A Bridge to Somewhere: Duetche Bahn and China Rail's "Land Bridge"

by Clifford F. Thies

Duetche Bahn and China Rail, in cooperation with counterparts in Kazakhstan, Russia, Belarus and Poland, have initiated a new transcontinental containerized freight rail service. The service involves rail transport from China (containers on standard gauge railroad cars) to Kazakhstan (with transfer of the containers to Russian broad gauge cars) through Russia and Belarus to Poland (with re-transfer of the containers to standard gauge cars) and then, finally, to Germany. Even with the transfers of the containers and with customs at the border crossings, the entire trip looks to take about two weeks and compares favorably to ocean transport for high value manufactured goods. The event marks yet another step in the continuing development of the now global market.

Here in the United States, it is easy to take our transportation infrastructure for granted. Six great rail systems dominate the continent, complemented by dozens of short lines. This networkese emerged from the many companies that were formed during the 19th and early 20th centuries and then were frozen into place by federal controls over the industry, after railroading was deregulated in 1980. The process has involved dozens of mergers and spin-offs.

The development of the railroad network prior to its regulation was mostly characterized by the “piece meal” system. That is, each relatively small segment of the network was put into place based on the profit opportunity that segment offered at the time, with little regard for the big picture. Among the consequences of the piece-meal system was that different roads adopted different gauges (or, widths between the rails). In many cases, adoption of a particular gauge followed a careful engineering study to determine what would the best. As to why such studies came to so many different conclusions, I (an economist) have no idea. Maybe, vanity. In some cases, it appears that parochial interests were at work, so as to prevent “foreign” companies invading “invading.” Thus, there was Ohio gauge and there was Southern gauge, in order to prevent the railroads from the northeast from entering the territories of the railroads of the west and of the south. In the case of Russia, back in the days of the Czar, the decision to adopt a broad gauge may actually have been to make a literal invasion more difficult.

The cost involved in transshipment due to what is called “break-of-gauge” is very high. Yes, the cost involves the unloading and reloading of freight and passengers. But, more than that, it requires the coordination of two sets of locomotives and rail cars. As the volume of inter-regional traffic grew during the 19th century, the saving of time and expense in transshipments due to break-of-gauge overcame the thorny problem of who is supposed to adopt the gauge of whom. By the late 19th century, the railroad network was much larger in the north and west, where standard gauge ruled, than it was in the south. Therefore, it was clearly cheaper for the railroads of the south to shift to standard gauge. Accordingly, in 1884, at a meeting of the Presidents of the major railroad companies of the country, it was decided that the railroads of the south should shift to Southern gauge. Companies that, off and on, engaged in rate wars and such also cooperated in matters such as jointly-operated facilities, railroad safety and the interchange of traffic and equipment, as these things were in their mutual interest.

The greater ability of the railroad system to move freight and passengers over long distances facilitated the emergence of an integrated, continent-wide marketplace. Railroads that had originally been built to get coal or crops to market, became used by an emerging manufacturing industry both for the distribution of end-products such as automobiles as well as for the acquisition of intermediate goods such as automobile components. Serving the manufacturing industry that would emerge with an integrated, continent-wide market was not the purpose of adopting standard gauge, as that possibility was too remote to much influence the calculation of profit. But this is another aspect of the piece-meal system: The profitable investments of today make possible new profitable investments in the future.

Returning to the news item that provoked this recounting of the way in which the railroad network developed in this country, what profit oportunities might the new Eurasian rail service give rise? First, if traffic were to develop along this route, eventually Duetche Bahn and China Rail will want to forego the shifting of containers back and from standard gauge cars to broad gauge cars. In addition, they will want to ship non-containerized cargo; e.g., chemicals (which use special cars). One option would be to use variable gauge wheel-sets (which require more expensive, specialized rolling stock for this route). Another would be to use a third rail along the route allowing its use by both standard and broad gauge equipment (which would require a significant investment in the road). With increasing business within Russia and between Germany and Russia, of which the Eurasian Land Bridge is only a part, Deutche Bahn is very much interested in addressing the issue of gauge. Also a factor in how this will play out is that the Russian rail service (which remains a state enterprise) is very short of capital.

Were the rail connections between the countries of the former Soviet Union and those of China and of the west to be rationalized, it could be imagined that places that have been isolated for all of history might be brought into the emerging global economy. New opportunities for specialization and trade would develop. Over time, the transformational power of the market might re-direct these places from tribal values to the values of a liberal, democratic and capitalist society. This transformation would occur not through the sacrifice of any nation’s treasure or the lives of any nation’s soldiers. Indeed, there would be no sacrifice at all. The transformation would take place while those who are involved were simply going about the business of making money. The interests of the stockholders of Duetches Bahn may differ from our interests as residents of a planet that has become small since that start of the market revolution. Their interest is the relatively-narrow prospect of profit in a particular decision and our interest is very broad. I hope they make a lot of money.

Photo credit - RailwayInsider.eu