Modern rail cars revive fabled Silk Road from China to Europe

Switching from ocean to rail freight, companies expect the inventory costs and lead times to come down

Azamat Kulyenov, a 26-year-old train driver, slid the black-knobbed throttle forward, and the 1,800-ton express freight train, nearly a half-mile long, began rolling west across the vast, deserted grasslands of eastern Kazakhstan, leaving the Chinese border behind. Dispatchers in the Kazakh border town of Dostyk gave this train priority over all other traffic, including passenger trains. Specially trained guards rode on board. Later in the trip, as the train travelled across desolate Eurasian steppes, guards toting AK-47 military assault rifles boarded the locomotive to keep watch for bandits who might try to drive alongside and rob the train. Sometimes, the guards would even sit on top of the steel shipping containers.

The train roughly follows the fabled Silk Road, the ancient route linking China and Europe that was used to transport spices, gems and, of course, silks before falling into disuse six centuries ago. Now the overland route is being resurrected for a new precious cargo: several million laptop computers and accessories made each year in China and bound for customers in European cities like London, Paris, Berlin and Rome.
Hewlett-Packard, the Silicon Valley electronics company, has pioneered the revival of a route famous in the west since the Roman Empire. For the past two years, the company has shipped laptops and accessories to stores in Europe with increasing frequency aboard express trains that cross Central Asia at a clip of 50 mph. Initially an experiment run in summer months, HP is now dispatching trains on the nearly 7,000-mile route at least once a week, and as often as three times a week when demand warrants. HP plans to ship by rail throughout the coming winter, having taken elaborate measures to protect the cargo from temperatures that can drop to 40 degrees below zero.

Although the route still accounts for just a small fraction of manufacturers’ shipments from China to Europe, other companies are starting to follow HP’s example. Chinese authorities announced Wednesday the first of six long freight trains this year from Zhengzhou, a manufacturing centre in central China, to Hamburg, Germany, following much the same route across western China, Kazakhstan, Russia, Belarus and Poland as the HP trains. The authorities said they planned 50 trains on the route next year, hauling $1 billion worth of goods; the first train this month is carrying $1.5 million worth of tyres, shoes and clothes, while the trains are to bring back German electronics, construction machinery, vehicles, auto parts and medical equipment.
DHL announced on June 20 that it had begun weekly express freight train service from Chengdu in western China across Kazakhstan and ultimately to Poland. Some of HP’s rivals in the electronics industry are in various stages of starting to use the route for exports from China, freight executives said.

Journeyed across

The Silk Road was never a single route but a web of paths taken by caravans of camels and horses that began around 120 B.C., when Xi’an in west-central China - best known for its terra cotta warriors - was China’s capital. The caravans started across the deserts of western China, travelled through the mountain ranges along China’s western borders with what are now Kazakhstan and Kyrgyzstan and then journeyed across the sparsely populated steppes of Central Asia to the Caspian Sea and beyond.

These routes flourished through the Dark Ages and the early medieval period in Europe. But as maritime navigation expanded in the 1300s and 1400s, and as China’s political centre shifted east to Beijing, China’s economic activity also moved toward the coast. Today, the economic geography is changing again. Labour costs in China’s eastern cities have surged in the past decade, so manufacturers are trying to reduce costs by moving production west to the nation’s interior. Trucking products from the new inland factories to coastal ports is costly and slow. High oil prices have made airfreight exorbitantly expensive and prompted the world’s container shipping lines to reduce sharply the speed of their vessels.

Slow steaming cuts oil consumption, but the resulting delays have infuriated shippers of high-value electronics goods like HP’s. Such delays drive up their costs and make it harder to respond quickly to changes in consumer demand in distant markets.
Trucking goods from inland factories to the ports of Shenzhen or Shanghai on the coast and then sending the goods by ship around India and through the Suez Canal takes five weeks. The Silk Road train cuts the shipping time from western China to retail distribution centers in western Europe to three weeks. The sea route is still about 25 percent cheaper than sending goods by train, but the cost of the added time by sea is considerable.

By switching from ocean freight to rail freight, “the inventory costs and lead times will see a lot of improvement,” said Jonney Shih, the chairman of Asustek, the world’s third-largest player in the global market for tablet computers, after Apple and Samsung. His company, too, has begun to experiment with the Silk Road.

Best known in the West as the Nationalist capital of China during World War II, Chongqing is now a smoggy metropolis, its city center perched on a bluff wrapped in a bend of the Yangtze River. The urban population of Chongqing is approaching 13 million, while an additional 15 million live in nearby rural areas that also lie within Chongqing’s administrative borders.

Deng Xiaoping began opening China to foreign investment in the late 1970s, and for the next quarter-century Chongqing was a place that people fled, seeking better-paying jobs on the coast. But in the last few years, it has emerged as an industrial hub of western China, attracting multinationals like the chemical giant BASF and the Ford Motor Co. HP took the first steps to move production west from Shanghai four years ago. Now its contractors employ 80,000 workers in Chongqing, making 20 million laptops and 15 million printers a year.
Foxconn, the big Taiwanese electronics contract manufacturer, has twice as many workers in nearby Chengdu, mainly making Apple iPads, and has been shifting production there from Shenzhen.

Tony Prophet, a senior vice president at HP, said the company began thinking about a rail route west almost as soon as it started production in Chongqing. The company, Prophet said, was pursuing a strategy of moving products, not people: Instead of encouraging a migration from inland provinces to coastal factories, HP would manufacture in the inland provinces and then ship the products from there.

Rapidly building

Kazakhstan, which already has 8,700 miles of rail, is rapidly building new rail routes to its borders with China in the east and Turkmenistan to the south. One goal is to connect China through Turkmenistan to Iran, assuming that the political situation in Iran improves, said Kanat K. Alpysbayev, the vice president for logistics at Kazakh National Railways. The Kazakh rail authority is also negotiating to help fix and manage the rail network in Afghanistan, where Chinese companies are building a vast copper mine.

The effort to move more cargo from China to Europe by rail received considerable help from a development so obscure that few outside the transport sector initially noticed it. Kazakhstan, Russia and Belarus created a customs union that took full effect in January 2012, eliminating lengthy inspections at their borders with one another. The measure saved days of transit time and greatly reduced pilferage.

The Kazakhstan rail initiative has spurred regional competition. On June 21, President Vladimir V Putin of Russia announced a $ 43 billion infrastructure plan focused heavily on improving rail links to China, notably through improvements to the trans-Siberian railroad. The competition is ultimately a positive for manufacturers that make goods in China, like HP. The journey of HP computers and accessories begins in Chongqing with workers like Zheng Xiaoxue. A cheerful 18-year-old, she was raised by her grandparents on the outskirts of Chongqing; her parents had migrated to work at a plastics factory near Hong Kong in Shenzhen, where wages and benefits now reach $500 a month.

Once the problem of the transposed numbers was cleared up, the train crossed into Kazakhstan. An overhead crane and two cranes that looked like cottages on wheels lifted the HP containers off the Chinese train and loaded them onto flat cars with wider wheel gauges in the rail yard in Dostyk on the Kazakh side of the border. Kazakhstan, Russia and Belarus, all traversed on the trip, have wide rails inherited from the Soviet rail system. China and Europe have narrower rails, so cargo transfers take several hours.

Kulyenov, a freight train driver fourth class who dreams of being promoted someday to reach the rank of passenger train driver first class, considered himself lucky to be driving the train. Sitting in the cab of a new diesel locomotive, he waited in the Dostyk rail yard for a messenger in a bright yellow safety jacket to bring him a computer printout of his cargo. When the printout arrived, he carefully made notations in the locomotive’s purple velvet-bound log book, a concession to tradition, then typed many of the same weight details into a dashboard computer that helps precisely calibrate the engine for pulling each load.

When the signal lights ahead turned from red to green, Kulyenov moved the huge train smoothly out of the yard. As the train moved forward, the lattice of train tracks in the rail yard narrowed to three, then two and then one that headed off across the flat grasslands of the steppe. Kulyenov and the assistant driver next to him, Alexander Nemtzev, 31, glanced around for the small flock of two-humped Bactrian camels that live near the rail line. They were nowhere in sight.

A few Kazakh houses lay long and low against the wind, with whitewashed walls, tile roofs and mastiffs prowling out front. Herders on horseback, wearing pointy woolen knit caps, tended flocks of sheep, cattle and horses. Kulyenov marvelled at how quickly freight trains headed in the opposite direction moved onto sidings to make way for his high-priority shipment.