Russia and China consider new routes for trans-continental freight

One of the alternatives to existing routes would be to make better use of the Northern Sea Route. Source: Sergey Krasnouhov / RIA Novosti

One of the alternatives to existing routes would be to make better use of the Northern Sea Route. Source: Sergey Krasnouhov / RIA Novosti

The volume of goods travelling between Europe and Asia is growing faster than the infrastructure. Russia has proposed the North Sea Route as an alternative to existing routes, and China has initiated the Silk Road project.

With growing trade between the Asian and European countries, there is a great deal of emphasis on reducing freight costs.  Russia and China are both considering new ways to move good across the continents.

“Freight volumes have been increasing regularly. Over the last five years they have increased by 30-50 percent,” notes Roman Krivosheyev, executive director of Fialan, which specializes in transporting goods from Southeast Asia. According to him, most of the cargo is shipped directly from China to Russia, but some of it passes though Europe, including the Baltic countries. Currently, according to experts, there are several transportation options. First, express and small shipments are transported by air, which is quite expensive, but takes only three to four days. The second option is to transport by sea. Containers are typically shipped from the ports of Guangzhou or Shanghai to St. Petersburg or Novorossiysk. A third transportation route is to drive goods from China via Kazakhstan. “Because of the Customs Union, these deliveries are now much easier since the goods have to clear customs only on the border between Kazakhstan and China,” said the expert. The fourth method for transporting goods involves several shipment methods. Goods are shipped to the Vladivostok port by sea, and then hauled on the Trans-Siberian railway to Moscow or St. Petersburg. Excluding air freight, the third and fourth methods are considered the fastest, taking a minimum of 20 days. The second way, although comparable in cost with the railway at about $5,000 per container, takes 35 to 40 days.

Modernizing the Trans-Siberian railway and developing the North Sea Route

The volume of freight transported overland can't be increased until the capacity of the Trans-Siberian railway is increased. Back in 2010, Transport Minister Igor Levitin said that the Trans-Siberian was already running at full capacity. At present, Russia has plans to modernize the lines, but has not yet begun to put them into action. “Prospects for upgrading are very difficult to assess, as the Trans-Siberian is the world's longest railway (9,300 km) with an enormous amount of related infrastructure,” says UFS IC expert Maxim Volkov. According to Investkafe analyst Igor Arnautov, modernizing the railway by 2020 would increase the flow of goods by 26 percent to 210 million tonnes. The projected cost is 562 billion roubles, which would be recouped in 10 to 15 years.

One of the alternatives in the future would be to make better use of the Northern Sea Route. This route is almost two times shorter than other sea routes from Europe to the Far East. The route from St. Petersburg to Vladivostok via the northern sea is 14,280 km, while via the Suez Canal it is 23,200 km. According to the Russian Ministry for Development of the Far East, despite the costs of using an icebreaker to get through the ice, shipping cargo from Shanghai to Rotterdam still costs 25 percent less over that route than via the Suez Canal. Moreover, the northern route can handle ships of virtually any displacement. The Japanese large cargo ship Sanko Odyssey with a deadweight of 74,800 tonnes followed the Northern Sea Route in 2011 loaded with more than 70,000 tonnes of Eurochem iron ore concentrate produced by Kovdor enrichment plant. According to Dmitry Baranov, a leading expert at Finam Management, currently major Russian companies such as Norilsk Nickel, Gazprom, Lukoil, and Rosneft are actively using the northern route. As a result, in 2013 the number of ships that took the Northern Sea Route increased four times and reached a record 204 ships. The potential for further growth is enormous. By comparison, about 18,000 ships pass through the Suez Canal annually.

New features of the Silk Road

Another alternative is to recreate the Silk Road through Central Asian countries, who are interested in this project because they are not involved in goods transported either via the Trans-Siberian or the northern route. As part of this project, in 2011 China commissioned the Chongqing-Xinjiang-Europe railroad line, which would go from Chongqing to Duisburg (Germany) in 16 days, and in 2013 opened a direct rail freight route that goes from Chengdu to Lodz (Poland) in 12 days. However, according to checkpoint assistant Chongqing Wang Jiguang, the Chongqing-Xinjiang-Europe line has transported 8,434 TEU containers (the equivalent of a 20-foot container) in the three years since it opened. For comparison, the total volume of traffic on the Trans-Siberian Railway in 2012 alone was 638,216 TEU.

The low figures are due to the lack of necessary infrastructure, says Associate Professor of the Higher School of Economics Mikhail Karpov. “The Silk Road is closer to a myth and cultural image, slogan and brand than an actual project. Such large projects are realized when the global economy is on the upturn, when there is a real demand for them, and I'm not sure that there is such a demand now,” he says.

In general, according to the head of the Oriental Department at the HSE Alexei Maslov, the new transport corridors are primarily beneficial to China. “Chinese goods are becoming more expensive on the domestic market, their costs have risen by 15-30 percent,” says the expert. One of the ways to stimulate the development of the Silk Road would be to eliminate customs duties along the route. This would be very profitable for China, and also the Central Asian countries and parts of Europe. However, having a large number of Chinese goods on the market is harmful to local industry, he warns.

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