The present bid season is showing hallmarks of wear and tear from current events. Volatility was once the principal enemy, with eastbound PRC-USA traffic escalating 1,000% in year-over-year spot rates followed by refused containers and blank sailings. In many ways, complexity has only grown. This year, shippers and carriers have contended with backlogged ports and significant delays that have yielded exponential increases in drayage costs, detention, demurrage, port congestion fees, and the like. As the West Coast ports prepare for dockworker negotiations, which have caused slowdowns and strikes as in years past, shippers importing and exporting through the West Coast are increasingly unsettled as the market is experiencing a demand for carriage that is overwhelming the available carrier capacity. West Coast ports are also reeling from the imposition of Marine Terminal Operator dwell fees directly on importers of record rather than carriers, some of which were launched with little notice to change inbound cargo flows. Challenges extend well beyond North America; for example, those shippers who sought other methods of traffic such as PRC-EU rail service for hub out of Western Europe are now back to the drawing board due to the Ukraine invasion.
In the face of increasing uncertainty in this ever-changing bid season, shippers and carriers alike will look to reexamine their expectations and approaches for contracting and negotiating their ocean contracts. Four of the trends that appear to be emerging from our vantage point are: (1) focusing on visibility and collaboration, (2) close examination of the inland leg, (3) new takes on common contract terms, and (4) repackaged service offerings. Each of these early trends is outlined below.
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4) Repackaged Service Offerings. Finally, we have seen certain novel takes on traditional service contracts. The apparent increase in interest for at least considering the technology intermediary operating, such as the New York Shipping Exchange (NYSHEX), is one such example. This private party provides connectivity between shipper and carrier, contract and tender management, and a mandatory dispute resolution council. We have also encountered new ideas in bilateral shipper-carrier contracting (without involvement of a third-party enterprise such as NYSHEX). Those often involve the unique features described in Section 3 above together with a new sales-oriented pitch construing the package as unified and beneficial to all parties.
While there are many ways to combine the three indicators, the most balanced approach might be to weight U.S. objectives and interests equally with allied and partner concerns (40 percent each) and the prevalence of PRC tactics less (20 percent). Based on this aggregate method, ten of the 20 most-problematic PRC tactics are military activities that the People's Liberation Army or Chinese paramilitary actors engage in, with many of the tactics involving operations near or in disputed territories. Other military tactics include China engaging in highly publicized and large-scale, cross-service military exercises; establishing military bases or potential dual-use facilities in neighboring countries to threaten a target; and building up or acquiring PRC military capabilities against targets.
These new services have captured imaginations, but it remains to be seen how much trade they can capture. In 2016, rail carried just under 1 percent of trade between China and Europe by volume and just over 2 percent by value.8 As Figure 2 illustrates, maritime shipping remains dominant, carrying 94 percent of trade by weight and 64 percent by value in 2016. Compared to rail, air transport carried twice as much cargo by weight and more than 13 times by value in 2016. These trends highlight the competitiveness of maritime shipping for low-value goods and the competitiveness of air shipping for high-value goods.
The main challenge in squaring all these factors is that despite the attention they receive, there is little reliable and centralized information about these new services. Frequency of China-Europe rail services, cargo volume, cargo rates, and other basic information is hard to find, especially compared to maritime and air freight data. Many of these shortcomings stem from the newness of these routes, the complexity inherent in moving goods across many borders, and the resulting disaggregation of data. Data could improve in the coming years, but there are also incentives for obscuring the information. These trains carry not only commercial goods but also political ambitions.
Drawing from interviews with 34 stakeholders, this report contributes to filling that gap in two parts. First, it examines the rise of China-Europe railway services and their drivers. China-Europe rail has grown not only in terms of origins and destinations but also in terms of cargo volume, cargo type, and overall competitiveness. Driving these trends are several political, technical, and technological factors, chief among them subsidies and improvements in logistics processes. Second, it considers these developments within a broader trade context and identifies several challenges to future growth, including trade imbalances, capacity constraints, and the enduring strengths of maritime shipping.
Two views emerge from this analysis. The first is dramatic growth of the railways in recent years. These services are likely to continue growing in the coming years. Companies sourcing high-value, time-sensitive products or inputs from China should look seriously at whether some of their current supply chain should be shifted to rail. A narrow set of countries stand to benefit from leveraging their positions as transit hubs. China itself stands to benefit politically as well as commercially if these routes become sustainable. The second view is more modest. In broader trade terms, these services are less game-changing than often advertised.
A mix of political, economic, and technical factors are driving these new services, the exact balance of which varies from route to route. As mentioned earlier, some services have run only once, entirely for promotional purposes. Others, particularly those further inland, offer a more competitive middle option between maritime and air freight. Overall, however, it is difficult to imagine these routes emerging as rapidly as they have in recent years without China putting its political and financial weight behind them.
Viewing the China-Europe railways in broader trade terms yields a less dramatic picture. Year-on-year railway growth is impressive by volume, value, and service frequency. But as Figure 2 highlighted in the introduction, railways still carry only a small fraction of trade between China and Europe. Maritime shipping remains dominant, and air freight carries more than 13 times the value of goods compared to rail. For the China-Europe railways and their proponents, taking on a much larger share of trade will require overcoming several economic and technical challenges.
The second view is more modest. In a broader trade context, the China-Europe railways present a new offering that has not yet grown from niche to mainstream. Future growth is limited by trade imbalances, the comparative value that maritime shipping offers, and infrastructure constraints. None of these challenges is likely to vanish anytime soon. In the meantime, these services will depend on Chinese subsidies, and the risk of delays will rise as they handle more cargo.
But these changes do not add up to wide-ranging economic or political impacts. Maritime trade will remain dominant. The vast majority of the geographic space the railways pass through will experience no difference. The railways are not roads. They are not as accessible to the general public, and opportunities to provide services around them are limited. Of course, the public can benefit indirectly from these services, whether through taxes captured by tariffs or through benefits passed to consumers. But the emergence of China-Europe railways does not signal the return of a world in which overland trade dominates. The railways have found speed, but their scale remains limited.
The overall landside transportation situation is dynamic subject to change. Trucking service for now is still available in China main ports and nearby cities providing the drivers hold negative Nucleic Acid Test (NAT) report requested by local governments. Specifically, we see the efficiency of Maersk trucking service from/to Shanghai will be gradually improved with the COVID-19 resurgence under control.
Given the limited Work in Office Ratio is applied in some cities, we encourage you to refer to China counter contingency plan and adopt self-service online to avoid the business disruption. You are welcome to find the digital counter service through the QR codes below.
The overall landside transportation situation is dynamic subject to change. Trucking service for now is still available in China main ports and nearby cities providing the drivers hold negative Nucleic Acid Test (NAT) report requested by local governments. Specifically, we see the efficiency of Maersk trucking service from/to Shanghai will be gradually improved with a downward trend of the new COVID infections in Shanghai. Maersk can provide multi-modal services via barge or rail as alternative solutions for the corridor between Shanghai and nearby cities.
Hong Kong: Due to the suspension of the trucking service between Hong Kong and Mainland, barge service is taken as an alternative for cargo moving. Airfreight space reservation will not be proceeded until the cargo is delivered to Hong Kong airport warehouse. As a consequence, It will take longer lead time than usual for the airfreight service. 2ff7e9595c
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