The first direct freight rail service from China to Finland is expected to reach the Finnish rail terminal of Kouvola around the November 10, as direct services commence between Xi’an and the Kouvola hub. In what will become a west-east weekly service, the route re-establishes Xi’an as a major rail center along the Belt and Road, and reintroduces Kouvola as an international terminus to the east.
Xi’an, then known as Chang’An, was the ancient capital city of China, and was the original terminus for the Silk Road back in the days of Marco Polo. The city still retains a large amount of Silk Road history. Kouvola, meanwhile, has been enjoying something of a resurgence of late as Finnish policy is developing what used to be a major thoroughfare between Russia and Finland during the Russian Imperial era, with its rail services originally commencing in 1870. Today, despite Russian sanctions, Kouvola remains a major rail hub in Finland with hour long express links directly to Helsinki and the capital’s sea port facilities.
Work on the route has taken over a year to prepare in terms of uniting Finnish, Russia, Kazak, and Chinese customs together, a situation that is being used as a prototype for introduction of blockchain technologies in tracking goods. Later, payment of customs tariffs can also be expected to be made online and directly via operators as the train and its cargo moves nearer to border areas, with payments already made and processed by the respective customs departments before the train passes through their jurisdiction.
Barriers to this at present include a lack of co-ordination and the non-sharing of EU customs clearance data with non-EU countries, a diplomatic issue that Brussels is still yet to adequately address. That isolates the EU away from China, Kazakhstan, and Russia, who already share their data. The so-called “EU Blockage” is a matter of high priority for the success of EU exporters wishing to sell to the Chinese market via rail freight, and has an urgent need to be addressed. The Xi’an-Kouvola route will almost certainly highlight the inefficiencies of the EU’s legislation in this regard. Curiously, Finnish-Russian TIR vehicle data sharing exists – but not for rail.
Speaking last month at Railforum 2017, Kouvola Mayor Marita Toikka remarked that the new route to/from Asia will provide a “new logistics concept” that is both flexible and fast. Anne Berner, Minister of Transport and Communications, echoed that sentiment by commenting that, in the global context, rail creates vitality and the new connection between Asia and Finland is “most welcome”.
The Minister recalled Kouvola’s stellar track record as a “great logistics city”, and noted that the current trends support rail traffic as logistics are becoming more resource-efficient and mindful of their carbon footprint. She defined Finland’s forte as “connecting people, goods and data” in new and innovative ways, believing that the new venture will be able to carry on this tradition.
The China-Finland Route, however, will also be the subject of other European competition. China currently subsidizes all containers on the EU routes to the tune of US$5,000; this is partially responsible for the recent expansion of China-EU routes. However, this is also leading to what will ultimately become non-viable routes in economic terms once these incentives expire in four years time. Key to this is making the eastbound routes to China profitable – and here, the EU Blockage becomes a problem, both for maintaining the existing routes and for assisting EU exporters.
Meanwhile, Kouvola itself faces competition. The Rail hub is not a seaport, although Helsinki is only a short distance away. Other countries, such as Estonia have also announced that they, too, are likely to be accepting freight trains from China from next year. That effectively limits the Kouvola distribtion reach into Scandinavia and the Nordic countries, while Tallinn would be preferred for access to Northern Europe, including the other Baltic States, Poland, and Germany. How these routes will eventually plan out depends upon three key issues – the extent of China’s continuing ability to subsidize containers being shipped from China, how soon the EU data blockage issue can be rectified, and the extent to which EU manufacturers and producers can learn how to access Chinese consumers, including dealing with Chinese online sales portals and Chinese speaking sales support staff as well as professional assistance in preparing for selling to China’s 500 million middle class consumers.
Chris Devonshire-Ellis is the Founding Partner and Chairman of Dezan Shira & Associates. He is based in Europe. The firm provides European businesses and governments with strategic, legal, tax, and operational advisory services to SMEs and MNCs investing throughout Asia and has 28 offices across China, India, and the ASEAN nations as well as St. Petersburg and Moscow. Please contact the firm at email@example.com or visit the practice at www.dezshira.com
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