With finished vehicles way down the list of priorities for Chinese railways compared to passengers and with the cost of road haulage low, Ellen Hua examines the long-term prospects for increasing rail for vehicle logistics in the world’s largest market.
Despite the fact that vehicle output and sales in China last year reached some 17m units, only around 800,000 cars were transported by rail, with almost all of the rest moved by road. Excluding commercial vehicles, the percentage of passenger cars transported by rail is around 7%, significantly lower than in places such as the US and Europe, where rail’s share for vehicle transport ranges from 35-75%. But despite short-term challenges, developments in Chinese rail are slowly laying a foundation for a more mature finished vehicle logistics sector, including more high speed rail, an increased focus on cargo, cost reduction, specialisation and changes to road transport regulation.
Unlike in the US, where separate rail operators manage passenger service and cargo shipment, China’s state-owned rail manages both and the two services share the same tracks. According to Professor Zhang Xiaodong of Beijing Jiao Tong University, rail capacity for cargo shipment has long been limited in the country. “At best, it can manage slightly more than one third of the demand. Now, with passenger rail service increasing its speed and High Speed Rail (HSR) planned for passengers, an additional small amount of potential capacity has been released for cargo transport. But this only happens in places where HSR is available” he says. Furthermore, HSR is currently facing increasing scrutiny in China over concerns for safety, following a tragic accident earlier this year.
Specialised rail wagons
Rail carriages for shipping finished vehicles in China are traditionally closed bi-level wagons, with a few tri-level wagons developed. There are now about 3,000 such wagons operating in China. There are also a number of container options still in operation, but they are becoming less popular. One option is a converted 20ft-container where cars are driven along a ramp to the upper or lower level.
The problem with shipping cars by container is that the boxes are less flexible. “These days SUVs sell well, [but] as they go into the lower level of a container, the upper level cannot accommodate another vehicle. Even for cars, there is a side-clearance issue. Drivers cannot get out after driving onto the container,” explains Professor Zhang. Size adjustments are also not easy. “Containers are not suitable for finished-car transport in general. After using the old existing containers for a period of time, they will phase out,” he predicts. However, he believes that there is an advantage in containers being used in international finished-car logistics if incorporated into multimodal transport. He says that international logistics players are also exploring the possibility of land transport via the Eurasian Continental Bridge, China’s rail link to Central Asia, which could cut transit time for European imports by half compared to sea. However, while parts of the service have been used in limited cases, it is not a fully-fledged development or solution, particularly as rail gauge inconsistencies cause operational complexity. Another factor is that some Chinese carmakers are building their own plants in Russia. “But the attention to the potential cooperation from both Europe and China remains there,” says Professor Zhang.
Because China puts passengers ahead of cargo, finished vehicle transport remains a relatively low priority. “Problems we see with finished-car transport by rail include cargo and passenger conflicts during busy seasons as well as conflict between cars and other cargoes,” says Owen Xie, COO and vice president of NYK Automotive Logistics (China).
China is not the only country where passenger services and cargo share a rail track; indeed it is common in Europe for priority to be given to passenger traffic over cargo. However, the clash is more pronounced in China during peak times for passengers such as public holidays, which coincide with busy times for car sales. “An issue that rail has long been troubled with is that there are seasonal highs and lows in Chinese car sales and such seasons, unfortunately, are largely synchronised with the high and low seasons for passenger traffic,” comments Professor Zhang. “Every time we happen to demand more rail capacity for car transport, it has to be suspended along with other cargoes to make room for travelling passengers in a tourist season such as the national holiday.”
A change in priority between passengers and cargo appears unlikely as the population uses rail to a greater extent for long-distance travel than in the US, for example. “The priority is not likely to change,” says Zhang.“The pressure of carbonemissions control discourages the same transport patterns as the US.” And finished vehicles are typically even further down the list of cargo priorities. “After passenger cargo, attention primarily goes to energy resources, followed by other cargo, then finished cars,” says Owen Xie.
“In principle, rail is dedicated to transporting heavy cargoes while cars are actually categorised as light ones,” says Zeng Bin, general manager of the China Railway Logistics Shandong Company (SDRL), echoing Owen Xie’s comments. “China is resource abundant. Rail–as the country’s artery–is busy with shipment of coal and [iron] ores. Heavy cargoes largely run on rail and light cargoes like household-appliances run on road,” he adds.
Weighing up the costs
Rail’s advantage as a cost-effective means of transport for long-distance shipment of large-volume cargoes is obvious in finished-car logistics across the world. However, OEM experiences in China do not fully verify this advantage. “Our rail logistics cost is not necessarily lower than road,” says a vehicle logistics manager from a global carmaker in China, who asked to remain anonymous. NYK’s Xie confirms that rail’s cost advantage is not clearly evident in China and agrees that the handling expenses incurred at the two ends of a rail journey are partly to blame. Zeng Bin also agrees that handling expenses at the beginning and end of rail journeys are high.
In Europe, many OEM plants are directly connected to the railway, allowing for one-time loading and unloading from plants to ports. “In China, few OEMS are connected to rail within one kilometre of plants,” explains Xie. “As a result, there is a need to involve road trucking.” China’s capacity to manage finished vehicle logistics through a rail-based multimodal network is clearly still undeveloped. “Car dealerships have been in China for a long time, but site selection of rail yards and stations to connect with OEMs’ distribution centres remains an issue,” notes Professor Zhang. “Short distance trucking just has to be there, causing extra loading and unloading.”
Owen Xie believes handling cost is only one of the reasons. He also cites factors resulting from a change in the railways’ strategic focus. In the past, rail was more volume-oriented. These days, market considerations, such as avoiding running empty wagons on return trips, are also an issue. “We have no problem with time-efficiency if it’s a block train that is not split up en-route. But when it’s not and the length is less than 740 meters, it has to go to marshalling yards for assembling and disassembling. Then the overall costs, time and efficiency, as well as the business tracking, can all be affected,” says Xie. Another less obvious factor in the cost discrepancy between rail and road transport is the reality of transport practices in China. It’s common knowledge that road haulage frequently involves violations such as over-loading. “Whereas one rail wagon transports some 8 cars, a truck [with a double trailer] can handle some 20-30 cars. In theory, road costs are higher than rail, but through over-loading, trucking somehow fits well into the market,” notes Professor Zhang. “Rail’s cost advantage is not always visible, largely because road costs are highly competitive. If you look at a trailer carrying passenger cars, it can be 20 metres in length, much larger than rail wagons,” says Zeng Bin. “If road regulations are strictly followed, then rail’s cost advantage over truck will be immediately evident,” says Professor Zhang.
Furthermore, rail advantages should become more visible as China rolls out a new policy, effective since July, imposing restrictions on road transport and limiting truck sizes. Despite the lop-sided reality, there is still a rail market for OEMs. One carmaker says that even though the percentage is low, it uses some rail service to transport finished cars to longdistance destinations where road conditions are not good.
The damage question
The carmaker says that moving cars in closed rail wagons will limit damage, but points out that since there is no door-todoor rail service in China, both the beginning and end of a rail journey involve road transport. “Damage to cars in transit is indeed very rare during the journey on rail tracks, however it is at the beginning and end of the journey where damage risks are high.”
This likely explains why rail co-loading is not practised even when OEMs are located in the same region, such as Guangqi-Honda, Dongfeng-Nissan and Guangzhou-Toyota in Guangzhou. “There was once a co-loading consideration for them but these car plants are actually far apart. Co-loading would involve extra loading and unloading, risking more damage,” says Professor Zhang.
Indeed, co-loading remains uncommon and even when it does occur, loading different brands into the same wagon is not done, since the logistics business in China is based on a wagon unit, not vehicle unit, even though identification numbers such as VINs are also in place to help tracking. The damage issue is also associated with the inadequacy of handling equipment and limited skills on the part of operators. “People with rail expertise may have limited skills necessary for car handling and protection in road trucking. Few operational people have the right combination of the two skills and know the requirements for car handling under different modes of transport,” comments the carmaker.
Rail versus road in the China context
There remains an overwhelming bias toward road transport in China mainly because existing rail capacity cannot serve demand and the availability of specialist wagons is limited. Flexibility is trucking’s strength, along with much better information systems. “Information updates and planning ahead are easier in road trucking,” says the carmaker, explaining that there is no third party providing information consolidation for rail. According to Professor Zhang, neither is rail as flexible as road in terms of formalities and procedures. “It’s less easy for rail wagons to match the cars being shipped. These days, cars that OEMs make are more and more varied in size and shape,” says NYK’s Owen Xie. SDRL’s Zeng Bin also notes the limitation in rail facilities for finished-car handling and the issue of people’s specialist skills. “This makes sense in China, given that the car industry itself really only developed in the last ten years.”
Some of road’s advantages over rail are attributed to the special mechanism in which rail operates. Owen Xie gives a detailed explanation when examining the relationship between local rail administration bureaux and companies such as CRSC (China Railway Special Cargo), which transports most finished cars in the country. Despite the fact that CRSC is a state-owned company directly affiliated to the Ministry of Railways, it does not lead local rail administration bureaux, nor is it parallel to them in hierarchy. “The latter have direct control over railway and marshalling yards, which constitutes an inconvenience for real users, especially when cargoes need to go through more than two local rail administration bureaux. There is a requirement of a train length of 740 metres,” he says.
It is also important to look at rail in terms of its market positioning. “A clear positioning is important. Is rail used as a mere operational platform or a public platform working with both OEMs and logistics providers? Does rail serve the market or serve a macro strategy? If these [issues] are not addressed, it will be difficult for rail to develop a full spectrum of services to serve the market,” says Owen Xie.
Nevertheless, state ownership of railways also has its merits in the context of China. Many vehicle logistics providers were initially a division of OEM manufacturers, so the reality tends to be that each minds its own business. As a result, they cannot fully benefit from the cost savings of an integrated logistics system. “This is not good for a cost-effective logistics consolidation. And this is where rail has the advantage. Rail doesn’t have such affiliations. Rail is in a better position to do the consolidation,” says Professor Zhang.
Rail was introduced as a way to handle finished vehicle logistics in China in the late 1990s and has achieved a level of scale in recent years. Over this 15-20-year period, many base infrastructure improvements were completed. According to Xie, China is also considering building more marshalling yards, although the process has been slow. On the plus side, while rail cargo is second to passenger transport in priority, the government has never dismissed it as unimportant. One way to mitigate the cargo-passenger conflict is the introduction of high-speed rail services. In the 12th Five- Year Plan, after HSR is more established in China, cargo shipment and passenger transport will be able to operate more independently. The HSR tracks will free up more space on the old passenger lines for cargo. “Right now, passenger and cargo still share track as the HSR system has not been fully built. In future, passenger transport will largely rely on HSR. The track now shared by cargo and passenger would be exclusively intended for cargoes. Its speed is 40-80km per hour. The HSR speed is 120-300km per hour. A clear line will be drawn between the two,” says Xie.
Unfortunately, the proposed role of high-speed rail suffered a setback following the tragic Wenzhou train accident in July this year. As a result, the pace of the entire HSR system construction has slowed as more attention has been brought to addressing issues. Safety concerns have gathered unprecedented attention and China has regulated the speed of the HSR trains. “A lot of work is to be done before the HSR restores its designed speed. The implication is that there will be a delay before the potential for rail freight is released,” says Professor Zhang.
Both Owen Xie and SDRL’s Zeng Bin believe that unless there are some policy adjustments, there won’t be significant changes in the rail logistics sector in the near future. On the positive side, state policy in general is supportive of the concept of rail logistics based on the fact that, in theory, rail is more environmentally-friendly, safe and cost-effective than road transport.
“In the long run, rail will make up a higher percentage of finished vehicle logistics capacity,” says the carmaker. “Its values are clearly seen in long-distance bulk-cargo transport and it fits with a commitment to reduce carbon emissions, but it takes time. The network and capacity are not something that can be rushed overnight.”
Despite a temporary slowdown following the recent high speed rail crash, Professor Zhang is optimistic about the opportunity in China of rail displacing trucking as a major means for movement of finished passenger cars. While Chinese rail is still a developing story, a future where the country has more rail track than the rest of the world combined may not be far away. All signs indicate that once China’s rail sector progresses through its current growing pains, rail has a bright, long-term future for passenger, general cargo and finished vehicle logistics.