GROWING POPULARITY OF THE NEW SILK ROAD
The New Silk Road is gaining in popularity. The number of containers shipped along the shortest route (straight through Kazakhstan, taking 13 to 15 days) has doubled year on year, and by the end of 2018 the total is expected to reach 350,000 TEU.
Many of those containers are carrying goods on behalf of Mead Johnson, a manufacturer of nutritional products for newborns and infants. This was triggered by a new product for babies with stomach cramps. Despite failing everywhere else, it was a huge success in China. “Not because there were so many Chi- nese babies with stomach cramps, but because the product was made in the Netherlands. That’s seen as a guarantee of quality in China,” says Remco Jonker, Manager Customer Service & Distribution at Mead Johnson. “So we created a new product line for the Chinese consumer market, produced in the Nether- lands. After just nine months that product line accounted for 40% of our revenue in China. In fact, we even decided to downsize our manufacturing activities there.”
Mead Johnson opted to ship its products to China by rail, although not everything ran smoothly, recalls Jonker: “We’ve discovered that the motion of a train is stronger than on a container ship, so the boxes are more likely to shift on the pallet which means that we have to package our products better. Besides that, it can get very hot in Kazakhstan in the summer which is detrimental to the vitamin content of our products. We now monitor the temperature and have the situation under control.”
Three-day buffer
Chinese company Lenovo uses the New Silk Road for shipping computers and other equipment to Europe. Transit time is 42 to 46 days by sea, but just 28 to 32 days by train. That makes a big difference in terms of working capital. “30% of the volume will be shipped by rail this year, amounting to around a hundred con- tainers a week,” comments Dick van Beek, Director Global Logistics at Lenovo. Van Beek is pleased with the continuous development of the New Silk Road. “We can use the train in the winter too, now, whereas we used to have to find an alternative between November and March. But there are still a lot of delaying factors. The actual journey time is only ten days; the rest of the time is taken up with procedures such as customs checks and changing trains.” One problem is the unpredictability. In principle, it should be possible to get the products to their destina- tion within 28 days. “But I don’t dare to promise 28 days to our customers,” says Van Beek. “It’s still all too common for it to take longer than that. The Polish railway company has once again pledged to invest heavily in maintenance in 2019, but it’s not yet clear how that will affect the transit times. We work with an extra buffer of three days because of things like that.” Van Beek mentions other challenges, such as the pending shortage of winter-proof containers and wag- ons, and the congestion at the border between Poland and Belarus because of having to change trains.
Substantial investment 20
During a conference about the New Silk Road, it recently became clear that almost all the countries involved are investing in the infrastructure, often helped by loans from China. Now that the rail terminals in Kazakhstan are up to scratch, the rail network from east to west is being improved. The ports on the Caspian Sea are being expanded to offer an alternative transport route. Poland is working hard to build more border stations for the necessary train changes and faster east-to-west connections. The route via Kaliningrad is a possible alternative. As to whether the New Silk Road poses a long-term threat to the Port of Rotterdam, the gen- eral consensus during the conference was that it does not – but it will undoubt- edly cause a shift in international freight flows.
Frans-Paul van der Putten, Clingen- dael: “The New Silk Road is one of China’s solutions to reduce its reli- ance on ocean routes.”
1980, when the Netherlands authorized RVS Shipyard to export two submarines to Taiwan – an island regarded by China as a rogue province. The relationship sou- red and for a few years China replaced its ambassador in the Netherlands with a diplomatic official. “The impact on trade was limited because China didn’t hold such an important position in the Port of Rotterdam back then, but things are clearly different now. What if China were to decide to bypass Rotterdam? And remember in Oslo in 2010, when the Nobel Peace Prize was awarded to a Chi- nese dissident? China refused to accept it and exerted considerable pressure on Norway, both diplomatically and econo- mically,” continues Van der Putten. He is interested to see which stance will be taken by the EU, where there is still an overriding belief in the free market eco- nomy. “But the question is, how long can we keep that up?” For now, companies with global supply chains need to take growing political sensitivity and hence uncertainty into account. If the trade war between the USA and China escalates, it’s not incon- ceivable that companies will be forced to choose a side. After all, USA legislation allows European companies to be blackli-
SUPPLY CHAIN MOVEMENT, No.31, Q4 2018
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