The Red Sea is a major ocean route that connects Europe with the Far East. However, due to recent attacks on vessels in the Red Sea, shippers are now looking for alternative ways to transport goods from China to Europe. As a result, there has been an increase in demand for air and rail transportation.
According to data from Xeneta, a freight rate data platform, air cargo volumes on the major apparel route between Vietnam and Europe have increased by 65% in the week ending Jan. 14 compared to the previous week. Rail routes via Russia have also seen an uptick in interest, with freight forwarders and consolidators reporting a sharp increase in enquiries and bookings for the route.
One of the main reasons for this surge in demand is the disruption caused by attacks on vessels in the Red Sea. Air cargo is attractive to shippers as it is faster than ocean transportation, while rail is seen as a cheaper alternative to air freight and quicker than using ocean transportation.
RailGate Europe, a group of consolidators, transports goods such as furniture, toys, clothes, and automotive parts from China through Russia to European countries. The journey takes between 14 and 25 days, which is significantly faster than ocean transportation via the Red Sea, which takes around 27 days, or re-routing via South Africa’s Cape of Good Hope, which adds an additional 10-12 days to the journey.
The increase in demand for rail transportation has also been driven by concerns about sending goods through Russia due to the ongoing conflict in Ukraine. However, since the recent attacks in the Red Sea, demand for the rail route has skyrocketed. The Lunar New Year, which starts on Feb. 10, is also expected to stimulate demand for rail transportation.
While rail transportation through Russia is allowed by the EU, military goods are banned from being transported through any mode of transport. As a result, some shippers are opting for the “middle corridor,” which runs from China through Kazakhstan to Turkey via the Caspian Sea. However, this route takes around 26-29 days, which is still longer than the rail route through Russia.
Rail transportation has also seen an increase in demand due to rising sea freight prices. According to Tambaca, managing director of Rail Bridge Cargo, the cost of sending one forty-foot container (FEU) from China to Europe via rail is currently around $7,900, compared to a forecasted price of $6,507 per FEU for ocean freight between the Far East and the Mediterranean in February.
The Red Sea crisis is expected to continue for months or possibly the whole of 2024, which could favor exports from the U.S. in the long term. In the short term, the disruption is likely to result in an increase in the cost of goods for Europe and could potentially change the trade balance between Europe and Asia and Europe and the United States.
In conclusion, the recent attacks on vessels in the Red Sea have led to an increase in demand for alternative modes of transportation from China to Europe. Rail transportation has emerged as a viable option for shippers looking for a faster and cheaper alternative to air freight and a quicker alternative to ocean transportation. However, concerns about sending goods through Russia and rising sea freight prices are also driving demand for rail transportation.
