RailFreight Events

Events for rail freight professionals

Pandemic and recession: a double dip for New Silk Road

The current macroeconomic situation differs from a normal slowdown cycle, as it is reinforced by a virus crisis. It is not just an economic recession, but an economic crisis ánd a pandemic crisis. That will certainly result in a double dip, says Ekaterina Kozyreva of the Infrastructure Economics Centre.

In February, the UIC, a worldwide railway organisation, published a new report titled Eurasian Corridors, Development Potential. The Infrastructure Economics Centre (IEC), an independent think-tank based in Moscow and in Paris, contributed to this report. It provides an updated forecast of the Eurasian rail freight volumes up till 2030. According to Kozyreva, new reality follows not the baseline, but pessimistic scenario. The Russian analyst will share her thoughts at the RailFreight Summit Poland, to be held on 1, 2 and 3 September. In this blog post, she provides a sneak preview.

First-of-its-kind crisis

The current situation in global economy is already described by various experts as a first-of-its-kind crisis, combining a long-awaited global economic fall with an unexpected fast deglobalisation caused by the COVID-19 pandemic, and intentional closure of borders.

In any case, it is already clear that the fast growth of Eurasian freight volumes that was observed in recent years will not continue in the nearest future, and many strategies of the market players will not come true. Still, in contrast to passenger transportation, rail freight is not suspended. Does this mean that all operations will resume later? Should market players wait or cancel all investment projects? Or are there new opportunities, arising from the crisis?

Macroeconomic context: a double dip

This crisis+crisis situation, or double dip, has got the following peculiarities:

Further development of the economic situation depends on non-economic factors: the spread of COVID-2019, decisions of governments and other actors or the effectiveness of anti-crisis measures. All this causes a disparity in figures proposed by different experts, as well as decreases the average accuracy of the forecasts.

2020 GDP growth forecast according to different organisations

Rail freight business: a double take

It is quite evident that the consequences of crisis will drastically change the rail freight business. The volumes will drop down, if compared to all previous expectations, because many of these expectations were based on ‘baseline’ or even optimistic economic assumptions not considering deglobalisation. But, the peculiarity of this double crisis is that not only volumes or market shares will change. What will also change is the geography of transportation and the structure of market due to the disruption of supply chains and asynchronous actions. Is it still possible to find any opportunities for railways under these unfavorable conditions? The answer lies in between two crises.

Euro-Asia rail freight transit volumes forecast divided by the impact of two crises

The graph represents the assumptions on further development of crises and Euro-Asian rail freight transit, it does not intend to forecast the exact timing of pandemic or the exact volumes. The idea is to compare a ‘usual’ economic crisis and the one caused by the pandemic. While the ‘usual’ one causes decrease of demand and results in decline of volumes and slowdown of growth, the COVID-19 crisis, which is spreading faster, results in undershipment of already produced goods.

This undershipment problem, the lack of supply which varies significantly for different commodities, should be solved as soon as possible after the reopening of production, and that defines the short-term opportunities for railways, which are obviously faster than sea and, as once again the Chinese example shows, less exposed to risks of transport restrictions than roads.

New supply chains

Of course, further development of economic crisis will most probably decrease the demand and the undershipment problem will quickly disappear. This is also true in case of a prolonged pandemic or significantly asynchronous trends of COVID-19 spread and recovery in Europe and Asia.

But in any case, what COVID-19 will leave us are the disruptions and even destroy of global supply chains. Railways have all chances to become a remedy for faster restoration of Euro-Asian links thanks to faster transportation, flexibility in volumes (also suitable for smaller amounts and parcels), coverage of long distances and lower prices in comparison to air.

Anti-crises vaccine for railways?

Economic turbulence is a time of fast decisions and limited investments, now combined with a lack of communication. So having a chance during a crisis is not equal to using it. To cope with recession and to use the chances to raise the general and the specific (for each market player) competitiveness of railways for international freight transportation, a ‘vaccine’ of most probably working solutions is necessary. What is mixed within the vaccine?

For market players, freight shippers and forwarders, railway operators and undertakings:

For the authorities, railway administrations and infrastructure managers:

2021 Year of Rail

Although the global economic and non-economic disease certainly leads to a decrease of transit volumes in comparison to all previous plans, rail freight transportation gets a chance to increase its role in Eurasian links, and moreover, to contribute to their post-crises restoration. Both private market players, national authorities and rail administrations have got a prescribed mix of solutions to prepare for active marketing.

In the fourth quarter of 2019 the share of railways in transportation of containerised commodities along Eurasian routes was estimated at the level of 3.5 per cent, considering that the share of railways is usually higher by the end of each year than annual average. COVID-19 pandemic gives a chance to increase this share up to 5 per cent by the end of 2021 combined with a drop of overall trade volumes. The main challenge for railway market players will be retaining this share when trade restarts growing and despite possible changes in global supply chains. 2021 will be the European Year of Rail, and, if all rail stakeholders consider the arising opportunities, it can become a global one.

Written by Ekaterina Kozyreva, International Projects Director at the Infrastructure Economics Centre

Also read:

More news

How can this new terminal boost EU-Balkans intermodal transport?

On 19 April, Rihard Dobo will also speak at the RailFreight Summit Poland. He will explain the significance of the Horgos Terminal project and its potential to boost intermodal traffic to and from the Western Balkans and the broader southeast Europe region. The Serbia-Hungary bottleneck “As Serbia and the wider Western Balkan region is not… Read more ›

Malaszewicze upgrade may be financed by Polish government

The EU has in fact decided not to fund the modernisation project planned in the Małaszewicze Transshipment Area. The area includes the terminals Kobylany, Małaszewicze, Bór, and Chotyłów. This project was put on hold, waiting for possible public funds, which now may be on their way. To see this crucial transshipment area with your own… Read more ›

DB Netze’s new freight coordinator: ‘Construction works are for the better, but I understand frustration’

Germany is in all networks At the RailFreight Summit, which will take place in the capital city Warsaw, Dieter will discuss the possibilities of increasing capacity in the German railway network. “Germany is in most traffic flows, so all issues in Germany are directly seen and felt abroad. “We need a common understanding of managing… Read more ›