The development of a rail network between the China and Europe is part of the long-term strategy of the government of China, to achieve global connectivity through its One-Belt-One-Road (OBOR) initiative. The strategy aims to restore and develop the ancient Silk Road between China and Europe, by encouraging investment in Eurasian transport and logistics, including rail networks, to boost Chinese trade and investment and economic integration.
Owing to the rising capital costs and wages in coastal areas, many manufacturing and production companies are relocating their plants to inland cities in China, which are far away from the Chinese commercial costal lines. The companies like HP find difficult to export products to Europe since the commodities needs to travel thousands of kilometers east to the sea ports and ship them back to the west of Europe. The development of railroads has offered the companies in reducing transit times and shipping of the goods from the production site directly to the Countries in the Europe.
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The cooperation between Chinese regions, Russia, and other European countries is expected to lead to evolution and growth of manufacturing activities across the network. This situation is anticipated to create further opportunities for the rail operators and rail freight forwarding service providers, to look after the supply chains of the manufacturing companies involved in the region.
The European exports to China by rail mainly consist of metals and metal products, chemicals, while that of minerals consist of machinery and equipment, minerals and chemical raw materials.
The Chinese government also provides subsidies, which range from USD 1,000 to USD 5,000 for each FEU. China’s provincial governments collectively spent over USD 300 million subsidizing China-Europe block trains during 2011 to 2016. As of Oct 2018, China is expected to begin enforcing a rule early in 2019 that will allow only full trains leaving for Europe to be subsidized. Till now, trains with empty containers still departed the Asian country. It is not expected to have much impact on the rapidly expanding network.
Scope of the Report
A complete background analysis of China-Europe Rail Freight Transport Market, market overview, market analysis and emerging trends by segments, and market dynamics are covered in the report.
Key Market Trends
Increasing Eastbound Traffic
The number of trains travelling in the route has been witnessing rapid growth over the past few years. According to industrial sources, a total of more than 6,500 block trains (westbound and eastbound combined) traveled between the two continents, between 2011 and 2017 out of which 3,673 trains traveled in 2017.
The state governments of China compete fiercely to increase the number of trains on their routes, as they seek the economic benefits associated with the market and look forward to play a crucial part in implementing the belt and road policy of the central government. Additionally, local governments aimed for 5,000 trains to transit both ways, by the end of 2018. Transport operators anticipated this number between 4,000 and 4,500 trains. However, this number increased to 6,363 in 2018. As per the market estimates by major Chinese rail operators, the total rail potential is reckoned to be 636,000 TEU or 21 trains a day, by 2027. However, a throughput of 17 trains per day has already been reached in 2018.
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Westbound traffic between China and Europe had traditionally accounted for the majority of the volumes transported on the New Silk Road. The return of empty containers to China has been a dilemma for operators, as it is a costly procedure, pressing the optimal use of Chinese funding tools. Creating a balance between east- and westbound traffic has been one of the main aims of operators active on the New Silk Road. Rail freight traffic from Europe to Chongqing in China exceeded the traffic in westbound direction for the first time, in 2018. The number of trains travelling from Europe to the south-western Chinese city reached 728, out of a total of 1,442 freight trains in both directions. According to certain sources, the traffic between the Chinese city and Europe witnessed a surge with the volumes having increased by 117%. The increase in eastbound traffic supports the return of locomotives, rolling stock as well as container equipment and thus, the cost of rail freight is decreasing by each percentage when eastbound traffic increases.
Kazakhstan – The Gateway for China-Europe Southern Railroad
Majority of the international railway freight transport happens across the Chinese land ports and the borders of Russian Federation, Kazakhstan, and Mongolia, where it links with Trans-Siberian or Trans-Asia and -Europe corridors. China has been focusing on southern railway lines to build a new silk road and plans to develop a robust rail network through the central Asia. But a major hindrance to the direct rail route between the two regions is the different track gauges in China and Russia. Hence, China and Kazakhstan has been investing heavily in the Khorgos Gateway, which is dry port at the border with china that used to lift containers to Kazakh trains from Chinese ones to overcome the change in track width problem. Kazakhstan has spent nearly USD 3.2 billion in upgrading its rail lines and rolling stock since 2011 to accommodate the growing demand for rail freight. This has resulted in 500,000 tons of rail freight movement in 2016 between the two regions.
Railway traffic between Kazakhstan and China saw a major rise in 2018, especially the eastbound traffic increased significantly by more than 50%. According to the national railway company Kazakh Temir Zholly (KTZ), the rail freight volumes between Kazakhstan and China amounted to 13,979 metric ton last year, which indicated an increase by 38% compared to 2017. A volume of 8,500 metric ton of cargo was transported from Kazakhstan to China, which is 54% more than that of 2017.
The rapid increase in the number of trains between China and Europe is leading to an increase in the competition within the industry. As a mode of transport, the rail freight transport is competitive with other modes, in terms of speed and cost. Moreover, the development of the infrastructure along the routes is decreasing the transport costs and times.
Chinese national rail carrier ‘China Railway’ is a major player in the operation of the rail transport between China and Europe. The forwarding services in the market is dominated by major global players such as DHL and DB Schenker. With the rapid growth of the market, the companies from Central Europe also have an opportunity to take a pie of the market. The competition between local governments of China is also increasing. In 2017, an organization committee was established for CR Express led by China Railway and composed of seven biggest local connection operators in order to limit competition between transport companies controlled by local governments.
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This post was originally published on The Picayune Current