China-EU rail freight service chugs along, but must detour around Russo Ukraine War
 Widely anticipated, but more pronounced than expected, the China-EU rail traffic is much like the transpacific trade. That is largely one-way, with huge westbound volumes, but far less going the other way.
Overall, China-EU rail freight volumes returned to growth last year, benefiting from a sharp rise in the vehicle segment. Rail freight volumes between China and the EU rebounded sharply according the operator, European Rail Alliance, rising 80.2 per cent year on year to 380,434 TEU.
"This development reflects the trajectory of foreign trade between China and the European Union," according to the analysis of Paris-based Upply consultants.
According to Chinese customs, China's exports to the EU, expressed in value terms, rose again in 2024 to US$516.5 billion, up three per cent on the previous year. Backhaul, Chinese imports from the EU fell by 4.4 per cent to $269.4 billion. You have to go back to 2020, the year of the Covid scare, to find a lower level.
Growth in eastbound containerised maritime routes rose again thanks to the disruption caused by attacks by Yemen's Houthi insurgents in the Red Sea, enabling rail freight to regain its competitiveness.
Since 2020 Poland has been the dominant gateway for rail freight, ahead of Germany, and its importance continues to grow, said the Upply paper. In 2024, 292,950 TEU entered via Poland, representing 88.6 per cent of total flow. This represents a jump of 149 per cent compared with 2023, after two years of decline linked to the slowdown in demand and above all to the outbreak of war in Ukraine, which disrupted operations.
China-Germany rail flows have also returned to growth, but remain at a historically low level of 23,790 TEU. The China-Belgium route came a distant third, with 7,900 TEU (+7.8 per cent), while Hungary, in fourth place with 4,046 TEU, saw stable traffic despite a dynamic first half.
A detailed analysis by product type shows that traffic is increasing in virtually all segments in an east-west direction. Machinery and mechanical and electrical equipment dominate the market, accounting for 30 per cent of volumes if the results of the two categories are taken together.
But 2024 also saw strong growth in the vehicle segment (+192 per cent to 31,304 TEU), and in furniture, bedding and lighting equipment, up 182.7 per cent.
Finally, if one totals the figures for clothing, textiles and footwear sector we see that this type of product is in third place after machinery and vehicles, with a total of 31,108 TEU and year-on-year growth of 268.4 per cent.
In an analysis of China's economic performance in the third quarter of 2024, published on January 8, the French Treasury noted "an increase in the divergence between production and consumption".
Consumption remains weak both cyclically (+3.3 per cent over the first three quarters) and structurally (32 per cent of GDP)," the note said. In the EU-China direction, this situation is undoubtedly weighing on rail freight volumes, which are at a low, suffering from the contraction in demand in China.
On this route, Germany-China flows are largely dominant but are losing ground, with their share falling from 86 per cent of the total in 2023 to 78.6 per cent in 2024. Volumes fell 33 per cent to 39,079 TEU, the same level as in 2017. On the Poland-China route, they increased 24.3 per cent year on year in 2024 to 8,626 TEU, but are still well below the 2017 level.
In other words, in the EU-China direction, there is no real appetite for rail services. The upturn in 2020-2021 was largely due to exceptional factors, namely Covid and the disruption to maritime transport, which was then marked by difficulties in accessing capacity and soaring prices.
Analysis by type of product shows a drastic fall in the flow of vehicles and associated parts. This category remains the most important in the west-east direction, but has fallen by 41.7 per cent to 8,579 TEU. The fall is even more striking for machinery and electrical equipment, with a drop of more than 70 per cent in both cases. The fall in demand for these product segments hit Germany particularly hard.
"EU-China rail freight is likely to continue to face headwinds. On the one hand, the conflict between Russia and Ukraine persists, creating uncertainty and preventing the full deployment of projects. Second, demand in China is likely to remain moderate, which will weigh on flows in the west-east direction," said Upply analysts.
"In the other direction, China's ambitions for the European market, particularly in the automotive sector, could be a factor favouring the development of flows. This is all the more true given that if the Trump administration implements the announced tariffs on Chinese products, China will more than ever need to turn to other markets, particularly Europe.
"However, it is not certain that this will benefit rail freight to any great extent. Indeed, even though the conflict in the Red Sea did not cease in 2024, freight rates fell overall in the second half of the year as ships passing by the Cape of Good Hope became the new norm." their paper said.
There was a slight overheating at the end of the year, but it was moderate and did not last. The ceasefire agreement reached in mid-January between Israel and Hamas may pave the way for a further fall in maritime transport prices on the Asia-Europe route, which would further undermine the competitiveness of rail freight.
The Houthis themselves announced a truce in attacks on ships, and they freed the crew of the Galaxy Leader, that had been held hostage for over a year.
The ceasefire is extremely fragile, and attacks could resume at any time. The shipping company MSC announced that, as things stand, its ships will continue to pass through the Cape of Good Hope.
However, allowing ships to pass through the Suez Canal once again risks of a significant drop in maritime freight rates, since the extension of maritime routes had in part made it possible to absorb an overcapacity that promises to be massive if the situation returns to normal.
Chinese exports will then be able to count on low-cost maritime transport and fluid access to capacity. For the time being, rail freight between China and the EU remains a tool with room for improvement, from both an operational and pricing point of view. |
