Sudden removal of China rail subsidies would hurt volumes 26/11/19

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VENLO, The Netherlands — Chinese subsidies can cover up to half the transport cost on the rail network to Europe, and if the financial support was removed over a short period, it would have a huge impact on volumes, the managing director of LTE Netherlands said Tuesday.

Subsidies are set to be scaled down from 2020, but the market has been given no definite time frame and the thought of a rapid reduction was very much on the minds of those attending the European Silk Road Summit.

Multimodal operator LTE’s Markus Bertram said with the subsidies at such a high percentage of the transport value, if the price increased by 50 percent, rail would immediately lose significant market share.

“Expensive cars and wine will continue to use the route, but the question is, how much business will be left,” he told on the sidelines of the conference.

Peter Pardoel, board member for the Cabooter Group, said the rail network has several departure terminals, and each has a different deal with the Chinese government.

“It is a mystery how this mechanism works, but the Chinese have announced that subsidies will be scaled back, and in some cases some regions and terminals are already factoring in those increased prices,” he told

“There are an unbelievable amount of parameters that have an influence on price — what kind of goods, what value, length of train, subsidies — so there is not one shoe fits all,” Pardoel added. “Every forwarder will get their own rate. If the subsidies go, then the cost price will be immediately affected, and if you have a train that does not have an east-west cargo balance, then you have a problem. Those trains are either in exit mode already, or they are looking for solutions to stay in business. Finding that balance is the most important challenge they face.”

Finding that balance is a challenge for most rail operators on the network, especially since China announced in 2018 that empty containers would not be accepted.

“Last year we were transporting thousands of empties to China to try to balance the containers,” said Dmitrij Hasenkampf of DB Cargo Eurasia. “This year that was not the case, as a lot of operators decreased their schedules because they could not fill the trains without empties.”

Business plans require solid volume forecasts

Despite the uncertainty over Chinese regulations and the withdrawal of subsidies, companies operating on the China-Europe rail network still need volume predictions upon which to build their business plans. This was provided by Alexander Labinsky, project manager for mobility and transport at Swiss consultancy Prognos.

Labinsky shared some of the findings of a forecast model Prognos has developed for the rail route. In 2020, total transport both ways between East Asia and Europe will be about 8.2 million TEU. By 2035, the model projects that volume will reach 11.5 million TEU.

Rail terminals in Europe are planning for the transshipment of this volume, and those plans show there will still be a lot of capacity left, even if the forecast volume proves correct. Labinsky said  there was 3.07 million TEU in transshipment capacity available in Europe this year, and once the regional traffic was removed, it was about 2.4 million TEU — 28 percent of the total trade between East Asia and Europe. By 2035, the transshipment capacity with regional transport removed will be 8.5 million TEU capacity, 74 percent of total trade between East Asia and Europe.

“There is a lot of room to grow on all the routes. We can see that the shift needed to fill all the planned capacity will not come from ocean alone, so there will need to be new growth along the corridors,” Labinsky said. This was likely, he added, with large-scale investment and logistics development in the countries along the routes.

Jan Strassburg, head of product for DB Schenker, said the list of challenges facing the rail network was long, but most of the issues were in Europe.

“The trains are doing 1,100 km per day, then they arrive in Europe and do 350 km per day or even less. We have serious infrastructure issues over here,” Strassburg told the summit. He questioned why Europe seemed to lack the political will to match the kind of rail investment being made in countries such as Russia and Kazakhstan.

“We are in the Stone Age and that must be improved,” he said. “It is in our hands. That is not about Chinese subsidies, it is about us.”