Kazakhs to Tap Apple to Ford’s China Moves for Europe Cargo

Oct 29. Bloomberg

By Nariman Gizitdinov

Kazakhs to Tap Apple to Ford’s China Moves for Europe CargoKazakhstan’s state rail monopoly plans to invest $3 billion in assets from ships to airports to boost its share of freight from Asia to Europe as companies such as Apple Inc. (AAPL) and Ford Motor Co. (F) open plants in China.

AO Kazakhstan Temir Zholy National Co. is transforming itself as it seeks to capture 8 percent of China-Europe cargo shipments in seven years, up from about 1 percent now, Askar Mamin, chief executive officer of the rail operator, said in an interview on Oct. 25.

Kazakhstan, the world’s largest landlocked country, is seeking to use its location between China and Russia as an asset in diversifying its $200 billion economy away from oil and gas. The government wants to tap into potential manufacturing growth in Chinese regions, including those bordering Kazakhstan, that may receive more than $1 trillion of investment from the government and producers in the five years through 2015, according to Temir Zholy.

“We’re already engaged in a tough struggle to ship goods internationally,” Mamin said. The competition “is pushing Temir Zholy to boost its efficiency.”

The Kazakh government plans $58 billion of infrastructure investments through 2020, about half for railways, to help increase transportation’s contribution to gross domestic product to almost 12 percent from 7 percent last year, Temir Zholy said.

‘One Umbrella’

Kazakhstan is uniting transport assets “under one umbrella” to improve transportation services across the country, Mamin said. The company formed a united logistic services provider called KTZ Express. With Temir Zholy at the wheel, the central Asian nation plans to double transit shipments to 36 million metric tons by 2020, with related revenue rising to $2.8 billion from $1 billion last year.

Kazakhstan was ranked 86th in the World Bank’s logistics performance index for last year, behind China in 26th place and ahead of Russia in 95th, according to the lender’s website. Singapore led the rating. Kazakhstan plans to climb to 40th by 2020, Temir Zholy said.

The Central Asian country plans to complete construction of the 988-kilometer (615-mile) Zhezkazgan-Beineu railroad in 2015 to cut the distance for cargo heading from the Chinese border to Aktau on the Caspian Sea. The port, which is run by Temir Zholy, will be expanded with three new terminals by 2015. The monopoly is also managing a special economic zone, called Khorgos, on the China border, where it will invest $263 million to build a transport terminal.

Foreign Expertise

Temir Zholy said it’s in talks with DP World Ltd. (DPW), the world’s third-biggest port operator, Zurich Airport International AG and Swissport International AG, the biggest aviation ground handling operator, as it seeks to attract foreign expertise and increase efficiency.

China’s Xinjiang region, which abuts Kazakhstan, is expected to receive $104 billion of investments from the Chinese government and manufacturers including Toshiba, Acer Computer International Inc., Suzuki Motor Corp. (7269), Ford, Hewlett-Packard Co. (HPQ), according to Temir Zholy.

China’s economic growth accelerated to 7.8 percent in the third quarter from a year earlier as Premier Li Keqiang spurred factory output and investment to meet expansion goals for 2013.

Hewlett-Packard, which set up a computer production plant in 2010 in Chongqing, 2,700 kilometers from Dostyk, a Kazakh border town, is opting for rail routes across Central Asia and Russia to reach the European Union rather than shipping goods by sea from the Chinese coast to Rotterdam or sending them by air.

New Route

The Palo Alto, California-based company “pioneered a new land route from China to Germany across Kazakhstan, Russia, Belarus and Poland, that takes about a third less time and costs about a third the cost of air freight,” Vice President Tony Prophet told Bloomberg TV in July.

While sea routes cost less, the speed of rail more than makes up for it, especially for shipments of computers and technical equipment, according to Temir Zholy. Rail freight from China to Europe takes about 13 to 16 days at a cost of $9,400 per container, while seaborne shipments take 45 to 60 days at $5,600 per container, according to the rail monopoly.

The Kazakh railway monopoly said it boosted shipments from China to Europe by 62 percent to 3,918 twenty-foot equivalent units in the first nine months from a year earlier.

Temir Zholy plans to start building a container terminal at the Chinese port of Lianyungang next year to service 445,000 TEUs a year to and from Southeast Asia by 2020, an extension of its rail plans.

The creation of a customs union with Russia and Belarus will ease border crossing, encouraging the construction of the China-Europe transportation corridor, according to the Kazakh company. By the end of this year, the three countries’ rail operators plan to create a logistics venture on a parity basis, Mamin said.

“All countries are fighting for transit,” Mamin said. “We aren’t competitors.”