Russian Trans-Continental Rail Freight Doubles In 2021

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  • Servicing China-Europe routes  
  • Possibility to connect trans-continental routes with the International North-South Transport Corridor 

China has dramatically increased the shipment of goods to Europe using the railway infrastructure in Russia and Central Asia, with freight train transport doubling in the first two months of this year after seeing a similar surge in demand between 2019 and 2020, according to official data from China customs. Over 2,000 freight trains ran between China and Europe in January and February of 2021, about double the rate seen from last year.

Freight train shipping via Russia has increased by 50% in 2020 compared to 2019, and has climbed a massive 700 percent since 2016, amid the implementation of China’s Belt and Road initiative to expand trade and integrate Eurasia.

Shorter transit times offered by rail-based shipping, combined with a global container shortage, has made overland transport via Russia and the countries of Central Asia an increasingly attractive proposition for exporters in China, Europe and across Central Asia.

Overland shipping by rail can be an attractive alternative to sea-based shipping, even if it is more expensive. Infrastructure maintenance and the costs associated with the transfer of cargoes to and from various modes of transport are currently being examined as to how to reduce these expenses, digital solutions such as Fintech will help.

Under ordinary conditions, ships take about 30-33 days to travel from ports in East Asia to northern Europe using the Suez Canal, which accounts for as much as 12% of all globally shipped goods. If ships are forced to travel around Africa, as has happened due to the grounding in the Suez of the massive Ever Green vessel, that shipping time grows by weeks.

By comparison, major Russian companies such as Fesco Transport Group offer deliveries from China, Japan or Korea to terminals in the European Union in as little as 19 days.

Overall, overland rail-based shipping still accounts for only a fraction of China’s total exports, with the estimated 209,000 containers shipped to Europe via rail in the first two months of 2021 accounting for just over 10% of the 2 million containers processed by Yangshan Port south of Shanghai in January alone.

However, subsidies provided under the Belt and Road Initiative, combined with increasing demand for speedier shipment of high-value goods amid coronavirus-related lockdowns, have prompted companies to utilize overland transport, with the China-Europe rail routes continuing to expand capacity in light of the surging demand.

On Friday, Russia’s Fesco stated that it has seen a jump in demand for alternative routes from customers who ordinarily ship goods to Europe through the Suez Canal. Shipping through the strategic waterway ground to a halt last week after the Ever Given, a large Panamanian-flagged, German-owned container ship, ran aground while on route, rendering the canal temporarily inoperable.

That has in turn lead to a rethink about the Suez bottleneck. Costs related to the Suez Canal blockage are estimated to have reached US$9 billion a day. Alternative routes such as the International North-South Transport Corridor (INSTC) have been proposed, with enhancements to that, including another canal put on the back burner due to the US$7 billion construction costs. That may well now be revisited with a combined INSTC multi-modal canal and rail network linking with Russia’s trans-continental rail.

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Russia Briefing is written by Dezan Shira & Associates. The firm has 28 offices throughout Eurasia, including China, Russia, India, and the ASEAN nations, assisting foreign investors into the Eurasian region. Please contact Maria Kotova at russia@dezshira.com for Russian investment advisory or assistance with market intelligence, legal, tax and compliance issues throughout Asia.

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