China-Europe train links become latest supply chain problem

(Bloomberg) – More than a million containers that had to travel more than 6,000 miles of rail linking Western Europe to Eastern China via Russia now have to find new shipping routes, increasing costs and threatening ‘aggravate the chaos of the global supply chain.

Bloomberg’s Most Read

With the Moscow war raging in Ukraine, exporters and logistics companies transporting auto parts, cars, laptops and smartphones are now looking to avoid land routes through Russia or the combat zone. Security risks and payment obstacles resulting from the sanctions are growing, as is concern that European customers will boycott products using Russian rail.

Kuehne + Nagel International AG, one of Europe’s largest freight forwarders, is already rejecting rail freight from China to Europe, according to Marcus Balzereit, senior vice president for Asia-Pacific at the Swiss-based company. Some companies are looking to the sea, said Glenn Koepke, chief executive of FourKites Inc., a Chicago-based information provider for the logistics industry.

The dispute is adding to congestion at some of the largest ports, putting additional strain on global supply chains that are still reeling from pandemic-induced labor shortages. Balzereit said a combination of air-sea solutions could help some high-tech automakers and electronics makers prevent production disruptions despite rising costs.

“At times like these, it’s more important for companies to get their goods delivered even though the cost of transportation is higher,” said Um Kyung-a, transportation analyst at Shinyoung Securities Co. in Seoul. “It is more important for them to maintain their production.”

From March, the volume of exports on trains bound for Europe from the port of Dalian has been “significantly reduced”, the official People’s Daily Securities Times reported this week. Shipments grew by an average of over 70% in the first two months of the year. Representatives of China Railway did not immediately respond to a request for comment.

Rail links between China and Europe were forged over the past decade as part of President Xi Jinping’s new Silk Road project, which later evolved into the Belt and Road Initiative. . It is an ambitious mix of foreign policy and economic strategy to expand the country’s influence across continents.

Last year, trains transported about 1.46 million containers carrying goods worth about $75 billion between China and Europe on the roads, about 4% of total trade between China and Europe. two parts, according to estimates by Bain & Co.

Rail networks stretching from China, Kazakhstan, Russia, Belarus and beyond connect Chinese trading centers such as Yiwu in Zhejiang province, Xi’an in Shaanxi, Zhengzhou in Henan , Chengdu in Sichuan and Wuhan in Hubei to European cities such as Moscow, Minsk, Hamburg, Milan, Warsaw, Munich and Madrid. Besides consumer electronics and automotive, wood-based products and petrochemicals are also hitchhiking.

According to logistics companies, it takes about two weeks to send Asian goods to Europe by rail, compared to a month by ship. Ships are always the cheapest method. According to logistics provider DSV, the cost of transporting a container by rail is about twice that of sea freight and a quarter of that of sending goods by air.

Last year, when online sellers rushed to meet a boom in demand for laptops and mobile phones during the pandemic, rail offered a crucial lifeline as some ports in China were locked down, said Helen Liu, partner at Bain & Co. in Shanghai. Consumer electronics will likely be hit hardest this year if the rail is not used, she said.

Some companies that use the rail network – from Dell Technologies Inc. to IKEA and Toyota Motor Corp. – have already suspended their operations or sales in Russia. Yet the war in Ukraine has not halted rail traffic, with some 500-meter-long trains continuing to transport containers between Xi’an and Kaliningrad, a Russian city sandwiched between Poland and Lithuania.

Those who want to avoid these routes are looking for alternatives, Balzereit said.

“We see ocean freight remaining the backbone, able to move large volumes at a fairly reasonable price,” he said. “Air freight is another option, although the route may not be as direct as in the past and you have to change some routes, which may lead to longer delays and higher costs. Or a combination of sea and air – we have been doing this for many years.

Any increase in port traffic could not come at a worse time. A spike in coronavirus infections in China has prompted authorities to step up controls, along with mass testing of workers and drivers. For example, a long line of trucks was waiting to enter Shenzhen’s Yantian container port earlier this month, with major carrier Hapag-Lloyd AG estimating delays at at least 13 ships.

“Getting vessel capacity and delivering on time to destination has already been a challenge over the past six months,” said FourKites’ Koepke. “It’s just one more thing added to an already fragile network.”

Bloomberg Businessweek’s Most Read

©2022 Bloomberg LP

Source link

About Bob C. Zoller

Check Also

Tesla may stop taking orders due to supply chain issues

Tesla CEO Elon Musk has suggested his company may seek to stop taking orders for …