HSR “EURASIA” A FUTURE OF EU-EAEU-CHINA COOPERATION IN TRADE AND RAILWAY TRANSPORT

Vladimir Kosoy

• The corridor shall be

created step by step.

"Moscow-Kazan" high-

speed trunk line will be the

first stage

• Prior to creation of the

whole transit corridor, the

existing infrastructure can

be used

• The greatest efficiency for

the concession participant

will be given by freight

traffic. For the state –

passenger traffic

2

CREATION OF HIGH-SPEED FREIGHT-PASSENGER RAILWAY VIA RUSSIA

Demand, mln tons Capacity mln tons

2020 by existing infrastructure(based on forwarders’ interviews) 2,4 < 1,4

2035 by new freight-passenger HSR line (modelling) 5 - 6 > 10

MAIN TRENDS IN FREIGHT TRANSPORT BETWEEN CHINA AND THE EU FOR THE PAST 10 YEARS

3

0%

50%

100%

150%

2007 2016

0%

50%

100%

150%

2007 2016

Tons (millions) Euros (billions) (in 2016 prices)

101 110 354

515

Over this 10-year period, trading has increased 9% by weight and 46% by value

In the composition of all freight transport between China and the EU, railroad accounts for the smallest percentage,

yet shows the fastest growth

Composition by weight Composition by value

By value of goods transported, shipping has no monopoly. This fact only further highlights the

potential demand for high-speed freight transport by rail.

Euro/kg (in 2016 prices) 2007 2016 2016/07

Shipping 2,4 3,1 131%

Railroad 2,1 10,1 481%

Trucking 5,4 9,3 172%

Air transport 54,8 70,7 129%

Rail transport has begun to occupy the middle competitive niche between aviation and shipping

Source: Eurostat, analysis performed by CEI

Source: Eurostat, analysis performed by CEI

Source: Eurostat, analysis performed by CEI

2007 2016

Air 1.5% 1.8%

Trucking 5% 3%

Railway 0.8% 0.9%

Sea 92% 94%

0%10%20%30%40%50%60%70%80%90%

100%

2007 2016

Air 24% 28%

Trucking 9% 6%

Railway 0.5% 2.1%

Sea 66% 64%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

LONG TERM FORECAST OF TRADE BETWEEN CHINA AND EU

Growth in % GDP to previous year Dynamic trading scenario in thousands of tons

Dynamic trading scenario in millions of euro • According to the volume of trade between China and the

EU in the base year, by 2030 trade levels are expected to reach just under 150 million tons and 843 billion euro.

• In the event of crisis, trade is expected to be 30% lower. In the event of accelerated technologic progress, trade will increase by 10%.

• Exports in tons from the EU to China will exceed exports from China to the EU by 2020. The cost gap between exports from the EU to China and exports from China to the EU will gradually close.

Source: calculations of IEC

012345678

20

16

20

19

20

22

20

25

20

28

20

31

20

34

20

37

20

40

20

43

20

46

20

49

Scenario ofeconomic crisis inthe pacific rim

Base scenario

Scenario oftechnologicalrevolution

4

58.6 62.7 69.5 76.9 92.2

48.9 54.2 61.4 71.0

121.3

0.0

50.0

100.0

150.0

200.0

250.0

300.0

350.0

2016 2020 2025 2030 2050

Export from EU toChina

Export from China toEU

Scenario oftechnologicalrevolution

Scenario of economiccrisis in the pacific rim

329.2 374.0 433.0 500.6 856.8 160.6 201.5 262.8

342.8

933.8

0.0

500.0

1000.0

1500.0

2000.0

2500.0

2016 2020 2025 2030 2050

Export from EU toChina

Export from China toEU

Scenario oftechnologicalrevolution

Scenario of economiccrisis in the pacific rim

Source: calculations of IEC

THE GEOGRAPHIC COMPOSITION OF TRADE BETWEEN EU COUNTRIES AND CHINA IS HIGHLY CENTRALIZED

Germany 29%

Benelux 19%

Great Britain 12%

Italy 8%

France 8%

Spain 5%

East Europe 9%

Others 10%

CHINA’S MAIN TRADE PARTNERS IN THE EU

East 65%

North 12%

West 7%

Northeast 6%

South 6%

Central 4%

THE SHARE OF THE MACROREGIONS OF CHINA IN TRADE WITH EU

• Currently, routes between

Germany/ Benelux and

eastern China create the

greatest demand for freight

transport

• A significant proportion of

imports from the EU is

concentrated in the provinces

near Beijing

• The largest center of online

trading is concentrated in the

provinces near Guangzhou

• The central and western

provinces show the largest

growth rates of exports

Source: Eurostat Source: National Bureau of Statistics of China

5

0

200

400

600

800

Sea Air Railway HSR

Tariff Working capital

0

200

400

Sea Air Railway HSR

Tariff Working capital

0

200

400

600

Sea Air Railway HSR

Tariff frozen capital

0

100

200

300

400

500

600

700

Sea Air Railway HSR

Tariff Working capital

0

1000

2000

3000

4000

5000

Sea Air Railway HSR (highspeed

railway)

Tariff frozen capital

GENERAL TRANSPORTATION COSTS:

THE INDICATOR OF COMPETITIVENESS

GENERAL TRANSPORTATION COSTS =

tariff + inventory costs (“frozen” capital)

IPhone 7

Jeans

Audi Q3

Angle iron

Cheeses 2430

10700

For the transport of

expensive electronics,

“classic” rail falls behind air

transport. High-speed rail

in this sector occupies the

leading position.

When the necessary

conditions are met for

transport, even ‘classic’

rail can compete with

sea shipping in the

medium-priced clothing

sector

2400

For the transport of

automobiles and automobile

components, ‘classic’ rail

can also be competitive with

sea shipping

2351 For the transport of metal

construction materials

neither classic rail nor high-

speed rail can compete with

sea shipping

In the transport of food

stuffs, high-speed rail can

only compete with air

transport

1986

Source: research performed by IEC frozen

frozen

frozen

frozen 6

RUSSIAN IMPORT CAN BE A KEYSTONE FOR EURASIAN RAILWAY TRANSIT

CONCERNING DISPROPORTIONS IN EU-CHINA TRADE

WESTBOUND 1000 Tons BLN Euro EASTBOUND MLN Tons BLN Euro

CN to FR 720 8 FR to CN 256 3

RU to FR 0,… 0,… FR to RU 405 5

TOTAL 720 8 TOTAL 661 8

If scheduled freight trains would carry European export not only to China but also to Russia Westbound and Eastbound demand will be equalized at least on the half distance to China

Modelling of modal shift of freight flows to speed trains

7

POTENTIAL LEVELS OF TRANSPORT WITH HIGH-SPEED RAIL “EURASIA”

8

-6

-4

-2

0

2

4

6

8

0

5

10

15

20

25

30

0 500 1000 1500 2000 2500 3000 3500 4000

Op

era

tio

nal p

rofi

t, b

illi

on

s o

f e

uro

Fre

igh

t tr

aff

ic, m

illi

on

s o

f to

ns

Tariff, euros by 1 ton

Freight traffic, millions of ton Operational profit, billions of euro

The most optimal weighted-average tariff is within the 1300-1600 euro per ton range. For freight traffic, the optimal level is within 5 to 10 million tons with profit between 6,4 – 6,5 billion euro

Indicators of

economic efficiency

of the Project

NPV of the Project, trillions rub.

25,8

IRR of the Project, %

5,2

PBP of the Project, years

23,6

Source: calculations of PwC

Source: calculations of IEC

THE CAPACITY OF FREIGHT TRANSPORT BY HSR «EURASIA CAN

INCREASED WITH 5.3 MLN TONS IN 2027 TO 11.9 MLN TONS IN 2050

9

Forecast of freight transport by HSR «Eurasia» on the directions, mln tons

3.4 3.9 4.7

5.6 6.7

7.9 0.9 0.9

1

1

1.1

1.2

0.5 0.5

0.8

1

1.3

1.6

0.4 0.5

0.6

0.7

0.9

1

0

2

4

6

8

10

12

14

2027 2030 2035 2040 2045 2050

China-EU Japan-EU Russia-EU Russia-China South Korea-China

Source: calculations of PwC

OTHER GLOBAL TRADE ROUTES WHICH CAN INCLUDE HSR “EURASIA” CAN

ENHANCE GROWTH OF EUROPEAN TRADE

CHINA – BRAZIL

INDIA – EUROPE

HARBIN – IRAN

KOREA – EUROPE, KOREA – IRAN

8 days 4,5 days

Seoul - Frankfurt: 10 days Seoul - Tehran: 12 days 6 days 10

NECESSARY CONDITIONS FOR LONG-TERM FUTURE GROWTH IN RAIL TRANSIT

(ACCORDING TO INTERVIEWS CONDUCTED WITH FREIGHTING AND SHIPPING COMPANIES

11

Transparency

• One window of control for the entire freighting process

• Simplification of tariff system

• Electronic documentation

Reliability

• Trains which follow tight schedules and accurately

• Online monitoring of the condition of the freight. Monitoring of the terms of transportation. Ability to inform the client of the status of transit online

Diversity

• Diversity of the types of containers- shipping containers, refrigerated, isothermal, air and sea containers

• Diversity of services (mail/ freight, from door to door, between stations, 4PL, etc.)

2. Active communicable politics directed towards promoting rail as an optimal alternative to other forms of transport, considering joint transportation expenditures for freight handlers Now logistics companies do not offer transit by rail, as they do not assess customer costs, associated with negotiable lending

1. Provision of basic conveniences , the absence of which causes freighters to turn down the benefits of rail transport, such as optimal correlation of prices and delivery times

ONE WINDOW- IMPLEMENTATION OF FREIGHT TRANSPORT BETWEEN EU, RUSSIA, CENTRAL

ASIA AND CHINA

12

RZD

Chinese railways

KTZ

DB

Polish railways

Formation of a international consortium for organizing container-based (and potentially high-speed) freight transit, transparent tariff on freight, and the provision of accelerated, punctual train traffic.

United supplier of scheduled rail freight

services

This analogous initiative is proposed within the limits of the Central Asian (CAREC) corridors under the auspices of the Asian Bank of Development Belarusian railways

SNCF

Moscow, Gilyarovskogo st. 57,

http://infraeconomy.com/en/

Vladimir Kosoy President Infrastructure Economics Centre VVKosoy@gmail.com mobile: +7 985 999 08 16 office: +7 499 340 20 94