Today EP discussed EU Rail connectivity: in Europe and beyond, to Asia

 

 

On Tuesday 19 January 2021, the European Parliament debated on a Resolution to accelerate the EU strategy for rail transport. In the European Year of Rail Transport, EP wants to enhance TEN-T (Trans-European Transport Network: Mobility and Transport) connectivity. The European Green Deal strategic plan and all the latest transport growth indicators ask for it. It is asked that all EU candidate countries, Eastern countries and Asia be part of the European strategic plan. A new impetus for EU competitiveness. Why EU should to connect to the Silk Road? Let’s examine latest developments.

 

The EU is reviewing the TEN-T rail freight corridors as part of the new strategy for sustainable and smart mobility. Europe need it, also for reasons of competitiveness. And the

integration of the Eurasian network with the European central backbone could become a priority for the EU’s overall strategy.

The trans-Eurasian rail corridor is growing as an important new channel for trade and the EU could have a major interest. In 2020, the year of the pandemic, EU-China Express freight trains transported half a million TEU equivalent containers. A 65% increase compared to 2019!

Trans-Eurasian rail routes have brought the two extremes of the Eurasian continent closer together and have offered Central Asia to become land linked and have access to global markets (cfr. Pepe Jacopo Maria and Borgoltz Pierre)

Competitiveness of transcontinental freight routes has markedly improved over past few years and is attracting increasing volume of the high value-added goods and material, flagship of EU exports to East Asia. 

With continued improvements of operations and logistics services on the rail freight routes, new synergies have emerged between major economic actors across the Eurasian space. Notably for industrial production and value chains in sector such as motor vehicles, electronics, chemical or pharmaceutical sectors. To recall that the first “Express block trains” from China to the EU were arranged for large European companies. 

Trade in goods carried on the trans-Eurasian routes has developed steadily in both Eastern and Western directions. In 2017, the estimated share of container traffic on the trans-Eurasian route was 2.5% for EU imports and 3.2% for EU exports, compared to all EU container traffic. But it was 80% higher in Germany trade and 2.5 times higher for imports from Poland. Value of goods per rail container from EU to China could be estimated five times those of maritime transport. By end 2020, the volume of containers flows transiting on the EU-China Express  rail routes had tripled. 

Kazakh rail system accommodated most of the 2020 surge, handling 90% containers transit flows, while major congestion unfolded at the EU eastern borders. Kazakhstan, becoming the main transport hub in the middle of the Eurasian continent, has also turned into the new EU Green Gateway to East Asia. 

Continuous improvements along the Eurasian rail freight routes have made it possible to lower transit costs and absorb safely and efficiently such considerable transit (cfr. CAREC/ADB). 

EU logistics operators acknowledged that during 2020, container delivery by the EU-China Express trains between Central China and EU Member States of Central Europe were twice faster than by maritime transport for an equivalent cost. 

 

The bottleneck between Europe and Asia

The rapid expansion of train frequency and container volumes is causing difficulties at the EU borders. Especially at the Malacewiecze-Brest station (Poland) : 95% of the total EU-China Express container transports pass through there and its handling and management  capacity has been exceeded. In 2018, difficulties were already foreseen with the growth of traffic, estimated then up to 650 000 TEU in 2028, if the bottleneck was not removed.

And in fact, in 2020 while congestion worsened at the border station, block train schedules were postponed at their departure in China and flows reduced to avoid major dysfunction in shipments. There were delays of up to two weeks, reducing progress and competitiveness edges achieved by Eurasian operators up that point on the trans-Eurasian routes. The situation remains very difficult, because even the Polish railway system is insufficient to absorb freight traffic. 

This resulted in  44% of containers of the EU-China Express“ trains ending their routes right at the Polish border during first half 2020 instead of  reaching directly final destinations in main economic hubs further inland EU as previously for optimum performance. 

In contrast, the Malacewiecze station was point of departure for only 9,3% containers rail transit back to China, clearly unable to organize “return” block trains eastward and achieve balanced east-west container flows. This phenomenon generated a costly shift in east-west EU-China Express container cargo balance, from 47% – 53% in 2018 to only 31%  to 69% for 2020.    

Ensuring a balance of East-West traffic and vice versa is extremely important. Both to ensure a constant flow of goods and to ensure the economic competitiveness of rail transport. The efficiency of the bi-directional flow of goods will also be essential for the functioning of a system made up of railway networks and hubs to serve the EU core economic regions concerned, as highlighted in the FERRMED  ​​position paper.

 

Will trade along the Silk Road increase? 

The transit and trade flows across the Eurasian space are just starting to reflect the huge structural economic transformation going on both edges of the continent.

At the recent Conference “Climate Ambition Summit 2020” of the 12 December 2020, held in the framework of the Conference of Parties on Climate Change, known as COP Summit, the European Union, with Kazakhstan, China, Japan, South Korea and other partners have just set new ambitious targets to meet their commitments under the Paris Agreement and to become carbon neutral by 2050-2060. The adaptation of their respective economies is drastically accelerating on a similar path, notably for green energy and green mobility, boosting further prospects for mutually beneficial trade expansion, synergy of transcontinental supply and value chains and likely staggering future cargo transit flows on the trans-Eurasian Express routes.        

The automotive industry and renewable energy sectors illustrate well the magnitude of such requested transformation. The new EU targets to reduce by 55% emissions by 2030, (compared to 1990) calls for 30 million electric cars to be on the road  by 2030 (vs. one million end 2020), requiring equivalent to additional 40 large battery plants to fullfill demands and 3 million public recharging points installed.  

Meanwhile, a similar accelerated transformation simultaneously is underway in China and East Asia partners, the world largest market where European companies are well established: automotive is the first among EU FDI sectors in China, with 28% share. This creates a unique and phenomenal opportunity for synergy across the Eurasian Continent: innovative supply and production chains, where the Trans-Eurasian routes will play a crucial role for EU competitivity.

Anticipating yet much higher transit volumes to come on the transcontinental rail freight routes, Eurasian partners and China are currently undertaking investments aiming to double capacity by 2025 and further enhance efficiency and technological innovations on the trans-Eurasian freight routes. Joint processes are put in place to synchronize investments, improve the operational efficiency and quality of logistics chains, further rationalize and digitize transport, border crossing and customs procedures.

 

EU and Chine agreed a new Comprehensive Agreement on Investment

In 2020, China has become the first EU trade partner.

On 30 December 2020, EU and China agreed, after seven years of negotiation, on the principles of a new Comprehensive Agreement on Investment, including telecommunications, finances and notably renewables energy and electric vehicles sectors able to boost emerging transcontinental supply and value chains, and strengthen greatly the trade exchanges on the Trans Eurasian Transport Corridor.  

This agreement comes a few weeks after the conclusion of  a major Free Trade Agreement, the “Regional Comprehensive Economic Partnership” (RECEP), between ASEAN, China, Japan, South Korea, Australia and New Zealand. This indirectly opens new large trade and investment opportunities also to the EU with all partners concerned in East Asia and South East Asia. To note also that the in May 2018 , the Eurasian Economic Union and China signed a Trade and Economic Cooperation Agreement  covering notably investments, transport, e-commerce, issues of customs administration, technical, sanitary and phytosanitary regulations, while specific bilateral technical arrangements were adopted to promote trade, notably for goods with high market potential such as agricultural and food products. 

In this highly favorable economic and business context, the new modern Green trans-Eurasian transport connectivity is bound to play in coming years a major role for the sustainable economic and social development of all partners along the routes, from East Asia, Central Asia to the Western Europe.  

 

The EU Sustainable and Smart Mobility Strategy

On 10 December 2020, the Commission released the EU Sustainable and Smart Mobility Strategy to guide the mobility sector to achieve a 90% cut in carbon emissions by 2050, including inter alia, the doubling rail freight traffic by 2050.  

The rail freight corridors will be integrated in the TEN-T core network, filling in the most important missing links with improved connections, adapting the core rail network so that it is fully suitable for absorbing much higher freight traffic. 

“Quick wins” highlighted for enhanced performance and efficiency are train length, loading gauge, digitalisation and improved operational rules. “Rail freight should be seriously promoted through increased capacity, enhanced cross-border coordination and cooperation between rail operators, better overall management of the rail network and the roll-out of new technologies such as Digital Automatic Coupling and ATO.

 To achieve the EU targets, a key issue is to shift freight traffic from road to rail and to barge, Looking back at the meager results obtained in last decade, the Coordinators of the 9 TEN-T Corridors have observed that there is a high share of projects, often around 70%,  with low or non-existent potential for financial sustainability(cfr. European Parliament Think Tank).

It appears necessary to concentrate efforts in the priority sections (cfr. FERRMED paper) of the nine Main Transport Corridors where the most significant freight transport volumes (all land transport modes included) are moved. Another key point is to identify a limited number of strategic socio-economic hubs of this EU Core Backbone Network with the corresponding clusters of main intermodal terminals (strategic terminals) duly linked to intermediate and local terminals. For achieving an upgraded efficient rail freight scheme for EU economy in years to come, an additional Trans-Eurasian perspective is also required. 

While extension of the TEN-T was “one key deliverable “ to Eastern Partnership in 2020, the Indicative Action Plan for investments to 2030, drawn before the new “European Green Deal” didn’t incorporate fully its objectives, nor address the rail connectivity issues between trans-Eurasian routes and the Backbone Rail Freight Network ( 58%  of the € 12.8 bio provisional budget is earmarked  for roads projects and 15% for rail projects essentially running on the North-South direction).                                                                                                                                                 

As the EU embarks on unprecedented overhauling of the “TEN- T Backbone Rail Freight Corridors”, it provides also an excellent opportunity to integrate the optimum connections between the Core Backbone Freight Corridor Network and the key “Trans-Eurasian “Express“ rail routes in the  new EU “Sustainable and Smart Mobility”.

 

Connecting efficiently the Backbone Rail Freight Network with the Trans-Eurasian rail routes. 

Engagement and enhanced cooperation by the EU with the Eurasian/East Asian counterparts would be most timely to ensure effectively the building of strong competitive rail connectivity of the EU with China and East Asia across Eurasian space for the coming years. 

In line with the EU’s Strategy on Connecting Europe and Asia, a structured form of cooperation among all the actors of the transport and logistics chains would promote a sustainable, comprehensive and rules-based connectivity, addressing pending issues to ensure a lasting high-performance of the transcontinental rail freight transport to the mutual benefits of all the stakeholders.

In June 2019, the European Union Council, endorsing the new “EU Central Asia Strategy on new opportunities for a stronger Partnership” stressed that the EU has a high interest in the development of functioning trade corridors between Europe and Asia. The Council gave its support to work towards connecting the extended “Trans-European Network for Transport” with networks in Central Asia and advancing mutual interest in the implementation of joint transport connectivity projects ensuring the smooth transit of goods. The Council highlighted that the development of Euro-Asian connectivity has the potential to bring significant benefits to Central Asia through better infrastructure, economic diversification and integration in regional and global value chains (cfr. Pierre Borgoltz, Les routes de la Soie un succès pour toute l’Eurasie et pour l’Europe, eEuropa.blog, 10 November 2019 and Les routes de la soie: un succès pour l’Europe?, eEuropa.blog, 10 November 2019)

As Kazakhstan is about to taking up the Chairmanship of the Eurasian Economic Union (EAEU) in 2021, late October 2020, Prime Minister Askar Mamin had stressed to his counterpart the need to create an integrated Eurasian transport system by using existing infrastructure and optimize and lower the costs for cargo transit so as to make the EAEU become a trade hub between Europe and Asia.  At the virtual-visio “Eurasian Economic Union Summit” (EAEU) on 15 December 2020, on this priority, President Kassym Jomart Tokaev emphasised the big trend towards the East, opening  new opportunities in transport and logistics and he called for Eurasian countries to fully unlock their transit potential, including by modernising transborder sections in transport corridors.

To recall, Kazakhstan has been long advocating a greater cooperation and coordination between the EU, the Eurasian Area Economic Union and China to strengthen the performance of the Eurasian transport land bridge and enhance its virtuous impact on the sustainable development all along the route, notably for Central Asia region. Kazakhstan has been offering to host such platform to boost positive effects of the Trans-Eurasian connectivity including for the relations and cooperation between Central Asia and the EU. 

In present context, with bright prospects opening for the trans-Eurasian transport routes as highlighted above, the high relevance for the EU to take up rapidly such proposal for enhanced cooperation on the trans-Eurasian corridor remains entirely valid and would indeed substantially contribute to upgrade effective and operational connections between the EU Backbone Rail Freight Corridors and the trans-Eurasian Rail routes. A good connectivity is  urgently needed to boost EU competitivity and meet expanding trade and transit  demand in the coming crucial period . 

Time is ripe for the EU to effectively engage and connect with the Trans-Eurasian Corridor and all its counterparts.