China Freight Transport Report Q2 2009

The planned launch of Deutsche Bahn Schenker's two-way weekly rail container service between China and Germany has been postponed on the back of falling freight volumes between China and Europe. The Germany rail cargo operator's container service had been due to begin operations in February 2009, but the Journal of Commerce quotes a spokesperson from DB Schenker's logistical arm as saying, 'we are in contact with our customers… discussing the right time to start it… We will offer the service this year… we can't be more specific because of the [economic] situation.' BMI notes that it in the space of three months DB Schenker has had to revise its plans for what promised to be one of the biggest developments in the global rail freight sector for decades. The planned container service was trialled in October 2008 and led many observers to herald the arrival of a new era in the development of the 'iron silk road'. On October 6 2008 the first ever Fujitsu Siemens Computer (FSC) train pulled in at Hamburg railway station with a cargo of 50 containers of IT products, including monitors and PC chassis made in China.

The train had come from Beijing, a distance of 10,000km, in a total of 17 days. The project was a collaboration between DB Schenker, Russian Railways, and Chinese Railways. It was hoped that the planned service would provide some much-needed revitalisation for the rail freight sector, and would directly compete with air and sea freight. Heribert Göggerle, an FSC executive, stated that 'Shipping IT products by rail is more flexible and around one third faster than by ocean freight,' adding that 'compared with air freight, we save around one quarter of the costs.' Despite a successful trial period, the project has not been immune to the global economic downturn and the fall in trade volumes. The International Herald Tribune quotes figures from China's customs agency, which state that exports fell by 2.8% yearon- year (y-o-y) in December 2008. The decline in exports was the steepest China has seen since April 1999. Imports were also down, falling by 21.3% y-o-y. BMI believes that the fall in Chinese exports has made the launch of a rail service between China and Europe unviable on the short term. The decline in trade between China and Europe has also affected sea and air freight companies. BMI has been following the downturn in the shipping industry, and notes that many major container shipping operators have been revising their Asia-Middle East-Europe services, by scrapping ports of call and laying up vessels.

Container fees on the route are reported to have fallen to only US$200 per twenty-foot equivalent unit (TEU), making it less economically viable for liner companies to ship containers as this fee is below operating costs. Asia's air freight sector has been badly hit by the fall in trade volumes. The International Air Transport Association (IATA), which represents approximately 230 airlines, reported in December 2008 the air freight industry's growth figures for the year up to November. Freight tonne kilometres (FTK), which measure actual freight traffic, for Asia were down by 4.7% y-o-y in January-November 2008. BMI believes that freight carried growth across all modes, measured in million tonne-kms (mntkm) will slow down from an estimated 13.4% in 2008 to only 4.4% this year. However, we are confident it will recover quite strongly after that, and that the annual average in the five years to 2013 will be 8.8%, ahead of average GDP growth of 7.1%.

China’s economy continues to grow, albeit at a slower rate, driving trade and demand for freight transport. Our latest estimates put GDP growth at 9.0% in 2008, easing quite sharply to 5.6% in 2009.

China’s foreign trade will ease from 21.8% growth in 2008 to 13.4% in 2009 and 16.9% in 2010. This double-digit trade growth continues to create major demands on the country’s transport and infrastructure capacity. Underpinning the optimistic outlook is a supportive operating environment. BMI has given China’s freight industry a rating of 63.7 (out of a theoretical maximum of 100), which places it right up at the top of the Asia Pacific region.

Based on available data, we have recently trimmed down both rail freight and river and sea cargo growth.

Our forecast for freight carried across all modes in 2009-2013 now stands at 8.8% per annum (pa).

According to our latest estimates, transport and communications GDP rose by 10.8% in 2008, 1.8 percentage points (pps) faster than overall GDP, which we estimate will have expanded by 9.0%. For the 2009-2013 forecast period, we expect the transport and communications sector to continue outpacing the economy as a whole. It will achieve average annual growth of 8.0%, versus 7.1% for overall GDP. The total value of transport and communications GDP will rise to US$397bn in nominal terms by 2013, representing 6.3% of China’s GDP. The transport and communications sector employed 22.27mn people, or 2.7% of the labour force, in 2007. We see the figure rising to 23.37mn by 2013.

Despite current conditions, prospects for the freight transport industry remain encouraging. As our figures indicate, the freight sector will continue to grow at a faster rate than the economy as a whole, in line with intensifying demand for transport at this stage in the Chinese economy’s development. By transport mode, growth will be led by oil and gas pipelines (at an average rate of 22.3% a year), shipping and inland waterways (9.0%), air freight (7.9%), road haulage (7.3%), and rail freight (also 6.8%).