India-Middle East-Europe Economic Corridor, announced at G20, gives New Delhi new purchase in West Asia. But a lot will depend on delivery, and India’s economic performance
The spectacular G20 summit in New Delhi could be termed as India’s coming out party. Not dissimilar to the 2008 Summer Olympics in Beijing, which was widely seen as China’s grand message of “arrival”. Curiously, in many aspects of national power, China 2008 and India 2023 have several analogues – not least in aggregate GDP measures, where China 2007 and India 2022 are at very similar levels! Perhaps not entirely coincidentally, the biggest brass-tacks outcome of G20 was the India-Middle East-Europe Economic Corridor (IMEE-EC). A multi-modal connectivity initiative to link India with Europe via ports and rail corridors built in the Middle East (ME). It will, in theory, provide an alternative to the current trade connectivity through the Suez Canal. In conception and design, it looks to be an alternative to China’s ambitious BRI. An Indian
BRI
(Boats and Rail Initiative) to challenge China’s BRI? Sounds compelling beyond the wordplay, especially as China’s BRI runs into rough weather, including in the Indian subcontinent, primarily on financial sustainability issues.
How is rail ever going to be cost-competitive with ocean freight? Even considering Suez transit costs of $7-10/ton, the most efficient railroads in the world achieve 4.4c/ton-mile, or about $68 per ton on the proposed route plus the cost in both time/money and latency/throughput of being dependent on two massive ports for loading and unloading.
IMEC aims to connect Middle Eastern oil to European and Indian markets and European/Indian products to the Middle Eastern market. That’s about all it’s good for.
I don’t think rail can, or intends to be, cost-competitive with ocean freight. But it can be faster. There is already a railway line running from Yiwu in China to Madrid in Spain. Another connecting Russia to India and Iran is under construction. So clearly there is a market for rail freight.
What’s the traffic on those rail lines?
For Russia to India, it’s a matter of national security considering the other shortest routes pass through either Gibraltar of Istanbul… Both NATO.
Wikipedia says that 60 trains a week run between Shenzhen and Duisborg, citing a German source. The Russia-Iran-India route seems to have opened only last year.
Shortest sea route would be Rostov - Istanbul - Suez - India. Turkiye is a NATO member but has not blocked Russian civilian shipping.
That’s… higher than I expected, actually. However, even at 60 trains a week and 240 containers a train, that’s barely the throughput of a two container ships (20000-24000 TEU each, 3 week transit + random customs bullshit).
Right, so goods would fall on a spectrum from bulky and cheap (grain, cloth) to light but expensive (gold, jewels, high-end electronics). The first would go by ship, the second by train (or flight). The article said that Spain exports olive oil to China, and China exports electronics and automobiles to Europe.
Sure, that’s a fair point. But that’s not what IMEC is building. It makes this assumption that this 3-legged transit (ship from India-UAE, train from UAE-Israel, ship from Israel-Greece) would somehow be faster and/or cheaper than just going through the Suez. And, like, sure, let’s accept that premise. In what world does 5 days in a 30 day transit even matter? This isn’t cutting transit times down significantly because of port time loading/unloading and random customs bullshit.
I’m not entirely convinced that IMEC is financially viable. It could be more of a political decision - the UAE and Israel have good relations with India, and might provide a backup if for some reason Egypt blocks Suez to Indian ships. Also our current government has a habit of making somewhat exaggerated claims to create an impression that they are doing things.
I’m just speculating, based on the information you’ve posted, but if ocean shipping containers from India can arrive in Western Europe so much faster than China already, wouldn’t their geographic location and the fact that the trains will cut down transit time allow India to compete with China in terms of how quickly they can ship goods to Western Europe?
If rail cost has to be 10 times cheaper to match cost with shipping, and rail freight from India to the UK takes as much as 2 days, that’s still only 10% of the regular 20-day shipping time it takes shipping containers to get from India to the UK, so they can theoretically achieve 10 times the profit margin with rail that they can with shipping containers.
The goal is not to make rail freight as cheap as ocean freight, the point of the proposed initiative(I believe) is that India will be able to get their products over to Western Europe in a cost-effective manner that can compete with China, and if their production/export infrastructure and capacity were to reach parity with China, by benefit of geographic location India will be able to deliver goods to western europe faster.
Shipping is throughput-bound, not latency-bound by the sheer logistics of cost. A high cost floor inherently limits the flexibility you have in delivering equipment. The cost of ocean freight is generally what people care about (especially with the delays in imports, customs, blah blah blah), not the latency. If people cared about latency, their product would usually be suitable for air freight (e.g. the iPhone).
Plus, most of the new corridor is over ocean freight anyway and requires the slow and vulnerable process of unloading in UAE and loading again when entering the Mediterranean.
Sure, I only brought up the cost because you asked how rail was feasible since it was 10 times cheaper to ship by ocean than rail, which looks like it could be negated by India with rail delivery if cost was the only consideration.
But if the new plan is mostly concerned with ocean freight, doesn’t that still benefit India, since they can already send freight by ocean faster than China even now before grandly entering global shipping?
I understood your concern with India not being able to compete with China to be specifically about the financial unfeasibility of rail travel.
Do you mean that only India has to unload in the UAE and load again when entering the Mediterranean?
Also clarifying question, why do they have to do that, just customs b*******? Is that a situation that should be addressed by either China or India’s BRI initiative?
Whether by rail or ocean, It seems like India has a leg up on the export situation if they can match the production output expected by Western Europe. If India can produce what consumers want and they can ship to those same consumers in half the time, it seems like India has the potential to break the monopoly China has right now on exporting manufactured goods.
The main problem I could think of was India not being able to acquire enough ships to move all of their goods since China has acquired so many shipping companies. Then again, I know China has been sending empty shippng containers for years now and the cost of shipping doubled or something for at least a couple years recently, so I don’t know their long-term plan for hanging on to all of those companies.
Also, yeah, customs bullshit. So long as you’re on a boat, you’re at least somewhat safe from customs bs.
The corridor asks for ships to load and unload instead of transmitting the Suez. It’s expensive and idiotic and won’t change a thing for how India already does trade with Europe. The only purpose of this corridor is to decrease dependency on Egypt, which will be joining BRICS+ soon. Why would India pay for that when they’re literally a member of BRICS?
Do you mean that only India has to pay that suez fee and that’s why it’s not a viable competitor for Chinese exports?
I’m not as clear on all the specifics as you are, so when you refer to certain corridors, we’re transmitting the Suez. I’m not sure what you’re talking about all the time.
Is the fee that India has to pay more costly than the advantage they get if they start ramping up manufacturing andshipping same amount of goods to the west twice as fastest China?
Or do you mean at their current manufacturing capacity a new trade corridor doesn’t do India any good?
Nobody really cares about speed of shipping. People generally either need things fast or in high volume: if fast, you might as well fly it over; if in high volume, you might as well use a ship. You can design your supply chain around the shipping time with basically no cost: that’s the principle behind JIT.
People care about volume and price, things which this corridor don’t really affect. This corridor isn’t going to be cheaper than transiting through the Suez, and because of that reason (if nothing else) it’s DOA.
Shipping speed is not as irrelevant to import and export companies as you claim and I think you’re underestimating the significance of geoproximity with respect to trade in general.
The thrust of the article is that India has the ability and now a plan to trade more freely with Western Europe than it ever has if the IMEEC-EC is successfully implemented.
Your contention is that because the immec-ec prop is not cheaper than the route China uses through the Suez canal, it is DOA, and therefore India will not become an export challenger to China.
By “not cheaper”, are you implying that the imeec-ec will definitely be prohibitively more expensive then China’s transit through the suez or that the difference in cost will be negligible as the new trade route is constructed and used?
Is there any estimate for updated freight costs from India if this corridor is enacted?
Mayne they are looking to the future? As far as I know it’s hard to move big boats with electricity.
Sure, that’s possible, but the cost of electrifying freight rail is rather significant too. The reason that ocean freight is so cheap is that the cost per unit weight (and of unit energy) of moving in the ocean is far lower than pretty much anything else.
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