Is rail freight the saviour of supply chains, or will a truck always get into the picture whatever one does?
 Rail freight is frequently touted as the saviour of supply chains, in what has become an unreasoning war against trucks and trucking.
Lately another salvo has been fired in a keynote address at the European Silk Road Summit 2021 in Amsterdam by on no de Jong, an esteemed fellow of the venerable Dutch think tank, Emory’s .
Emory’s is one of the oldest economic research and consulting companies in Europe. Its history dates back to 1929, when a group of businessmen from Rotterdam established the Foundation NEI or the Netherlands Economic Institute.
“Yes, rail can save supply chains!” declared Mr. de Jong, “The volumes are there and that it has been a good year.”
Specifically, he refers to ERAI (Eurasia Rail Alliance Index) and RZD (Russian Railways) that have posted growth on the New Silk Road routes passing through Kazakhstan and Russia.
ERAI, said Mr. de Jong, provided numbers showing a 30 per cent increase in volumes through Kazakhstan between January and September 2021. The total volumes via this route are equivalent to 459,000 TEU.
On the other hand, he said RZD’s numbers concerning the Russian route are equally encouraging. RZD found that volumes through Russia increased 40 per cent for the same period, which means that they are equal to 782,000 TEU.
Taking these numbers into account, “it is fairly likely that we will reach the milestone of over one million TEU between China and Europe this year”, said Mr. de Jong.
Forgetting that this traffic is highly subsidised and subject to severe country risk - even war risk - this admittedly promising growth approaching one million TEU annual throughput is still pitiful when compared to the traditional Asia-Europe route via Suez which transits 500 million TEU annually.
As for the much touted Northern Sea Route, which is shorter that the Suez route, has no annual container volume to report and likely will not have unless global warming warms up a lot more than it has in the last 20 years.
The prospects of China-EU rail and back again will be tested this year in state subsidies are to be curtained as indicated.
The subsidies, provided largely by the Chinese central government, have been a key factor driving this growth over the past half-decade.
For example, volumes jumped 10-fold, from 142,000 TEU in 2016, to 1.33 million TEU during the first 11 months of 2021, a 30 per cent year-on-year increase, according to the latest figures from China’s National Development and Reform Commission.
Forgetting hopeful rail developments in Africa and the Mideast, European-scale intermodal volumes are only encountered in the US and Canada and to a lesser, but growing extent, in Mexico.
Here we find the truck facing serious problems which provides railways greater opportunities. That's because over-the-road trucking that is the industry vernacular for long haul is being priced out of the market from the North American west coast.
Already, California's traditional role as Asia's gateway to the whole of America by rail and road was at risk with road being at greater risk than rail. What challenged this traditional truism was the all-water route via Panama and increasingly via Suez, championed by southern US east coast ports.
As usual it all boiled down to cost. A single highly paid American trucker must drive a single container from LA to Philly, while 20 lowly-paid Ukrainian or Filipino sailors on a 10,000-TEU ship move 250 containers from Hong Kong to Savannah. Trains were cheaper than trucks over the long haul, but eventually a truck gets into the picture again from the railyards to the consignee's loading bay, involving another costly intermodal transfer.
Taking a truck eastward across most of the Lower 48, one encounters the roughest, most mountainous and dangerous terrain from the Sierra Nevada Mountains to the eastern edge of the Rockies at Denver 1,000 miles way.
If one draws a curved line from Chicago to New Orleans with a southwestern bulge to take in St Louis and Dallas, this divides American into a unprofitable west zone and a profitable eastern zone. If one casts an eye eastward, one finds a consumer-rich hinterland with almost a European density as it thickens up east of the Mississippi Valley.
But looking west of that line one finds vast, sparsely populated badlands with few urban centres beyond Phoenix, Arizona and Las Vegas, Nevada, which are almost local delivery from California.
Thus, taking a truck eastward across most of the Lower 48, one encounters the roughest, most mountainous and dangerous terrain - not to mention the most expensive - from the Sierra Nevada Mountains to the eastern edge of the Rockies at Denver 1,000 miles way.
And after those 1,000 miles, it's still a long way before cargo gets to where it wants to go to the consumer-rich hinterland from the eastern Great Lakes to the Dixie states and the north eastern seaboard.
Returning to the much touted advantages of Far East-Europe rail performance, Mr. de Jong of the Dutch think tank, said that the future will be characterised by four trends and two questions.
"First of all, the situation will remain the same concerning the ocean tariffs, which are not expected to reduce in the short run. The second pillar that will influence the market is the switching roles and integration of companies that now try to acquire their own assets and set up their own business units in all different transport modes. This will lead to increased competition.
"Moreover, inflation and higher electricity prices will have a crucial role in shaping the global supply chain. However, there is some positive news from the geopolitical field since there are indications that relations between the west and the east are cooling off and opening the way for better synergies," said Mr. de Jong.
Finally, he asked if rail will have a role in the EU’s Global Gateway Initiative, or will it become a tool to launch a project equal to China’s Belt and Road?
"The second one concerns the usefulness of new routes and border crossings to bypass heavy congestion on the New Silk Road. Do new alternatives help, or should traditional routes be optimised? Time will show and maybe the European Silk Road Summit of 2022 will be the place to assess all the developments," he said.
One can question the soundness of such an assessment, particularly the assumption that China's Belt and Road Initiative will enjoy continued success. While not in lockstep with the United States on China policy, as time goes on there are more similarities than differences between the two attitudes to Beijing. Moreover, however the US polity is divided, perhaps more than it has been since the American Civil War of the 1860s, both sides are united on China and appears to be following a process of a decoupling of economies in the face of China's aggressiveness internationally.
Of these factors, Mr. de Jong makes no reference and such an omission may yet derail his great expectations of railway ascendency. |
