BACKGROUND: The idea called “the Eurasian Land-Bridge concept”, was presented in the 1860s U.S.A by Henry C. Carey the economist who was also a partner of President Abraham Lincoln. Carey proposed that the lessons of Europe and the United States in opening up the western lands from the Atlantic to the Pacific and then similarly in Europe, via railroad development corridors, be utilized throughout Eurasia. This policy, presented by Carey was adopted in Germany, France and was also spread into Russia, China, Japan and the others. (The Schiller Institute, Lyndon H. LaRouche Jr., World Peace through World Development, with LaRouche’s Eurasian Land-Bridge Development Project 1997 pp. 8-9 )
Nowadays the term Eurasian Land Bridge is used to describe the rail transport route for moving freight and/or passengers overland from Pacific seaports in eastern Russia and mainland China to seaports in Europe. The rail links offer the potential to greatly shorten the distances and reduce transit times between countries and regions and the railway corridors can function as a tool to trade expansion and economic growth. There are three major rail connections over Eurasian continent:
- A The northern route comprises the Trans-Siberian Railway. It is the First Eurasian Land-bridge and runs through Russia.
- B The central route, Second Eurasian Land Bridge, runs through Kazakhstan to China.
- C The southern route goes through Turkey and Iran and is called the historic Silk Route and was the oldest caravan route to China.
Infrastructural projects in today’s Eurasia
Considering Eurasian Land-Bridge issue, several nations have already been participating in modernizing the existing infrastructure in particularly transport, modernizing railway lines. It is surprising how little information there has been delivered about this project and few of us have ever heard or read anything about this item even though the project has been for some time underway.
What about international business? Which firms are participating in the Land-Bridge project? How much are small and medium sized enterprises represented? There should be more visible references to the articles and in scientific journals. Regular references on Eurasian Land-Bridge in different section of the mainstream press are missing. It is obvious that there is lack of communication and we find it necessary to fill in the gaps.
Following question arise when we are entering a post-Soviet transition economies and attempt to build competitive business strategies using local transport communication network:
- Why for time being such a small proportion only 1 percentage of total transit between Europe and Asia is transported by rail with weak inter modal land bridge services?
- How could the rail transit be icnreased using inter modal land bridge services?
- How to reach efficiency, cost reduction and time saving in the rail traffic?
- How to get the land bridge countries in particularly the Central Asian post-Soviet transition economies – overcome their political, economic and ideological differences and start to collaborate (see below)
Presenting few examples taken from the university surveys of acknowledged problems on Eurasian Land-Bridge: Low amount of appropriate wagons and containers available for railway transportation in the corridors; changing tariff practices which create unneeded instability for logistical decision making; suddenly changing tariffs; delays in transportation process; too old legislation with respect to real life demand, transportation modes and intermodal transports are problematic issue.
Theoretically the Land Bridge has the required infrastructure to provide inter modal land bridge services for European and Asian companies, but things are not that easy even though. Here are additional examples what happens in reality: According to the Western managers the customs infrastructure is generally insufficient to support advanced logistics. Customs warehouses at dockyards and those connected with roads and railways are rarely automated or computerized. Given this situation, a firm has little control of the availability of its inventory. This very control is a major consideration in international sourcing. High level of uncertainty is still attributed to customs clearance in Eurasian emerging markets. The government’s role as a clearing agent of goods that flew in or out of a country creates delivery uncertainties in the best of situations. Customs regulations are far from streamlined .(Source: Per Hilletofth : School of Technology and Society , University of Skövde, Harri Lorenz Logistics, Turku School of economics, Ville Veikko Savolainen and professor Olli-Pekka Hilmola, Lappeenranta University of Technology, Kouvola Research Center Unit, Oksana Ivanova, Lappeenranta Univeristy of Technology, Suomi-Finland))
RECOGNIZED PROBLEMS ON THE FIRST EURASIAN LAND-BRIDGE – TRANS SIBERIAN RAILWAY => NC – THE NORTHERN CORRIDOR
Infrastructural problems in railway services
- lack of competiveness, unpredictable variations in transporting time and poor service quality related to malfunctions of harbor and railway transport.
- low amount of appropriate wagons and containers available for railway transportation in the corridors
- changing tariff practices which create unneeded instability for logistical decision making.
- suddenly changing tariffs, delays in transportation process
- too old legislation with respect to real life demand
- transportation modes and inter modal transports are problematic issue
- a number of technical issues are related to financial issues and lead to such situation as poor infrastructure that is not adequate in term of quality and quantity thus causing further delays.
- training of personnel and knowledge of market economy supply chains are still identified as constrains
- land bridge freight service has a lead time advantage compared to sea vessel transport, but malfunctions in harbor and railway transports limit the larger potential of this transportation alternative.
How to handle the poorly functioning inter modal land-bridge services:
First, the research concerning the possibilities to enhance transportation time variation and service quality should be conducted. Land bridge freight service has a lead time advantage compared to sea vessel transport, but malfunctions in harbor and railway transports limit the larger potential of this transportation alternative. It would be interesting to explore the possibilities to increase both the number of connections (harbor or railway) and the efficiency of those connections already existing. This might help to create a foundation for a truly inter modal railway (freight) service. Secondly, research concerning the possibility for the Trans-Siberian Railway, NC Nord Corridor to regain a large share of the container traffic between Asia and Europe should be conducted.
In order to do that, a first step could be a study whether the Trans-Siberian Railway NC has sufficient capacity and equipment container and railway wagons to carry higher volumes, especially the very large volumes that mega container ship would discharge at the ports. One possible organizational solution for these numerous problems is to establish joint venture between sea vessel operators and Russian railway.
Thirdly, research concerning the effects that the competition between different land bridge routes particularly between the NC Nord Corridor and the Second Eurasian Land-Bridge CC Central Corridor, has on the total volume transported by railway should be conducted, should the CC Central Corridor enter in direct competition with the Nord Corridor NC prosper or should the different land bridge routes start to collaborate with each other in order to be competitive against different all-water routes.
Research comparing the Nord American land bridge with the Eurasian Land Bridge, particularly the Nord Corridor NC, should be conducted.
Perhaps the North American land bridge has better potential to compete with all-water routes, considering that the North American land bridge provides without doubt, the most efficient railway service in the world.
Transport between Asia and Europe via land bridges or so called transcontinental bridges between these continents should be explored. Eurasian land bridge utilizes the Eurasian continent as a “bridge” between Asia and Europe. It includes a northern, central, southern, Europe-Caucasus-Asia and north-south corridor. For example, a shipment could go from Tokyo (or Burma) to Vladivostok (or Lianyangang) by sea. The containers would then move by train to Rotterdam through Russia (or Central Asia). The land bridge services could be considering faster than the all-water alternative.
There are two major characteristics of a land bridge freight service. First, there is a single bill of lading issued by the freight forwarder that cover the entire intermodal journey. Second, the goods remain in the same container for the entire journey. There exist three kinds of land bridges:
- mini-bridges and
1. Micro-bridge involve a link between a foreign origin, but the destination is a port reached from another port of the same continent. The Trans-Siberian Railway TSR was the first micro-bridge to be in operation in 1967, linking harbors of the Pacific Ocean coast to harbors of Baltic and Atlantic costs of Europe.
2. Mini-bridge linking the west and east costs as on the US continent from New York to Seattle can save 30 % in distance.
3. Land bridge use the rail system as a link between a foreign origin and the destination.
Trans-Siberian Railway NC –today carries only about 1 % of the volume, due to inconsistent levels of services on this routing. In 2005, the NC carried about 138 000 TEU. Different forecasts predict the annual transit movement of
30 000 – 1 000 000 TEU within five to ten years.
The NC in its present state already technically capable of transporting up to 100 million tons of cargo a year, including up to 300 000 TEU of international transit container traffic from points in the Asia-Pacific region and Central Asia. One related issue is whether there is an adequate supply of containers and rail container wagons to support the anticipated volumes of traffic.
Forwarders (HUOLITSIJA) operating on TSR suffer from shortage of rolling stock (LIIKKUVA KALUSTO) for container transportation. Altogether, they own about 27 000 rail platform. From them about 23 000 platforms belong to TransContainer OJSC, the subsidiary of the Russian government-owned rail monopoly and the only TSR’s carrier RZD OJSC. Private forwarders and operators are often unwilling to increase their own rail vehicles on the TSR, because of long platform return times and inconvenient groundwork, making transportations on the company’s own platforms unprofitable. Another reason is that the owner must pay, for repair and empty runs.
In the beginning of 2006, RZD (Rossiusjue Zheleznyje Dororgi (Russian Railways)) OJSC and the Ministry of Chinese Railway, agreed on the mutual use of standardized containers for export-import cargo transportation.
At the same time, an agreement on cooperation in the operation of the rolling stock was signed between RZD OJSC and German Railways (DB, RZD, 2006). Finnish Railways (VR) have agreed to provide some containers in a joint venture with TransContainer OJSC (VR, 2006).
If the NC were restored to consistently high-quality service price levels competitive and transparent, safety and cargo security taken into account traceability of cargo during transport reality, short lead times and accurate schedules, then it would be a much preferred land bridge service to the North American, since it involves much shorter sea legs and would be considerably faster. It would also be competitive to with different all-water routes.
A significant decrease in distance gives competitive advantage to the Trans Siberian Railway. The usage of Trans Siberian Railway NC provides a 30 % decrease in transportation distance from Japan to Rotterdam as compared to all-water route. The distance from Japan to Berlin will decrease by 33 % and to Helsinki by impressive 58 %.
It appeared that the usage of block container trains on Trans Siberian Railway reduced the average transit time of container delivery from Japan, South Korea, China and Taiwan to Finland to 15-20 days, to Sweden and Poland to 17-32 days and to Southern European countries to 22-28 days.
SITUATION ON “NEW SILK ROAD” SECOND EURASIAN LAND BRIDGE => CC – THE CENTRAL CORRIDOR
The “New Silk Road” brought China into the Eurasian development. It was in 1990 when China linked its rail system to the Trans-Siberian Railway via Kazakhstan and called its uninterrupted rail link between the Chinese port city of Lianyungang and Kazakhstan the New Eurasian Land Bridge or the Second Eurasian Land-Bridge also called “New Silk Road”. (The Schiller Institute, 2003) In 1996, the Eurasian Land-Bridge conference in Beijing, defined the Eurasian Land-Bridge as the strategic long-term policy for the Chinese government (The Schiller Institute, 2003)
– In 2000 the Head of the national company Kazakh Railways, in its interview to Kazakh Pravda newspaper acknowledge that transit from South-East Asia to Europe through the territory of Kazakhstan through CC (Central Corridor) was practically equal to zero.
– The volume of freight carried between Asia and Europe is massive. However
a surprisingly small part of it is transported through the New Silk road
– In 2000, the carried about 20 000 TEU. Most of these container shipments were headed to Uzbekistan and Kazakhstan, but there was virtually no east-bound freight. The relations between west- and east-bound freight is 9/10.
-Chinese official Shu provided (…) why the volume carried by the New Silk Road was low compared with other routes, particularly all-water routes.
– different land and sea freight tariffs. The Chinese section of the railway from Lianyungang to Alshankou covers 4131 km. Rail freight costs calculated at Chinese rates plus additional costs for miscellaneous fees, port fees, handling fees etc. total about US §1950 per TEU
– adding the freight and the additional costs in the other countries involved brings the final total transport cost of 1 TEU from a port on the east coast of China to a European ports to US §3500.
– the railway route costs about three times as much as the sea route although railway is about half the distance at the sea route and faster than ships
– the land route should represent a huge saving in time, but it does not work out that way.
– the speed of rail freight in China is very slow and the journey from Lianyungang to Alashankou is about 18 days intermodal transports face severe problems with the level of automation of material handling as well as in the level of provided transportation services, infrastructure investments are lacking behind transportation volume growth and logistics development programs are needed to nationalize current practices.
– breakdown of the Soviet Union, created situation where railway route must traverse several new countries as Uzbekistan and Kazakhstan, each of which increase the time and cost primarily through customs procedures and tariffs
– however has the potential to improve performance as demonstration trains have reached lead time of 12-15 days (UNESCAP, 2000).
According to China’s Ministry of Foreign Trade, three problems are restricting development of the New Silk Road.
1. Alashanhou has inadequate facilities, transfer capacity and storage are limited. In early, 1996 over 400 rail carriages were backed up in Kazakhstan alone.
2. Alashankou inspections and formalities are unduly, bureaucratic, creating a situation where goods are held for far too long and sometimes for up to six days.
3. various fees charged at Alashankou are extremely taxing, running up to US §600.
A fourth category of impediments is poor freight tracking. RAHDIN SEURANTA
In 1991, Chinese government allocated funds to install freight movement – tracking equipment at all main stations along the Lianyungang-Alashankou route, but the system is still not in use and the freight owners cannot track movement of goods in a timely fashion.
– there is no guarantee the goods will be dispatched on time. Owners and shippers have reached strongly to these problems
– poor infrastructure and complex paperwork.
– railway freight requires two total transfers and repacking; once at the China-Kazakhstan border and again at the Poland-Belarus border.
FOREIGN COMPANIES LOGISTICAL STRATEGIES ON EURASIAN MARKETS
CASE STUDY 1: Asian companies and distribution strategies through Eurasian Land-Bridge, the Trans-Siberian Railway (Northern Corridor)
The increasing number of companies from other Asian countries – such as Hong Kong, China, Taiwan, Singapore and the Republic of Korea are advancing internationally. The growing interest of Asian companies to the markets of Central and Eastern European countries and particularly in Russia (CIS) could be observed:
- What are the distribution strategies of Asian companies to Russia (CIS)?
- Which distribution solutions are focused by Asian companies?
- What are the main factors determining the logistics management in challenging Eurasian environment?
- Well-established distribution infrastructure is rarely in place in Eurasia.
Foreign companies often have to set up their own distribution system, supply centers and warehouses. Such conditions may force owners of joint ventures to locate in large cities, where proximate buildings that can serve as warehouses could be secured at relatively little additional cost. Of the business opening within this region, a vast majority are located within the larger cities.
A high level of uncertainty is still attributed to customs clearance in emerging markets. The government’s role as a clearing agent of goods that flew in or out of a country creates delivery uncertainties in the best of situations. Customs regulations are far from streamlined. The customs infrastructure is also generally insufficient to support advanced logistics. Customs warehouses at dockyards and those connected with roads and railways are rarely automated or computerized. Given this situation, a firm has little control of the availability of its inventory. This very control is a major consideration in international sourcing.
Despite the fact that two-thirds of the territory of Russia is in Asia, its economic cooperation with European countries is much more sound than with Asian countries. The main economic partners of Russia in Asia are – China, South Korea, Japan and Taiwan.
Japanese companies which are pioneers among Asian manufacturers in establishing operations in Russia still tend to export their product to Russia rather than engage in producing within Russia. Defined the following export strategy vis-à-vis Russia.
- use of a local distribution agent
- establishment of a sales subsidiary
- establishment a wholly owned sales subsidiary
- establishment of an offshore sales subsidiary
At the same time, as a result of Russia’s recent economic growth the number of Japanese companies positioning Russia as a strategic market and investment destination is growing annually.
Export strategies of South Korean companies are changing as a response in the change of Russian legislation. Tightening of Russian custom control towards South Korean consumer electronic in 1996 deterred LG and Samsung from direct export to Russia. As a result, products of those companies were first delivered to Finland and then, by Russian importers, to Russia. This scheme was also possible owing to favorable tariff policy on the TSR (Transib). China and Russia have 4 200 km of common border, the activity of Chinese companies on Russian market cannot be characterized as developed and intensive.
Undeveloped Russian infrastructure is often named as a major barrier to the development of Chinese operations in Russia.
CASE STUDY 2: EURASIAN LAND-BRIDGE’S TRANSPORTATION SERVICES: Results of Maastricht University thesis: Use of Eurasian Land-Bridge, the Trans-Siberian Railway (the Northern Corridor)
In a summary of Master’s thesis at Maastricht University in the Netherlands
came to following results concerning the major reasons why there is still some reluctance of use the Trans Siberian Railway (Northern Corridor). The thesis was based on questionnaires sent to business managers, politicians and railway officials from five countries 1. Belgium, 2. Germany, 3. Netherlands, 4. Russia and 5. Ukraine.
Research found following impediments to greater usage:
The first impediment mentioned political results from the uncertainty within transportation service, arising from different stakeholders with conflicting objectives, and desired outcomes from the system are not the same among actors. Implication could be suddenly changing tariffs, delays in transportation process and too old legislation with respect to real life demand
-> Russia still concerns that transportation modes and inter modal transports are problematic issue. Financial problems are sector specific. For Russian railways balancing passenger transports and freight operations is a challenge as freight transport profits support loss-making passenger transports. As a result, freight operations cannot develop themselves based on the cash flow coming in from their operations and external parties are not willing to invest in wagon and containers.
A number of technical issues are related to financial issues and lead to such situation as port infrastructure that is not adequate in term of quality and quantity thus causing further delays. Training of personnel and knowledge of market economy supply chains are still identified as constrains.