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In 2020, China for the first time was seen as the EUs largest
trade partner (when looking at Total Trade Value). Disruptions in
supply chains appear to have destabilised bilateral trade within
some of the EUs usual top trade partners, trade with China came out
to be the least impacted. The table below shows how the
year-on-year percent change hit the top ten partners more severely
than China.
Table 1 EU External Trade with top partners, 2020 vs
2019
Particularly, while absolute trade growth is moderate and
COVID-19 hit maritime trade, rail routes from China to EU reported
a significant growth both in terms of trade value and volume.
Actually, this growing trend of rail trade between the two
economies has been lasting for years since Express Rail services
between China and Europe gradually introduced, with over 10,000
journeys between the two continents on rail in 2020.
While maritime is still the dominant mode and a more mature
transport means, rail is an emerging alternative for some market
segments and supports trade development to those landlocked areas.
Yet the potential is still yet to be released and will be relying
on the level of standardisation, infrastructure, freight pricing
and overall logistics matureness.
Trade statistics provides an opportunity for answering questions
such as:
How land-locked China regions and EU states en route could be
benefited?
How railway along with other modes could offer more options and
multi-modal transport solutions?
Which sectors / products are more likely to select rail mode as
an alternative transport mode considering How fast-to-market
strategy and high-value or time-sensitive goods trade to be
facilitated with a more efficient logistics?
What might be the potential industry to lead balancing trade
supporting backhaul loading shipment?
Figure 1 Timeline of China-Europe Rail
Express
Summary and Implications
Trade between EU and China on rail is speeding up in recent
years, since the introduction of express rail services. Rail mode
remains a small portion comparing to maritime but has been growing
fast both in terms of value and volume, and in both directions.
Rail trade share in the bi-lateral trade has increased from <1%
to around 4%. Trade in EU states en route and China railway hub
regions - especially those landlocked areas, have been largely
stimulated. Import into EU from China is still the main driver, yet
backhaul trade has started to gain momentum in recent years and
will be important to make the rail mode sustainable.
The commodities that opt for rail are also widely diverse
ranging from industrial products such as mechanical, electronics,
vehicle, to apparel, households, and food. Unit price could be a
differentiator - as higher value goods tend to favour railway as an
alternative transport mode or be part of the multi-modal services
relaying long-haul sea journey and road / air traffic. But the
railway trade could also be driven further by those time sensitive
or fast-to-market consumer products.
Logistics Service Providers (forwarders,
transport, warehouse etc.) use trade data to track trade by
transport mode and location / corridor, to shape the transit routes
options and offer multi-modal transport services; look for
potential cargo catchment locations and addressable
markets/shippers/regions.
Equipment Suppliers such as rolling stock or
container handling facilities suppliers would be able to find the
demand market size and where to sell their products or design new
equipment according to different cargo transport requirement.
Infrastructure Planning / Investment /
Research need to carry out comprehensive feasibility study
based on real data to evaluate the sustainability business mode and
market for transport mega infra projects planning and investment.
Trade statistics would be one of the important datasets taking into
consideration, when evaluate potentials for specific routes.
Local Government / Agencies especially those
regions en route or within wider multi-mode transport network, may
find opportunities to attract investment and addressable sectors
that rail mode may become commercial viable, for example those
time-sensitive or high-value products (fresh food, electronic,
vehicle, or luxury / fast fashion).
Industry Organisations setting standards may
find from trade and traffic data to examine the market to find any
gaps or prioritise areas of work e.g. cross border measures,
documentation formalities, to accommodate the evolving transport
modes.
Trade with China in 2020
During COVID-19, EU External trade experienced a drop both in
terms of import and export. China for the first time became the
largest trade partner of EU, particularly in terms of westbound
trade, i.e. EU import from China. according to reported data by EU,
import from China arrived at $443 billion USD representing 23% of
total import. Although absolute trade value slightly contracted
with a drop ~6%, this was much lower if comparing to its 15%
decline of total import from the world.
Figure 2: EU Total External Trade and Trade with
China
In general, the total trade volume has been on upward trend
steadily since year 2016 until 2020 when the pandemic certainly
inserted an unexpected negative effect. However, when looking at
import value by transport mode, it is observed that rail transport
- though is still a very insignificant percentage in terms of
absolute value, the growth is significant with the share in total
imports increasing from <1% in 2011 to 4% in 2020. Even in 2020
when maritime trade contracted, import by rail increased.
Figure 4: EU Import Trade value from China by Transport
Mode 2011 - 2020
From Figure 6 below, we may also observe that since the launch
of the express rail service, rail trade toward EU countries has
grown quickly even in years when other transport mode has stalled.
Though in the first a few years the freight subsidies provided some
stimulus effect, as the market has become more mature and stable,
the routes that sustained still recorded growth.
Figure 6: Import from China Annual growth rate by
transport mode
The trade volume and value by rail from China to EU is growing
in tandem in recent years as shown in the figure below. During the
period 2016 - 2020, i.e., since the launch of Express Rail service,
trade volume has more than doubled with CAGR at 26.9%, reaching
1,580 thousand tonnes in 2020. That could be equivalent to over
70,000 TEU if assuming 20T per rail container.
Figure 7: Import by Rail Value and Volume (2011 -
2020)
Counting all transport mode, large EU economies remain on the
top in terms of import trade with China - as Figure 8 shows,
Germany and Netherlands account for 30% and 18% respectively
followed by France, Italy and Spain.
Yet if looking at the growth (Figure 9), there're emerging EU
countries, including Poland, Croatia, Lithuania and those Baltic
countries, recorded strong annual growth consecutively in the past
decade. It looks though these countries are not traditional 'sea
trading' nations and even without large seaports (or landlocked
such as Austria, the Czech Republic, Hungary and Slovakia), import
from China growth is consistent significant over the years.
Figure 8: All Transport Mode Import from China
share
Focusing on rail mode import by looking at from import volume by
each EU member states, as the map below shows, Germany, Poland and
Austria are the top states that receive shipments by rail. Their
adjacent smaller states are also importing notable volume if
comparing to their total trade scale. Rail is possibly contributing
much to the overall trade to these countries.
Figure 10: Import Volume (tonnes) by Rail from China
(2020)
On the other side, rail transport also stimulates trade for
those inland provinces in China. It is surprising to see that in
2020, when overall trade was not in best shape, these provinces
with less sea connectivity are at the higher end of export growth
spectrum. In general, there are 5-6 cities as the express rail hub
sending block trains, including Chengdu, Chongqing, Yiwu, Suzhou,
Zhengzhou, Wuhan and Shenyang - the rail service are advancing
trade in their local areas and the adjacent provinces as well.
Figure 11 Major Rail Services and Annual Trade Growth in
2020 by Province
This was not surprising if collectively looking at the express
rail service routes as pointed out in Figure 11. The destinations
in EU include Duisburg and Hamburg as the two largest hubs, then
radiated to adjacent areas. For China, not only the provinces and
countries where railway terminals locate, but also the adjacent
areas have seen a positive growth - which could imply wider cargo
catchment markets and local logistics network connectivity.
Sectorial Preference
What types of goods preferring rail as an alternative mode would
be a question asked by logistics providers if they would like to
enter the market and looking for potential clients and cargo market
catchment. The advantage of using rail is, the speed and a
competitive price comparing to airfreight. Typically, it would take
two weeks on the way and comparing to ocean freight, it may
interconnect with a road leg more seamlessly to provide a real
'door-to-door' service.
In 2020, some of the top listed commodities imported by railway
from China include electric equipment ($5.96 billion), Nuclear
reactors and boilers, machinery ($5.16 billion), and vehicles
($1.44 billion); however, it is also interesting to see textile and
apparel cargo (i.e. HS 61 - 63) are also forming a large portion of
rail carriage. Unit price of the shipments may give some
implication when examining any transport mode is a good option for
shippers. As may be expected, across all the top commodities, rail
trade unit price is in between air and sea freight. The price gap
seems most significant when it comes to consumer products such as
made-up textiles articles and toys/game/sports equipment.
Figure 12: Top Commodities import by Rail (2-digit HS
Code level)
Since the launch of express rail, one of the questions
frequently being asked is whether the backhaul trains (i.e., Europe
to China) could be fully loaded considering the existing trade
imbalance? This is also important for the rail freight and any
infrastructure investment to be economic and sustainable over the
years, thus worth looking at trade data when examining the market
status and any segment potentials. From Figure 14, it seems in the
initial years, backhaul trade started from nearly nothing and
slowly ramped up; yet since 2016, the growth became more steady and
in 2020, trade volume and value arrives at ~one million tonnes and
~ten billion USD.
Figure 14: EU to China trade by rail (2011 -
2020)
In terms of the type of cargo delivered from EU to China,
industrial products particularly vehicles (HS 87) became a large
contributor with products worth 4.5 billion delivered to China on
rail, of which the passenger vehicle dominates over other sub items
under the same HS chapter. Take this top one category as example,
railway keep expanding in recent years, with passenger cars worth
3.47 billion USD export to China in 2020. Among the top export
commodities, we also notice that food (such as milk products) and
cosmetics, which could to some extent owing to the consumer market
or e-commerce demand a faster delivery service.
Figure 16: Top Commodities export to China by
Rail
