China and the Netherlands are particularly closely linked by sea, with around 20 calls by the largest container ships each week. Almost one in four containers comes from China. But China is also a dominant player in air freight, accounting for almost a fifth of incoming cargo. The growing flow of goods between China and Western Europe is no longer dominated exclusively by sea and air transport. The New Silk Road by rail is a faster alternative to sea transport, but is particularly attractive for higher-value products as a cheaper and greener alternative to air transport.
New Silk Road as new logistics option in great edifice of trade routes
With the New Silk Road now comes an option by rail. Transport on the New Silk Road - which has three main routes and many branches - has developed strongly since the introduction of China's Belt & Road initiative in 2013. This large-scale infrastructure programme has a long-term focus and aims to improve trade routes between China, Asia, Europe and countries along the Indian and Pacific Oceans. Besides rail investments, the programme also includes investments in, for example, seaports, airports and pipelines.
For the Netherlands, the New Silk Road takes getting used to, but shippers are looking at opportunities
Five years after the first train services started, the Silk Road is on its way to maturity. The volume is still small at 1% to 2% of the container supply at sea, but growth continues. And more and more large shippers, such as HP, Volvo and Ricoh, are operating on the Silk Road. Moreover, countries in Central and Eastern Europe are strongly committed to forming a 'land bridge' to Asia.
Silk Road is middle ground in time, and attractive for serving the deep interior
How much time can be gained from the New Silk Road depends heavily on the origin and destination of cargo. Including pre- and post-transport, customs control, gauge change (2 times) and buffer time, the average transit time comes out around 20 days, where by sea it often rises to 45 days. Given the speed of air transport, rail is a middle ground.
Since trains can directly serve the deep interior, the New Silk Road is especially attractive for transport from, but also certainly to, China's interior. Especially in China, this makes a difference because we are not talking about a few kilometres, but soon 2,000 km from the seaport Shanghai to the city of Chengdu. As industry in China increasingly shifts inland, more flows of goods are also created to those areas.
Silk Road lends itself to large group of products that are not too cheap
So how do you know if the Silk Road is attractive? If products have a low value per kg (say 1-2 euros or less), transport by sea is usually the most attractive option. In the case of products worth hundreds of euros per kg, speed via air is the obvious choice. For the middle range and most of the goods trade, this is still open. For this category, it may be worth looking more closely, even though speed may always prove crucial. If speed of delivery is a stretch, then the cost trade-off between modes can be made. Here, it is important to look not only at pre- and post-transport costs, but also at capital costs.
Logistics manager has more to choose from
The New Silk Road is a faster alternative to sea transport, but is particularly attractive for higher-value products as a cheaper and greener alternative to air transport.
Until now, the choice for shippers and logistics service providers has almost automatically focused on air or sea freight. But with rail added, logistics managers therefore have more to choose from. Rail is a faster alternative for products that now go by sea and a cheaper and greener alternative for products that now go by air. The coming of age of the New Silk Road opens up opportunities for logistics managers to scrutinise supply chains and explore new transport combinations. The trick is to follow this structural development and capitalise on commercial and optimisation opportunities in the short term.
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Copyright: ING Economics Department
