While discussions on China's Belt & Road Initiative ("B&R") largely focus on transport and connectivity infrastructure, we see exciting prospects for the expansion of trade and of related logistics services, especially along the land transport bridges linking China with Eurasia/Europe, and South and Southeast Asia.
One key pillar of the B&R is to ensure unimpeded trade. This is expected to be accomplished through the enhancement of customs cooperation, including the creation of "single windows" in border ports and the promotion of e-Customs and Authorized Economic Operators ("AEO"), thereby reducing customs clearance costs and improving transit times. With land bridges (highways and railways) being built, and B&R countries cooperating on customs procedures to facilitate cross-border trade, we see the beginning of the game-changing development of an efficient trans-continental logistics network and the opening up of the far reaches of Eurasia and Asia by road and rail.
Logistics companies have been quick to explore the rail option between China and Europe. The transit time between Chongqing, China, and Druisburg, Germany, via rail, for example, is around 18 days, while sea freight takes another 20 days. If and when B&R-related high-speed rail projects come to pass and customs clearance procedures are streamlined, the transit time for rail transport between China and Europe will be further shortened. The high value and/or time-sensitive trade segments are likely beneficiaries. Companies with smaller shipment volumes can also leverage the smaller capacity of railway transportation to their benefit.
The overland option between China and South and Southeast Asia has yet to garner much attention from logistics companies, largely because road/rail conditions are not ideal and there are regulatory and security considerations. However, this is about to change, at least in regard to peninsula Southeast Asia, in the near future.
The Association of Southeast Asian Nations ("ASEAN") and China are working together on economic integration and cooperation under the auspices of the ASEAN-China Free Trade Area ("ACFTA"). The B&R's China-Indochina Peninsula Economic Corridor complements the various ASEAN programs on connectivity, including the ASEAN Highway Network ("AHN"), the Greater Mekong Subregion ("GMS") road networks and the Singapore-Kunming Rail Link ("SKRL").
The Kunming-Hai Phong Transport Corridor is already in operation. It starts from Kunming (China) and passes through the border towns of Hekou (China) and Lao Cai (Vietnam) to Hanoi before ending up in the seaport of Hai Phong. A container truck will be able to travel from Kunming to Hai Phong in around 9 hours. In addition, China and Vietnam have a bilateral agreement in the exchange of traffic rights, including for the Kunming-Hekou-Lao Cai-Hai Phong route, allowing trucks and buses to operate from the border areas to inland areas along the agreed routes without transhipment when crossing the border checkpoints.
The Kunming-Bangkok Expressway (along the North-South Corridor) is also completed, running from Kunming (China), crossing the Laotian border at Mohan/Boten and entering Thailand at Chiang Khong. A container truck is estimated to be able to travel from Kunming to Bangkok in less than 18 hours. The three countries, China, Lao PDR and Thailand, are considering a trilateral agreement on the exchange of traffic rights along the Kunming – Bangkok route.
In recent years, ASEAN has attracted more foreign direct investment than China. For example, many multinational consumer electronics and fast-moving consumer goods companies have invested in manufacturing facilities in Vietnam. In addition to other benefits, Vietnam's land connections will allow access to the previously hard-to-reach consumer market in the western part of China. Better transport connectivity will also lead to greater integration of production/supply chains, as goods and parts and components can move more easily between facilities across China and Southeast Asia.
Despite industrial relocation to the western part of China, goods are still being shipped out from the eastern coastal ports. Inland transportation costs are quite high and, thus, the challenge for logistics is in moving goods quickly and cost-effectively to markets overseas. Cooperation between B&R trucking companies or innovative multimodal logistics solutions leveraging the B&R land bridges will change trade lanes throughout trans-continental Europe and Asia.
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