“This kind of subsidy will not last forever”

Interviewer: As the world’s leading export nation, China is massively investing in several transport corridors and market opportunities as part of the “New Silk Road” project. One of those corridors is being promoted by the upgrade of the Transsiberian railway capacities. In comparison to sea transport, railway transport accounts for only 2% of total freight volumes between China and Europe at the moment. What potential do you see in the next few years?

Feng Xu Bin: When we first launched our China Railway Express in 2011, we started from zero. Since then, it has grown immensely and volumes have steadily increased. On August 26, 2018, the X8044 CR Express, which serves the Hamburg-Wuhan route, successfully arrived in Wuhan, marking the 10,000th China Railway Express transport. Nowadays, the proportion of railway transportation in developed countries accounts for 20% to 40% of total freight volume, which is far higher than in China, where it makes up for only around 2%. Thus, there is massive room for development, and this is also a challenge for our railway infrastructure. We expect an increase to 5% to 8% in the next three years.

What are your long term plans on the eastbound and westbound traffic on the Silk Road in terms of investments and possible number of rail tractions per year?

In the past few years, there have been delays in transit times on the China Railway Express due to various issues at some European hubs. If these can be improved, we expect to be able to reduce transit times by 2-3 days.

The first of these issues results from the doubling of connections of the China Railway Express. Together with the underdeveloped infrastructure of the countries along the way, this has led to an overload at the main stations during certain periods. We need to integrate and optimize routes and resources to ensure optimal operations at the major European hubs.

The second factor is customs clearance procedures. With the China Railway Express running all the way between China and Europe, customs clearance requires multi-country coordination, resulting in varying delays in quarantine and customs clearance procedures. Consideration should be given to improving the integration of manifests in order to accelerate the efficiency of customs clearance processes.

Another reason for delays would be the different track gauges, making it necessary to reload at least twice along the entire route of the China Railway Express. This also negatively affects transport efficiency.

At the moment, rail freight on the Silk Road relies strongly on governmental subsidization. With this background, how does your company evaluate the short and long term development of transport prices in regard to rail transportation compared to sea freight between China and Europe?

From the current point of view, governmental subsidization will not stop in the near future. In this early stage of development of the China-Europe railways, governmental subsidization is reasonable and beneficial to the industry’s development, opening it up and allowing more logistics companies to gain a foothold in rail freight. However, this kind of subsidy will not last forever. The only long-term and effective way to develop the industry is marketization. This includes improving the balance between east-and westbound traffic on the one hand, and service development on the other.

A more balanced distribution of east- and westbound traffic would enable a more efficient  usage of cars and containers and thus helps to reduce freight rates. At the moment, there is only a small number of products being imported from Europe to China. This is due to the imbalance of Sino-European trade, the competition of traditional low-cost sea freight, and the high cost of short-distance pre- and on-carriage by road in Europe. Of course, this is constantly improving, and the frequency of return trips has also increased significantly.

Since the introduction of China’s ‘One Belt, One Road’ strategy, the market has gained a new understanding of rail transportation and the public is paying more attention to rail freight between China and Europe. Rail freight rates are subject to strong competition in the market, and international logistics companies have begun providing door-to-door services with more attractive freight rates. Although rail freight rates have recently begun to gradually decrease, they are still 80-100% higher than sea freight rates. However, with the further development of the market, the China-Europe Railway will become more competitive as a time-efficient and high-quality alternative to seafreight.

One challenge for the New Silk Road is the obvious imbalance of east- and westbound traffic between China and Europe. But there has been a slight reversal of this trend lately: For example, rail freight traffic from Europe to some Chinese train terminals surprisingly exceeded westbound traffic in 2018. Do you think that this development could further grow to offset this imbalance in the future?

We believe that this development reflects the transformation of economic and industrial structures between China and overseas. China’s industrial focus is shifting from low-end processing to mid-to-high-end manufacturing. We are very optimistic about this transformation and consider it highly possible that the imbalance of import and export will be broken up in the future.

The steady progress of digitalization provides many improvements and previously unexpected opportunities in transport and logistics proceedings. What are your plans in this regard?

The fundamental purpose of modern logistics is to improve logistics efficiency, reduce logistics costs, meet customer needs and continuously develop with trends such as information technology, networking, automation, artificial intelligence and standardization. Information technology is the core of modern logistics. By making full use of the opportunities offered by IT, modern logistics breaks the dividing lines between transport as production as well as between different industries and enables integrated planning and control of the entire supply and distribution process.

Based on blockchain technology, we track, upload and verify the logistical data of goods imported across borders, striving to create a one-stop platform, offering package solutions and integration features. The aim is to implement one-stop collection, warehousing and distribution of public services for new international trade transactions such as B2B, B2C and C2M (consumer to manufacturer).

Chengdu plans to build the first fully automated international rail port of China. The new terminal will be able to handle 1.5 million containers per year to further increase its efficiency. Do you think this could be the first of many such projects in the rest of China?

Yes. The China-Europe Railway has developed rapidly in the past few years. Each railway platform has not only developed vigorously in terms of transportation routes and volume, but also improved in terms of operational efficiency and technological equipment at the facilities. The plan for an automated international railway port in Chengdu is a challenge to the traditional railway and a new trend in railway development.

cargo-partner has been active in China for 15 years providing a wide range of air and seafreight, contract logistics, rail and road transport solutions, cross-border trucking in the ASPAC region, domestic distribution and special solutions for online businesses. How does the cooperation with a mid-sized freight forwarder like us differ from cooperation with the so-called ‘big players’ in the industry?

From the perspective of supply and demand, customers need professional partners who offer stable and qualified service, while railway platform companies also depend on stable volumes from customers. We are glad that cargo-partner has chosen us as one of their China-Europe railway partners. Our cooperation is pleasant and smooth, and we hope that there will be further development and mutual support in the future. As a rail platform operator, we provide our customers – whether they are big enterprises or small companies – with the best service that we can offer according to the company’s strategy and service requirements.

Thank you for the interview!