Increase in supply routes from Asia to Europe

Seeing a freight train rumble into London last month was not quite as exciting and enjoyable as watching the classic movie Planes, Trains & Automobiles but it could be a game changing development for both consumers and manufacturers in the UK.

It was, of course, the first train to travel from China to the UK but early indications are that it won’t be the last. Over 50 enquiries have been made to its UK booking office during the 18 day journey alone.

The trip, which involved travel through nine countries since departing Yiwu in eastern China, was regarded as a test run to gauge interest in the increasingly popular rail transport option. With 14 European stations already linked into the China-European service, the addition of the UK to this service can only be a benefit in trading terms.

On this occasion, the train carried 34 containers of clothing and high street goods but could also provide a transport opportunity for UK manufacturers and precision engineers.

There are some significant benefits in shipping by rail:

  • The cost is approximately half the price of air cargo
  • Journey time is 2 weeks faster than by sea

So what might this mean for UK manufacturers…..

In the ever-competitive, price-sensitive and demanding manufacturing supply chain, quality, cost and lead-time options are continually evaluated and traded off against each other.

Companies that buy from China by using sea freight generally need to trade in high volumes to be cost effective.  In addition, they more often than not have to carry high levels of security stock as well as managing long lead times. This puts extra constraint on the business cash flow as well as creating unnecessary administrative processes.  

For high value parts and products and demanding customer situations, although considerably more expensive than sea freight, using air freight has always been and will be remain the fastest alternative (as we mentioned in our previous blog: Post Brexit – Towards Pastures New in the USA?)

But that doesn’t rule out using rail as a mode of transport. In fact, this new train service offers a new opportunity and optimal solution for companies using suppliers in China. When coupled with robust purchasing software that effectively manages purchasing decisions, stock levels, lead times, etc., (such as E-Max ERP’s purchasing module), engineering and manufacturing companies can take advantage of more cost effective means of transportation yet still increase their efficiency, agility and responsiveness. 

….And the wider picture for UK manufacturing?

With our EU ties weakening, now is an ideal time to seek out alternative markets. As a general rule, UK SMEs have previously not focused on China as a market, perhaps regarding it as too remote to develop business relationships with, but this has to change.

The Chinese manufacturing industry continues to operate in competition with the UK’s and although the Chinese are generally very competitive on price, there’s no doubt they lack the skill and reputation of the UK industry.

There will be opportunities for companies in the UK to lower their own costs by outsourcing parts of a project to China and completing the precision work themselves. Alternatively, there is the option of, when selling items to Asian markets, UK companies can produce specific complex parts and have these put together in China, again making cost savings.   

Of course, there is a risk that this new mode of transport could see more cheap Chinese imports flood into the UK market but there will always be a requirement for quality work, especially in precision areas.

Finally, the return journey

On this occasion there were no plans for the departing train to transport goods back to China but with increasing demand in China for European goods, this is likely to change. UK manufacturers involved in the production of luxury European goods should certainly view this mode of transport as an opportunity for them in the future.

 

For more information on E-Max’s purchasing module or ERP system, call us on 01325 746 567 or click here