New Silk Road: how the logistics industry can benefit

European logistics companies can benefit from China's mega-project—but how? The logistics industry is still uncertain about this. Banking on the right strategy, there are good opportunities for logistics to participate in the development of the OBOR (One Belt, One Road) initiative.

Truck in road tunnel The Silk Road creates new ways for logistics.

China revives old trade routes by constructing the New Silk Road. The aim: to facilitate the transport of goods by road, rail and sea between Asia, Africa and Europe. This creates new economic opportunities, especially for the logistics and transport industry.

How can Europe's logistics industry participate in China's initiative?

Logistics trucks on a road bridge The silk road creates new trade routes for the transport of goods over land.

In the future, the new transport routes will enable far more goods to be shipped. Deutsche Bahn expects to significantly increase its overland transport of goods. For 2020 the company expects 100,000 containers to be transported—in 2018, this figure was 90,000.

Meanwhile, China is planning to make the increasing transport of goods even more attractive. The European logistics industry can greatly benefit from the following projects:

  • conclude free trade agreements
  • set up special economic zones
  • enforce customs clearance processes.

Logistics companies have to react with the right strategy for them to take advantage of the opportunities. Logistics service provider Rhenus has therefore expanded its international network. Today, the company offers door-to-door transportation both in Asia and Europe.

“We responded to the increasing demand for alternative routes with projects for road and rail transport supported by own locations. Local expertise is essential for the safe, fast and efficient transport of goods,” says Tobias Bartz, Member of the Board.

Challenges for logistics

The New Silk Road offers great potentials for logistics. “At the same time, it poses major challenges to businesses, particularly due to geographical, cultural and economic differences. Here, transport logistic offers a platform for international exchange and networking,” explains Gerhard Gerritzen, Deputy Managing Director of Messe München GmbH.

In addition, foreign companies have a tough time to land logistics orders from the New Silk Road project. According to China's goals of the New Silk Road the construction is intended to increase financial integrity and solidarity. However, at the same time, China wants to strengthen its political influence and open up new sales markets. It is therefore disputed whether an investment in the Silk Road offers real opportunities for European companies.

European companies should therefore establish suitable business contacts in China and third markets at an early stage in order to be able to profit—despite the challenges and the lack of orders for logistics.

On the road to success: the example of Pakistan

Contrary to existing doubts, the New Silk Road is already showing initial success. A prime example is Pakistan, where a large part of the project has already been completed, as announced by Andreas Breinbauer, Rector of the University of Applied Sciences of the Vocational Training Institute (BFI) in Vienna.

60 billion US dollars had already been invested in Pakistan by 2017. And with success: the gross domestic product (GDP) grew from an initial 3.5 percent in 2013 to a full 6 percent. It is also clear, however, that China is pursuing geopolitical interests in the region—especially towards India.

According to Breinbauer, GDP per capita is below average in 70 percent of the Silk Road countries. First, a functioning infrastructure must be created to push these countries economically. There is a high need for investment between China and Europe, which cannot be met without Chinese support.

“European companies should also benefit from multilateral and above all Chinese investments in infrastructure and logistics,” says Breinbauer. Even though China is pursuing its own interests, the Silk Road project offers many advantages for European countries and logistics:

  • establishment of regional value chains
  • promotion of the industrialization
  • investments in crisis countries to stabilize individual regions (“peace return”).