Subsidies will be fully eliminated
The Global Times (Huanqiu shibao), the Chinese newspaper, published the results of survey of rail freight users on the possible abolition of government export subsidies for transportation.
To recap, the Chinese government has been paying subsidies for railway transportation since 2012 to promote the export of Chinese products. This was especially important for remote Chinese provinces. The subsidies allowed to reduce rail freight rates significantly – from an average of $9,000 to $5,000/FEU with further stable rates at $5,500/FEU. In other words, subsidy volumes for different directions stayed at the level of $3,000 to $5,000 per container for a long time.
In the past two two years, the Chinese government has been cutting the subsidies against the growth in demand. Currently, the Chinese rail subsidies stand at $1,000 per container.
The rates will increase, while the demand will not slow
According to the article, it’s most likely that the subsidies will be fully abolished in 2022, yet this will not affect the demand in rail freight sector greatly.
As TELS experts comment on the situation, the challenges in the maritime transport industry caused by the pandemic resulted in a serious increase of sea freight rates and a significant decrease in transportation reliability by this mode. Consequently, the demand for railway transport from China has increased. Since: a) the rates for rail and sea freight have become equal; b) full normalization of the sea market is not expected until the end of the year; c) global economy and trade are recovering, the demand for rail freight transport as well as the rates will only be growing.
There is no doubt that the rates for rail freight transport from China to Russia and Europe will increase. This will happen not only because of the expected abolishment of Chinese subsidies, but also because the Russian Railways are boosting the rates for rail freight by 12% in accordance with the new transport strategy adopted by the Russian Federation.
According to Xinhua news agency, the number of China-Europe freight train trips increased by 22% year-on-year hitting 15,000 in 2021. At the same time, the number of handled containers increased by 29% amounting to 1.46 million TEU.