A couple of weeks back, a truck hailing from China drove into the depths of central Asia as it journeyed West, traversing through Kazakhstan and Russia to enter Europe through Belarus and finally unloading its freight in Poland. Though a lot of trucks have likely traced this path before, what is of particular interest is the time frame and the manner in which it was accomplished.
The whole journey took just 13 days, which is nearly twice as fast as railroad transport between the two destinations, and with a door-to-door cost that is half that of air freight. But it couldn’t have happened without China’s entry into the World Road Transport Organisation (IRU) TIR system, an agreement that shaves off numerous border control checks and red-tape regulations.
Transports Internationaux Routiers, abbreviated TIR, is a system that was first introduced post-World War II to facilitate trade between countries across both the Allied and Axis Power factions that were still smarting from wounds caused in the war. Trading between countries that were a part of TIR was easy as road transport operators had to only declare their data once when they were hauling goods across multiple borders. The idea behind TIR was simple – enable effortless trade transactions would induce economic growth, a development that in theory would also help sustain peace.
The system was fine-tuned along the way and today, IRU provides a guarantee to the tune of 100,000 euros per truckload, which is dispensed in case of infractions on the freight. This made TIR a prudent choice for customs departments as well as for transport operators, who found this system inexpensive when considering the alternative of getting a bank guarantee for every border crossing.
On account of this landmark road initiative, FreightWaves spoke with Umberto de Pretto, the Secretary General of IRU, to discuss the finer points behind this new trade flow. “TIR has gotten countries to trade and talk to each other after the Second World War, and there has been peace in Europe thanks to this. Now, we want to make sure that all the other regions benefit from this as well,” he said.
Following on China’s heels, India and Pakistan have also joined the TIR initiative, thus opening up 40% of the world’s population to seamless cross-border trading. De Pretto remarked that one of the reasons for the Asian countries to take so long to join the TIR could be attributed to lack of awareness on what the system entails.
“And there is also the false assumption that the TIR system – because it originated in Europe, would be a very expensive system,” he said. “Another reason is that regional efforts that were made to come up with transit systems have largely failed. So for these countries, I think it is also the frustration of not being able to put something in place that works.”
With manufacturing giant China in the picture, de Pretto explained that TIR would make commodities coming out of the country cheaper, while providing leverage for Chinese businesses to trade seamlessly beyond its borders. “The moment you have access to other global markets, it’s a win for the market that’s receiving, but also a win for the market that is exporting those goods,” he said. “And it is more attractive to the consumers and you’ll have more consumption and people selling those goods will have a greater return on their investment.”
De Pretto spoke about the success of the pilot run between China and Europe, explaining that the 13 days it took for the initial run could be further reduced to 11 days in the future. This is huge, as expediting freight hauling would help large businesses save millions in inventory costs.
“One example is Philips, which made an assessment a few years back saying it would save $50 million globally for every one day it can reduce its stock-holding time on goods that are held up,” said de Pretto. “And that’s just one company. In economic terms, unless the goods are moving, there’s going to be somebody who’s going to be penalized.”
De Pretto insisted that a railroad extension of China’s ambitious BRI initiative all the way to Europe would not have a direct bearing on the TIR-enabled market. “I don’t think there will be competition between rail and road transport, but it would be complementary. And you could move those containers by rail with the TIR convention because TIR applies to containerized movements,” he said. The IRU is actively encouraging the Chinese government to use TIR for their container movements on rail, as in the absence of a regularized environment, border hassles cannot be siphoned away.
“The more we can facilitate trade, the more we will drive progress and prosperity, and in some regions, even peace. And I cite in particular the Middle East where we see quite a bit of conflict. We want to bring economic stability through road transport,” said de Pretto. “We want to make sure that the trucks bring prosperity to every village, and not just to the major hubs. We want to interconnect every village in Central Asia or Africa to the major world economies, and help them get their produce to the market.”