DB Cargo Polska: New Silk Road will soon have more competition
In an interview with IntermodalNews, Paweł Pucek, member of the board for sales at DB Cargo Polska, talks about the substantial changes in the company’s activities within the last two years, new trends on the New Silk Road and the challenging way toward sustainability.
What challenges are the company facing today? What have the last two years changed, including the COVID pandemic and the war in Ukraine?
The last two years have not been favourable to rail freight carriers, both on a macro and micro scale. On a macro scale, COVID was the first to hit. In less than a few weeks, cross-border transport on intercontinental corridors was halted. There has been a change and shortening of supply chains as a consequence of the greater propensity of production to the warehouse in order to secure production. Problems in supply chains limited economic activity, which caused a crisis in the microchip market, and that transformed into the reactivation of the nearshoring idea, i.e. moving part of the production to countries closer geographically and culturally.
The second hard impact that hit the rail logistics market was the ongoing armed conflict in Ukraine. The war and the related embargoes blocked the Eurasian transport of goods, which was recovering after the lockdowns. The pandemic directions have been strengthened, i.e. the increased flow of goods along the North-South corridors and nearshoring, which in the era of uncertainty about global relations between the US and China is beginning to take real shape. On a micro scale, the market has to face a price-wage spiral caused by galloping inflation, which significantly reduces its competitiveness. This is overlapped by congestion on the railway network resulting from the change in the directions of deliveries of bulk goods, mainly coal and grain, through Polish ports. Today, our attention is focused on resources that are fully in motion to transport increased volumes as efficiently as possible, while maintaining satisfactory profitability.
To what extent has the war in Ukraine affected the New Silk Road? What can we expect from the corridor in the near future?
There is information in the media that China has suspended investments in the Russian section of the New Silk Road. If this actually happens, the existing railway connection going through Kazakhstan, Russia, Belarus and Poland, where the reloading terminals in Małaszewicze and Sławków are used, will be limited in their activity. This is not good news for Poland, as a flow of cargo is like water and must find an outlet. Thus, new routes will be and are being made.
In mid-April, the Chinese media reported on a new multimodal connection to Mannheim, Germany, bypassing Russia. Transport runs through Kazakhstan, the Caspian Sea, Azerbaijan, Georgia, the Black Sea, Romania, Hungary, Slovakia and Czechia, with the exclusion of Poland, which our country will lose, even in the levies related to the transit of goods, not to mention the dynamic economic development that has always been followed the main transport arteries. This overlapped with the geopolitical rivalry between the US and China, which was manifested by the initiative of the G7 countries, namely the establishment of a fund worth 600 billion US dollars for the development of infrastructure in developing countries. So it looks like the New Silk Road will soon have more competition.
What are the chances of activating rail traffic on the border with Ukraine? After the end of hostilities, how much time will Ukraine need to regain its position in intermodal transport?
The situation and the related inability of Ukraine to use its existing transport corridors, which originated in the Black Sea ports, led to the fact that the railway and road borders with Poland, Slovakia and Romania have become the only corridors. Corridors that are not prepared both in terms of infrastructure and processes to transport such large volumes, which to a large extent are already at the border. We observe a constant track occupancy in Medyka or Dorohusk, both on the 1435- and 1520-millimetre-wide tracks. The terminals on the Polish side of the border are experiencing a second youth. They invest in reloading equipment. Just take a look at the loads on the border that had not been here before. Grain, coal in the Ukrainian direction, iron ore along the 1435-millimetre gauge track as well as steel products and semi-finished products for export.
Moreover, there are problems with capacity at other critical points, such as Polish ports, which, as a result of changes in the directions of transport of bulk goods, especially coal, are clogged to the limits of their capabilities. Trains stand for several days waiting for loading or unloading. A derivative of the turmoil caused by the war, this situation is likely to last until the changed flow of goods finds an outlet. Simultaneously with the improvement of Polish critical points, work is underway on the opening of the Romanian-Ukrainian border. All of this takes time. It is not possible to smoothly shift such large volumes to a new corridor distinguished by a much lower efficiency. I think that Ukraine is starting to rebuild its position in intermodal transport right now, without waiting for the end of hostilities, by changing the directions of transport corridors.
Can the current situation affect the achievement of sustainable development goals by DB Cargo Polska and the industry as such?
We do not see the need to change the chosen direction in terms of sustainable development due to the current situation. We still want to strengthen our advantages in the area of social, environmental and corporate governance. This year, we published the “Sustainable Development Report of the DB Cargo Polska Group for 2019-2020”. The document, available on our official website, is a response to the upcoming change in the regulations on corporate non-financial reporting. In 2021, the European Commission announced a draft directive on reporting on sustainable development issues. The obligation of non-financial reporting will also apply to the DB Cargo Polska Group.
The same applies to the industry. With this study, we have made preparations to reliably fulfil the new obligations, once they become a legal requirement. Paradoxically, reducing the emission of harmful gases increases the security and energy independence of the state. It is clear today that fossil fuels, the main source of emissions, are also becoming a major source of instability. Therefore, the path towards renewable sources and non-emission transport solutions is twice as beneficial, and, to my mind, it should be continued.