Get­ting freight traf­fic back on the rails

New rules gov­ern­ing cargo trans­port and re­form of the for­mer Min­istry of Rail­ways have given lo­gis­tics com­pa­nies new heart, re­ports Hu Yongqi in Kun­ming.

China Daily (Hong Kong) - - COVERSTORY -

Niu Huiy­ong has been run­ning Xinyang Stor­age and Trans­porta­tion Co in He­nan prov­ince for more than 20 years. In his opin­ion, the rail­way used to be a cu­rate’s egg, good in parts: While the ex­ten­sive net­work made it pos­si­ble to ship freight to re­mote des­ti­na­tions, the time­con­sum­ing process of book­ing space on the train, load­ing the goods and await­ing con­fir­ma­tion of de­liv­ery was al­ways a source of dis­ap­point­ment and frus­tra­tion.

Niu re­called an ex­pe­ri­ence from 1993 when he ap­plied to ship 1,000 met­ric tons of rice from He­nan to Sichuan prov­ince via the rail­way. Un­for­tu­nately, the goods were de­layed at the sta­tion for two months and the client threat­ened to sue Niu for breach of con­tract. The case never came to court, but the added sil­ver lin­ing for Niu was that dur­ing the time the goods were de­layed, the price of rice rose by 20 per­cent, earn­ing him an ex­tra 40,000 yuan ($6,500) in profit.

“I wasn’t re­ally very grate­ful to the rail­way for the ad­di­tional in­come, though, be­cause that was a one-in-a-thou­sand event. Usu­ally, the delays re­sulted in lost profit and credit,” said Niu.

In July, how­ever, Niu’s at­ti­tude to­ward the rail­way changed markedly af­ter the car­rier in­sti­gated re­forms. For the first time in Niu’s ex­pe­ri­ence, the pa­per­work was com­pleted quickly and the goods were loaded and en route to the des­ti­na­tion in a sin­gle day, an un­heard of de­vel­op­ment.

On June 15, China Rail­way Corp in­tro­duced a re­form aimed at im­prov­ing ef­fi­ciency and pro­vid­ing a bet­ter ser­vice. The re­form was part of a plan to trans­form the rail­way freight sec­tor into a mod­ern lo­gis­tics in­dus­try, one char­ac­ter­ized by eas­ier, faster ser­vice and lower prices.

A month af­ter the re­form, freight vol­umes be­gan to rise, turn­ing around years of de­clines. Kun­ming Rail­way Bureau alone trans­ported 1,061 freight cars dur­ing the sec­ond half of June, an in­crease of 9.2 per­cent from the first two weeks of the month. Things con­tin­ued to im­prove in July, when an aver­age of 2,485 freight cars trav­eled by rail ev­ery day, a month-on-month in­crease of 17 per­cent, ac­cord­ing to the bureau.

Hav­ing been given a taste of the new or­der, many lo­gis­tics com­pa­nies hoped to see the re­form im­prove the ser­vice per­ma­nently, as pre­dicted by trans­porta­tion ex­perts.

Mar­ket- driven re­forms

Freight trans­port has con­trib­uted a huge amount to rail­way rev­enues for many decades, but the vol­ume of rail freight shrank in the sec­ond half of last year as a con­se­quence of China’s eco­nomic slow­down and fierce com­pe­ti­tion from air car­ri­ers and truck­ing com­pa­nies, ac­cord­ing to a source with the Kun­ming Rail­way Bureau, who spoke on con­di­tion of anonymity.

From Jan­uary to April, the vol­ume of rail freight na­tion­wide dropped 1.5 per­cent com­pared with the same pe­riod in 2012, but the to­tal rev­enue of the Chi­nese lo­gis­tics in­dus­try rose 9.8 per­cent from the pre­vi­ous year, ac­cord­ing to the China Fed­er­a­tion of Lo­gis­tics & Pur­chas­ing.

In March, the for­mer Min­istry of Rail­ways was split into com­mer­cial and ad­min­is­tra­tive arms, namely China Rail­way Corp and the State Rail­ways Ad­min­is­tra­tion, which was merged with the Min­istry of Trans­port. The CRC took on the for­mer min­istry’s debts, which to­taled 2.79 tril­lion yuan, ac­cord­ing to a min­istry au­dit in 2012. The op­ti­mum time for CRC to re­pay the debt, es­ti­mated to ar­rive in four or five years, also pushed the cor­po­ra­tion to carry out mar­ket-ori­ented re­forms to im­prove prof­itabil­ity.

Com­pared with other meth­ods of freight trans­port, such as air or road, the lower price charged by the rail­way gave it a unique ad­van­tage. Rail freight is 5 to 10 yuan cheaper per met­ric ton than road haulage, mean­ing a lo­gis­tics com­pany that car­ries 200,000 tons of freight an­nu­ally can re­duce its costs by at least 1 mil­lion yuan.

How­ever, lo­gis­tics com­pa­nies com­plained that the cost ad­van­tage had been un­der­mined by other charges, such as ser­vice fees, and the com­pli­cated book­ing pro­ce­dures prior to the re­form.

Dur­ing the era of the planned econ­omy, rail trans­port was a scarce re­source and busi­nesses had to re­quest, or some­times even plead, for freight to be trans­ported. More­over, the au­thor­i­ties charged a ser­vice fee of 10 to 30 yuan for each ton of freight car­ried, plus stor­age fees if clients didn’t claim their goods on sched­ule.

“Be­fore the re­form, my com­pany was re­quired to sub­mit trans­port plans for each week, month and sea­son, to the rail­way sta­tion. It took at least 30 days to get ap­proval for freight and there were a lot of pro­ce­dures to go through, such as sub­mit­ting a book­ing ap­pli­ca­tion, iden­ti­fy­ing and claim­ing the car­riages and load­ing them,” said Zhou Hou­jun, gen­eral man­ager of Shunhe Trans­port Co in Kun­ming, the cap­i­tal of Yun­nan prov­ince.

Zhou said that now, as long as the goods ar­rive at the rail­way sta­tion on time, they will be sub­jected to a se­cu­rity check and then loaded im­me­di­ately. No other mea­sures are re­quired.

Dai Chao­jian, man­ager of Yun­nan Juli In­ter­na­tional Lo­gis­tics Co, said his com­pany used to sub­mit pre­lim­i­nary plans to the rail­way sta­tion, clearly spec­i­fy­ing how much freight would be trans­ported dur­ing the next month, sea­son and year.

“The rail­way was called ‘Big Brother’ in the trans­port in­dus­try, as it had a huge na­tion­wide net­work. There­fore, all the goods had to be clearly listed in our pa­per­work. But usu­ally only about 50 per­cent of the re­quested freight would be ap­proved for trans­porta­tion,” Dai said.

Af­ter the re­form, Dai no­ticed a huge change. “The process has been short­ened and now it only takes a day to sub­mit an ap­pli­ca­tion and load the goods onto the train,” he said.

The im­prove­ment in ef­fi­ciency means that Dai’s com­pany ex­pects to trans­port 200,000 tons of freight this year, a year-on-year in­crease of more than 60 per­cent. “My com­pany trans­ports 30,000 tons of iron and steel ev­ery month and usu­ally 40 per­cent of the to­tal is shipped by rail. How­ever, the pro­por­tion rose to 90 per­cent in July,” said Dai.

For some clients, the higher price of road trans­port isn’t an is­sue. “Time is cru­cial in the lo­gis­tics in­dus­try and our clients don’t care much about the ex­tra ex­pense of us­ing the high­way. They will lose much more if iron and steel prices surge, and they do fluc­tu­ate con­stantly, of­ten by as much as 300 to 400 yuan per ton,” added Dai.

Change of at­ti­tude

Li Fan, di­rec­tor of the freight ser­vice di­vi­sion at Lu­liang Rail­way Sta­tion in Kun­ming, vis­ited 30 lo­cal com­pa­nies dur­ing late June and July to in­tro­duce the new poli­cies set in place af­ter the re­form and to can­vass for new cus­tomers.

Be­cause of the com­pli­cated pro­ce­dures in­volved in rail freight, Yang Liuhua, gen­eral man­ager of Huasheng Flour Plant Co in Lu­liang county, de­cided to give up on the rail­way and use road trans­port, even though it costs more.

Late last month, Li paid Yang an un­sched­uled visit. “I couldn’t be­lieve the rail­way sta­tion ac­tu­ally sent some­one to talk with me. In the past, they were the boss and I had to plead to have goods car­ried to the des­ti­na­tion,” said Yang.

Af­ter two hours of dis­cus­sions, Li con­vinced Yang to give the rail­way an­other chance by em­pha­siz­ing the ad­van­tage of the lower cost, said Yang. As of July 31, the Kun­ming Rail­way Bureau had signed con­tracts with 12 ma­jor lo­cal com­pa­nies in the iron and steel, coal and to­bacco in­dus­tries.

Wangji­ay­ing West Rail­way Sta­tion, a trans­fer hub lo­cated in a sub­urb of Kun­ming, gen­er­ated rev­enue of 790 mil­lion yuan in the pe­riod from Jan­uary to July and ex­pects rev­enue of 1.4 bil­lion yuan by De­cem­ber, a rise of about 40 per­cent year-on-year, said Tang Guizhuang, the sta­tion’s di­rec­tor.

Ad­her­ing to the re­form, Tang used 15 of his 253 work­ers to es­tab­lish a new mar­ket­ing and ser­vices depart­ment to find and at­tract new clients. There are five ways to book the ser­vice, the two most pop­u­lar be­ing the phone and the In­ter­net. Each mem­ber of the mar­ket­ing and ser­vice depart­ment is man­dated to visit and per­suade a tar­geted com­pany to ship its goods by rail.

Since June 15, the sta­tion has trans­ported 18,000 tons of freight ev­ery day, a no­table in­crease from the 1,200 tons car­ried dur­ing the same pe­riod last year. “The in­crease in cargo vol­ume and rev­enue can be at­trib­uted to the re­form. It made us adopt a cus­tomer-friendly model for freight trans­port,” said Tang, who added that staff mem­bers have been in­structed to ac­cept cer­ti­fied goods the minute they ar­rive.

The changes have also seen an in­creas­ing num­ber of non­cor­po­rate cus­tomers us­ing the rail net­work to trans­port com­modi­ties or per­sonal goods.

“Large- scale com­modi­ties have al­ways been our pri­mary busi­ness. Last year, they ac­counted for 90 per­cent of our to­tal freight vol­ume. How­ever, in­di­vid­ual items have in­creased since the re­form and now ac­count for 50 per­cent of the freight we trans­port. In 2012, the num­ber was much lower, around 10 per­cent,” said Tang.

“Pri­vate cus­tomers are usu­ally much more con­cerned about when the goods will ar­rive, and the ris­ing num­ber of con­tracts with in­di­vid­u­als in­di­cates that the ser­vice is be­ing used by new cus­tomers.”

Tang is con­fi­dent that the lower charges will swell cus­tomer num­bers and raise trans­port vol­ume, even though the sta­tion stands to lose at least 10 mil­lion yuan per an­num be­cause the per­ton ser­vice fee has been can­celed at the re­quest of the CRC.

“To put it in a very sim­ple way, the com­pa­nies used to treat us to din­ner. But now, we have to in­vite them for din­ner. The re­la­tion­ship has changed fun­da­men­tally as clients have be­come ‘gods’, as the mar­ket de­mands,” said Tang.

Door-to- door strat­egy

The CRC has sim­pli­fied the ac­cep­tance pro­ce­dures and op­ti­mized the mode of trans­port on de­mand. Sheng Guangzu, a for­mer rail­ways min­is­ter and now gen­eral man­ager of the CRC, told an in­ter­nal meet­ing that a “doorto-door” freight trans­port ser­vice will soon be es­tab­lished. The ser­vice will al­low cus­tomers to hand over their goods to rail­way work­ers, who will then take them to the re­cip­i­ent’s house or of­fice.

The door-to-door strat­egy will not just fo­cus on largescale com­modi­ties such as coal, min­er­als and con­struc­tion ma­te­ri­als, but also on in­di­vid­ual items, ac­cord­ing to the source within the Kun­ming Rail­way Bureau. If the strat­egy proves to be suc­cess­ful, the rail freight mar­ket will be able to com­pete with other modes of trans­port, the source said.

Trans­port over “the last 1 kilo­me­ter” by road is the CRC’s Achilles’ heel, and will de­ter­mine the ef­fi­ciency and qual­ity of the door-to-door ser­vice, ac­cord­ing to Sun Li­jun, pres­i­dent of the school of trans­porta­tion en­gi­neer­ing at Tongji Univer­sity in Shang­hai.

More­over, al­though the CRC re­forms have not raised the price of rail freight, the com­pany will be forced to ac­cept price fluc­tu­a­tions as a nec­es­sary evil if it’s re­ally de­ter­mined to fol­low a mar­ket-ori­ented model. Cus­tomers are now wait­ing to see the ef­fects of the re­form and any new moves from the CRC.

“The big­gest change is the new at­ti­tude to­ward the clients. Now rail­way work­ers ac­cept us as a source of in­come and the ser­vice is far more pleas­ant,” said Dai. “As long as the rail­way au­thor­i­ties are de­ter­mined to pro­vide a high-qual­ity ser­vice, I be­lieve they can do it, no mat­ter how hard it may be. The ques­tion is: how long can they keep it go­ing?” Con­tact the writer at huy­ongqi@chi­ Li Yingqing and Guo An­fei con­trib­uted to this story.


Work­ers load steel goods at Wangji­ay­ing West Rail­way Sta­tion in Kun­ming, Yun­nan prov­ince. Cargo trans­port re­forms have boosted the de­vel­op­ment of China’s lo­gis­tics in­dus­try.


A freight train in op­er­a­tion in Yun­nan prov­ince.

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