5 Февраля 2014

From: John Keir, Ross Learmont Ltd
Email: john.keir@telia.com
Date: 05 February 2014

Now, I'm a southbound train
Just rumbling down the track
Oh, I’m a southbound train
Ain’t nothing gonna hold me back

"Southbound train" by the Nitty Gritty Dirt Band

Russian rail intermodal operators are about to become the unexpected beneficiaries of a major regeneration in rail transport, which is taking place in S E Asia. Countries such as Laos, Cambodia, Vietnam and Myanmar (Burma) urgently need to upgrade their national rail systems, most of which date back to the beginning of the 1900’s. At the same time, more developed economies, such as Singapore, Malaysia and Thailand wish to shift heavy and dangerous goods away from roads and on to rail. Together, these seven states in S E Asia have a population of 272 million and form an attractive market for exporters further north. Indonesia, with 229 million inhabitants, lies only a short distance from the Island state of Singapore and is well connected by frequent feeder services.

There is a variety of gauges in S E Asia with the metre gauge the most common. However, most of the new inter-regional lines will be built to Standard Gauge. Ironically, the key player in this new rail revolution will be a country which boasts the shortest rail network of all – a mere three and a half kilometres. Surprisingly, given its geographical position as a natural transport hub for the whole of S E Asia, Laos came very late to the age of the train. But that is all about to change with two new rail lines. The first of these will run East-West through Laos connecting eastern Thailand with the Vietnamese port of Da Nang on the South China Sea. The second - and by far the most important rail link in the whole of S E Asia - will be the line running due south from the Chinese province of Yunnan to the Laotian capital of Vientiane, where the railway will connect with the 3.5 km Laotian Railway before crossing the border into Thailand, after which it will continue south to the Thai capital of Bangkok and from there via Malaysia to Singapore.

At the same time, the Chinese province of Yunnan is extending a high-speed rail line from its capital Kunming to the border with Vietnam. The route closely follows an existing line built by the French in 1910, which linked Yunnan with Hanoi and its port, Haiphong. The Chinese have made great progress and expect to complete their part of the standard gauge line by the end of this year. In the meantime, the Vietnamese are forging ahead with an upgrade to the main coast line from Hanoi via Da Nang to Ho Chi Min City. And to complete this regional rail circle, the old rail link from Bangkok via the Cambodian capital of Phnom Penh to Ho Chi Min City is also being rebuilt.

Kunming will be developed into a major international rail hub serving not only Laos, Thailand and Vietnam but also Myanmar, which the Chinese propose to link via a new rail road that will eventually be connected at Mandalay. Not wishing to miss out on the obvious trade opportunities, India is in discussion with Myanmar to run a line from its eastern provinces to tie in with Kunming via Mandalay. None of the proposed sections of railway is particularly long and nor does the topography in S E Asia present any major barriers than cannot easily be overcome by modern tunnelling and bridging technology. Nor, it seems, will funding be a major problem. Already, agencies such as the Asian Development Bank and governments in Australia and Japan are committing funds and expertise to rail projects in Cambodia and Myanmar.

However, the biggest investments both in terms of funding and expertise will come from the Chinese. The Chinese are overcome not so much by a sense of charity towards their neighbours in S E Asia rather by a desperate need to resolve a major logistical problem caused – ironically – by their own success. A generation ago, when the Chinese Communist Party embarked on its latest Great Leap Forward, it was able to offer a trained and highly competitive workforce in Special Economic Zones centred round its eastern ports. Labour costs were one-eighth of those in Mexico, which caused many manufacturers to up sticks and move their factories “lock, stock and barrel” across the Pacific, from where they could supply American and European consumers with goods at knock-down prices. Soon, the rest of the world followed, enabling China to build up a huge manufacturing (and container) base. A generation later, however, costs have risen dramatically and the major coastal cities are no longer competitive and consequently manufacturers are looking for a new Eldorado. Indeed, many have moved back to Mexico, which offers both a cheap force work and a short journey time to the US market.

China’s response has been to invest heavily in its Western provinces, where costs are still competitive. All together, the western provinces of Gansu, Guizhou, Qingha, Shaanxi and Yunnan, plus the municipality of Chongqing have a total population of 254 million - all eager to share in the great economic miracle. At the same time, however, the new manufacturing centres are located 1,000 to 1,300 km from the huge container ports of Shanghai and Shenzhen, partly negating the advantages of moving to the provinces. This distance disadvantage explains why China is keen to connect its western provinces via the rail hub at Kunming to the markets in S E Asia and more importantly to the large container ports which would reduce shipping times and costs. Not only do exports to India, the Middle East and Europe go via the Straits of Malacca but increasingly exports to the East Coast of North America are being shipped via Suez in 18,000 teu vessels, which cannot transit the Panama Canal. Kunming will act as western China’s gateway to the world.

For Russia, a new market of over half a billion people is opening up just a few days by rail to the south. Rail operators and manufacturers based in the Urals, Siberia and Northern Russia must be rubbing their eyes in disbelief at their unexpected good fortune.

John Keir Ross Learmont Ltd
05 February 2014
Copyright © 2014 John Keir