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Is Rail a Realistic Option for Transport of Goods between China and Europe Prof. Stane Božičnik, PhD University of Maribor, Slovenia 2014 Forum on Euro-Asia.

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Presentation on theme: "Is Rail a Realistic Option for Transport of Goods between China and Europe Prof. Stane Božičnik, PhD University of Maribor, Slovenia 2014 Forum on Euro-Asia."— Presentation transcript:

1 Is Rail a Realistic Option for Transport of Goods between China and Europe Prof. Stane Božičnik, PhD University of Maribor, Slovenia 2014 Forum on Euro-Asia Transport Internet of Smart Cities (EATISC), Hong Kong, March 17th 20140

2 Contents Driving forces for EU-China transport (rail freight) needs growth: globalisation market potential growth automotive industry Modal split /development trends of EU China freight transport Characteristics of the two prevailing transport modes (sea, air) Rail freight – advantages, disadvantages Three basic Asia – Europe land bridges How to evaluate quality of a corridors on land bridges ? Competition to rail freight Euro-Asia – climate change Conclusions ? 2

3 Driving force for EU-China transport needs growth - globalisation 3 Forum 2013

4 Globalisation – reason for EU- China transport growth Strategically important factors for China - Europe foreign trade relationships growth (since the 1980s) are: the evolution and growth of international supply chains. Supporting concepts in management: – keep to core business, – out sourcing, (3 PL, 4PL…) – from push to pull strategy, lean manufacturing… – shift from company logistics to supply chain management – tube logistics economics…. – Supply chain informatics and data exchange..EDI…ESAP..etc. 4

5 Globalisation – reason for EU- China transport growth Constant fall of transportation costs (economies of scale) – will be explained later New international competition model: international competition amongst national manufacturers at the sectorial level (Phase I) i.e., Swedish cars (Volvo) versus Japanese cars (Honda). 5

6 Fast technological developments enabled competition of production processes within supply chains, where: different stages of production of a single good take place across multiple (international)locations (Phase II) i.e. Swedish cars contain Chinese components and vice-versa rapid technological change (development), particularly in the field of ICT technologies have marked the second wave of globalization ! 6 Globalisation – reason for EU- China transport growth

7 Result of this processes is: global production and global consumption of (global) products (interdependence) multi-national companies spread out different stages of production to different countries in order to become more efficient. Taking advantage of: low-cost labour on the global level and low-cost (maritime) transport – economies of scale ! Result : countries compete to attract different stages of production within the supply chain (e.g. automobile industry) 7 Globalisation – reason for EU- China transport growth

8 China and Asia in general (consequently), became the global production centre ! This led to Chinas remarkable economic boom and huge transport growth between EU – China Annual average transport growth rate is 25 percent (last decade), which is: double world trade growth rate! 8 Globalisation – reason for EU- China transport growth

9 Consequences: congestion in the ports ! World Bank study, Chinas demand for container port services is almost twice as high as the available supply Result: significant delays in shipments. Over-congestion in Chinese ports and other advantages make rail freight as an important alternative for transport of goods between Europe and China. 9 Globalisation – reason for EU- China transport growth

10 ~51% of world sea container flows are Asia-related Asia - Europe Trade Volume about 553 Billion EUR /year The volume is growing About 20% of total trade value - automotive industry 10 EU – Asia trade volume today

11 Market potential of China 11 Forum 2013

12 The second largest economy of the world The biggest exporter in the world Experts estimates predict China may be on track to become the worlds biggest economy within the next 10 years, internal market of 1.35 bn consumers China and the EU are trading more than 1 billion every day 12 China – Economy - today

13 In the long term, Chinas importance as a strategic market of the EU can only increase Every year, 20 million Chinese households pass the threshold of household income of USD13,500 At this level families are able to afford key consumer goods and services, like cars. even if Chinas GDP growth rate is gradually slowing down, its nominal GDP is continuing to grow rapidly! 90 % of global economic growth in the next years is expected to be generated outside Europe, a third of it in China alone! 13 China market potential - tomorrow

14 EU-Switzerland economic co-operation – as basis for comparison of EU-China trade/transport potential EU still exports more goods and services to: Switzerland, 8 million inhabitants, billion, than to China, 1,35 billion inhabitants, billion There is a great potential for co-operation in FUTURE ! 14 Potential for future co-operation between EU – China

15 China – EU trade volume – a potential for rail freight 15 Forum 2013

16 China – EU Trade Dynamics Just three decades ago, China - EU trade was more or less of symbolic value ! 2000 – 101 Bill. EUR 2009 – 297 Bill. EUR 2012 – 434 Bill. EUR Sustainable growth, expected also in future! In terms of volume of transported goods 2012: 90,6 million ton of goods 16

17 Forum 2013 EU imports from China in 2012: 299,9 Billion EUR Machinery and transport equipment: 145,5 Bill. EUR (50,2%) Miscellaneous manufactured goods: 86,7 Bill. EUR (29,9 %) Manufactured goods/classified by materials 35,9 Bill. EUR (12,4%) Chemicals 12,9 Bill (4,5%) Food 4,1 Bill. EUR (1,4%) Source: Eurostat EU – China trade volume

18 Forum 2013 China – EU trade volume 2012 China imports from EU 143,8 Billion EUR Machinery and transport equipment 84,1 Bill. EUR (58,5%) Chemicals and related goods 16,8 Bill. EUR (11,7%) Manufactured goods/classified by materials 13,7 Bill. EUR (9,6%) Misc. Manufactured articles 11 Bill. EUR (7,7%) Crude materials 9,8 Bill. EUR ( 6,8%) Food 2,8 Bill. EUR (2%) 18

19 19 China – EU trade volume 2012

20 Record of billion in 2012! Europe´s trade deficit with China is mainly caused by sectors like: office and telecommunication equipment, shoes and textiles, iron and steel. Evaluation of Trade deficit is of crucial importance for transportation industry! Empty run of transport vehicles in one direction ! 20 EU trade deficit with China

21 China – EU automotive industry trade volume trade perspectives 21 Forum 2013

22 Automotive industry trade growth Automotive industry – accounts for 20% of total EU – China trade volume today Is expected to grow by 2018 Automotive industry is one of the main potential transport demand generators for rail freight transport between EU-China. 22

23 Forum 2013 TODAY: 82 million cars/year 103 million cars/year - is expected global production in % of global production outside EU Component suppliers – have to master requirements of global market and production/logistics complexity Global market development trends in car production 23

24 Chinas vehicle import and export – (in 2010 about 110 Billion) 24 Forum 2013

25 Transport modal split of China – EU trade (2012) 25 Euro-Asi Economic Forum 2013

26 Distribution of EU-China Trade by Mode of Transport in 2012 (in and %) TOTAL EU-27 - China value of trade billion, (China-EU 300 Billion, China-EU 143,8 Bill.) Total trade volume by mode: Sea 268 billion 62% Air 99.8 billion 23% Rail 1,7 billion 0.4% Road 31 billion 7% Other* 34 billion7,6% (post, self-propelled..) Rail freight of minor importance so far ! Source: Based on Eurostat data Available from: (Accessed on 10/07/2013). Forum 2013

27 Market characteristics and trends of the two prevailing transport modes (sea, air) 27 Euro-Asi Economic Forum 2013

28 Two prevailing transport modes 1.Sea transport basic transport mode for transport of goods between China and Europe 62% of transported value between China and EU Low cost (maritime) transport also contributed to globalisation processes of the last two decades Development trends in terms of costs/unit ? 28 Forum 2013

29 BIGGER VESSELS SIZE TO REDUCE SLOT COST – ECONOMIES OF SCALE 29

30 VESSEL SIZE - Grow consistently in the last 15 years 30 Forum 2013

31 Economies of scale - ships and ports-transport cost/unit decrease 31 Forum 2013

32 Maritime transport vs Rail Low cost (Maritime) transport significantly contributed to globalisation processes ! Economies of scale caused by constant growth of vessels and transport demand growth enables decrease of maritime transport costs / prices Because of crisis – low steaming, longer transport time So far there was no serious competition except air transport Rail could be real challenger in a certain market segments 32

33 Air transport 33

34 Second: air transport % of total transported value between China and EU About 2,1 million tons out of total 90 million tons of transported volume, represents in terms of physical transport About 2,2 % transport of the total transport volume between EU and China. What are expected development trends in future? Two prevailing transport modes

35 Europe-to-Asia air transport volume and structure of transported goods 35 Forum 2013

36 Europe–Asia- Europe air cargo market 36 Forum 2013 traffic has grown % per year

37 Europe-to-Asia air trade (forecast) 37 Forum 2013 with average 5.6% growth per year through 2031

38 Asia-to-Europe air trade (forecast) 38 Forum 2013 with average 5.8% growth per year through 2031

39 Railways – as a new (third) freight transport option between EU and China 39 Euro-Asi Economic Forum 2013

40 Price (air) and time (maritime)! Suitable for bigger quantities, longer distances (two drivers) One container shipping costs/time from Chongqing to Western Europe: The carbon footprint of rail, is about one-thirtieth that of air freight. 40 Basic rail freight advantages PriceTransport time Sea$ – – 45 days Train$ – – 20 days Air$ – – 2 days

41 Reasons for rail freight option Increasing volume of goods, Congestion in the EU and China ports Increasing value of traded goods per unit Two basic transport options prevailing Low cost and long lasting sea (40days) Expensive and fast – air Faster than sea and cheaper than air option is looked after – solution rail transport First transport -several good practices VW, HP.. Optimal link central Europe – central China 41 Forum 2013

42 Comparative Advantage of Rail Corridors 42 Forum 2013 Connection of Mainland Industrial Regions

43 First transport of container trains 43 Forum 2013

44 Rail freight disadvantages Different gauges /transhipment/wagon change Different rail systems Customs procedures on borders Administrative /legal procedures Time consuming procedures on borders Security issues etc. 44 Naslov

45 In spite difficulties - good results! VW, HP-TransEurAsia Railways,… HP - Pilot – March 2011 (Chongqing, Kazakhstan, Russia, Belarus, EU) 40% shorter than sea transport Running now 9 months (Winter solution is looked after), plan to run 12 months All pilots: time advantages confirmed, in about 60% also cost advantage. 45 Forum 2013

46 46 Different gauges

47 Three possible transport corridors Three basic Asia – Europe land bridges 47

48 48 Three Euro-Asian land bridges

49 built between 1890 and 1905 connect Moscow with Vladivostok km Nowadays, the Trans-Siberian railway has connections to Berlin, Kiev, Budapest, Helsinki and Beijing. less known is the role of the Trans-Siberian Euro-Asian freight option 49 The first Euro-Asian land bridge - Trans Siberian railway

50 Information technology enables: full monitoring of trains and the status of cars and containers; following of consignments in real time along the whole route electronic goods declaration, thus reducing freight inspection times from 3 days to 1.5 hours; monitoring the security of goods in transport and transit etc. Modernisation plans : Fast train – co-operation China Russia. 50 Technological level of Trans-Siberian railways

51 51

52 The Second Eurasian Land Bridge 2011 China completed a Second Eurasian Land Bridge running from: port of Lianyungang on the East China Sea to Kazakhstans Druzhba and further to Central Asia, West Asia and Europe Km long, running about 4100 Km in China. 52

53 The Second Eurasian Land Bridge is linking also: Tashkent in Uzbekistan, and Ashgabat -Turkmenistans capital and further to the border of Iran With some additional investment, these links, could open new economic possibilities in much-neglected regions of Central Asia. 53

54 54 The second Euro-Asian land bridge

55 China, Kazakhstan, Russia, Belarus, Poland and Germany Photo: Freight train in rural Kazakhstan 55 The second Euro-Asian land bridge is crossing six countries

56 56 The second Euro-Asian land bridge

57 The Third Eurasian Land Bridge? In 2009 announced accelerated construction of the third Eurasian continental land bridge that will link: south China and Europe via Turkey. Starts with the Port Shenzhen and will connect Bangladesh, India, Pakistan, Iran, Turkey and Europe will cross 20 countries in Asia and Europe, total length of about 15,000 kilometres. Total annual trade volume of the regions the route passes through was nearly US$300 billion in Ultimately the plan is for a branch line start in Turkey, cross Syria and Palestine, and end in Egypt 57

58 Economic potential of the new iron silky road Euro-Asian space 40% of total land in the world, (prime uncontaminated agriculture land!); ¾ of the entire world population, ¾ of known world energy resources all minerals needed for industrialization are available in the region. 58

59 The third land bridge 59 Naslov

60 ??? 60 Links to 3rd (in red) land bridge

61 61 The Railways of the Middle East, Visions 2025, UIC strategy, February 2008,

62 The third land bridge tomorrow China-Turkey agreement ( 2010) for high-speed railway link across Turkey (about 35 BN EUR), will be the largest railway project ever. Decreasing travel time through Turkey from 36 to 12h. Will run from: Kars on the border with Armenia through to Istanbul connect Marmaray - recently finished rail tunnel under the Bosporus and link Edirne near the border to Greece and Bulgaria in the European Union. 62

63 The third land bridge tomorrow Baku-Tbilisi-Kars (BTK) railway connecting Baku to Kars is under construction, which greatly increases the strategic importance of the Edirne-Kars line high speed train connection Astana-Almaty line in Kazakhstan, 1050 kilometres, employing Chinas advanced rail-building technology, is to be finished in 2015, speed of 350 kilometre is to be finished in 2015! Signed contract China-Egypt for high speed railway linking Alexandria-Cairo-Luxor-Hurgada (Strategic concept for connecting Africa with Middle East via Egypt !) 63

64 2010, China signed agreements with Iran to connect railways through Central Asia, as well as onto Turkey and Europe. recently inked deal to build Israels high-speed railway linking the ports of Ashdod and Eilat, with eventual connections recent deal to build a high-speed railway linking Cairo, Alexandria, Luxor, and Hurghada, with a longer-term view to eventually connect Africa with the Middle East via Egypt. 64 The third land bridge tomorrow

65 65 The third land bridge

66 Evaluation of transport corridors 66 Forum 2013

67 The following KPIs: Out-of-pocket costs (excluding VAT), measured in /tonne-km; Transport time, measured in hours (or average speed, measured in km/h, depending on the application); Reliability of service (in terms of timely deliveries), measured in percentage of consignments delivered within a pre-defined acceptable time window; Frequency of service, measured in number of services per year; Security availability CO 2 (SOx) emissions, measured in g/tonne-km; and Others suggest different indicators. How to evaluate performance of a transport corridor ? 67 KPIs should be selected by the corridor management on the basis of the objectives being pursued BESTFACT workshop on Co-modality & Green Logistics, Vienna, 20 September 2013

68 Corridor - crucial decision making elements 68 Forum 2013

69 Corridor performance - time distance? 69 Time components of a transport chain BESTFACT workshop on Co-modality & Green Logistics, Vienna, 20 September 2013

70 70 Cost components of a transport chain BESTFACT workshop on Co-modality & Green Logistics, Vienna, 20 September 2013 Corridor performance - cost distance?

71 A lot of problems on EU - China Intermodal Rail Corridors Problems: regulations, procedures, national rail priorities, Interoperability Documents Information systems Gauges: China = EU; Russia, Mongolia, Belarus, Kazakhstan 1 520mm 71 Forum 2013

72 Competitor to rail freight between Europe and Asia – climate change ! 72

73 Climate change 73 Forum 2013 First Ship ( ) arrived to Rotterdam from China over North Pole,12-15 days shorter transport. Climate change could allow ships to cross the north pole by 2040.

74 Land route between Europe and Asia (One of the oldest trade links in the world), is today not (yet) used to its potential to serve a large-scale inter- continental trade. Maritime transport dominates in inter- continental trade. It is improving its transport prices by means of economies of scale. international maritime companies have significantly expanded their capacities in order to meet the increasing demand on intercontinental level. 74 Conclusions

75 Based on the several positive experiences rail transport could be considered as viable alternative for transport between China and EU. Taking into consideration the price of transport and shorter transport times, rail can fill the missing gap between expensive air transport and low cost but slow sea transport. (Modal split analysis proves the idea) Existing and expected growth volumes of transported goods give economic reasons further development of rail corridor connections. 75 Forum 2013 Conclusions

76 Quality of rail freight transport service is still hindered by: current limits of rail infrastructure, administrative procedures, border crossing procedures, different railway legal systems, different track gauges, non-physical obstacles, etc. Systematic and organised approach of all relevant stakeholders along the land bridges for problem solving is advisable. 76 Forum 2013 Conclusions

77 increase of value added of Chinese products is expected to increase demand for rail transport. Container port capacities in China and Europe are reaching a saturation point, rail freight is a competitive alternative volumes of container traffic grow at double-digit rates 77 Conclusions

78 Efficient rail transport is an important factor for further and faster development of Euro-Asian Iron"silky road region. China which is today one of the worlds most efficient railroad constructors and one of the best train producers can play in this development process a role of crucial importance. 78 Conclusions

79 Following the examples of 19 century Europe, rail transport enabled industrial revolution of Europe. 100 years later the "Iron silky road (in particular the second and the third mentioned corridors) open a new economic perspective for all today relatively isolated countries and to Euro Asian macro region as whole. Rail is a realistic and promissing option for transport of goods between Europe and China! 79 Conclusions

80 Thank you for your kind attention! Stane Bozicnik University of Maribor, Slovenia

81 Bloomberg Businessweek, The New Silk Road, december 20, 2012, Clime change could allow ships to cross the north pole by 2040, allow-ships-to-cross-the-north-pole-by-2040/http://blogs.smithsonianmag.com/science/2013/03/climate-change-could- allow-ships-to-cross-the-north-pole-by-2040/ Melting arctic sea ice will allow ice-strengthened vessels to sail directly over the pole by 2050, Shippers can take the fast boat to China, Save a hundred thousand dollars: Take the northern sea route, Cargo ship embarks on historic Arctic Northern Passage non-stop, historic-arctic.htmlhttp://expedition2010org.blogspot.com/2010/09/cargo-ship-embarks-on- historic-arctic.html Ships may sail over North Pole by 2050, This is the IRU 2013 – driving progress since 1948, 2013%20en.pdfhttp://www.iru.org/cms-filesystem-action?file=mix-publications/E-0308%20AR- 2013%20en.pdf Financing Transport Infrastructure, Transport links between Europa and Asia, new challenges, Economic Commission for Europe China gibt Gas, Entwicklung der automotive Handelsbeziehungen mit China, mag. Michael Druml, Executice Director Global Supply Chain Management, MAGNA STEYR Fahrzeugtechnik AG & CoKG World Air Cargo Forecast, Priorities of the JSC Lithuanian Railways Activities, Virgilijus Jastremskas, Development Department Director of JSC Lithuanian Railways Exchange of the Best Practices in Developing the Trade Corridors Between Europa and Asia, EWTCA China Forum, Shanghai, , Vytenis Alisauskas, Customs Advisor Asia Europe logistics Developments, East West Transport Corridor association, Mark Miller Sino-Europe rail link to boost trade, Goods of the Silk Road, The Role of Belarusian Railway in the development of East-West transport corridor, Belintertrans transport and logistics centre, Igor Butko, Marketing manager Die Baltisch-Adriatische Verkehrsachse und ihre Bedeutung für die wirtschaftliche Entwicklung unserer Region, Logistikkongress, , Villach Adratic why not? An overview on shipping scenario, Alps-Adriatic Logistics Congress 2012, Michela Fonda References 81 Forum 2013


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