The China-Europe rail freight boom sidesteps shipping chaos but not border disputes

New track on the old trails.
New track on the old trails.
Image: Reuters
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As prices skyrocketed and delays piled up for global trade’s workhorse fleet of cargo ships, companies have scrambled for alternatives. For retailers and exporters in China and Europe, with the luxury of land links, that has meant renewed interest in a transport mode that was mostly ignored before the pandemic, but is now booming.

The volume of goods carried on rail from China to Europe ballooned from 14 million metric tons in 2019, to 24 million metric tons in 2020. Prices spiked from $2,000 per container in June 2020 to $15,000 a year later, according to data presented at the European Silk Road Summit held on Dec. 7-8.

“We have seen tremendous increase in demand for this mode of transport in the last two years,” said Onno Boots, CEO for Asia-Pacific at global freight forwarder Geodis, which has seen a 176% increase between 2019 and 2021 in the volume of goods sent by train.

But rail freight’s main selling point—that it is faster than ocean shipping and cheaper than air freight—is already being undermined by border closures and the threat of spillovers from geopolitical disputes, like the refugee crisis on the Poland-Belarus border, and China’s vow to punish Lithuania in an escalating spat over Taiwan.

China’s ancient and modern links to Europe

A dozen years ago, there was no regular freight service between China and Europe. In 2011, China Railway opened a cargo train line that would go on to stretch from China’s industrial hubs on its coast, through Central Asia and across Europe. When the tracks extended to Madrid in 2014, the route from the Chinese city of Yiwu became the world’s longest freight train line. Dubbed the new Silk Road, it’s a major artery with webs of regional rail systems that fanned out to freight terminals in both continents.

Partly funded under China’s belt and road infrastructure financing program, the China-Europe rail freight system is billed as a revival of the storied land trade that reached evocative heights from the third century, when rare fineries were loaded onto camel caravans lumbering across silk routes, until the 15th century, when large ocean-going vessels and new navigation methods pulled trade towards the sea. By the 18th century, with European colonial powers plying sea routes to their colonies, inland trade had ceded to ocean trade.

Three centuries later, today’s chaos on the ocean has pushed some trade back onto land and turned the China-Europe freight trains from an obscure mode of transport back to a bustling trade route, transporting electronics, machine and auto parts, PPE, lumber, textiles, and the assorted goods of the pandemic e-commerce boom.

Border disputes are rail freight’s Achilles heel

When the tiny Baltic country of Lithuania allowed Taiwan to open a de facto embassy in Vilnius, the move incited retaliation from China, which considers Taiwan to be part of its territory. In a statement, the Chinese foreign minister said, “the Lithuanian government must bear all consequences that arise from this.” An editorial in The Global Times, a government-backed outlet, said that punishing Lithuania would be like “swatting a fly.”

With that, Lithuania became a flashpoint in two volatile global issues—geopolitical tensions between China and Taiwan, and the battered supply chain—with few other intersections. Among the consequences was an attack on Lithuania’s aspirations of becoming an intercontinental transport hub. On Nov. 26, RailFreight, a trade publication, reported that trains from China no longer stopped in Vilnius, the capital, in an exercise of economic clout intended to punish Lithuania and serve as a warning to other European countries, making good on a threat that had been looming since August.

In late November, rail traffic through the popular transit country of Ukraine was stopped due to construction. Trains responded by diverting through Belarus, increasing congestion on land ports on the Polish-Belarus border. Earlier this year, trains backed up in the cities of Khorgos and Alashankou, on the border of Kazakhstan and China, after a few covid cases led to restrictions that brought the movement of goods to a near standstill, with more than 10,000 wagons stuck in congestion. On Oct. 9, Poland responded to an increasing number of refugees from Belarus by closing the border at Kuznica-Bruzgi. It’s a relatively small transit point for rail, but raised the possibility of more border closures should the migrant crisis escalate.

Border flareups and closures are happening on top of a railway system straining under Europe’s high demand for goods. Due to the sheer volume of stuff, shifting a train-load of containers to different gauge tracks, normally a two- or three-day process, now takes 10 days, said Jacky Yan, CEO of New Silk Road Intermodal, a freight forwarder based in Chengdu, China, who specializes in rail freight.

Since October, Yan has seen a shift back to sea freight as customers are put off by the uncertainties at the land borders, chipping away at rail’s speed advantage over ships.

From sea to land and back again

An imbalance of trade between China and the EU, and a rule that empty containers cannot travel by rail has locomotives idling in Europe, waiting to fill up wagons, while full containers pile up in China. According to data from New Silk Road Intermodal, delays at rail freight stations in China can be as much as double or quadruple the average. Covid restrictions, and trucker shortages as Europe goes through another severe covid wave, have also contributed to limiting capacity.

Months of increasing congestion along the intercontinental railways have resulted in customers “now losing some faith in this product to some extent,” Yan said, resulting in declining rail freight volume.

In order not to completely cede trade back to sea freight, rail will need to invest in speed with improved terminals, more robust trade from Europe to China, and tracks that can accommodate high speed trains within China and beyond.

“If we cannot resolve the congestion issue or the transit time is even longer or the same as sea freight, then we’ll lose the advantage,” Yan said.