle Corridor – the route being considered by Bria Liu’s client with 100 fancy cars in Milan – is looking like it could become a viable option for shippers.

President Xi Jinping threw his support behind that Caspian Sea route last month when he unveiled an eight-point action plan for the Belt and Road Initiative. The first point called for “speeding up the high-quality development of the China-Europe Railway Express” and “participating in the construction of the Trans-Caspian International Transport Corridor”.

But the journey looks to be a choppy one, both figuratively and literally. In the last couple of years, some shipments have made the trip, but there are not yet any regular services across the Caspian.

And despite the attention the route has gained – with its subsequent promotion from relevant countries, led by Kazakhstan and Turkey – it has so far failed to compensate for the loss in freight volume in the traditional northern routes that go through Russia. This is due to unresolved infrastructure bottlenecks and operational challenges, as it has to transit through more geographical barriers, change multiple tracks and ferries, as well as clear more customs, according to industry insiders.

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In particular, crossing the Caspian Sea between Kazakhstan and Azerbaijan is the biggest hurdle, as strong winds and limited cargo ships often cause delays, they said.

In a written reply to the Post, China Railway said it would commit to “the diversified development of overseas corridors for China-Europe Railway Express”, and “steadily expand the southern corridors to improve the overseas network”.

Meanwhile, the national railway companies of Kazakhstan, Georgia and Azerbaijan agreed in late October to create a joint venture that will develop multimodal transport services in the Middle Corridor.

In Europe, while policymakers have expressed interest and pledged investment for the Middle Corridor, shipping giants such as Denmark’s Maersk and Germany’s Deutsche Bahn also announced services via the route last year.

But as of now, despite a rise in cargo volume in the past year, any transcontinental freight trains via the Middle Corridor are still considered “project-based”, as opposed to the more mature northern route that has regular weekly services, Liu said.

Though shorter in distance, the Middle Corridor takes at least 38 days for a train setting off from China to arrive in Europe, compared with 12 days along the northern route through Russia, she said.

“I think the road ahead for the Middle Corridor will be long and bumpy,” Liu said. “The freight costs are still too high. Even with high-level support from governments, there is still a big question mark over how to enhance efficiency on the technical level.”

In Poland, meanwhile, hope is pinned on an end to the Ukraine war, as the Polish government is still investing in an infrastructure project to upgrade terminals and border crossing facilities in Malaszewicze, preparing for the days when big cargo volumes come back.

“It all depends on when the war will end and if the war will end,” said Witkowski from the Polish Forwarding Company. “When the news comes, the cargo volume to Europe will increase rapidly, because many importers in Europe know the service, and they know that the transit time is faster than the sea.

“So, it would be illogical not to use it.”