The transportation of freight by rail might seem outdated, but railways have always been, and still are, a major part of the infrastructure in much of Central Asia and Russia, since that was the only way to connect landlocked countries. And now, rail freight is about to be given a large boost back into the limelight, thanks to companies such as A.R.T. Logistics, a freight-forwarding company based in Hong Kong.
Eugene Reznikov, A.R.T.’s business development director, says that train services from China to Europe can now use reefer containers that can maintain a steady temperature for about 20 days. “This is clearly suitable for things like meat and fruit, but, interestingly, computers as well,” he says. “In the winter months, the temperatures in Kazakhstan and Russia can be between -20 and -30 degrees Celsius, so this becomes very useful because it means we can offer the service all year long.”
Reznikov says that his company has recently started placing more focus on block train operations, where a single train transports 41 to 57 containers without making any stopovers at intermediate points like conventional trains would.
This interest in block trains is predicated upon China’s intention to further activate trade with Europe and the Middle East.
“Our clients are looking for alternatives to ocean freight, which is slow, and air freight, which is expensive,” says Reznikov. “Freight by block train is still in its early stages and not yet as big as it will be.”
Henrik Christensen, president of global logistics at KTZ Express, a subsidiary of Kazakhstan’s national railway company set up to develop rail freight links between Asia and Europe, agrees with Reznikov on the appeal of block trains through Russia and Kazakhstan.
“There are a lot of financial figures that actually make this rail route a no-brainer,” he says. “It will help with inventory and cash flow. With chilled New Zealand lamb, for example, considering using rail as opposed to sea would save about 20 to 30 days in shelf life when it gets to Europe.”
The Kazakh government is building and close to finishing a new major terminal at the Khorgos free trade zone on the Kazakh-Chinese border, according to Christensen.
“The progress is amazing. Our partner DP World is helping us to get it ready much earlier than expected. It is expected to be fully operational in June this year with the first block trains starting next month,” he says. “The Khorgos terminal will transform the way cargo is transported between Europe and Asia, and with Khorgos becoming a hub, it will drive more and more cargo via rail.”
Christensen says that this would not have happened without Kazakhstan’s full support and investment. “Rail is the number one priority for the Kazakh government,” he says. “This was planned 10 years ago by the minister of transport at the time, Askar Mamin, who is now the president of Kazakhstan National Railway KTZ. It is his great vision and foresight that has helped to develop the route.”
When complete, Khorgos will serve as the consolidation point for trains originating from various points in China. Cargo will be sorted and loaded onto dedicated train services direct to different distribution points in Belarus, Poland, Germany and the Netherlands.
“This hub-and-spoke model means that it doesn’t matter as much what the loads are for each of the individual trains,” says Christensen. “When they arrive at the terminal, everything for one destination is put onto the same block train.”
In terms of security, Reznikov says that, while his company cannot prevent theft, what they can do is create transparency. There are tracking devices that monitor the status of the containers on trains and send out regular GPS signals. There are normally more issues when a train stops at sorting stations along the way and cargo is loaded or offloaded, but because block trains are non-stop, there are fewer opportunities for human intervention and the risks are minimized.
“We’re excited,” he says. “All these developments will enable us to serve our clients even better.”
The fact that the terminal is managed by DP World also helps minimize any security and corruption risks, according to Christensen. “Things used to move very slowly at Khorgos,” he says. “But now, with DP World running the place, everything will be cleaned up and 100% transparent.”
To expedite things even further, customs clearance procedures are all done in a one-stop manner at Khorgos.
“It’s such a game-changer,” says Christensen. “I don’t think people realise how important the terminal and this free-trade zone is.”
Aside from the Khorgos terminal, KTZ Express has also invested in a new facility at Lianyungang on the northeast coast of China. This terminal is aimed at developing and improving services from northeastern China, Korea and Japan to Europe.
Currently, there are weekly train services from Chongqing, Chengdu, Wuhan and Zhengzhou.
“We would like to see a block train service from every province in China that expands to more and more cities in Europe,” says Christensen. “We are working hard to add block train services from cities such as Xiamen, Shenzhen, Xian and Qingdao, which we will start during 2015. With additional purchases of reefer containers, we hope the railway service will become a daily one from across China.”
Christensen has also set himself an ambitious target. “My personal ambition is to be able to reach Antwerp in nine days,” he says. “Hopefully that will happen sometime in 2015.”
Reznikov predicts that, with more promotion and increased awareness, shippers’ behaviour will shift. “Before, people didn’t really know what Kazakhstan and Belarus were about, and rail trains were mostly just used for east-west cargo,” he says. “But now, that imbalance is less severe and trains won’t be coming back empty to China and Asia. Instead, they’ll be filled with luxury goods that are time-sensitive like wine, cheese and automobiles, as well as chemicals and pharmaceuticals.”
The use of rail freight is set to become much more widespread, according to Reznikov. “I think in about three to five years’ time, the number of rail containers transported between China and Europe can be counted in terms of hundreds of thousands for sure,” he says. “That’s why we’re spending so much money investing in it and telling shippers about it.”
Before all that can be accomplished, however, a few hurdles have to be overcome.
One major challenge is maintaining consistency. “Shippers are being cautious, saying that they will only consider it if we can make sure the cargo arrives consistently within 18 days,” says Reznikov. “We must deliver on our promises.”
To do that, Reznikov says that they have to maintain very close contact with their clients. “The biggest risk is that they lose faith,” he says. “It’s all a big game of planning.”
Another difficulty is the fact that Russia and Kazakhstan use different track widths for their railways. In China and most of Europe, the rails are 1.435 metres apart, referred to as standard gauge. In Russia and other CIS countries, Russian gauge is used and rails are 1.520 metres apart. The difference in gauge means that when cargo reaches the Chinese-Kazakh border at Khorgos, Dostyk or Alashankou, the containers have to be transloaded onto another platform.
One other main challenge is a human resource issue. “The HR factor is a serious problem. I’d say that the number of people who are sufficiently specialized in rail freight here is very limited,” he says. “That makes it very difficult to hunt for someone suitable.”
It’s clear, then, that both A.R.T. and KTZ Express have their work cut out for them.
But Christensen says he thinks it’s worth it. “I just feel lucky to be part of developing something like this,” he says.
As for Reznikov, the daunting prospect doesn’t seem to faze him. “We’re trying to change the perception of almost an entire continent, to let them know that rail is sexy again,” he says with a smile. “That’s exciting.”
By Jeffrey Lee
Staff Writer | Hong Kong
