Transportation & Logistics Analysis

The emergence of Road Freight Services between China and Europe

November 18 2020

The disruption of shipping due to the pandemic has generated a growing need for diversified transportation modes on the Europe-Asia trade lane. While China-EU rail freight has caught most attention, there have also been growing demands for road freight between China and the EU.

The door-to-door China-Europe road freight service emerged in 2018 after China ratified a TIR agreement in 2016. The Dutch carriers Albas, paired up with Ceva Logistics, conducted the first trial run in 2018, which took 12 days from Poland to China and now operates weekly with up to 35 trucks between China and the EU. It is rather hard to provide reliable figures for the EU-China trade via road freight. For example, after a multimodal trip, goods can be considered as transported by road in the Eurostat database, if they leave or enter the EU by road [1]. However, the launch of road services by major logisticians is a good indicator of this new trend on the market.

During the pandemic, the disrupted shipping connections pushed more service providers to take the plunge into EU-China road transportation. This is not limited to European carriers such as DSV, Instafreight, or Bollore Logistics, but also involves Chinese carriers such as LXF-Express. The door-to-door road transportation service between China and EU countries takes around 2 to 3 weeks, depending on the destination.

China-Europe road freight takes a similar route to the railway freight on this trade lane. For an outbound truck leaving China for the EU, it crosses at the border between Alashankou in China and Khorgas in Kazakhstan or in Manzhouli on the Russian border and then enters the EU via Malaszewicze in Poland.

Why propose this kind of service?

Taking into account the distance to be covered, the emergence of road services may seem surprising. Overall, goods that have large volumes shipped by road freight are done so for the following two reasons: increased demand for certain goods, and freight diversion due to disruption.

  • Firstly, the overall surge in demand for certain goods from China or the EU generates increased shipping volumes across shipping modes. For inbound shipping volumes to the EU, personal protective equipment has generated demands across all shipping modes, with the greatest increase via air freight.
  • Secondly, disrupted shipping, particularly on ocean freight and air freight, resulted in freight diversion to transportation modes that are less affected by the pandemic. In some cases, shippers are also turning to road freight due to the fully booked rail freight. Freight diversion is observable in the shipping of intermediate machinery products for sectors with a highly globalized supply chain, especially for the automotive sector.

A long-lasting trend?

Eventually, road freight will face the same question as rail freight: will this mode remain attractive and competitive in the post-pandemic period? So far, carriers seem to envisage road freight as a long term regular service, indicating their confidence in the market demands for this mode of transportation.

> Competing with Air freight and Rail freight

The carriers are highlighting the advantages of road freight: cheaper than air freight, especially during this period of unusually high prices, and faster and more flexible than sea or rail. The TIR convention allows shipping without physical cargo inspection along the route. For railway, customs cooperation in this regard is for the moment only between China and Kazakhstan, meaning just one portion of the railway route in the Asia-Europe trade lane does not need physical cargo inspection.

Furthermore, the capability to track the freight is another advantage of road freight. Tracking Europe-China rail freight remains a standing issue, though some progress has been made.

As such, door-to-door road freight is suitable for high-value-added and time-sensitive goods. However, this also happens to be the target product for both air freight and rail freight. During the pandemic, road freight between China and Europe saw growth attracted from cross-border e-commerce goods and dangerous goods, such as lithium batteries. However, this is also the area in which the railway aims to generate potential shipping volume.

> Main issues

Of course, there are other issues that EU-China road freight needs to tackle.

To start with, how to address the environmental impact of such long-distance shipping remains a big issue. Both the EU and China are implementing policy plans aimed at being climate neutral. The Chinese logistics plan issued in 2018 sets the goal to significantly cut long-distance road freight (>500Km) and transfer over to railway and waterway by 2025, though this policy mainly targets domestic logistics. Similarly, the EU's green deal also sets a priority of transforming 75% of inland road freight to railway and inland waterway by 2050. In terms of carbon emissions, road freight is situated between railway and air freight. According to an article from Loadstar, DSV, which is now offering a China-Europe road freight service, suggests that road freight emissions on this corridor is 2.5 times that of rail, but is one tenth of air freight’s emissions.

Furthermore, although the China-Europe road freight is in the framework of the Belt and Road Initiative, it is far less policy-oriented than rail freight. Under these circumstances, the Chinese government may prioritize its support for rail freight in the case of a conflict of interests between these two modes, an interesting point made by Transportation Intelligence’s chief analyst. During the heavy congestion at Alashankou in June of this year, customs inspection was prioritized for the China-Europe Railway freight.

A reference case: China-Southeast Asia Road Transportation

The competitiveness of road freight on the Europe-Asia trade lane lies in the types of goods they are carried and whether it is compatible with the supply chain strategy adopted by shippers.

Below is a brief look at the road freight service between China and Southeast Asia as a reference case that may be applicable to China-Europe road freight bearing in mind that the distance between China and Southeast Asia is much shorter than the distance between China and the EU. The China-Southeast Asia Road Transportation service was launched in 2016, with around 40 hours transport time to Hanoi, Vietnam, leaving Chongqing in Southwest of China. This road freight connection has become a competitive solution in the region, and in the past eight months, the shipping volume of this route has increased 1.5 times in comparison with the same period in 2019.

The competitiveness of the China-Southeast Asia road freight mode can be attributed to three factors.

  • Firstly, the close trade connections between China and Vietnam serve as a pre-condition for consistent market demand for the service.
  • Secondly, the flexibility of road transportation is compatible with the supply chain strategy of many Vietnamese manufacturers: high turn-over rate with low inventory.
  • Thirdly, an underdeveloped railway infrastructure in Vietnam makes adopting rail freight connections on a larger scale challenging.

If there is anything that we can conclude from the China-ASEAN road freight case, is that in the future, EU-China road freight competitiveness could well be maximized under the following conditions:

  • Sufficient demand, meaning a deep China-European trade link for certain high-value-added and time-sensitive goods.
  • A strong need for flexibility in the shippers’ supply chain strategy.
  • A less well-connected railway infrastructure in the area where road freight is operating.

[1] This refers to the Eurostat dataset: Extra-EU trade since 1999/2000 by Mode of Transportation.

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With a PhD in political science, Ganyi takes a sharp look at how transport and the supply chain are evolving around the world, through the prism of political and economic trends.
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