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Covid-19 breathes new life into struggling China-Europe rail freight, but will the virus crisis have a lasting effect?

Reaction to the flu pandemic, with virtual shutdowns of traditional modes of economic operation, has forced changes in old methods that that stand to be portals of discovery, even inspiration in years to come.

For instance, the cancellations of sailings from Chinese ports to western harbours worldwide, plus the grounding of passenger aircraft that carry 70 per cent of air cargo globally, has given a boost to still uneconomic and highly subsidised rail freight between China and Europe.

These higher volumes have brought unit costs down, while the scarcity of air freight capacity, combined with the intolerable slowness of sea freight, has increased the attractiveness of rail freight, which is cheaper than air and faster than ocean transit.

The China-Europe rail product has been much maligned and criticised throughout its existence, said Wade Shepard writing in America's Forbes magazine. "The 30-plus line network that goes between China, Central Asia and Europe is still heavily subsidised by China, and has become synonymous with Beijing’s soft power - sometimes to the point of defying market fundamentals."

But industry insiders know that many of these China-Europe rail lines are providing a much-needed middle ground between expensive air freight and slow ocean freight and have grown in usage to the extent that they are getting ready to be taken off financial life support. And due to the impact of the flu pandemic, these trains are becoming more needed than ever, they say.

 “It's upside down,” said David Smrkovsky, a former global logistics manager at HP and Foxconn, of the impact on supply chains comes from the flu crisis. “I’ve never seen this before, especially in the cargo air freight.”

What Mr Smrkovsky was talking about was the fallout from the mass grounding of passenger flights, which don’t only carry people but most of the air cargo too. Sixty per cent of the air freight capacity between China and Europe and nearly 80 per cent between China and the US had vanished and there were not enough freighters to take up the slack.

Said Carlos Santana, general manager of Timex Industrial Investment, a Chinese logistics operator: “Once you start to reduce the flights between Europe and China, the price rises. It's the basic principle of economy: supply and demand.”

With the cost to fly cargo rising to two to three-times more than last year’s rates, and transit times having tripled, the issue has become global, and having a dire effect on the automotive, fashion and electronic industries, which have grown accustomed to getting supplies and shipping their products around the world by air.

Many of these companies have been priced right out of the air cargo market altogether, said Mr Santana.

The situation for ocean freight has also been compromised due to the pandemic. During normal times, vastly more cargo is transported from China to Europe than the other way around, which often results in a glut of empty containers that need to be shipped back to China empty. But when the factories were closed in China during their period of mass quarantine, there was a drastic drop in shipments leaving the country. Reacting to this, many ocean carriers reduced their capacity by not sending out as many liners, which lead to something that nobody in logistics had ever seen before: a dearth of containers in Europe.

Said Mr Smrkovsky: “Especially with the cancelation of the passenger flights, this has created an unbelievable mess, a very unbalanced situation where the global sea freight and container environment just got broken.”

The pandemic has also had a drastic impact on the trucking industry. While the roads are open and diesel is cheap, borders that are usually free-flowing thoroughfares of trade have been closed or clogged. While most national boundaries are technically open to trade, health inspections of drivers throughout Europe have ground border traffic down to a near halt, said the Forbes report.

Not long ago. there a line of trucks waiting to enter Poland from Germany that stretches for 50 kilometres. Between the Czech Republic and Slovakia the queue is 30 kilometres. While the line of trucks trying to enter Hungary from Slovakia is so long that Slovakia is actually closing borders crossing to keep it from growing.

The only form of transport left standing is the train, which, compared to other forms of freight continues to run smoothly. Between Europe and China, all trans-Eurasian rail lines -including those from Wuhan - are currently in operation, creating an opportunity for the emerging network to step up and become a larger part of many companies’ shipping solutions.

Under normal circumstances, trans-Eurasian rail is generally eight-times cheaper than air freight and only a week or so slower. In these times of elevated air shipping prices and longer transit times in both air and ocean freight means that shipping by rail is becoming more of a viable option for companies that need to receive and send goods between China and Europe as fast as possible.

 “This is a gateway away from the inflating air freight pricing, so they turned from air freight to China Rail,” said Mr Smrkovsky. “So it's kind of the economical option with a reliably good transit time as a replacement for the very expensive air freight.”

As pandemic panic encircled the globe, dismantling every supply chain it touched, the trans-Eurasian rail freight has suddenly found additional relevance. Companies that would normally ship by air, sea, or truck are now looking to rail.

It's an ill wind that blows nobody good, they say, and the situation that the pandemic produced appears to be a prime example of the truth of that old adage. For many, China-Europe rail freight was a land bridge too far. But when a new normal is imposed, the case is altered and a former long shot becomes something of a sure thing. Of, course the question now is: Was the pandemic panic enough to prime the pump and keep freight flowing, or will the old normal prevail and create a white elephant that is being supported solely for reasons of national pride.

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Will there be any residual effect on the China-Europe rail freight route once the pandemic panic passes? Or will the old normal practices again sideline the rail route before condition wrought by the new normal, described above, once against prevails?

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