Various macro forces are redrawing the global trade map, and one of them is China’s revival of the ancient Silk Road trade route.
For shippers large and small, the multi-billion-dollar infrastructural project could bring huge opportunities for improving the efficiency of global supply chains—providing they do their homework first. Here’s an overview of the global trade possibilities and potential for the “new Silk Road.”
Silk Road increases global logistics options
China’s so-called “One Belt One Road” strategy connects the country via an overland and sea corridor to Central Asia, the Middle East, and Europe.
According to The World Economic Forum (WEF), China hopes that the numerous transportation projects that fall under the new Silk Road umbrella will increase the value of the country’s cross-border trade by $2.5 trillion within a decade.
China has channeled nearly $1 trillion of government money into the project, says the WEF, and is encouraging other governments, as well as private organizations, to invest in the project.
But the rationale for bringing the Silk Road back to life is not only economic.
“There are strong commercial and geopolitical forces at play here,” says the WEF. The trade route will serve as an outlet for Chinese exports and it could also bolster the country’s standing as a leading world trade power.
Many shippers are already taking advantage of the new global logistics options. These include a number of TMC customers that have begun moving product from China to Europe by rail where they previously did not. This shows that shippers are capitalizing on new mode/route combinations that will help them save cost, reduce lead time, and mitigate supply chain disruptions and risks (such as labor disputes in the ocean shipping industry).
To capture benefits like these, shippers need to be opportunistic.
For example, the Financial Times reported that U.S. suppliers of frozen chicken to Kazakhstan began shipping product via the Black Sea and onward through Georgia, Azerbaijan, and across the Caspian Sea, to bypass trade restrictions imposed by Russia.
A leading consumer electronics company started sending laptops from Chongqing in Southwest China to Duisburg in Germany by train rather than boat, “pioneering a renaissance in overland transport across central Asia,” says the Financial Times.
Even though the cost of shipping a container by rail can be more than double the cost of using sea routes, for certain products the higher cost can be offset by reductions in inventory costs.
Identify global trade opportunities
Identifying such tradeoffs requires careful analysis. We’re currently working with shippers and the carrier community to pinpoint opportunities presented by these newly reopened—and historically thriving—trade routes.
It’s also important to have access to local expertise when evaluating ways to shift freight to the new Silk Road. For example, trains often must negotiate different national rail gauges along cross-border routes, and this can affect transit times. The region’s geopolitics are complex and need to be monitored, especially where infrastructural projects are supported by government subsidies. And the viability of the Silk Road’s component trade routes is subject to the economic performance of the countries they encompass.
Still, China’s vision for a new Silk Road is long term, and new opportunities will surely open up as the ancient trade route expands once again.
Source: World Economic Forum, https://www.weforum.org/agenda/2016/06/why-china-is-building-a-new-silk-road/
Financial Times, https://www.ft.com/content/e9d35df0-0bd8-11e6-9456-444ab5211a2f