20 July 2023 (Lloyd's List) - THE situation in Ukraine has significantly affected freight volumes on a key rail link between China and Europe, with operators and ocean carriers planning alternative routes that skip Russia to avoid sanction risks. “Shipments to and from Europe have dropped a lot, but Russia has made up for the losses,” said Beijing Trans Eurasia International Logistics general manager Dong Wanxu.
Dong’s company is one of the main operators of the so-called China Railway Express. The service connects China, Central Asia, Russia and Europe, and operated approximately 16,000 trains in the past year, transporting more than 1.5m teu of containers.
There will still be growth this year, but the Russia-Ukraine conflict and the ensuing Western sanctions against Moscow have constrained prospects, Dong told Lloyd’s List on the sidelines of the Intermodal Asia conference in Shanghai.
To sidestep Russia, he said that his company is in talks with major European carriers, including Maersk and CMA CGM, to reopen a sea-rail intermodal route transiting via the Caspian Sea and Black Sea. “The big international brands do not want their cargo to pass through Russia,” he said.
Most Trans-Eurasia liftings are headed for Europe, but the amount of those to the federation has grown rapidly since the war started. The volume has surged 200%-300% in 2022 compared with 2021, one of the company’s business managers told Lloyd’s List. The cargo includes daily necessities, semi-finished products, raw materials, and even cars, with a 40 ft container able to hold two to three units.
This year’s volume has declined, but remained strong. This is because some ocean carriers have deployed more ships to serve the China-Russia trade driven by lucrative freight rates. “This has diverted some of the boxes carried by railway,” said the Trans-Eurasia manager. Sanctions risk does not seem a big concern for Chinese exporters to Russia. Traders now increasingly use Chinese yuan for payment as a means to avoid compliance risks, she added.
It is a completely different story for European goods, even though railway operations have not been greatly affected by the fighting. “Some customers are worried that their containers will be seized by the Russian side when travelling in the country,” the manager said.
As a result, many shippers engaged in China-Europe trade are unwilling to transit through Russia, especially for eastbound backhaul routes, which are directly affected by the Russia-related sanctions.
Trans-Eurasia’s liftings to and from Europe have dropped by more than half compared with the pre-war period, according to the manager. The prolonged military conflict has led to a weakening of demand in Europe, while sanctions have changed trade routes, with some shippers choosing vessels that will not need to touch Russia’s territory.
While the route via the Caspian and Black Seas and Türkiye can provide a solution, the alternative is more complex and expensive. It involves communication between different countries, the connection of railways and ships, as well as the cost, so we are evaluating the feasibility of reopening this route,” said the manager, adding that transporting a 40 ft container may cost $1,000 more using this rail-sea route.
