The New Silk Road

November 19th, 2013 11:31 am Category: Optimization, by: John Hughes

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I read an interesting article in the New York Times concerning a shift in the physical route of the supply chain running between China and Europe. Until recently, trains have played a very small part in the shipment of manufactured products from the Far East to Germany, Holland, France, etc. However, a number of recent developments have caused a number of large companies to begin to shift their supply chains away from maritime to rail-based modes.

Four major developments have spurred this increasing use of trains.

  1. Labor costs in Eastern China along the coasts have been rising. As a result, if they have not abandoned China all together, many manufacturers have shifted their production facilities to more inland locations to the West and thus marginally closer to Europe. However, adding an extra truck-leg to their supply chains has increased the cost, duration, and complexity of moving their goods to market.
  2. Taking full effect in January 2012, Kazakhstan, Russia, and Belarus created a customs union that eliminated time consuming and costly customs inspections at their mutual borders. This was little noticed by the rest of the world, but has shaved days off of the overall rail transit time across central Asia by removing delays due to bureaucratic paperwork.
  3. Kazakhstan is rapidly building new rail routes through its territory. This has the obvious effect of improving the time and reliability of rail transit across that nation. However, this has had the secondary effect of spurring competition from Russia as that country has begun to make infrastructure improvements to its Trans-Siberian railway.
  4. The Kazak rail authority has implemented processes and policies to give certain trains crossing their territory priority over other traffic. These are given a kind of express-status, whereby fresh operating personnel and locomotives are available at specific stops along the way. Also, guards board the train, sometimes riding on the tops of the rail cars, to ‘send a message’ and insure that goods are not stolen in transit.
The Silk Road in the 1st century. Wikipedia

The Silk Road in the 1st century. Wikipedia

Certainly there are many impediments that still exist, which tend to slow the movement of goods by this new Silk Road. The greatest one of course is the fact that the gauge of the rail lines in territories of the ex-Soviet Union are different than the standard used throughout the rest of the world. For this reason, when rail shipments reach the Chinese-Kazak or the Belarus-Polish border large cranes must shift containers between trains designed for the different rail widths.

One of the companies who have begun using this rail option in their Supply Chains is Hewlett-Packard. They report that from their manufacturers in Western China to Europe, the marine route (around India and through the Suez Canal) is 5 weeks whereas the rail-route requires 3 weeks. Although the sea route is about 25 percent cheaper than over-land, the cost of the additional transit time is substantial.

I think the take-away from all of this is to realize that Supply Chains are constantly evolving as a result of changing circumstances. Companies must always re-evaluate their networks and be ready to take advantage of changing conditions so as to optimize their processes and organization.

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