The war launched by Israel and the US against Iran last month has completely shaken up the supply chain, especially with the recent closure of the Strait of Hormuz blocking hundreds of ships and thousands of sailors. With uncertainty looming over, the Europe-Asia supply chain is trying to find alternative solutions, including via rail. “Rail can be a credible ‘middle option’ for some goods, but it won’t replace ocean freight”, said Chris Clowes, associate director at supply chain and logistics consultancy SCALA.
Currently, ships are unable to enter or exit the Strait of Hormuz, with some exceptions. This is a key energy route especially for raw materials such as oil and gas, and blocking it is already having an impact on the global economy. Alternative routes thus become essential, Clowes argued. “Each disruption strengthens the case for investing in more resilient, multi-corridor connectivity, rather than relying on one ‘default’ route,” he pointed out.
Middle Corridor not ready yet
For strong multi-corridor Europe-Asia connectivity it is necessary to have diversion routes that can pick up volumes in situations like the current one. For rail, this would be the Middle Corridor, a multimodal link stretching from China to Europe via Central Asia and the Caspian and Red seas.
“Disruption at sea always increases interest in rail options, including the Middle Corridor”, Clowes added, “that being said, any shift would be gradual. Capacity, border processes and transfers between networks all create pinch points.” In other words, the Middle Corridor is not (yet) ready to become the main route.
Waiting for a Red Sea crisis too?
Rail, Clowes argued, can still be useful in cases like these for “time-sensitive, higher-value cargo when schedules are under pressure”. It needs to be mentioned that, so far, the main problem resides with the Strait of Hormuz and not the Red Sea. The closure of the former ‘only’ affects trade with the Gulf countries, while another crisis in the latter might cause ships to avoid the Suez Canal, as already happened last year.
“If Asia to Europe services start diverting via the Cape of Good Hope, you can be looking at an extra 10 to 15 days”, Clowes pointed out. This is where the Middle Corridor and rail freight might be helpful, as they can provide shorter transit times, albeit with much smaller volumes. And sometimes, he added, it is not even necessary for an actual escalation. “Shippers, insurers and carriers start pricing in risk before anything formally changes”.
Can Plan B become Plan A?
Over the past few years, the routes usually considered as Plan A for trade between Asia and Europe – Trans-Siberian rail and Arabian Sea – have become somewhat problematic. Both routes have been dealing with lower volumes over the past three or four years. Due to this, interest in alternative routes such as the Middle Corridor has increased exponentially. If alternative routes are valid, they might become the norm, even once conflicts and tensions pass.
“Freight markets rarely reset overnight. Even after a conflict eases, insurers and carriers can remain cautious, and routing decisions tend to lag because everyone is reassessing risk”, Clowes said, concluding that “the longer the disruption lasts, the more likely it is that ‘Plan B’ becomes part of the permanent operating model”.
Of course, this would require valid ‘Plan B’ routes. And currently, at least for what concerns the Strait of Hormuz and the Gulf, the main option for Plan B remains the road, as the railway network in the area is still under development. CMA CGM, for example, recently said it “is deploying emergency multimodal solutions” via UAE, Saudi Arabia or Oman, but they are all trucking services.