China is one of the biggest economic partners of the European Union, the two parties trading on average EUR 1 billion a day. According to Eurostat, the trade balance between the two big economies was of EUR 176 billion in 2017. The main categories of imports and exports from China (classified based on imports and exports through SITC groups – standard international trade classification) include “machines and vehicles”, “other manufactured goods” and “chemicals”. Together, these categories represent over 85% of EU exports and 97% of imports in 2017. In EU exports to China, the “machines and vehicles” category (54%) has been approx. three times higher than “other manufactured goods” (18%), while imports from China have been represented by “machines and vehicles” with 52% and by “other manufactured goods, with 40%.
Pamela Luica is talking with… Mr. Wilhelm Patzner, FELB’s CEO
Briefly, China is the biggest source of imports for EU and ranks second as export market. EU’s main imports from China are represented by industrial and consumption goods, machines and equipment, shoes and clothes. Also, EU’s main exports to China are represented by machines and equipment, automotive vehicles and chemicals.
Transport is an essential element in the commercial activity of a state and when two continents are involved, the whole system has to work properly to support economic development. From infrastructure to services and agreements on the transit customs procedure and other elements necessary to cross-border transit, operators must ensure a transport flow to meet customers’ demands while efficiently approaching these challenges in creating logistics chains from taking over the freight to delivering it.
FELB is one of the most important players in the market with 7,000 containers and train frequency adapted to markets, customers and future requirements.
By delivering efficient, quality and rapid transport services, after several years of preparation and negotiations to achieve necessary agreements, starting with 2007, FELB has managed to meet its objective of bringing Asia closer to Europe: the company launched the first pilot train for freight transport between the two continents with a transit time of 28 days. In time, betting on the continuous development of products and alternatives for customers, reducing transit time has become a must and consequently, the company has managed to cut the travel time to 12 days. Focused on flexibility and quality, FELB continues its development with two new objectives: 10 days between Asia and Europe, more frequent services and more destinations, especially to Europe.
FELB mostly uses the Trans-Siberian Railway to provide transport services between Europe and Asia. However, this year, the company tested container transport on the Trans-Caspian Corridor, from Poland (Sławków) to China (Urumqi), a route with a major development potential. Carried out in collaboration with Polish operator PKP LHS, the test was a success providing a shorter travel route and, therefore, less time for travel, compared to maritime transport, and a lot cheaper, compared to air traffic. The International Trans-Caspian Transport Route links China to Europe through Kazakhstan, the Caspian Sea, Azerbaijan, Georgia to the Black Sea and Ukraine.
FELB also launched a weekly Full Container Load service with direct connection to Manzhouli/Zabaikalsk (Russia-China border), one of the cheapest and fastest routes in the south of China, to Warsaw in 18 days, and to Hamburg/Duisburg, in 20 days. Moreover, FELB began to provide shipping services on this route to Italy and to new destinations, such as Sweden and Great Britain. This service is possible through different intermodal lines which allow reducing costs and keeping transit times reliable. Also, FELB plans new projects to reduce transit time to other European countries. From Changsha (China) to Hungary (Budapest), FELB set a new rail transport service with a transit time of 18 days and a planned frequency for weekly service. For FELB, Budapest will become one of the important traffic points from Central Europe, through Dobra cross-border point, from Ukraine, providing rapid railway services to the Czech Republic, Austria and the Baltic States. Countries such as Romania, Serbia, Bulgaria and Turkey could benefit from such a developed service, as many railways could be used for the delivery of goods to these destinations.
In this interview, FELB’s CEO, Mr. Wilhelm Patzner, is offering our readers a bird’s-eye view on what the transport system between Europe and Asia means talking about the railway freight transport market and its competitiveness, the importance of providing efficient and rapid transport services with a focus on quality, traffic and passengers’ requirements.
With more than a decade of experience in transport services on Europe-Asia axis, how do you describe the rail freight market on this route?
Wilhelm Patzner: On one side you can expect stability and selection in the Chinese markets. However, only a few of the companies which birthed out of the rail initiative will remain as stable solutions. On the other side, in Europe, you can expect many new opportunities which have been stimulated by the growing market. For example, the Trans-Caspian route has serious potential to transport goods to China and bypass sanctions located in Russia. Really, rail is only a part of the transport logistics market, but we see that the biggest part of logistics industry is beginning to use it as a viable option.
What main features do you think the two continents are characterised by taking into account their industry, trade relations, and other factors which truly involve rail transport?
Wilhelm Patzner: The biggest feature that differentiates them from each other is different kind of cargo flows. For example, from Asia to Europe mostly electronics and clothes are transported from China. From Europe, technology, automotive parts, engines, furniture and high quality raw materials are the main cargos. Basically, for rail logistics, from China everything which is made through cheap production costs, need urgent transport and is valuable, is sent via rail. In the future, from EU to China there is potential for the food and beverage industry to transport goods. These are restricted at the moment in China, including items such as batteries and other dangerous cargo. However, in 2017 we were able to transport both! We transported dairy products from Switzerland to China, and we also created a service option for dangerous cargo to be transported to Vostochny in Russia and then by sea to and from China, thus avoiding the Chinese restrictions of having dangerous goods transported by rail!
Currently, rail and maritime transports are in competition, with various market analyses comparing the two modes of transport relating to travel time and freight volumes. What is your opinion regarding rail freight transport versus maritime transport between Europe and Asia?
Wilhelm Patzner: It is really difficult to say that rail is competing against sea freight. Rail freight may only have an advantage in specific instances like transit times and inland delivery. For example, locations like Central Europe and Central Asia can only be reached via rail with little to non on-carriage options. But in general, the competition level depends mostly on rates, transit times and cargo types. Of course, you can always say that there is competition for having your own transport modality be the dominant option for customers and freight forwarders. In the past, we have made active efforts to educate freight forwarders about the benefits of rail and to include it as a viable option into their service portfolios. Besides the transit time benefits of railway transport, there is the added benefit of shorter capital commitment time. Thus, a customer would not have to wait over a month for their goods and consequently could transport smaller amounts of cargo/products more often and have better cash flow for their business finances.
On the East-West axis, rail freight transport has significant benefits over other transport modes both in terms of cost and time. When compared with maritime transport, can railways achieve a higher performance in the near future? In your opinion, what are the ways to increase rail transport attractiveness?
Wilhelm Patzner: Yes, it does, the real benefits of rail come from it being a perfect mid-point in terms of price and transit time. Does cargo need to be transported quickly but air transport is too expensive? Then rail fits all the requirements. This is becoming more and more true as recent rail developments have improved options, transit times as well as costs over the past few years. 10 years ago the transit time between Asia and Europe took between 26-28 days, and currently takes just over 2 weeks; rail is quickly pulling ahead of the competition with the other modalities. Of course, there are some restrictions to unbridled growth due to different types of cargo having different requirements and priorities. For example, rail will probably never be a good solution for mass and low value cargo. In these terms you could say rail is more of a serious competitor against air freight for goods that have a higher value or are time sensitive like food and beverage products. Against air freight there is a considerable lower transit time difference but considering the 10-day transit time on Asia-Europe route, rail has a great potential. We have even gotten our train trips down to 12 days for some journeys. This is due to the infrastructure improvements in the past few years. In the future you will see even shorter transit times, higher frequencies and more inland destinations in Europe for rail logistics.
How do you see the freight transport market demand and competitiveness level between the two continents?
Wilhelm Patzner: From an industry and rail operator’s perspective, the freight transport market in Europe is more willing to use rail to China and other Asian countries in a stable a continuous way. For example, we have customers in the automotive industry who have steadily used our service for years. We are consistently able to offer them constant service and rates and have created a good business partnership over the years. On the other side of the world in Asia, business in China has shown to be more seasonal and spot level based on changing rates, routes, subsidies, competition etc. However, the electronics cargo sector is the exception with steady customers needing constant services. Speaking of competition, yes, China has had a massive growth of competition in recent years. Many companies have sprung up from the subsidies and many new changes to the infrastructure have taken in place. There are definitely pros and cons to this. The downsides being, higher competition for customers, more packed border stations and occasional shortages of containers. But the benefits are only increasing. We have seen a massive growth in our customer base due to a higher variety of options for transport in terms of both location and cargo contents. Transit times have been reduced as well as mentioned earlier.
From a train frequency of 1 per week, to 6 per week, and with a great travel time reduction (to 12-14 days), between the two continents, FELB reached a position of “one of the important players in the market”. What is the strategy behind this success and what are the modalities to continue this story?
Wilhelm Patzner: The strategy of our company has always been to focus on operational excellence above. This is why 80% of our employees are dedicated to operational tasks and to ensure the stable and quick services that we provide. Looking at the rail logistics market in 2018 you can see many new companies and platforms that have developed as a result of the Chinese rail initiative. However, FELB is on the market since 2007 we were already a growing and stable company before the initiative which gave us a serious head-start in our expansion. Another main factor in our success is our never-ending pursuit for new products and better options for our customers. For example, earlier in 2018 we transported a test container via the Trans-Caspian route from Sławków, Poland to Urumqi in China. The goal of the self-funded test was to see if cargo transport via this route was a stable and viable option for us. Due to the first container’s success and the promise of a 12-13-day transit time from Poland to the Chinese border, we will begin working on offering this route as an option for transporting food and beverages to China via rail in order to bypass the sanctions that currently existing in Russia.
Of course, the road to our current success has not always been a smooth one. Most recently, in 2017 we saw a large influx of traffic via rail due to Chinese developments, border construction, high volumes and serious congestion issues at the Russia/China border and the border between Russia and Europe. However, we were able to negotiate different options and have returned our services to 16-18-day transit times. Even a 10-day transit time is perfectly viable and we are making this our main target for the future. Of course, the infrastructure between the two continents will need to develop further for this to be possible. But as it is a realistic future we are continuing to develop our own services in order to be ready when even faster transit times are possible!
What can you tell us about FELB’s development strategy – from new services to price policy, travel time, and new offers? How will it strengthen the company’s position on the market and in what way will it contribute to the increase of rail transport share on the East-West transport axis?
Wilhelm Patzner: As discussed before, we have a huge focus on operations and product development. But also, FELB has proved itself as the most customer friendly rail operator in existence, with a significant focus on sales strategies and the marketing of our products. With our customer based events and workshops, we ensure a direct and close communication with all of our freight forwarder customers. One of the biggest sales strategies we have continued to use since our inception is the standard of being a completely neutral rail operator. This means that even if you are a small forwarder with just one container to transport, we will accommodate you fully and not push you out of the way in favour of a larger client. Our aim is to create a space where any cargo transport is possible no matter the size, frequency or contents. This has proven to be extremely fruitful in positioning ourselves on the market and for creating new solutions for any situation. A new initiative we are working on developing is a “fast offer” response system. Customized service for our customers is important for us and we use that as the centrepiece of our position in the market.
To successfully operate on a changing market, how do the company’s objectives and strategies enfold to its requirements?
Wilhelm Patzner: Total and complete flexibility is crucial to thriving in a changing market. We have been able to pivot our focus many times and continue to create new products that meet the growing demands of the market. In our 10 years of experience we have learned that the biggest key to success is our employees who remain motivated and prepared for flexibility when faced with new challenges. FELB employees are the single most important asset for the company to exist and grow in the ever-changing market. Our objectives and goals are made possible through the hard work and commitment we have towards our service and customers.
What are the challenges FELB is facing to provide transport services in a process that involves a full range of logistic services, from pick-up to delivery? How are these challenges approached in order to provide efficient transport services?
Wilhelm Patzner: Basically, we can say that the processes for rail are very similar to sea freight transport, with the main difference being that our trains depart usually from inland railway terminals and not from classical/traditional ports. Also, our trains need to cross many different countries where strict customs controls are involved.
At FELB we include as well a pre- and on-carriage service like sea freight does. This means that we truck our container between terminal and loading/unloading locations with container chassis, or based on bulk trucking and stuffing into containers.
Due to the fact that, at each border, documents are controlled by customs officers, it is essential to ensure that all the document sets per container contain the same information. These consist of the invoice, packing list and export documents.
Speaking about the pure railing section of each journey, we need to consider that there are fundamental differences between the European, Russian and Chinese railway systems. Train parametres like max. and min., train length or weight, wide and narrow gauge tracks and wagon types, transport production systems, and of course different suppliers and contacts. Although physically only the containers are transported over the entire route, the train wagons set and the locomotives cover just a part of the stretch.
Overall, perfect coordination and planning between each interface is essential, and this requires huge communication and control skills. Most of the time problems are hiding in the details. Our customers use our railing option choice as an alternative to sea or air, therefore very often we are confronted with very tight schedules and we are requested to find solutions within a short time frame.
For westbound cargo, as you can imagine, there is much more cargo volume going to Europe than to Asia. So, our solution has been to create very attractive options to Asia from Europe going eastbound. This includes our services like dangerous cargo to China via Russia, options to Japan, Taiwan and South Korea and our newest effort of operating cargo to China via the Trans-Caspian route for food and beverages. These eastbound offers help to even out the container stocks and allow us to manage a balanced set of services.
For the element of pricing, our effort has always been to offer services at competitive prices and to offer incentives for using our services. This includes offering special rates to customers and lower prices for those who book dedicated trains.
Since 2013, when FELB developed the first westbound speed train with 14 days transit time, the company launched an yearly development “campaign”. What are FELB’s new plans for this development and what is their impact on the market?
Wilhelm Patzner: Besides our Trans-Caspian route plans we are continuing to expand on some of our current routes including: adding new trains via Dostyk and via Erlian into China, stabilizing the northern route to Changchun and Japan and also the route to Taiwan via Suzhou. Also, we plan on increasing our LCL service options! The future is bright for our company with many future plans, years of experience and a motivated team! Our unique service point is operational excellence, flexibility and knowing what goes on in the market on a large scale. We do not only ask ourselves ‘How can we satisfy our customers?’ but also ‘How can we positively surprise them?’ That is our spirit of our young, international and motivated team which loves to do the business.
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