The New Silk Road: A Multimodal Mindset

Companies need to shift their transportation mindset and embrace new options.

Historically, China’s “silk road” has been an important trade route between China and Europe and today’s “new silk road” holds similar promise.

What started out as a means to improve transportation and infrastructure in inland China has evolved into one of the world’s largest trade lanes.

According to the European Commission, not only is the European Union China’s biggest trading partner but it is also China’s biggest source of imports. Just last year, China-European Union trade volume totaled more than $600 billion and is expected to reach $1 trillion by 2020.

Steve Flowers

Steve Flowers

For Chinese manufacturers, getting products to European markets can be complicated and costly.

Getting goods to Europe by sea can take up to 60 days, which is far too long for many companies, especially those in industries like high-tech and retail, where products quickly become obsolete and consumers want the latest fashions.

Air freight on the other hand tends to cost nearly eight times as much as ocean freight, leaving companies with an either/or choice: fast and expensive or slow and economical.

To capitalize on the growth opportunities the China-Europe trade lane brings, companies need to shift their transportation mindset and embrace new options.

Modal Shifts

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Gone are the days when companies looked at freight options being either ocean or air. 

Gone are the days when companies looked at freight options being either ocean or air. As e-commerce grows and international trade opportunities increase, new service options are coming to market that allow companies to shift modes, mix modes and leverage new options based on changing customer and supply chain dynamics.

For the China-Europe trade lane, one of these preferred options is rail freight. Rail has undergone a significant evolution since the 1800s when it was the only real means of transportation outside of horses and buggies.

Rail is a fast, economical and environmentally friendly alternative to air and ocean freight that has huge potential for growth.

[Also on Longitudes: How rail enables economic, social and environmental sustainability]

According to a study conducted by Roland Berger Strategy Consultants for the Association of the European Rail Industry, the world rail supply market is projected to grow 2.7% for the next few years.

UPS has seen first-hand the benefits of rail for companies looking to increase China-Europe trade. Based on customer demand for a “middle ground” option between air and ocean, in 2014 UPS introduced a Full Container Load (FCL) service for China-to-Europe shipments.

Companies who leveraged this service got products to Europe in half the time it would have taken via ocean and realized ups to 65 percent lower costs versus air freight.

Based on the success of the FCL service, UPS recently rolled out a Less-than-Container Load (LCL) rail service as part of its continued expansion of UPS Preferred® multimodal freight services.

Consumer Shifts

One of the driving factors behind UPS Preferred® transportation services is the significant shift in consumer behavior. E-commerce has transformed the way the world does business.

Consumers are able to order anything they want from anywhere in the world, and expect their purchases will arrive in a timely fashion, even if they are thousands of miles away from the retailer.

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When getting products to market, not only is time extremely important, but also protecting them during transit is essential.

According to our 2015 UPS Pulse of the Online Shopper™ Global Study, 59% of consumers in Asia and 57% of consumers in Europe are willing to wait 3 to 5 days for their online orders from domestic retailers.

For orders from international retailers, 51% of consumers in Asia and 53% of consumers in Europe are willing to wait 6 to 10 days for their orders.

Industry-specific factors also are at play. A significant amount of high-tech and electronics come out of Chengdu, which is located inland so rail becomes a more attractive option than ocean transport. Chengdu and Zhengzhou are home to the two main origin Chinese rail stations for rail services to Europe.

When getting products to market, not only is time extremely important, but also protecting them during transit is essential. When transporting goods from China to Europe during the winter months, temperatures can significantly drop which requires temperature-controlled shipping containers and other special-handling options for sensitive electronics.

Industry Shifts

For years, the Chinese government has been encouraging companies around the world to set up manufacturing facilities in inland and western portions of China through the country’s “Go West” initiative. In return, companies are receiving economic incentives and local Chinese workers have new job opportunities.

However, despite the growth opportunities “Go West” brought to cities like Chengdu and Chongqing, the initiative also created several logistics challenges.

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It’s time for a new mindset: sometimes it’s okay to miss the boat.

Until recently, goods from western Chinese manufacturing hubs were moved by truck or rail to the Chinese coasts and then loaded onto ocean carriers for a journey that could take anywhere from one to two months. Now, thanks to the relatively new rail transportation system in the region, companies are able to get products to market faster and more cost-effectively.

China’s “new silk road” has also played a major role in helping neighboring countries like Japan and the Republic of Korea increase business due to its close proximity and improved time-in-transit. Just last year, the first-ever shipment of electronics from Korea made its way to Europe via rail.

Mindset Shifts

There are hundreds of manufacturers setting up shop in inland China today, and with this boom in business for the region comes a growing need for new logistics, supply chain and transportation solutions.

Companies should look beyond “traditional” transportation options and embrace multimodal options. It’s time for a new mindset: sometimes it’s okay to miss the boat. goldbrown2

Steve Flowers is President of Global Freight Forwarding at UPS Supply Chain Solutions

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Reprinted with permission of Longitudes, the UPS blog devoted to the trends shaping the global economy.