Kazakhstan Is Gaining on Chinese Shipments to Europe

The international shipment of containers via Kazakhstan continues to grow year-over-year. In 2019, the total volume increased by almost 25% compared to 2018 and amounted to 646,000 twenty-foot equivalent units (TEUs, a conventional unit in container traffic). Container transit is one of the most profitable segments for Kazakhstan Temir Zholy JSC (KTZ). The neighbors in the region also wish to benefit from this movement of goods and in the summer of 2020, Uzbekistan opened a trade route from China, which bypasses Kazakhstan.

Road-rail combined alternative

It is the China-Europe-China route that traditionally accounts for the bulk of transit through the Republic of Kazakhstan. Before June 2020, Chinese goods were delivered to Europe in one of three ways: from China directly to the Russian Zabaikalsk; via Mongolia to Russia, or from China through Kazakhstan to Russia. Then goods are sent to Europe primarily through Belarus.

«We have further amplified our presence in this sector in the last four months, accounting for 91% of the traffic seen on the Kazakh route while the other two routes suffered a sharp decrease over the same time period and in absolute terms,» said the chairman of the board of KTZ, Sauat Mynbayev, at the June meeting of the management council of the national fund Samruk Kazyna JSC.

According to Mynbayev, in the first four months of 2020, 123,800 TEUs passed from China to Europe through the Kazakhstani stations Dostyk and Altynkol, which drove a 48.5% increase compared to the same period last year. Some 7,900 TEUs passed through Russia (-15.2%) with 2,600 TEUs (-65.1%) transiting Mongolia. Another route from China is via the Kazakh Saryagash to the Central Asia (CA) countries and Afghanistan. From January through April 2020, 65,000 TEUs were delivered to the Central Asian republics plus Afghanistan (+26%).

Kazakhstan’s neighbors also decided to start competing for access to the shipment of goods to Europe and CA. On June 5th, the first container train departed from the Dongchuan logistics center in Lanzhou (Gansu province, China) to Tashkent, Uzbekistan. The route is multichannel: goods are delivered to Kashgar by rail before being transferred to trucks that go to the Kyrgyz Osh and then on to yet another train. The container train delivered 230 tons of electrical appliances worth $2.6 million to Tashkent before returning to China with 525 tons of Uzbekistani cotton fabric valued at $1 million. The new route is expected to become the first part of the international China-Europe corridor which bypasses Kazakhstan and Russia. The second part of the route will pass through Turkmenistan, Azerbaijan, Georgia and Turkey.

Dmitry Abdullayev, CEO of KTZ Express, a container transit operator, noted at the Magistral online forum that the alternative China-Kyrgyzstan-Uzbekistan route passes through difficult terrain and currently requires cargo transfer. The speed of cargo passage from Kashgar to Tashkent will be 12 days versus 1.5-2 days from Altynkol to Tashkent.

Is there a threat?

«The new route to Central Asia which bypasses Kazakhstan is unlikely to operate in winter due to the difficult terrain and weather conditions,» according to Zeinolla Akhmetzhanov, Deputy Director of the Department for the Development of Transit and Transport Logistics at the Ministry of Industry and Infrastructure Development of Kazakhstan (MIID). The need to pay for two cargo transfers (i.e., from train to trucks and back again) also negatively impacts the route’s appeal. He considers bureaucratic issues with the passage of several interstate borders to be another barrier to adoption.

Saut Shynybayev, Deputy Secretary General of the Trans-Caspian International Transport Route (TITR) international association, believes that the alternative route «has a chance to become attractive» despite only «minuscule» cargo volumes from China to date. He expressed his point of view during the Magistral forum.

«A significant threat of the outflow of transit cargo may arise if those countries build a China-Kyrgyzstan-Uzbekistan railway,» he said.

Moreover, in his speech Shynybayev noted that in Kazakhstan, due to congestion at Altynkol and Dostyk, the owners of goods headed for CA also have to resort to reloading cargo for onward road transport.

How to expand the bottleneck of Kazakhstani transit

Alternative routes do not pose a threat to Kazakhstani transit so long as the modernization of transport infrastructure in the country continues, according to Wu Jin Yu, director of the International Coordination Center for China-Europe Container Block Trains of the PRC Association of Transport and Communications. The fact is, rapid growth of transit has already led to train congestion and restrictions on cargo transportation and transfer at Dostyk and Altynkol and if traffic keeps growing, then corresponding issues will multiply.

«Over the past couple of months, there has been a large number of trains at Kazakhstani border crossings resulting in congestion. There is a shortage of railway vehicles at those stations,» observed the Chinese expert, suggesting that Kazakhstan should promptly resolve these issues.

The government of the country has already announced plans to raise the competitiveness of Kazakhstani rail transit corridors by minimizing administrative barriers, optimizing tariff policy, modernizing infrastructure and improving container service, which includes increasing the speed of container trains. To maintain the appeal of the Kazakhstani route, customs inspection of container trains was canceled. This measure should increase the speed of cargo passage.

It should be noted that from January to June of this year, due to congestion at Altynkol and Dostyk, the share of freight that transited Kazakhstan en route to Europe from China and back decreased to 89% from 91% as was seen from January to April. However, the growth of transit through Kazakhstan continues as was seen from January to June on the order of 261,100 TEUs, which were shipped via this route (+96%). Volume of transit from China to Central Asia via Kazakhstan amounted to 106,800 containers during this same time period (+32%).

The only route through Kazakhstan where traffic has decreased is the Far East-Central Asia corridor. This route saw a decrease of 19% compared to 2019, or 41,700 TEUs. «This is because we have re-oriented this cargo flow through the China-Central Asia-China route. We have signed a direct contract with Korean manufacturers of auto parts and we transport cargo through the territory of China and Kazakhstan to the General Motors plant in Uzbekistan,» explained Abdullayev.

In general, transit of containers through Kazakhstan in the first half of 2020 grew by 54% (to 450,200 TEUs).

Everything for speed, everything for transit

While Kazakhstan’s neighbors are only planning to increase cargo transit that bypasses Kazakhstan through Azerbaijan, Turkey and South/Eastern Europe, Kazakhstan is already carrying out regular transportation in that direction. Rakhmetolla Kudaibergenov, Secretary General of the TITR, noted that the association provides end-to-end tariff rates and services along the entire route in a «single window» manner. Containers pass the 3,128 km long section from Altynkol to the port of Aktau in three days. Since April 16, 2019, a feeder vessel of the Kazmortransflot shipping company has been delivering 225 containers to the port of Baku weekly, then the cargo is sent from there by rail to Georgia and Turkey. The total travel time from China’s Xi’an to the Turkish Istanbul takes 12 days.

Abdullayev also noted the regularity of transit movement. A container train departs from Altynkol to Baku every Saturday with a feeder ship running from Aktau to Baku every Wednesday regardless of load size. The feeder from the port of Turkmenbashi to Baku runs irregularly and, therefore, he doesn’t see any risks for the Trans-Kazakhstan route from the alternative routes when comparing cost and time of delivery.

Nevertheless, the travel time of containers could be reduced, the CEO of KTZ Express admits.

«In Russia, the speed is higher so our reference point is the Russian Federation. Their speed is 1,200 to 1,500 km per day and so, we are gradually increasing our speed,» he said.

Greater speed will also help minimize theft from containers. Incidents of shrinkage were noted in 2018 when goods were stolen from Chinese containers heading to Europe. Last year, theft decreased thanks to an increase in the speed of train travel and a reduction in the number of stops at stations as well as the implementation of video surveillance at cargo transfer terminals.