New China-London and China - Europe rail - On the Right Track : Trains will steal air and sea freight volumes

NEW CHINA- LONDON & CHINA - EUROPE RAIL SERVICES: 
ON THE RIGHT TRACK

China Freight train, China freight train!  Where have you been? I have been to London to sell my cargo!

The first freight train from China pulled into Barking in East London this week after an 18-day journey, marking a milestone in Beijing's push to build commercial links across Europe and Asia.

The train had set off on Jan 1 from Yiwu, a wholesale market town in the eastern Chinese province of Zhejiang. It passed through Kazakhstan, Russia, Belarus, Poland, Germany, Belgium and France, then crossed under the English Channel before arriving in London on Jan 18.

Yiwu Timex Industrial Investments, which is running this service with China's state-run railways, says prices are half that of air cargo, while journey time is two weeks shorter than that by sea.

With the UK's future position with the EU looking uncertain due to Brexit, a potentially new paradigm for the island nation's international relations is gradually revealing itself. And right on cue, China was at its doorstep!

With the new rail route to London, 16 cities in China are now directly connected with 15 cities across Europe. China is planning another 20 European routes, according to BBC.

China is scripting a new economic geography!

2017 will be the year that China-Europe rail services shift supply chain patterns

As the first train from China rolled into London today, having left on new year’s day, the CEO of Kazakhstan’s dry inland port, Khorgos Gateway, informed that the services would eat into sea and air freight volumes. “We now have two trains per day, with about 80 teu and 41 containers per train,” explained Karl Gheysen. “It runs three times a week to Duisberg, but we have also have services to the Netherlands, Madrid, Iran and now the UK.

The capacity of Khorgos Gateway is 540,000 teu a year, but it could be ramped up to a million TEUs ! Khorgos Gateway was built by the Kazakhstan government where the rail gauge changes – making it a good point for transhipment. There are now some 10 rail lines from the gateway, opening almost limitless options around Europe, the CIS and Asia.

Forwarders are increasingly using the service, while DHL has plans to build warehouses for its customers at the dry port. Its real advantage is 15 days’ transit over 45 days for sea freight. Khorgos is making requests for backloads now.

The service costs roughly twice as much as port-to-port sea freight, but about half the cost air. Some estimates suggest the rail connection could take as much as 10% of sea freight volumes on the relevant trade lanes.

Electronics Shippers turn to China Duisberg rail route

Hewlett-Packard (HP) was one of the first shippers to use the service and now accounts for 30-40% of total capacity. 

The rail advantage over sea was not just time. It is cost-effective for some products, but not all. It’s more expensive than sea, but HP, for example, manufactures more than 1,000 km from a seaport. If you add inventory costs during transport, and first and final mile, sea becomes less cheap, especially for higher-value goods. It’s the perfect middle ground. And there are different product groups that fit in that pitch.

Air freight will be more affected than shipping with the launch of these rail services. Shippers now see the route as a viable alternative to air freight and air-sea freight into Dubai-Singapore-China, he added. Meanwhile, postal services are increasingly taking notice of the rail services. Also Alibaba.com is thought to be very interested.

Challenges: Extreme weather conditions!
The service was hampered in its early days by extreme weather conditions in winter. My Gheysen revealed that Toyota had tested it for car transport, but found that the viscosity of brake fluid changed in sub-zero weather conditions. In response, the Kazakh government invested in more than 1,000 reefer containers, for both summer perishables and winter use.

The containers also have GPS monitoring, which reassures shippers with concerns over the security of the route.

There have also been concerns over lack of competition on the routes, with national railways offering services and a single company, UTLC, managing the rail tracks in the CIS region. Geodis and DB Schenker have been keen users of the service. Also Block trains have been given priority. Schedules are set, customers have their slots. The frequency is there now. By 2020 it will be at full capacity.

It is all about China flexing its muscles with block train diplomacy and reaching out and linking all important markets in Europe & Asia. Way to go !

The power of a phone call is greater!

Battle lines have been redrawn as a very big online platform have joined forces with the biggest liner shipping company to provide one of the best electronic booking service. Chinese exporters who are customers of Alibaba’s One touch service  wishing to move LCL shipments can lock a freight rate on Maersk by paying a deposit online. And this will be with the same ease of booking an airline ticket!

What is in it for the biggies? Alibaba stands to benefit in the big battle of the big internet trading platforms as they now occupy the territory called as logistics.. leaving Amazon far behind! For Maersk – well they do not need Chinese forwarders anymore!

A coin has two sides! Perspectives differ:  Look from the eyes of a liner or vessel owner : forwarders do not own anything. So why should they pocket a margin for nothing.. or just answering some telecalls? Now look from the eyes of a forwarder: Shipper whip lashes him for everything from the best freight to the best service including container pick up  arrangement at any odd hour,  shipment related information, bill of lading release – everything on time and to answer the unending queries 24x7!

In the logistics business, the small & smart guys know that the big guys are out to exploit their size to the maximum extent possible. The small guys stay in business by making sure that they do not allow big guys to do this !

Let us live in this world together & make it a better place! The point is that the collective brain power of the small guys is huge compared to the brain power of the big guys! Reminds me of the story of Lion and Mouse – hopefully both help each other and  co-exist peacefully .. & not the other way!

The power of a phone call is greater than the power of a mouse click! The customer is fully empowered when he knows that amidst his busy schedule of manufacturing, trading or export or import, he can call a forwarder or Logistics Service Provider who will in turn respond with the best freight quote fully backed by the best service with credit!  The power to lock in a freight rate with a mouse click is not really such an advance on the power to lock in a freight rate by picking up the telephone! Besides that customers want comparison of rates like the prices of flight ticket comparison on makemytrip.com or yatra.com... for that we have the likes of freightos

There has been a declaration of a war and a great number of sales people will be wondering how things will unfold? We will have to owait and watch!

TPP & its impact on Shipping/Logistics Industry

Trans-Pacific Partnership & its impact on Shipping/Logistics Industry

What is the TPP?

The Trans-Pacific Partnership (TPP) is a trade agreement among twelve of the Pacific Rim countries—notably not including China. The finalized proposal was signed on 4 February 2016 in Auckland, New Zealand, concluding seven years of negotiations. It is currently awaiting ratification to enter into force. The 30 chapters of the agreement aim to "promote economic growth; support the creation and retention of jobs; enhance innovation, productivity and competitiveness; raise living standards; reduce poverty in the signatories' countries; and promote transparency, good governance, and enhanced labor and environmental protections."

The TPP contains measures to lower both non-tariff and tariff barriers to trade,[6] and establish an investor-state dispute settlement (ISDS) mechanism.

Who are the member countries in TPP?
The TPP is the largest FTA since the North American Free Trade Agreement (NAFTA). The TPP, which includes 12 different Pacific Rim countries, which includes the U.S., Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam, have all signed into the pact.

While it hasn’t been put into force just yet and it could be another two years before it comes into force, it evidently looms on the horizon. The real question is, with the TPP going into force, what will it do to the shipping and logistics industry? 

Already, countries are diving headlong into analysis and predictions of the new agreement and raising a few points of concern. One of China’s top economists, Ma Jun, has predicted a 2.2% drop in the mainland GDP. “Simulation results show that, with China’s accession compared to the scenario of China not joining, China will lose 2.2 percent of GDP,” according to Ma’s research. However, with the TPP including 40% of the global economy (approximately $27.7 trillion), it’s not really something a country would want to be excluded from. 

The TPP will cover a wide array of industries and will help to remove tariffs and quotas on many of the products that are commonly traded between participating countries. It’s estimated that the new free trade agreement will help to remove more than 18,000 different tariffs on U.S. products that will lead to increased container volumes. 

The Positives - The Possibility of Growth in Shipping

Removing tariffs does offer a lot of promise for shippers, and the carriers as well.
With little to no tariffs between participating countries, shippers would be able to send more goods at lower costs. In turn, transporting more goods would mean more business for oceanic carriers, a much needed boon in a time of utter stagnation due to the current demand/ overcapacity crisis they are currently facing. While it might be a little presumptuous to assume that this would instantly send the world aright in terms of shipping demand, it would prove to be a benefit to the logistics sector in the long run. 

The biggest proponent of the new trade agreement is that it will rather drastically improve and enhance trading for the United States, which is the biggest participating member of the new agreement. It’s expected that by 2030, U.S. incomes would see a boost of approximately $137 billion, and that exports would see a boost of $357 billion. 

Aside from the U.S., carriers can expect a number of opportunities around the world. Malaysia, Vietnam, and Singapore will be countries to watch as they stand to gain a good deal by expanded market access. 

TPP is good for Container Shipping - Drewry

Drewry found that as with the China-ASEAN pact, U.S. trade growth with its FTA partners appears to be gaining momentum and if the comparison period is narrowed, U.S. exports and imports to FTA partners are seen increasing at a faster pace. Between 2009 and 2014 exports to FTA countries have grown by 64 percent, versus 45 percent for all non-FTAs, while imports from FTAs have expanded by 57 percent against 47 percent.

The analyst said FTA partners had a much smaller, but growing, share of the containerized trade with the U.S. than they did with total merchandise trade, controlling about 19 percent of the two-way box trade in 2014, as measured in tons, up from 18 percent in 2013. China accounted for 30 percent while other non-FTA trading partners took the remaining 51 percent.

Drewry concluded that the liberalization of trade was a growing trend and one that would benefit container shipping companies in the long-run. In the mid-term, it recommended investment in shipping and port infrastructure within countries that had expanded their FTA scope.

Rough Terrain with TPP?

When it comes to logistics and shipping, the break down becomes a little rocky, at least at first. Much like putting any new system in place, it’ll take some time to work out the kinks. The kinks, in this instance, means that there is the potential for some job loss to be caused at the outset. Some companies simply aren’t able to adapt quickly enough to handle the new agreement.

However, the flipside to this is that other industries are strengthened, creating new, and often better paying jobs elsewhere, while simultaneously lowering the costs of goods.
For the shipping and logistics sector, there will be a much needed period of adjustment as the TPP goes into effect, however, the distant horizon looks to be much more promising than the current stagnation it faces now.  

With the TPP lurking around the corner, it is vital that shippers are looking to find meaningful solutions to keep abreast of the ever-changing marketplace.

Criticism for TPP

Nobel Memorial Prize-winning economist Paul Krugman has said that "there isn't a compelling case for this deal, from either a global or a national point of view."