China's small factories fear "rail Armageddon" with orders to ditch trucks

Dongyue

22/09/2017 24:00

* Government orders factories to boost rail use in war on 
smog 
    * Follows truck bans in some major ports 
    * Execs worry rail can be slower, more costly 
 
    By Meng Meng and Josephine Mason 
    BEIJING, Sept 22 (Reuters) - Thousands of small factories in 
China, making everything from steel to chemicals, are scrambling 
for access to the country's clogged rail network as Beijing 
curbs the use of diesel trucks in an effort to tackle air 
pollution. 
    The Ministry of Environmental Protection (MEP) last month 
gave tens of thousands of companies in 28 cities until Nov 1 to 
halve their use of diesel trucks over the winter months, when 
pollution is at its worst. 
    The ministry, in a policy document, also set more stringent, 
permanent targets for more than 20 power and steel companies, 
including Zhengzhou Xinli Power, Xingtai Iron & Steel and Hebei 
Risun Coke, directing them to send at least half their shipments 
by rail. 
    Trucking is a cheaper and preferred mode of transport for 
heavy industry in China, especially for inland companies moving 
goods over relatively short distances and those far from 
railways. 
    Some provinces have taken even tougher stances on trucks.  
    In Hebei and central Henan, some steel producers must 
deliver as much as 90 percent of their products via rail on a 
permanent basis, up from around 50 to 60 percent currently. 
    The moves are the latest in Beijing's years-long battle to 
tackle the pollution that blankets the north as houses turn up 
the heat between November and March, drawing on the nation's 
power plants, which are mainly fueled with coal. 
    China is also forcing steel mills and other factories to 
shut up to 50 percent of capacity across the north to try and 
prevent toxic air during the winter. 
    The truck restrictions follow bans earlier this year on 
transporting coal by diesel trucks in major port cities. 
 urn:newsml:reuters.com:*:nL4N1LG280  urn:newsml:reuters.com:*:nL4N1IE1WB 
    A shift to using more of the country's 120,000 km of 
railroads, one of the world's largest networks, is also a 
cornerstone of Beijing's Belt and Road initiative, which aims to 
revive old trade routes linking Chinese companies with overseas 
markets. 
    The scale of the change underway is immense. Highways 
accounted for 77 percent of more than 43 billion tonnes of 
freight transported last year, compared with 8 percent for rail. 
    "It's another indication of how seriously they're taking the 
environmental impact, although it's a blunt way of doing it and 
some trips won't make sense by rail," said Jonathan Beard, head 
of transportation and logistics in Asia for Arcadis, a design 
and consultancy company. 
    The Ministry of Rail declined to comment. The MEP and the 
state planner that oversees rail freight prices did not respond 
to requests for comment from Reuters.  
 
    RAILWAY ARMAGEDDON 
    Companies were already preparing for a grim winter, having 
been ordered to slash output as part of measures to clean up the 
air in Chinese cities.  
    Now, many are struggling to get space on the rail network by 
the Nov. 1 deadline.  
    Major state-owned companies like Sinopec  600028.SS  and 
Aluminium Corp of China  601600.SS  have long-term access to the 
railroad, leaving little room for smaller companies. Many of the 
factories are also hundreds of miles away from any station. 
    There are also concerns that bottlenecks could create chaos, 
cutting off supplies of critical raw materials and hurting the 
ability of companies to get products to market, executives 
interviewed by Reuters said. 
    Rail is also more expensive and takes longer for some 
routes. An executive from Xingtai Iron & Steel estimated that 
using rail will add as much as 40 yuan per tonne, or 10 percent, 
to his costs. The executive and others interviewed by Reuters 
requested anonymity as they were not authorised to speak to the 
media. 
    "We might resort to reducing production in the winter if we 
cannot get enough supplies and have difficulties sending our 
products due to the railway Armageddon," said a manager with 
Yanzhou Coal Mining Co's coke plant in Shandong province, which 
produces two million tonnes per year. 
    In Shandong, the nation's eastern industrial and 
agricultural heartland, the rail bureau proposed hiking freight 
rates by 1 cent per tonne per kilometre at an internal meeting 
with key clients two weeks ago, according to the Yanzhou Coal 
manager.  
    That is equivalent to an almost 10 percent increase to move 
products to Jiangsu, about 100 miles to the south. It is not 
clear whether the plan has been submitted to the state planner 
for approval. The state planner sets freight prices.  
    "Some of our clients are only 40 miles away from us," said a 
sales manager with Xingtai Iron & Steel's steel wire subsidiary. 
    "Trucking is more flexible than rail and cheaper," the 
manager said. "For our clients in Zhejiang and Jiangsu, about 
500 miles away, rail takes almost a week but trucking takes one 
or two days."  
     
    UNDER ORDERS 
    Rail traffic has increased this year due to increased 
shipments of coal. Rail is the most popular mode of transport 
for coal, which accounted for a third of traffic last year.     
    China's rail network is mainly run by China Railway Corp. 
State-owned companies such as China National Coal Group 
 601898.SS  and coal miner China Shenhua Energy  601088.SS  also 
own some specific routes, giving them lower transportation 
costs.   
    Many are bewildered by the enormity of the undertaking 
ahead. A manager with Longyu Chemical Co. in central Henan 
province said he had no access to rail. 
    "I honestly have no idea how we are going to deal with it 
this winter," he said. The trucking freight rate is also rising 
because of the crackdown on diesel trucks."        
 
 (Reporting by Meng Meng, Josephine Mason and Muyu Xu) 
 ((meng.meng@thomsonreuters.com; +86-10-66271220 ; Reuters 
Messaging: meng.meng.thomsonreuters@reuters.net)) 
 
Keywords: CHINA POLLUTION/RAILWAY