The new Silk route on rails

Sunday, 7 October 2018

The new Silk route on rails

October 06, 2018

By Nat South for The Saker Blog

This is the second part in a series that looks behind the scenes, at particular aspects of trade, shipping and transport involving Russia. This analysis was partially written back in spring 2018, before taking academia seriously for a while.

Historically & to this day the US depends on the Mahan theory of sea route control and control of significant maritime chokepoints for power projection. Hence, the US hegemon relies heavily on its heavy outstretched military muscle, especially the use of any of the 11 carrier groups as part of this infrastructure. This is connected to traditional maritime trading routes.

We are seeing an ascendency of Chinese military projection in the last decade, within increasing Chinese naval presence in those areas traditionally dominated by the US Navy. The New Silk road as embodied by the Great Belt & Road Project will also inevitably change military dominance, (as China is building its third aircraft carrier and launched its 29thType 054A frigate in January).

Without repeating the articles by Pepe Escobar on bigger geopolitical and economic picture on the New Silks Roads (here and here), I will concentrate on some the ‘cogs’ that will underpin the Belt and Road Initiative (BRI). The BRI started with a large-scale international economic forum was held in Beijing in May 2017. More than 100 countries, many heads of states attended, including President Putin. The forum kicked off a whole series of projects world-wide, with long lasting & far-reaching socio-economic impacts.

Similarly, the newly created Yuan petrodollar could create a seismic shift by eventually pushing out the US dollar monopoly and eventually lead to the demise of the status quo of the US dollar as a global reserve currency. The US dollar is the weak link in Washington’s US unipolar vision of the world, as well as focus of military power. De-dollarization has been underway for a while in order to create an alternative economic order.

Part of the change in trade routes, primarily driven by China, is the development of rail networks for containerised trade as well as planned High Speed rail trade routes (as mentioned in Pepe Escobar’s article) connecting China to Europe, through a combination of several intermediary countries, including central Asia. These networks are known as:

East-West international transport corridor
The North-South international transport corridor
Middle Corridor (EU- China, circumventing Russia with banned products).

Of course, the US is acutely aware of this and it is doing everything that it possibly can to throw a few “spanners in the works” in some of the Middle East and central Asia segments. This can be seen as part of a long-standing geopolitical tussle, as outlined in Sir Halford Mackendrie’s ‘Heartlands Theory’, for ultimate control of the Asia-Europe trade corridors.

The key railway projects

The new ‘silk route’ takes mostly high-tech and consumer goods to Europe, replacing the long-gone original silk routes that thrived up the 15th century. As such, rail has become more competitive in speed and cost in the last of couple of years. This trade is offset by the huge trade imbalance resulting in empty containers transhipped back to China.

Just to think of the implications of a more efficient rail infrastructure, when you consider that the average freight journey has already been shortened by 20 days to 12 days. Yet, freight by rail is subsidised both by China and the EU, (mostly on railway infrastructure and operations). It can be argued although rail freight is very small compared to shipping, smaller than air freight, where it represents the smallest percentage, but shows the fastest growth for any of the sector.

When you think that 8 years ago, there were hardly any freight train service from China to Europe, now more than 35 Chinese cities are connected to around 34 European cities, on 57 different routes, with a total of 6,200 trains in 2017 alone. These statistics are significantly increasing month by month. Some of these freight services don’t go through Russia, but a majority do.

Some of the train routes are more symbolic in nature, (such as the first China-Teheran route in 2016), but it does pave the way for further development of rail freight, within Europe and in central Asia. Other routes have become more commercially viable & trains run more frequently in the last year.

Germany is onboard and a key BRI player, with around 400 trains travelled between Germany & China in 2015, (acting both a terminal and a feeder hub for other countries). A twofold increase of 100,000 containers is projected by 2020. To cite one example: 12 trains left Zhengzhou to Hamburg every week in 2017. Many European states have expressed interest in participating in BRI linked projects or are exploring new trade ventures based on the momentum of the BRI. Similar rail connections are planned in Scandinavia, but several are currently subject to a deal of soul-searching and dithering over security and safety due to the nearby Russian border.

“Last year, the volume of container freight rail traffic on the Central European route to Asia was about 350,000 TEU and the forecast for 2020 is already 1 million TEU.” Let’s look at the figures in another way, by comparing the above TEU forecast with one mega containership of around 18000 TEUs. A lot less shipping transits will be needed if this forecast is achieved.

Cargo traffic can vary from block trains to trains with “less-than-container-load” (LCL) shipments. Block trains are those where one producer hires all of the cargo wagons.

ROUTE (via)	DISTANCE	DURATION
Northern route: Russia	13,000 km	14-16 days
Southern route Russia & Kazakhstan	10,000 km	10-12 days
By sea – Suez Canal transit		30 – 45 days

The Russian link

The geopolitical implications of the BRI for Russia are huge. The development of coastal & inland transport infrastructure is growing, with 11 major projects started by Russia alone in the first year, as part of the Eurasian Economic Union package of initiatives. Several of these were mentioned in President Putin’s March speech. These projects involve:

construction of new and modernization of existing roads,
creation of intermodal hub centres,
development of key transport networks such as new rail lines.

Nearly all of these projects fall under the scope of the BRI.

One of the themes mentioned by President Putin in his 4th March speech, was the inadequate railway capacity, especially in the Asian part of Russia. Most people reading or listening to this part probably didn’t notice the significance of this or simply got bamboozled by the videos on hypersonic cutting-edge missiles and nuclear-powered torpedoes.

There are dozens of Russian projects to improve the West-East-West lines and inter connectivity between major port hubs and Asian ports. Similarly, Russia is participating in joint venture with China to upgrade and add in the necessary hard infrastructure. In other words, a lot of investment, dialogue, finance and political will. To this end, Russia implemented a National Railway Development Strategy, as the cornerstone for numerous projects. Most of these are focused along the Trans-Siberian & BAM, with the aim of improving flow of cargo traffic. Here is a selection of the projects:

Amur bridge project (Russian-Chinese border) to reduce the line by 700km;
Construction of rail bypasses through major cities;
The additional of a second rail track in various localities;
Salekhard-Nadym Railway

There are also major projects being developed or proposed to add to the overall rail capacity, one such project is the Belkomur Railway (Arkhangelsk-Syktyvkar-Solikamsk – Perm Line, to improve the efficiency from White Sea deep-water ports, (which will be another future article) and the Urals industrial heartland. This will provide an alternative transport that shortens the distances between the Urals and the Barents & While Sea areas of Russia by up to 800 km.

Another large-scale initiative is the Northern-Latitudinal-Passage, also in the Arctic, to ultimately connect Arkhangelsk to Surgut by rail, including the Sabetta line, (Yamal LNG project as mentioned in the first article), thus opening up gas & oil shipments to either Europe or Asia. It will also connect two other Arctic railway lines, the Northern Line from Arkhangelsk and the line between Nadym and Tyumen.

The validity & implementation of these projects are highly dependent on getting the necessary funding.

Deeper inland hubs

None of these upgrades or new building projects would work effectively, if there isn’t work in parallel on upgrading inland intermodal container hubs and the development of LNG – oil hubs too. One example is Kleshchiha, which is a railhead logistics complex in the city of Novosibirsk. It is an import/export hub for containers between China/ Busan, South Korea & various parts of Russia. The overall terminal capacity will be increased from 116,000 to 242,400 TEUs. Handling capacity will be doubled, from 42 to 83 wagons.

Another planned intermodal project, located in Republic of Tatarstan, at a convenient intersection between the North-South and East-West transport corridors. The Svijazhsky Multimodal Logistic Centre will facilitate cargo traffic between direct rail route, road, and river transport in the region. Moving eastwards, there is the planned Terminal Logistics Centre “Primorsky” at Ussuriysk. By joining the BRI initiated dots, Russian transport links will enhance trade and also potentially the livelihoods of those living and working across vast remote locations.

Summary

Although China-Europe rail freight may have a negative impact on air cargo, it will not significantly change for the foreseeable time the huge amounts of containers (TEUs) shifted by containerships. Some of sea-freight and a lot of airfreight might end on rail lines, depending on the location of the production of goods. Having said that, rail does offer a faster option than sea freight, an option that simply didn’t exist before 2010. Significantly, the rail option also usefully by-passes maritime chokepoints such as the Malacca Strait, Bab el Mandeb and the Suez Canal.

Rail freight offers a compromise between light/fragile air cargo, (expensive) and the slow cargo route of heavier cargo by sea, (cheapest), as such it is especially attractive to the electronics and automotive manufacturers, (still giving them an average time saving of 2 weeks).

China is making moves to shift some industrial sectors further inland from the coastal industrial hubs which will help employment, mitigate the urban overpopulation & chronic pollution hotspots. These production centres link into the road & rail transhipment hubs, which will serve to strengthen the viability of the international transport corridors.

On the diplomatic front, the development of transcontinental freight corridors, (rail & road) is a win-win situation for China, (echoing Escobar’s article) as it permits countries to work together on transport & economic integration. Importantly, China as both an economic powerhouse & a land power on the Eurasian landmass, recognises Russia as a natural power.

Certainly, the new Silk Road has the potential to bring Siberia out from the geo-economical cold metaphorically speaking. This all leaves the US out in cold instead.