Now that there is a ceasefire in Gaza, there is a prospect for stability at the Red Sea. The Houthi rebel group in Yemen, who have been targeting passerby ships in the Red Sea as a support measure for the people of Gaza, also seem to be observing the ceasefire. Maritime shippers remain cautious, but a return of shipping to the Red Sea now seems possible. Could that have an impact on China – Europe rail freight?
Xavier Wanderpepen, a rail freight consultant, explains that it most definitely could. According to him, the rail freight market is volatile, and its circumstances change all the time: “If we were to graph the volumes and transit times of freight trains over the past five years, we would see situations that range from excellent to chaotic.”
One such change in circumstances is the security situation at the Red Sea. “Many customers now use rail transport by default, due to issues with other transport modes and especially because of the problems with the Suez canal—not because the service is particularly attractive”, the rail freight consultant explains.
Chaotic and embarrassing
That last part is key. Rail freight may be an adequate solution to some for the time being, but it is not an ideal one. “A quick calculation for a 9,000-kilometre journey in 19 days gives an average speed of 20 kilometres per hour — the speed of a bicycle…Nothing is guaranteed”, says Wanderpepen. “Unexpected border closures or congestion issues make rail freight services sometimes chaotic and even embarrassing. Few regular customers have escaped one, two, or even three weeks of delays.”
As such, it seems probable that a change in the competitiveness of maritime shipping will impact China – Europe rail freight. “Hopes for peace in the Middle East raise expectations of normal traffic via the Suez Canal. Many clients, as always, will conclude that for a 2-3 week difference, it’s better to return to shipping by sea—until the next crisis in ports or shipping lanes forces them back to trains. Such is the yo-yo fate of BRI trains”, Wanderpepen concludes.
Resolving the yo-yo fate?
Can anything be done about this “yo-yo fate”? “To make rail freight a sustainable niche market—just like passenger trains or intermodal trains in Europe—it would need dedicated time slots from start to finish, ensuring an average speed of 40 kilometres an hour (a 10-day transit time)”, Wanderpepen explains.
“With such reliability, maybe subsidies would no longer be necessary, pricing levels could be much higher, and delays would be far more predictable. This way, rail transport would no longer compete on price with maritime shipping, which will always be cheaper — except in chaotic periods like 2022.”
No potential for pricing competition in 2025
Competing on price with maritime shipping indeed does not seem to be in the cards for 2025. Earlier, sector experts predicted that sea container rates would drop significantly throughout the year. Due to the Red Sea crisis and the subsequent longer shipping routes around Africa, shipping companies have been on a vessel purchasing “frenzy” to grow their capacity.
In the near future, that purchasing frenzy will likely lead to overcapacity, and shipping companies will have to vie for whatever goods they can to fill their ships. Overcapacity is expected to beat demand, and so in 2025, rates will be on the decline. The fresh American president-elect Donald Trump also intends to “drill baby drill” more oil, which could make sea shipping even more competitive.