- More than a million containers set to ride 6,000-plus miles of the railway linking Western Europe to Eastern China via Russia are now having to find new routes by sea.
- With Moscow’s war raging in Ukraine, exporters and logistics firms transporting auto parts, cars, laptops and smartphones are now looking to avoid land routes passing through Russia or the combat zone.
- Some shipping lines are also refusing cargo to Russia and diverting vessels into already overwhelmed European ports.
As the war between Russia and Ukraine continues, many companies have backed out and have kept China’s railway trade route to Europe that goes via Russia paused opting for sea routes but this conflict also congests ports. as stated in a recent article by The Edge Markets.
Finding new routes
More than a million containers set to ride 6,000-plus miles of the railway linking Western Europe to Eastern China via Russia are now having to find new routes by sea, adding to costs and threatening to worsen the global supply chain chaos.
With Moscow’s war raging in Ukraine, exporters and logistics firms transporting auto parts, cars, laptops and smartphones are now looking to avoid land routes passing through Russia or the combat zone. Security risks and payment hurdles stemming from sanctions are mounting, as is a wariness that customers in Europe could boycott products that used Russian rail.
Switching to sea routes is adding to the congestion of ports
Kuehne + Nagel International AG, one of Europe’s largest freight forwarders, is already rejecting rail cargo from China to Europe, according to Marcus Balzereit, a senior vice president for the Asia Pacific at the Switzerland-based company. Some companies are switching to sea, said Glenn Koepke, a general manager at FourKites Inc, a Chicago-based information provider for the logistics industry.
The conflict is adding to congestion at some of the biggest ports, putting further pressure on global supply chains that are still reeling from pandemic-induced manpower shortages. Balzereit said a combination of sea-air solutions could help some automakers and high-tech electronics manufacturers prevent production disruptions despite a surge in costs.
“At times like these, it’s more important for companies to get their goods delivered even if the cost of transport is higher,” said Um Kyung-a, a transportation analyst at Shinyoung Securities Co in Seoul. “It’s more important for them to keep their production going.”
Reduced train, growth in shipments and container data.
Starting March, the export volume on trains heading to Europe from the port of Dalian has been “greatly reduced,” the official Securities Times run by the People’s Daily reported this week. The shipments saw an average growth of more than 70% in the first two months of the year. Representatives for China Railway didn’t immediately respond to a request for comment.
The rail links between China and Europe have been forged over the past decade as part of President Xi Jinping’s new Silk Road project, which later morphed into the “Belt and Road” initiative. It is an ambitious mix of foreign policy and economic strategy to extend the country’s influence across continents.
Last year, trains moved about 1.46 million containers carrying goods valued at about US$75 billion between China and Europe on the routes, or about 4% of total trade between the two sides, according to estimates by Bain & Co.
The rail networks stretching from China, Kazakhstan, Russia, Belarus and beyond connect Chinese commercial centers such as Yiwu in Zhejiang province, Xi’an in Shaanxi, Zhengzhou in Henan, Chengdu in Sichuan and Wuhan in Hubei to European cities including Moscow, Minsk, Hamburg, Milan, Warsaw, Munich and Madrid. Apart from consumer electronics and autos, wood-based products and petrochemicals also hitch a ride.
It takes about two weeks to send Asian goods to Europe via rail compared with a month by ship, according to logistics firms. Ships are still the cheapest method. The cost of transporting a container by rail is roughly twice that of sea freight and a quarter of sending goods by air, according to logistics provider DSV.
War and its effect on the rail network and shippings
Last year, when online vendors rushed to meet a boom in demand for laptops and mobile phones during the pandemic, rail offered a crucial lifeline because some ports in China were locked down, said Helen Liu, a partner at Bain & Co in Shanghai. This year, consumer electronics are likely to be impacted the most if rail isn’t used, she said.
Some companies that use the rail network — from Dell Technologies Inc to IKEA and Toyota Motor Corp — have already paused their operations or sales in Russia. Still, the war in Ukraine hasn’t stopped the rail traffic, with some trains as much as 500 meters long continuing to carry containers between Xi’an and Kaliningrad, a Russian city sandwiched between Poland and Lithuania.
Those who want to shun these routes are looking at alternatives, said Balzereit.
“We see that sea freight remains the backbone, able to move large volumes at a fairly reasonable price,” he said. “Air freight is another option even though the route might not be as direct as the past and you need to go through some route changes which might mean longer time and higher cost. Or a combination of sea and air — we have been doing this for many years.”
Any increase in traffic at ports couldn’t come at a worse time. A flare-up of coronavirus infections in China has prompted authorities to tighten controls, along with mass testing of workers and drivers. For instance, a long line of trucks was waiting to enter Shenzhen’s Yantian container port earlier this month, with shipping major Hapag-Lloyd AG estimating delays to at least 13 vessels.
Some shipping lines are also refusing cargo to Russia and diverting vessels into already overwhelmed European ports, said Judah Levine, head of research at Freightos, an online logistics platform. Additional volume shifting from rail could slow port operations further, he said.
“Getting vessel capacity and getting shipping on time to destination has already been a challenge in the past six months,” said FourKites’ Koepke. “This is just one more thing that’s being added to an already fragile network.”
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Source: The edge market
