Experts talking
06. 04. 2021
Last year, rail freight transport between China and Europe more than doubled. Yet, 2020 wasn’t easy for rail freight.
We asked Prof. Andreas Breinbauer, Vice Chancellor and Director of Studies for "Logistics and Transport Management" at the University of Applied Sciences BFI Vienna, why this is and what things are like right now for international freight transport and on the Silk Road.
In 2020, the COVID-19 crisis led to a severe downturn in the global economy. The world trade volume dwindled by 6%. Having said that, the situation developed at different rates in different regions: in the first half of 2020, the big economic players China, the EU and the USA recorded substantial declines in mercantile exports and imports. China was the least affected out of these three in this period. From the middle of the year, the EU’s foreign trade with China increased too, with exports in the 4th quarter 17% higher than last year’s figures. Over the course of 2020, the EU’s mercantile trade volumes with China exceeded those with the U.S. for the first time!
When we look at the container volumes on the Far East line to Europe, approx. 15.6 million TEU were transported in 2020. This was 7.5% less than 2019, but in November transport volumes were already 30.9% higher than those recorded in the same month last year. Austria was hit even harder by the drop, but also in different ways depending on the country groups.
However, there are signs of recovery for 2021.
The impact on rail freight services was especially heavy in the first half year of the COVID-19 crisis, on cross-border freight traffic in particular. Rail transport increased considerably on the China-EU route, chiefly due to a lack of transport capacities in sea freight and air freight (see below). Overall, 2020 was not a good year for rail freight operators in Europe.
Very well! The "Iron Silk Road" between China and Europe is the answer to China’s vision as part of the Belt and Road Initiative, so Chinese provinces and the central government have subsidised about 40% of it. Rail freight typically attracts moderately expensive goods (currently 200 different product groups) which are transported at a moderate speed. Air freight prices exploded, so companies shifted to rail freight, particularly along the China-Europe route. In 2020 a total of 1,135,000 TEU were transported by rail, which is 56 % more than the previous year. In the future, high-quality freight transport is going to be subsidised more and more, and this will increase its competitiveness compared with air freight. The Chinese government plans to completely eliminate subsidies by 2022, but rail pricing calculations will probably stop this plan in its tracks.
COVID-19 resulted in a slight modal shift towards rail. Two developments are important here: on the one hand, there were COVID-related artificial scarcities in sea freight volumes with blank sailings being cancelled and a lack of empty containers. On the other hand, international flight cancellations resulted in a serious lack of air freight space. Before the COVID crisis, about 60% of air freight was transported in the belly of passenger planes, but now this is only about 1/3, as additional cargo planes were chartered. All this led to record prices for all transport modes, with some sea freight prices meanwhile being higher than railway prices, which to my knowledge has never happened before. In the EU and even in Austria there is a strong orientation towards sustainability, also when it comes to supply chains, and this is hopefully where rail will come to the fore.
Of course, this is something that depends on how the pandemic develops, but also if and how supply chains become more regional. Regionalisation in Europe could for instance result in the rail losing shares to trucks again. Since China comes out on top in the COVID crisis and the EU’s trade volume with China has reached an all-time high, I believe chances are good that Far East-EU volumes will also increase in the short- to medium-term and the modal split will continue to shift (slightly) towards rail. The Rail Cargo Group is a competent and renowned player in Far East business and will continue to have good opportunities.
Despite all the criticism Europe is facing, we’re the world leader when it comes to sustainability. And China is by far the highest CO2 emitter in the world. Both the EU with its Green Deal and China with the numerous sustainability strategies it has been pursuing since 2017 are really driving sustainability forward. Sustainability is central to China’s upcoming 14th five-year plan, which will be adopted in spring 2021. The "Green Silk Road" will play a key role in it. We can assume that rail transport will be promoted in this context and that the corresponding projects will also emerge. This is where Rail Cargo comes in, because environmentally friendly rail freight transport is aligned with the EU objectives and Austrian standards.
Prof. Andreas Breinbauer, Vice Chancellor and Director of Studies for "Logistics and Transport Management" at the University of Applied Sciences BFI Vienna.
