Not a week goes by without a call for reduction in capacity or higher rates for container shipments. The fuel costs are not falling and the costs of compliance with new environmental regulations introduced by various countries or ports are increasing. Amongst the predictions of better times ahead (just not yet today) and news of new container ships being added to the fleets, another story got buried and probably left unnoticed. Since December 2012, a trickle of 40-45 containers per train are making their way between the manufacturing centres of Chengdu in China and logistics parks in Lodz in Poland, where the loads are re-consolidated and shipped further throughout Europe. Full of consumer electronics and electronic sub-components one way, and full of food products and machinery on return, these containerised shipments should give the liners food for thought.
The rail links between Asia and Europe cannot compete against ships on volumes, but in the long term, shipping by rail will have an impact on both the seaborne volumes and shippers’ margins. Why would shipments of 40-45 containers a train cause any worry to a shipper carrying 7,000-12,000 teu? It is a mix of the trend for hi-tech centers of production on China moving deeply inland, constantly changing paths to European recovery, and the nature of the cargo. If we just consider the electronics, consumer goods aside, the electronic sub-components shipped via rail will end up being integrated in Europe into more complex sub-assemblies or finished goods and sold to consumers around the world, including those back in China. It appears that this is not going to be a wholesale recovery, but most likely a patchwork of recoveries across industries, maybe even individual companies within those industries. Consequently, the demands will not materialize wholesale either, playing havoc with demand forecasting and the supply chain decisions depending upon accurate forecasts all the way down the distribution chains. As many companies are still only experimenting with sophisticated tools enabling advanced supply chain planning and optimization, they will worry about hitting the right levels of inventories at each stage of the supply chain. That means smaller orders of more valuable cargo that would require less containers moving relatively fast through the logistics chain. Combination of the requirements for higher velocity throughout the supply chain, while maintaining advantage of low cost achieved when shipping by sea, points at the rail option as the most likely chosen in such uncertain market demand circumstances. The journey between Chengdu and Lodz takes 15 days versus about 40 days by ship, at twice the cost per container shipped by sea. That container shipped by rail contributes better net margin than the container shipped by sea. Inevitably, as volumes of shipments increase and the costs decrease, net margin contributions per container will grow. All this, while liners are being saddled with slower moving trade in more containers generating much lower net margin contribution. But still, why would 40 containers per train make a difference? Well, because 40 is not the real limit. The presence of advanced logistics facilities at both ends of such link allows consideration of a US model, whereas 20 and 40 ft containers are re-consolidated into 53 ft containers and double stacked for transport by rail. High quality rail track allows higher train speeds. Thus, the trains can provide even more capacity and could move even faster than today – obvious benefits to the shippers.
And not only East-West trade will move on rails. The growing South-South trade, integration of ASEAN+3 economies, and new rail links will further eat into seaborne trade margins. Within few years, another investment will change the economics of shipping container by rail rather than sea. The Kunming (China)-Vientiane (Laos) rail link could eventually link inland manufacturing centres of China with Thailand, Malaysia and Singapore, allowing higher margin containers to circumnavigate the ports and the liners.
Kris Kosmala, VP APAC at Quintiq
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Quintiq is the fastest-growing provider of the optimization software solutions for supply chains and logistics. “Impossible” planning and scheduling challenges welcome at www.quintiq.com.
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