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A freight train from Henan province to Europe is ready to set off at the rail container terminal in Zhengzhou. Photo: Celine Sun

KTZ service may help rail take bigger share of Europe-China freight

New Kazakhstan service linking China with Europe may speed shift from sea and air freight to rail, though geopolitical risks remain

Plans for a new rail freight connection between China and Europe could see more of the goods flow between the two continents being diverted to trains from ships over the next 12 months.

KTZ Express, a wholly owned subsidiary of Kazakhstan Temir Zholy, the country's national rail company, is touting new train services in four mainland cities to transport goods from laptops to pharmaceutical products via Khorgos, a border city where China and Kazakhstan are developing a special economic zone.

"The reality is that the current traffic of containerised goods via Kazakhstan's border [with China] is almost non-existent, only a few thousand containers a year. But with infrastructure being built, much better traffic is enabled for containers to move through this part of the world," Darryl Hadaway, a senior consultant at KTX Express, said on the sidelines of the Transpacific Maritime Conference in Shenzhen.

Despite being 70 per cent cheaper than air freight and 30 per cent quicker than ocean freight, exporters and importers have traditionally shunned railways owing to thorny issues such as customs clearance, harsh weather and geopolitical risks.

The rail line will pass through China's restive Xinjiang province and often turbulent areas of Central Asia near Kazakhstan before heading into Belarus and then Poland, which is highly suspicious of historic foe Russia.

"The China-Europe container rail market is still in the price discovery phase. With significant capital expenditures and sub-optimal scale at this point, the freight rates today are more a function of what the market can bear, rather than on return on investment. Rail operators are assessing early customer demand for these types of services," said Michael Beer, a transport analyst at Citi Research.

Hadaway said trains from east and west would use the China-Kazakh border city of Khorgos as a transshipment hub. The project is part of the Kazakh government's US$45.5 billion plan to upgrade road, rail, airport infrastructure between now and 2020.

A train carrying ninety 40-foot containers will depart once a week from Guangzhou and Shenzhen on the southeast coast, Xian in northwest China, and Wuhan in central China, starting June next year. Service frequency may increase to two to three a week over the subsequent 18 months, Hadaway said.

PC maker Hewlett-Packard has been shipping laptops via rail from Chongqing to Duisburg in Germany since 2012, one year after it moved factories to the southwestern Chinese city.

There are two rail links between China and its biggest trading partner Europe; the trans-Siberian route and the trans-Kazakhstan route. The latter - built in 1994 - straddles 10,214km through four countries.

Around 2 per cent of containerised goods are carried via the so called Euro-Asia land bridge, according to industry consultant David Brice. China and Europe saw bilateral trade last year valued at US$428 billion, suggesting the rail link is responsible for around US$8 billion in goods.

Rail freight has attracted more interest as mainland manufacturers have shifted inland from coastal hubs.

This article appeared in the South China Morning Post print edition as: Rail may boost its share of freight
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