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Can the new Silk Road compete with Marine Silk Road?

by Bunkerist
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Does Belt and Road, where many countries and international organizations plan to take part and invest, really compete with the new Silk Road, the existing Deniz Silk Road?

Politically, trade corridors between China and Europe and Africa seem to be the key to China becoming a leading global power in the 21st century. Logistics structure, a huge economic area representing 60% of the world population and 35% of the global economy is taking it to the next level. The new Silk Road can be considered as a kind of high-speed internet for the transportation of physical goods.

There are two routes from North China to Mongolia, Kazakhstan, and Russia to terminal stations such as Duisburg’s Inner Harbor or Hamburg. This line is being home to Chongqing and the size of 30 million people, and the western region of China is also connected to the northern routes. In accordance with it roads from the west do not need to be transported to the Chinese coast for miles.

The cost between rail transport and ocean transport

These railway connections are important for logistics between Asia and Europe. In 2017, 2,400 trains carried about 145,000 standard containers between China and Central Europe. This roughly corresponds to the load of seven new generation large container ships. The International Railways Association (UIC) expects it to reach 670,000 standard containers equivalent to 33 container ships in 10 years. Despite this forecast growth, current rail connections between China and Europe are likely to remain logistically small. Compared with maritime transport, the volume of goods transported to Europe by land remains small in mathematics.

This is primarily a matter of cost. A standard container shipping between Shanghai and Duisburg by rail is between $ 4,500 and $ 6,700. In this case, the cost of shipping from a container similar to Hamburg from Shanghai is around $ 1,700. This difference is huge for rail transport to be really competitive against ocean transport, although the load moves about twice as fast. Efficiency improvements may not have enough impact to shift from ocean transport to the railroad.

Another factor is that China is now largely subsidized to these international rail connections. When this support ends in 2021, competitiveness may drop further. It is unclear whether rail transport will continue on its own without subsidies.

Also, in most cases, anyone who needs a fast shipment would prefer air cargo, even though this option is about 80% more expensive than the rail. Thus, freight transport by rail remains between economic (ocean) and fast (air).

China, in the southern region, plans another line will carry the load  of a railway with the countries of Central Asia through Iran and Turkey to Europe bypassing Russia. By the way, a railway line has linked China to Iran since 2018 indeed. This route is geographically very similar to the “old” Silk Road, a trade route for camel caravans while traveling Central Asia to the eastern Mediterranean. If this railway line is completed one day, it will raise a number of questions from a European perspective: How can security, punctuality and reliability be guaranteed? How can customs delays be minimized? What impact will international sanctions have on crossing Iran? How to avoid the misuse of containers for illegal immigrants? In other words, before creating a railway corridor in the south of Russia, many questions need to be addressed.

There are two more routes in China’s Belt and Road Initiative (BRI) strategy. One in Southeast Asia: 2,400 miles of rail line from Kunming to Singapore and a connection to Calcutta. The other is a railway line that starts in the westernmost part of China and goes to Pakistan’s Gwadar port in the Arabian Sea. This technically challenging project, which covers various crossings in Central Asia, is expected to cost $ 62 billion. However, both routes have only indirect links to freight traffic between China and Europe.

Thus, it seems as if the situation will remain the same in the future, approximately 90% of the world trade will continue with the ships. Does rail transport through the new Silk Road change this and what factors will be effective? Better to experience and see…

What about Marine Silk Road?

Sea Silk Road is the transportation of cargo from China to Europe by sea. As soon as Portuguese sailors opened China to maritime trade in 1514, the old Silk Road began to disappear from memory.

Today, more than 50% of global trade takes place on the Sea Silk Road between China / East Asia and Europe. The world’s largest container ports are on this route: Shanghai, Singapore, Shenzhen, Ningbo-Zhoushan, Busan and Hong Kong.

China has many plans for these built-in shipping routes, including port investments. It supports its plans with investments in about 80 port companies, including Piraeus and recently Genoa and Trieste. We should consider the reason why does China follow these goals to consolidate a leading global economic power position?

Europe should follow an advanced infrastructure development strategy for freight transport from and to China / Southeast Asia to ensure mutual change.

It is reasonable and less complex for China to plan to increase the maritime corridor along the Suez Canal, which shortens the transport between Africa and Central Europe by at least four days compared to the route around Africa.

Nobody can deny that the various projects of the New Silk Road have great economic potential. It will develop the connection network between Asia and Europe and serve the geopolitical interests of Beijing. China is creating an advanced infrastructure that it expresses will benefit all participants in the global economy. It would be correct for investors to carefully analyze impressive visions and fascinating narratives.

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