China's Silk Road initiatives could shake up European port cities' status quo
The Silk Road, a trade route once famous for carrying goods between East Asia and the Mediterranean centuries ago, has recently been resurrected by the administration of President Xi Jinping in a bid to bolster trade links with Europe and further integrate China into the global economy. However, some old hands in the logistics industry have cautioned against overplaying the importance of the new railway between China and Rotterdam on trade relations.
“Even though the route will have an effect on maritime volumes, the rail route on itself will not result in a volume shock in the European shipping industry,” said Bart Kuipers, a port geographer at Erasmus University.
Among shipping industry experts and insiders few expect this intercontinental freight route to do much harm to Europe’s ship-centric trade industry. As such, questions have arisen regarding the route’s economic significance, as well as whether the Silk Road is more a case of geopolitics in lieu of trade.
Overland over sea?
While its maiden cargo was a bit one-note, China’s new freight route is expected to soon begin transporting a broad variety of goods, including expensive industrial materials for electronics, cars and other high-tech industries, as well as clothing, pharmaceuticals, food and agricultural products.
However, in absolute numbers, the volumes moved will not be very high. Kuipers expects the route to take off no more than 1 to 2% premium cargo of total maritime flows between Europe and Asia. Ingrid d’Hooghe of the Clingendael Institute, a Dutch think tank for international relations, downplayed the new rail's significance even for overland transport.
“This railway connection with Rotterdam is one of many new Chinese railway connections with various countries in Europe,’’ d’Hooghe said, though she also noted it would be vital to the city's future as a logistical hub.
That variety of routes reflects the substantial trade already taking place between the two: In 2014, bilateral trade volume between Europe and China exceeded US$600 billion, most of it transported by sea due to the relatively low-costs, large volume capacity of ship freighters and the simplicity of shipping routes.
At present, China has seven out of the ten busiest container ports worldwide. Shanghai ranks as the world’s busiest port, followed by Singapore in second and Rotterdam in the eleventh place - the latter being Europe’s busiest. It takes 30 days to transport goods from Shanghai to Rotterdam by sea, but with China’s new freight route transit time is curtailed to 18 days.
Finding the right fit
“Railway transportation is faster than shipping,” d’Hooghe said, “but also much more expensive and its volume capacity is limited, making it only interesting for products that need or benefit from a quick delivery.”
Accordingly, it is particularly the premium segment in Chinese-European trade that might go for rail transport: high value products like machines, electronics, and car parts; products sensitive to fast-changing consumer demand, as in fashion (clothing, accessories) or tech (smart phones); and products with a naturally short shelf life, such as food and flowers.
“This premium segment is also related to re-export trade flows related to the seaports of Antwerp and Rotterdam, with rail flows having an impact on these activities,” Kuipers said.
He suggested China’s new railway is more likely to pose serious competition to the air freight industry: “Especially if the rail product further improves in terms of transit time, I think this will become an important new segment in-between deep-sea shipping and air freight.”
The new segment can include combinations of sea and rail transport—say, shipping from China to Dubai by sea, then travelling by rail the rest of the way to Europe. “There is demand for these freight rail services, apparent from a rapid increase in services provided [in recent] years,” said Olaf Merk, port economist for the Organisation for Economic Cooperation and Development in France. “Recently, logistics have also provided smaller firms with smaller shipments with the possibility of using the China-Europe rail connections.”
A geopolitical route
The potential gains are clear, but the overland Silk Road’s long-term success hinges on several factors including different track systems, improvement to transit times, funds that need raising and potentially unstable security environments along the route.
“Many countries along the Silk Road lack political stability, security, an effective government, or basic economic facilities. Investment in these countries thus carries a high risk,” said d’Hooghe. Merk agreed. “There are huge challenges to overcome,” he said. “I would say that the biggest risk is the political and security risk, but then, one could say that the aim of the project is to get more control over this.”
In this sense, China’s overland ‘belt’ strategy could be viewed as part of an initiative that goes far beyond the transportation of goods. “I think it is more about geopolitics than about trade,” Merk said. “But these two often go together.”
d’Hooghe said there were several reasons why China has a strong interest in intensifying trade relations: transforming China’s less-developed Western provinces into economic gateways; furthering the renminbi’s internationalization; and facilitating efficient, safer energy shipments to China.
But while overland railways may be more visible, Merk noted the Silk Road strategy also includes a maritime route (pdf) that has real disruptive potential. “Both are part of a larger geopolitical picture. From a purely commercial perspective however, the business case for the maritime trade route is clearer,” Merk said. He added that Chinese investments in the seaports of Piraeus and Venice could potentially vault them into the ranks of Europe’s main entry points for imported goods, posing a far greater threat to business as usual in the region.
However, it shouldn’t be overlooked that China’s Silk Road may help fuel Europe’s economic growth, with large investments being made in the latter’s infrastructure system. In 2015, Chinese investment into the EU reached a new zenith. In the first five months, non-financial investment soared 367% year-on-year.
Provided policymakers can come together on a few key fronts, with the stage being set for Europe and China to link up complimentary investment plans. More specifically, the European Commission’s “Investment Plan” for the EU, which aims to mobilize €315 billion in investment in the coming three years, and China’s “One Belt, One Road” strategy, which entails $40 billion in funds for the development of the Silk Road all the way to Europe.
While its cargo may currently not amount to much more than a hill of beans, the new freight line trailing between China and Rotterdam hints that a cooperative logistical vision between the world’s two largest trading partners could pick up more steam. ♦