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Nippon Express climbs aboard China's Belt and Road Initiative

New service to carry goods from port along East China Sea to Europe

A cargo ship is seen docked at a port in Lianyungang on January 13, 2016. The city in China's Jiangsu Province is to be the starting point of a new rail service that will carry goods to Europe.

TOKYO -- Nippon Express and Kazakhstan's state railway company have teamed up to start carrying cargo from China's east coast, through Central Asia and on to Europe.

The Eurasian rail route is likely to benefit from China's Belt and Road Initiative, a reimagination of Silk Road trade routes.

Nippon Express's move will likely prompt Japanese companies to seek business opportunities along the route. The transportation company and Kazakhstan Temir Zholy plan to start the cargo service in 2018. Trains will begin their journeys from Lianyungang, a prefecture-level city in China's eastern Jiangsu Province. They are to make regular trips so clients can easily schedule their deliveries.

Shipping days cut by half

Lianyungang faces the East China Sea. Goods shipped from Japan and South Korea can be loaded on Europe-bound trains there.

Nippon Express hopes to generate and meet demand for carrying goods directly from Japan and other countries to Europe.

The company currently has a service that carries goods to Europe through Central Asia, beginning in Chongqing and other inland locations in China. It does not operate in China's coastal areas, where many Japanese companies operate.

It takes about 15 to 18 days for a train to carry goods from an eastern Chinese city like Shanghai to Germany and surrounding areas. The cost is about $5,000 to $6,000 per 40-foot container. Shipping by sea costs about half that but takes almost twice as long. By air, the shipment would take a few days but cost more than twice as much.

Transportation by rail hits a cost and time sweet spot. It is also less prone to delays. Nippon Express expects demand from companies based in China that want their auto components, precision equipment or fast fashions to be delivered in a timely manner.

In the other direction, Nippon Express expects to carry wine, vehicles, clothing and various other goods. As consumers become increasingly sensitive to quality, Nippon Express expects to carry more food products, such as powdered milk, eastward. The Kazakh railway company hopes to receive orders from Nippon Express's European customers wishing to send goods to China.

Beijing's Belt and Road Initiative is aimed at linking China to Europe by land, and China to east Africa, among other places, by sea. It is economically and politically motivated. The initiative's bases and projects are chosen to reflect the Chinese government's will, and many of the companies taking part are state-owned Chinese companies.

Meanwhile, Kazakhstan and other Central Asian nations have rich reserves of natural resources and economies where the gross domestic product is around $10,000 per person. The initiative's infrastructure and development projects could help to produce promising consumer markets in the region.

Change in attitude

In May, China held an international conference on the initiative, which is spearheaded by President Xi Jinping. Toshihiro Nikai, secretary-general of Japan's ruling Liberal Democratic Party, attended. Japanese Prime Minister Shinzo Abe has expressed interest in helping advance the initiative, as long as transparency and fairness are assured. Given the Japanese government's change in attitude, Japanese companies are beginning to seek opportunities under the initiative.

The Japanese Chamber of Commerce and Industry in China has set up a liaison office. The aim is to share information among member companies and to hold trade fairs and seminars, among other activities. Megabanks such as the Bank of Tokyo-Mitsubishi UFJ and Mizuho Bank have also begun looking for ways to help client companies expand their Chinese operations under the initiative.

But Nippon Express is out ahead of these planned moves.

"Some consumer goods makers with excess production capacity in China are looking to divert their supply to Central Asia," one industry representative said. With the new transport service, efforts to tap demand in Central Asia are likely to accelerate.

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