In this article, we outline WELLGO’s expert opinion on the current state of the Chinese international rail transportation market and the value of expertise when making logistics decisions.
In November, as expected, Russian Railways announced an increase in freight transportation tariffs with effect from December 1, 2024. This increase amounts to 13.8%, and has been settled with the Federal Antimonopoly Service along with other interested agencies. It is also reported that as some future juncture, certain categories of cargo will be subject to a tariff point indexation. This is explained by the phased reduction of previously granted preferences. In particular, it concerns tariffs for container transportation. Tariffs may additionally increase by 5%, which may become an annual increase.
At the same time, the volume of rail transportation of containers is growing. In the first 10 months of 2024, year-on-year growth was 6.8%, amounting to 6.5 million TEU. A total of 68.4 million tons of cargo was transported in containers (+9%).
Against this background, towards the end of the year, cargo owners are becoming increasingly concerned about the fulfillment of promises to efficiently deliver goods to their consignees during the peak season.
To meet the expectations of cargo owners, a professional freight forwarder regularly scans the logistics landscape to identify external threats and opportunities. This provides customers with timely, relevant, reliable and compelling solutions. In fact, this is a SWOT analysis of the forwarder's services according to customer needs.
What threats are prevalent?
Let's start with port and terminal congestion, which is currently over 90% in Primorsky Krai. Russian Railways continue to increase container exports, but the container transshipment time is two to three weeks. To speed things up, some cargo is shipped from ports to dry terminals, with subsequent staging on railroads.
Next, limited availability of fitting platforms and difficulties with their timely delivery to stations. Changing the type of rolling stock from gondola cars to container carriage means fitting platforms for loading containers. In the Far East, platform capacity is insufficient, due to the current imbalance in export and import flows. According to some reports, there is a shortage of more than 20,000 platforms, which negatively affects the transit time.
A recurring phenomenon in rail transportation is poor railcar management. In Q1 2024, this amounted to more than 14 thousand temporarily suspended trains, of which about 20 percent were container trains. The data for October speak of more than 200 abandoned trains on the Sverdlovsk railroad, more than 300 on the Moscow railroad, and more than 60 on the West Siberian and East Siberian railroads. The waiting time, according to our observations, is 7 to 30 days.
The deficit of traction power is a well-known systemic problem. The rail network needs 680 new locomotives per year for efficient service, meaning that given the current annual increase in the volume of transportation, more than 8200 units are needed. And yet, Russian Railways estimates the deficit of locomotives at 1.5 thousand units by the end of 2035. There is also a shortage of locomotive crews.
Seasonal weather risks cannot be ignored. Now, along 7 thousand kilometers of routes from the Far East to the western regions, winter weather often interferes with the normal movement of freight trains. However, the weather impacts rail transport less than road.
Preparation for rail transportation of certain categories of cargo increases the total transit time of delivery, as it requires shippers to develop MTU - Local Technical Specifications for cargo. These placement and fastening methods are not provided for in the Technical Specifications. Also, Russian Railways impose restrictions on the transportation of dangerous goods, which means that the choice of mode of transportation is often dictated by the cargo.
Despite everything, rail transportation continues to be considered an attractive solution for both Russian and Chinese partners. China is clearly investing in new transportation hubs and terminals, with state subsidies. There are changes in inter-bank payments and the speed of business reaction to new challenges. In particular, due to the Chinese abolition of VAT refund on some categories of export goods, we are currently witnessing a surge of sellers' activity and, as a consequence, even greater growth in shipment volumes and transportation costs. There are currently delays in bookings, common at this time (Q4).
In the past, the availability of rail transportation to ensure scheduled and regular deliveries was clear. However, at the current time, the risk factors mentioned above require a mandatory assessment of the exact situation at the current time.
As a professional freight forwarder, WELLGO provides the optimum solution of customer care, pricing and industry expertise. We offer interaction between partners, knowledge of specific country economic sectors, and transportation management along various routes.