Report: Silk Road Transport Corridors: Assessment of Trans-EAEU Freight Traffic Growth Potential

_ EDB Centre for Integraton Studies. Saint-Petersburg, 12 April 2018.

Silk Road Transport Corridors: Assessment of Trans-EAEU Freight Traffic Growth Potential. — Saint Petersburg: EDB Centre for Integration Studies, 2018. — p. 70.

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The report presents the results of quantitative assessment of freight traffic growth prospects along the China–EAEU–EU axis. It provides a description of general trends affecting development of shipments subject to commodity structure and mode of transport. Special attention is paid to factors driving changes in freight traffic. The final part of the report offers an assessment of additional freight traffic which may be attracted to transport routes along the China–EAEU–EU axis, in the short and long term.

An analysis of transport statistics demonstrates the boost in trans-Eurasian shipments that use the railway network of the EAEU countries. In 2010-2017, transit container traffic from China to the EU has grown from 5,600 TEU (a 20-foot container equivalent) to almost 164,000 TEU. Railway container traffic from the EU to China has increased from 1,300 TEU in 2010 to over 98,000 TEU in 2017. At the end of 2017, the total volume of transit container traffic across the EAEU along the China–Europe–China axis reached 262,000 TEU, exceeding the 2016 value by a factor of 1.8.

The analysis shows that the annual doubling of the number of container trains and volume of container cargoes along PRC–EAEU–EU routes in 2013–2016 was largely attributable to subsidisation of export railway freight traffic by Chinese authorities. With the Chinese transit container freight rate reduced almost to zero, Chinese exporters rapidly shifted their cargo flows from sea routes to railway transport.

According to the EDB Centre for Integration Studies’ estimates, the subsidies provided by Chinese provinces amounted to about $88 million in 2016. This estimate assumes an average container transport subsidy of $2,500 per FEU (a 40-foot container equivalent), with the total number of subsidised containers originating from central PRC provinces standing at 35,000 FEU. Subsidies per FEU average a mere 0.3-0.4% of the value of cargo shipped in it.

Recent growth of railway container traffic has been achieved at a through railway freight rate of $4,800–6,000 per FEU (subsidised by about 40%). Whether Chinese provinces will preserve and enhance their transport subsidies is the key issue as regards the prospective increase in container traffic.

Railway container transport offers a range of non-price advantages for consignors. It is convenient in that it cuts delivery time and ensures regularity and door-to-door delivery. Strict adherence to railway schedules (99.7% of all container trains running along China–Europe routes complete their journeys on schedule), door-to-door delivery and delivery times approximately one-third of what is offered by maritime transport, guarantee a wide margin of “convenience”.

According to the authors’ estimates, the China–Europe container traffic growth potential generated by the margin of “convenience” is far from exhausted. By 2020, it may produce a manifold increase in the number of container trains and volume of container traffic (to reach 200–250,000 FEU). In addition, the number of train departures per week (regularity) will go up by a factor of three (to about 100 per week).

One of findings in the report states that the current through freight rate (including subsidies) of $5,500 per FEU on average encourages further growth of container traffic to 500,000 TEU in 2020 (a twofold increase). After that, keeping the freight rate at the previous level will no longer produce such a pronounced effect and container traffic growth rates will dramatically decrease.The prerequisites for further growth will include lower freight rates, investments in the debottlenecking of the transport and logistics infrastructure (the construction of additional railways, the electrification of railway sections, the upgrade and modernisation of locomotive fleets, the use of special rolling stock, and the construction of transport and logistics centres and infrastructure at border crossing points, among other things), and international coordination of transport policies at the level of Greater Eurasia.

In an optimistic scenario, the aggregate container traffic along the China – EAEU – EU axis may grow to 1.3 million TEU in the long term. If the existing East–West/West–East container traffic imbalance (2:1) persists and West–East trains additionally take on any containerisable cargoes, the aggregate railway container traffic along the China–EAEU–EU axis could reach up to 2 million TEU per year in the future.

Further growth of trans-Eurasian transit may, however, face some challenges. One of the most significant barriers that hinder the growth of container traffic along the China – EAEU – EU axis is the insufficient capacity of Polish railways and crossing points at Poland–Belarus border. The next report by the EDB Centre for Integration Studies to be published on 10 May 2018 will discuss weaknesses and infrastructure bottlenecks in container traffic.

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