The number of shipments from China to Russia via rail has significantly increased since the Red Sea attacks.

• Due to the disruption of ocean routes caused by Houthi attacks on the Red Sea, there is a high demand for goods to be sent via rail from China through Russia to Europe, according to freight forwarders.
• Concerns have been raised by some shippers regarding goods passing through Russia, prompting the use of the "middle corridor" rail route through Kazakhstan as an alternative.
• Experts say the Red Sea attacks could cause trade disruption for months.

In response to the disruption caused by attacks on the Red Sea, a major ocean route, shippers are actively seeking alternative transportation methods to transport goods from China to Europe.

The week ending Jan. 14 saw a 65% increase in air cargo volumes on the major apparel route between Vietnam and Europe, as per data from Xeneta.

Rail routes from the Far East to Europe have experienced an increase in demand.

Companies that arrange the transportation of goods, such as freight forwarders and consolidators, have experienced a significant increase in inquiries and bookings for the rail route. Rail transportation is appealing to shippers due to its affordability compared to air freight and its speed compared to ocean transportation.

European countries receive goods from China via Russia through the efforts of RailGate Europe, a consolidation company that transports various items such as furniture, toys, clothes, and automotive parts.

The duration of a journey by rail is between 14 and 25 days, which is "significantly better" than ocean travel, as stated by Julija Sciglaite, RailGate Europe's chief business development officer.

The journey from China to the Dutch port of Rotterdam via the Red Sea takes approximately 27 days, but re-routing through South Africa's Cape of Good Hope reduces the travel time by about 10-12 days. Last week, a German shipping company announced that it would continue to re-route its vessels until further notice.

Rail through Russia

Since the war in Ukraine began, many companies have expressed concerns about sending goods via rail through Russia due to the train passing through part of Russian territory, Sciglaite said in an email to CNBC.

Due to the war, the number of bookings decreased significantly via Russia. However, in the last year, this route has been recovering due to good transit time and prices.

Since the Houthis started attacking vessels in the Red Sea in 2023, demand on the railways increased, according to Sciglaite. She stated that after the incident in the Red Sea, demand skyrocketed, although the full impact on demand won't be known for several months. Additionally, the Lunar New Year, which starts on Feb. 10, is likely to stimulate demand, Sciglaite added.

Military goods are prohibited from being transported through Russia via any mode of transport, while the EU allows sanctioned goods to be moved via rail through the country.

Igor Tambaca, the managing director of Rail Bridge Cargo, a Dutch logistics company, stated that China-Europe rail route bookings increased by 37% in the past four weeks. He explained in an email to CNBC that the surge in demand was caused by the Red Sea disruption and the Lunar New Year.

Russia is only refused by customers who have ethical concerns about it. Most customers prioritize speed and reliability over ethics when it comes to their supply chain to Europe, according to Tambaca. The company also provides insurance on this route.

Instead of sending goods through Russia via rail, shippers can use the "middle corridor" that runs from China through Kazakhstan to Turkey via the Caspian Sea, although this takes approximately 26 to 29 days, according to Tambaca.

OBB Rail Cargo Group is concentrating on the middle corridor route due to customers' worries about sanctions, as stated by Maria Magdalena Pavitsich, a spokesperson for the company.

Pavitsich stated in an email to CNBC that there has been a significant increase in inquiries for the middle corridor route from customers in Europe and Asia. She attributed this increase to the sharp rise in sea freight prices, which she expects to continue. As a result, prices are becoming more comparable to those of rail freight.

According to Xeneta data, the cost of sending one forty-foot container (FEU) from China to Europe via rail is currently around $7,900, which is higher than the February forecast of $6,507 per FEU for ocean freight between the Far East and the Mediterranean.

The prices of Chinese railway stations, including Xian, Chengdu, and Yiwu, have increased "several times," according to Sciglaite. However, these prices are not as high as they were during the Covid-19 pandemic or when the Suez Canal was blocked by the Ever Given vessel in 2021. Currently, trains are running on time, but there is a possibility of overbooking delays, Sciglaite said. The question is how quickly and how big these delays will be.

China’s ambitions

Beijing aims to enhance its global impact via the Belt and Road Initiative, which involves transport links such as railways to connect with Asia, Europe, and Africa, while Moscow collaborates with foreign partners to construct railway routes from Central Siberia to China, as stated by Russian President Vladimir Putin at a Belt and Road forum in Beijing in October.

In 2018, British company Davies Turner launched a rail freight service between China and the U.K., with goods traveling from Chinese cities Wuhan or Xian through Russia, Belarus, and Poland to Duisburg in Germany, and then onward by truck and ferry.

In September, the company stated that the rail connection between China and Europe is a "vital bridge for international economic and trade cooperation." Additionally, the company noted that a "staggering" 77,000 freight trains have operated on the route in the decade to 2023.

Ongoing disruption

Marco Forgione, the director general of the Institute of Export and International Trade, stated via phone to CNBC that he anticipates the Red Sea disruption to persist for several months or even the entirety of 2024. He explained that rectifying the supply chains and restoring order would take an extended period of time.

The Red Sea's disruption to global international trading will persist, and replacing everything with alternative modes of transport is not a viable solution, according to Forgione.

According to Paul Brashier, a vice president at ITS Logistics, the Red Sea crisis could benefit exports from the U.S. in the long run.

Could the increase in the cost of obtaining goods in Europe, both in the near and long term, potentially alter the trade balance between Europe and Asia and Europe and the United States? It is highly likely that U.S. exports may gain some ground as a result, as stated by the speaker during a video call with CNBC.

This report was contributed to by Evelyn Cheng, Lori Ann LaRocco, and Lee Ying Shan of CNBC.