Wednesday, August 21, 2013

China’s rail hopes to become a viable option to air and truck

As logistics providers such as DHL and DB Schenker begin to offer rail services from China to Europe, China is working towards reforming its domestic rail freight service. Earlier this year, the Ministry of Railway was split into three groups and the China Rail Corporation (CRC) was formed to oversee the commercial aspects include passenger and freight transport.

According to the CRC, in the past couple of years, rail freight has steadily declined as air and truck transport became the preferred methods despite higher rates. This change in modal preference was because of the railroad’s extra fees, complicated booking procedures and poor service.

In June, the CRC undertook reforms to make the railroad more competitive. The results, according to the group were naturally positive. For July, almost 260m tons of cargo was transported via the country’s railways, a 2.5% increase over July 2012.

As one of its first initiatives was the introduction of door-to-door freight transport. Shippers can arrange to have freight collected at their door either by contacting CRC customer service or via online. This new option eliminated complicated procedures including liaising with various departments for transport and loading, and submitting request plans. Included in this program is small parcel delivery. The intended plan is for small parcels to be transported on the first high-speed train of the day to allow for same day or next day delivery to final destination.

The reforms that are underway with China’s rail should eventually help ease the country’s high logistics costs particularly as it continues to develop its domestic transportation network. Intermodal options combining rail and truck solutions will likely be encouraged to further promote efficiencies and provide alternative options much like what has occurred in the US. Companies that offer road freight solutions such as CEVA could likely benefit from this possibility.

Perhaps what is most interesting is the CRC’s attempt to compete within the express industry. According to China e-Business Research Center, 80% of the domestic express parcels are moved by truck, 15% by air, those by other means including rail come in at less than 5%.

According to an industry expert, for shipments over 1,000 kilometers, rail is not as good as air and for those over a few kilometers road is more flexibility. Still, another expert from Beijing Jiaotong University said that while the reform is a good start, it exposes the railway authority to problems. First it must update its information system to enable customer real-time tracking. Second, it must provide flexible rates to meet changing market conditions. And lastly, it must offer scheduled services to enhance reliability.

Reform within China’s rail industry is seen as a positive move and one that if done correctly, should help lower the country’s high logistics costs. While no one questions the benefits of moving bulk items such as coal and grain, the movement of small parcel is raising some eyebrows. Ambitious, certainly, and one that could definitely link China’s various regions together much like ecommerce company, Alibaba, hopes to achieve with its own logistics plan. However, it has a long way to go to prove itself as trucks remain the transport mode of choice.