Eurasia High-Speed Line May Capture Freight Traffic Market Niche Between Aviation and Marine Transport

_ Natalia Gaston, Analyst, Strategic and Industry Analysis Division, Eurasian Development Bank. Moscow, 13 Devember 2017.

The Eurasia HSL construction project is unprecedented in its scale – never before has a cross-border high-speed line of such length been built, or even designed. Success will generally depend on whether certain principal risks (which at this time are hard to assess due to the project’s novelty) will, in fact, materialize.

In terms of passenger traffic, the most urgent issue is the competition between the HSL and air transport for the privilege to shape the infrastructural framework of the entire transportation system. Foreign HSL construction projects, e.g. the Spanish [AVE] and the French TGV, show that, upon their completion, passenger services often prove to be loss-making due to low utilization ratios. With that in mind, we may speculate that the low density of population in Russia (according to the UN, it occupies the 223rd position out of 241 countries) considerably increases the risks associated with the Eurasia HSL passenger service component. In the concept as it stands now, the number of intermediate flag stations may be restricted to major urban agglomerations, but this will significantly undercut the multiplicative effect for the regions traversed by the line. Apparently, at later implementation stages this effect will need to be subjected to in-depth analysis: in our opinion, as regards the Russian part of the line, such analysis will call for an integrated system-wide approach to designing the infrastructural framework of the transportation system taking into consideration all relevant cross effects, including air transport – HSL linkages.

In the hierarchy of freight traffic modes, the HSL may capture a niche between aviation and marine transport in terms of delivery cost/time ratio. For the time being, marine transport is the undisputed global freight traffic leader with up to 80% of total traffic volume (UNCTAD). Volume is the most critical advantage boasted by marine transport: modern container vessels can carry 18,000 containers or more, assuring lower marine carriage costs ($700-1,000 per TEU – and that despite a notable recovery of freight shipping in 2016 against the backdrop of market consolidation and balanced fleet capacity management) compared to railroad transport. Another important benefit is the transparency of marine law. On the other hand, land freight is much faster (carriage along the Europe-China route takes 10-12 days by rail vs. 40-45 days by sea). Taking those factors into consideration, the closest Eurasia HSL cost/speed competitor in the hierarchy of transportation modes will be aviation. However, the scope of that market in the EAEU is still relatively small. Thus, according to Rosaviation, the total volume of freight air traffic in Russia is currently below 1 mln tons.

Eurasia HSL still has no sustainable freight niche – to some extent, the project forestalls future demand. Eurasia HSL capex, as announced for the Russian part of the line, stands at RUB 3.58 trillion. If we assume that 50% of total workload will be represented by freight traffic (11.9 mln tons), then – even if funding is raised at 4-6% – the infrastructural component of the final transit freight tariff, net of all other costs, may be as high as RUB 6-9 thousand per ton, which is equivalent to US$ 2-3 thousand per 20-ton container. Clearly, the line’s potential target cargoes will be high unit cost goods which display the least sensitivity to the weight of transportation component of total costs subject to the high speed of delivery. It should be noted that this concept is not new: it has already been used in developing Europe-China railroad routes through Russia and China. Total volume of freight shipments using those routes is currently miniscule, accounting for less than 1% of total Russian Railways cargoes. According to PJSC TransContainer, in 2016 container transit volume reached 258,000 TEU (up by 18.8% year-on-year), with Chinese container transit increasing by 89% year-on-year to 153,000 TEU. Even if those volumes double or triple to 10-20 mln tons, they will still account for merely 2-3% of total Russian Railways cargoes carried using the existing infrastructure in the same demand niche that may be claimed by HSL.

No similar infrastructure projects have been implemented in the EAEU to date. The best known high-speed railroad project (Moscow – Saint-Petersburg – Moscow) shows that construction of a dedicated line automatically eliminates competition for railroad infrastructure, enabling the fullest possible utilization of the high-speed potential. At the same time, the absolute technological novelty of the project represents the most significant challenge for the participating countries. No EAEU member state has ever attempted to create such infrastructure; moreover, inasmuch as no input data is currently available on high-speed freight rolling stock, any analysis of projected project freight flows presents considerable difficulties. Due to the novelty factor, the project will require a massive amount of work to develop and endorse new types of rolling stock previously unused in the EAEU market, together with all related technical regulations, and the risks involved remain highly uncertain.


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