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

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.