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Getting business balance right on 'One Belt-One Road' - the New Silk Road

TO some China's current slogan "One Belt-One Road" seems little more than the "Eurasian Landbridge" that's been a talking point since 2008, with Xinhua reporting its existence in regards to Kazakhstan since 2004.

But to Miroslav Jakab, who runs ART Logistics's operation out of Chengdu, it is much more. "I see this more as a natural development reflecting China's economic emancipation - from yesterday's simple exporter of cheap goods to the self-confident sophisticated investor of today."

China now invests heavily in the neighbouring countries, Mr Jakab said, drawing on its natural resources and other goods to meet rising Chinese domestic demand.

The One Belt One Road scheme, he feels, is about to create economic synergy for attracting more partnerships with wider geographical scope than solely with the EU and Asia.

To some, it all seems like a make-work project to help the poor people of western China, but he dismisses this. "First, it's hard to talk about poverty-stricken regions if we talk about provinces like Chongqing, Sichuan etc," said Mr Jakab.

"Even though their GDP is well behind that of Beijing or Shanghai we certainly cannot talk about poverty and anybody who does not believe it should visit to these provinces."

While China is trying to balance its wealth throughout the country, it has even better reasons in its current five-year plan that includes the creation of economic zones in South West and Western parts of the country, he said.

"For instance Sichuan, Chongqing and Xinjiang are rich with natural resources and it makes a lot of sense to locate related industries in these regions rather than on the east coast or in Guangdong as was the case earlier," he said.

Given that, China's investment in transport infrastructure makes perfect sense. "Subsequently exporting certain goods and technologies from Xinjiang or Sichuan to Central Asian countries makes much more sense than doing so from Guangdong," he said.

Today, China is a major investor in Kazakhstan, Uzbekistan and Turkmenistan and now rivals Western economies in these areas in this role, he said. Developing, or even relocating certain related industries in the provinces geographically closer to Central Asian countries is a logical step and win-win situation for all concerned, he said.

For example, using a Western China fruit and meat distribution centre in Chongqing makes more sense than using one in Shanghai. "We need to keep in mind that from Shanghai to Chongqing the road distance is 1,700 kilometres - almost the distance from Berlin to Moscow."

It is no coincidence, said Mr Jakob, that new logistics centre in Khorgos on China's Kazakhstan border, is being set up and is managed by DP World.

Nor is it a coincidence that is here at the beginning of the Eurasian Landbridge that we find rail, ocean and air freight weighing in against each other for a share of customer dollars.

Said Mr Jakab: "The most important thing to understand is that these modes of transport are not necessarily competing, but complementing each other."

Consider, he says, the 10,000, 18,000-TEU containership against the average container train operating between China, Central Asia and Europe, which is less than 100 TEU.

"It means that about 100-200 trains make up for just one sea sailing. And one look into Hong Kong or Shanghai port will show how many vessels these ports operate daily," he said.

"If we take into consideration that average transit time of the container vessel from North Europe to Shanghai is between 30-40 days so the train is the only economical possibility in delivering certain types of chilled foods to China," he said.

Mr Jakab also spoke of another aspect, the contribution to production and logistics costs optimisation by means of decreasing supply time for high value products.

"Again using the advantage of much shorter transit time - transit time of current container trains between China and Europe averages two to three weeks door to door against 30-40 port-to-port by sea.

Thus, ART Logistics decided to set up and develop the cold chain by putting into operation a number of reefer containers aiming to cover huge demand in this part of the market.

This new product aims exactly at the niche market of chilled food and high value cargo, electronics and high-tech (rather than electric appliances); high-value cargo; food, wine, drinks and other temperature controlled product, pharmaceutical industry, medical equipment, automotive industry, containerised project cargo including all LCL cargo.

Of course, certain parts of these would require air freight because even two weeks can be too long for some cargo.

Much of the east-west trade imbalance, that is, a near total lack of backhaul, Mr Jakab puts to a lack of awareness of the service on the part of European shippers.

"The demand on China-Europe rail is also directly connected to general awareness of market players and shippers. The services are still perceived as new and many lanes are in testing or irregular schedule stage.

"Shippers are still wondering about basics like transit time, paperwork or schedule reliability. Good news is that few governments are contributing tremendous amount of effort simultaneously to create the awareness of shippers and deliver base information about the service. The interest towards China-Europe will inevitably keep growing," he said.

But these are early days in the development and the system is only slowly coming into broad public awareness.

"I expect that this and especially next year, provided there will not be any unpredictable development of the world economy, we will witness the further fast development," he said.

Not only transport infrastructure, he said. "Even more significant are the mainly China investments into key industries of 'Silk Road countries'. With the further development and foreign investments in mainly Central Asian countries goes hand in hand the requirement to cover increased energy demands.

Kazakhstan, Uzbekistan and Turkmenistan are investing into power station construction, China's growing living standards then encourages importing of natural resources and products Silk Road economies can provide, he said.

Backhaul is very important. There certainly is a cargo in Europe, which can benefit from faster transit time. On the other hand, we need to take into a consideration that railway service is in comparison to ocean shipping just a very niche market.

The current situation is far from perfect, he said. Volume balance these days from EU to China by rail is 1:10 in favour of west-bound. At the same time there is a good flow of cargo from EU to Central Asia. There is a certain potential synergy between Central Asian existing and China soon-to-come cargo flows. But eastbound trains are struggling to find adequate cargo type.

Another possibility we are now studying is then developing of triangle trade Europe - Central Asia -China which may serve as a backup solution to right seasonal fluctuations.