In logistics, very few endeavours have demonstrated the transformative power of connectivity and efficiency quite like the China Railway Express (CR Express). This international intermodal train service has intricately woven a web, seamlessly linked China and Europe, while connecting nations along the Belt and Road Initiative. Revered for its competitive price to speed ratio, robust service, and relatively low emission impact, CR Express hasn't just provided an alternative to conventional sea and air transport; it has emerged as a pivotal channel fostering policy dialogue, infrastructural connectivity and trade facilitation.

In our interview with Shenzhen Smile International Logistics, member of the New Silk Road Network (NSRN) for China and a company deeply entrenched in this industry, we delve into the origins and pivotal moments of their journey. Co-Founder Mr. Henry He and Vice General Manager Mr. James Guo recount their steps and share their vision which has shapes Smile International Logistics into what it is today. Their initial decision to embrace rail freight, shaped by client needs and market potential, set the groundwork for continuous innovation and has helped them build a strong brand name in the rail freight industry. As they navigate the dynamic rail freight market and adapt to industry shifts, their commitment to problem-solving and client-focused solutions remains resolute.

In conversation with Henry and James…


(Picture Credit: Shenzhen Smile International Logistics)

NSRN: Before we jump into you journey with Smile International Logistics, we are keen to learn about your story till now. How did you start working in logistics? 

Henry: Following my graduation from the university, my first job was in trading. Back then, we were importing and exporting a lot of different goods, and dealing with logistics was part of the job. So, it was a natural transition from there.

James: In contrast my journey was much more straightforward. I studied freight forwarding in the university, and after graduating, my first job was also in this industry. I guess you can say I have never left.

NSRN: In 2008, upon the very special occasion of China hosting the Olympic games, Shenzhen Smile Logistics was also established. Henry, what prompted you to start the business then? How did you imagine your company to be when you first started?

Henry: As previously mentioned, I initially started my career in the trading business. During my time there, I was able to identify the main challenges and pain points encountered by trading companies when it comes to logistics. I also came to realise the pivotal role of logistics in the whole supply chain. This realization acted as a catalyst for me to start my own company - to deliver superior logistical solutions and support traders in the best possible way.

Since 2008, there have been substantial changes in the market. From the flourishing of e-commerce to the inauguration of China’s “One Belt One Road” Initiative, we realized that logistics is multifaceted. It extends beyond the conventional means of transport such as sea and air freight but also includes, for example, rail freight. The core of logistics is to punctually deliver cargo in an efficient manner to the customer, and our responsibility includes comprehensive evaluations spanning from pricing considerations to adherence to timelines, aiming to propose the most optimal combination of logistics solutions. I take immense pride in saying that till date we have stuck to this path.


(Picture Credit: Shenzhen Smile International Logistics)

NSRN: You mentioned the addition of rail freight services as part of the changes that happened in the past years. From what we know, Smile was one of the rather earlier players in the market to adopt rail freight. Apart from various policies and incentives, what were the other factors that came into play for you to decide to jump on the “rail wagon” as a forerunner?

Henry: We started working on rail FCL and LC services in 2015. Back then, we had some clients that required more time-critical solutions and were typically served via air freight. At that time, the comparative cost-effectiveness of rail freight against air freight made it a viable option for our clientele and the transit time also still aligned with the clients’ requirements. The transition of those clients from air to rail became a huge force behind our venture and development into the rail freight market, and fortunately for us, the growth potential has been great.

However, it was anything but an easy journey. When we first started out, pervasive skepticism and lack of comprehension among shippers and consignees regarding the product were prominent hurdles, so James and I took it upon ourselves to learn the ins and out of the business. From the loading of the train to the operations at border points and destination terminals, we investigated every cost that could potentially incur and that took us almost a year. Afterwards we explained the whole process to each customer one by one to convince them to give rail freight a try. Once they did a trial shipment or two, they started to see that it was not as complicated as imagined, and slowly began to accept it.

James: This has been a long development journey which we are very proud of. Presently, our operations span across all major rail platforms in China. We also operate warehouses in over 20 cities, covering pivotal hubs like Chengdu, Xi’an, and Chongqing. In Europe, our reach extends to strategic consolidation points, including warehouses in Hamburg, Budapest, and Warsaw.

NSRN: In the last few years, Smile has become well known in the China – EU rail freight industry as a leading company. You have experienced the ups and downs of the rail freight market from pre-covid times to pandemic times, to today where the market volume has dropped significantly due to the Russia-Ukraine war. What are some of the significant moments you remember during these different phases? How are you positioning the company to react to such fluctuations and uncertainty in the market? 

Henry: Undoubtedly, the rail freight industry has navigated huge fluctuations in the last years, and the development has not been short of surprises. In 2021, the impact of the pandemic was further amplified by the blockage of the Suez Canal, leading to a huge spike in demand vs a lack of container space. Cargo overflowed from sea freight towards rail freight, which at that time with the hiked-up ocean freight rates became a very attractive option.

We try first and foremost to stay true to our mission, which has always been to solve problems for our clients. While profitability stands as a crucial objective for any organization, our core mission transcends the singular pursuit of financial gain. Just because we specialize in rail freight, and it was very profitable at that time, did not mean that we will just push all clients into putting cargo on the rail. We evaluate each scenario, recommending alternative modes of transportation when appropriate, striving to deliver the most cost-effective solutions.

We want to continue doing business in the long term and therefore maintaining good relationships and investing into our hard and software is utmost important. Through the participation of networks such as New Silk Road Network, we are in constant open dialogues with agents at delivery destinations. The invaluable insights we gather from these exchanges are channeled back to our team, enabling agile adaptation and responsive action.

In the past three years, the rail freight market has been on a roller coaster journey. Despite trying very hard to maintain our pricing at a relatively stable level vis-à-vis the market rates, regrettably, certain companies resort to aggressive undercutting with exceedingly low prices. At times, these pricing strategies are so unfathomably low that they also come with significant risks. This does not help the overall reputation of the rail freight industry, and it is a continuous journey to educate and bring on new clients.


(Picture Credit: Shenzhen Smile International Logistics)

NSRN: This is a very interesting point that you just brought up. If we were to look at the ocean freight market, one could say that there is a general understanding in the market of what price key shipping lanes should be at each given time. Yet for rail freight, this does not seem to be the case. Does this mean that the general knowledge of people in the industry when it comes to rail freight has not yet reached the same level of ocean freight, for example? 

Henry: Absolutely, the evolution of rail freight has been a relatively recent phenomenon, spanning just the past decade. Directly contrasting it with sea freight proves challenging and somewhat unfair. Many people think that because the China – EU rail connection is promoted by the Chinese government, the subsidiaries will always be there, but these assumptions are not true – in reality, most of these subsidies are now close to ceasing. Apart from the management of these rail platforms, many operations are now commercialized.

Then again, why do people always compare rail with sea freight and not air freight? This is a misconception in the first place. Rail freight was never intended to rival sea freight; it's impractical to challenge the extensive network of ocean carriers that have operated for decades, even centuries.  Rail freight's niche lies in transporting high-value cargo with strict time requirements. Identifying and leveraging this specific niche is very important for optimal utilization.

NSRN: Where do you see the market going in the next few months to a year for rail transportation between Europe and Asia? What focus points does Smile have in mind to develop?

Henry: The next one or even two years will still be tough. Nevertheless, we are confident in our services and capabilities to overcome these hurdles. While rail logistics remains a cornerstone of our operations, we are actively exploring additional multimodal transportation solutions. For example, we also launched TIR International Trucking Services connecting China with Europe. We remain optimistic about the future of rail freight though and intend on staying in this arena. Interestingly enough, our volume for rail has actually increased in the last year. Of course, the margins have dropped but this is a common phenomenon for almost all logistics companies.


(Picture Credit: Shenzhen Smile International Logistics)

NSRN: Towards the end of last year, there was news regarding the allowance of batteries on rail which was a huge thing for the industry. How did this impact your business? 

Henry: First of all, it is important to understand that there are many subcategories within batteries, as well as products that contain batteries within them. This year China Railway authorities announced the gradual lifting of bans for battery transportation on rail. However, the implementation of this directive varies across distinct railway operating platforms such as Xi’an, Chengdu, Chongqing, and Zhengzhou. Additionally, each station and customs point apply diverse criteria for categorizing hazardous cargo, resulting in varying interpretations of the regulations.

From our side, we try our best to strictly follow the segmentation given by China Railway, which is often based on the final usage case of the battery and therefore can be extremely detailed. That is why we sometimes say we can transport batteries and in other cases not. I would say that amongst most companies in the market, Smile is one of the most professional when it comes to this.  

NSRN: From your point of view, which subcategories of battery types do you think will be the first to be lifted from the transportation ban?  

Henry: I anticipate that the initial lift in restrictions will likely apply to items featuring small-voltage batteries, such as remote controls and devices powered by button cells. Subsequently, larger products like laptops may follow. The transition to digital is inevitable and I am confident that the relevant authorities on working on solutions that will enable railway transportation to keep up with this trend.


(Picture Credit: Shenzhen Smile International Logistics)

NSRN: Talking about trends, China is without doubt an ecommerce powerhouse. The characteristics of ecommerce make it one of the typical cargoes suitable for rail transportation. With the growth of e-commerce, how do you see rail freight adapting to meet the demands of faster and more flexible supply chains as well as customs clearance processes?

Henry: The exponential growth of e-commerce has been remarkable. We've observed major e-commerce players directly engaging with ocean carriers, followed by Amazon's fulfillment services. Undoubtedly, the market size of e-commerce is substantial. However, based on our extensive research in the Southern China market, approximately 30% of participants still lack the necessary expertise to accurately declare exports, failing to meet the requisites for rail freight.

Yes, the timeliness of rail freight is a genuine good fit for e-commerce goods, and yes, it is more affordable than air freight. Yet despite many rail platforms having e-commerce hubs, the number of companies that qualify are still limited. Most e-commerce shippers are unable to do real-time customs declarations for all goods on deck. This is not because they don’t want to, but because depending on which site the order comes from, such as Taobao or Alibaba, not all information needed for rail export declaration is transmitted from the seller. For this reason, unless this can be regulated, I believe sea freight will continue to be the mainstream choice for e-commerce with rail freight as a supporting alternative.

NSRN: How do you foresee the integration of digitalization and automation shaping the future of the rail freight industry, and what strategies is Shenzhen Smile Logistics adopting to stay ahead in this changing landscape?

James: Investing in technology to increase customer satisfaction has always been part of our strategy. We have recently launched a test version of our own rail cargo tracking system. This allows the customer to easily see and track their order from the beginning till end, especially when we are working with clients that are not in the same time zone, this can be a real time-saver. At the moment, work still needs to be done on the application but we are excited to roll it out to all clients soon.

 

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