FROM COMPETITION TO CONVERGENCE

The largest regional railway corridor Baku-Tbilisi-Kars (BTK) was commissioned almost two years ago. Since the end of 2017, the route has been used for the shipment of dry and container cargo between Turkey, Georgia, Azerbaijan and the Central Asian states. It is expected that Russia join the BTK transport project in the near future to transfer large volumes of cargo to Turkey, as well as to channel the cargo flow from the Trans-Siberian Railway (Trans-Siberian Railway) to BTK.

From West to East

Since the start of the EU-backed Transport Corridor Europe-Caucasus-Asia (TRACECA) project, which hosts the BTK railway corridor as well, some Russian experts have viewed these initiatives as a kind of potential competitive threat, an attempt to isolate the Trans-Siberian Railway and to channel part of the Chinese cargo flow to the railway corridor set up by Central Asian and South Caucasian countries. The Silk Road infrastructure created as part of the European initiative has subsequently become a basis for the large-scale 'One Belt — One Way' transport and logistics system that China is forming today.

However, almost all the initiatives implemented in the Central Asia and the South Caucasus in the last decade have not become an alternative to the Russian Trans-Siberian Railway and the Baikal-Amur Railway (BAM). Moreover, neither the South nor the North routes have so far been able to take over any significant part of the cargo flow from the Asia-Pacific region (APR). Until recently, the overwhelming volume of goods shipped to Europe from the large and industrially developed Southeast Asia has been handled by sea through the Suez Canal or around the African continent. Obviously, this maritime route dominates despite the longer delivery times (30-40 days).

"In the 70-80s, the Trans-Siberian Railway accounted for up to 15% of the total cargo flow between Japan and European countries, including Germany. Everything has changed with the collapse of the USSR and the disintegration of the single transport space," Alexei Bezborodov, Director General of the Infranews research center.

Today, about 90-95% of cargo from Japan, South Korea and other countries of Southeast Asia is transported using maritime vessels, given the substantially low tariffs and absence of any cross-border, customs or technical obstacles for the shipment of goods.

In the 90s and partly 2000s, the Trans-Siberian Railway capable of handling 100 million tons of cargo, including 250 thousand containers, was not used in full capacity. Moreover, its outdated infrastructure required radical upgrade.

The situation began to change after the 2008 crisis, especially after the Russian-Ukrainian conflict in 2014, when the vector of Moscow’s economic relations began to shift smoothly from West to East. "At that time, the cargo-intensive North-West railway route began to lose traffic volumes, which turned around towards the Trans-Siberian and BAM routes. The Far East was not ready for such growth, and in just a few years the throughput capacity of the railway line reached its maximum limits," Pavel Ivankin, Chairman of the Expert Council of the Russian Institute for Research on Railway Transport Problems.

In 2004-2018, the volume of cargo shipment in Russian Far Eastern ports actually increased almost three times (from 70 to 180 million tons), but further growth ran into problems.

Also, it is not always possible to sustain the schedule of cargo delivery (20 days) recommended for the Trans-Siberian. Russian Railways has fixed tariff rates for set for 6-12 months, while prices for maritime transportation can be regulated by the market promptly and flexibly and in practice are almost always lower.

It is evident that Moscow is trying to solve these problems. For example, President Vladimir Putin initiated a plan to upgrade the Trans-Siberian Railway in order to increase its annual throughput capacity to more than 200 million tons and double the speed of cargo deliveries by 2025. However, this ambitious plan requires many billions of dollars invested in the construction of additional tracks, tunnels and interchanges, as well as a radical change in the system of logistics and traffic management.

Orientation to Baku - Tbilisi - Kars

Due to the above factors, Russia now supports cooperation with countries participating in the Silk Road corridor project to transport part of the cargo transported via the Trans-Siberian Railway to the south, in particular through Azerbaijan and Georgia.

Baku and Moscow plan to focus their efforts on the development of transit traffic along the East-West-East direction, primarily the transit between Azerbaijan and China through Russia, as well as between China and other transit countries through Russia and Azerbaijan. To reduce cargo delivery times, it is planned to optimise border and customs procedures, including electronic data exchange and preliminary information supply in electronic form. "Russia plans to switch part of the cargo flow, including container traffic, via the Trans-Siberian Railway through Azerbaijan, Georgia to Turkey and further to Europe. This project will be implemented on the basis of the BTK corridor," Alexander Misharin, First Deputy General Director of Russian Railways said.

On September 19, at the plenary meeting of the Coordinating Council for Trans-Siberian Transportations (CCTS) held in Nur-Sultan, Azerbaijan Railways CJSC was given a status of a full member of the council.

"With the signing of a trilateral memorandum in Ankara in May 2019, Russia actually joined the BTK project. Russian products, such as coal, timber and wheat delivered to Turkish importers, and the goods from China, South Korea and other countries of the Asia-Pacific region transported by the Trans-Siberian Railway will be transported through BTK," Alexander Karavayev, a researcher at the Institute of Economics of the Russian Academy of Sciences and an expert of the Valdai Club said. He underlined that Moscow would increase efforts to expand the Azerbaijani transport hub both along the BTK and the North-South railway line.

Russia is mainly interested in diversification of routes because it needs to optimise transport logistics by redirecting cargo traffic to shorter and relatively unloaded highways, in particular to BTK. According to Karavayev, in addition to direct sea links between Russian and Turkish ports (6 million tons of cargo annually), Russian-Turkish trade is also carried out by road with trucks and transit along the Southern European railways (mainly through Bulgaria) ensuring the shipment of about 20 million tons of cargo. Actually, Russian Railways is planning to take this volume under control and supply part of land cargo directly through BTK.

At the same time, Karavayev believes that BTK can solve the problem of super-high seasonal workload of Russian coal terminals in the Far East and the low shipping capacity of grain terminals in the Black Sea (three terminals in Novorossiysk and terminals in Kavkaz and Taman). On the initiative of the Russian Railways and Russian Rusagrotrans (owned by VTB), a joint Azerbaijani-Russian company Azrustrans was established to transport grain and lumber. It is the only transport company in the region with a wagon fleet for transporting grains.

Recently, at the 10^th international conference Rail Transportation of Mining and Metallurgical Cargo held recently in Moscow, ADY Express LLC established by Azerbaijan Railways concluded an agreement with a number of major Russian shippers to transport goods of the Russian mining and metallurgical industries through the BTK as well.

Meanwhile, Russian Railways Logistics JSC and the Turkish logistics operator Pasifik Eurasia Logistics signed an agreement on the establishment of a joint venture in Ankara to develop logistics routes for the delivery of goods along the BTK corridor. The objective is to expand the trade between Russia and Turkey, as well as attract goods and provide customers with a wide range of logistics services along the railway route.

BTK is profitable for everyone

"Russia is interested in the Baku-Tbilisi-Kars transport corridor. Russia has expressed a desire to join the project, which will benefit all countries of the region. Russian companies providing transportation of Russian goods, including through BTK, will increase its fill rate," Faridun Usmonov, head of the economic department of ​​the Centre for Study of Modern Turkey, said at the international conference Azerbaijan-Russia-Turkey: Political Dialogue, Economy, Security" held in Baku recently.

The loading rate is very important at the initial stage of the BTK route, as it is still far from the expected level. According to the Ministry of Economy of Azerbaijan, since its inception in October 2017, about 5,500 containers have been transported along the BTK route. In January-July 2019, 171 thousand tons of TIR containers were transported from Turkey to Central Asian countries and back.

These volumes are relatively small. BTK requires some time to reach an average annual transportation level of 3-5 million tons. In the long term, BTK will hit its design throughput capacity of 15-17 million tons per year, if it is used solely for the transit of goods from Central Asia and China. Despite the major advantages of the Silk Road, such as its relatively short distance (about 10,800 km from Chinese Lianyungang to Rotterdam in the Netherlands), favourable winter conditions and the developed railway and maritime infrastructure, the route also has a number of drawbacks.

The TRACECA route, which is an alternative to the Trans-Siberian Railway and originates in China going through Kazakhstan, Turkmenistan, the South Caucasus, Turkey to the Balkans and then to the Dutch ports, is complicated in many ways: unstable political regimes in a number of countries, the use of ferry services across the Caspian and Black Seas, the crossing of borders of 10-12 countries with different railway widths and specific transport and customs rules, mountainous areas with limited train speeds, etc. Above all, the absence of cross-border problems over most of the length of the Trans-Siberian Railway allows Russian Railways to maintain more competitive end-to-end tariffs, which is a weakness of the TRACECA project. In recent years, however, the maritime and railway administrations of Azerbaijan, Georgia, Kazakhstan and Turkmenistan have made significant progress in this direction.

If Russia connects to the BTK route transferring 10-15% of cargo from Russia to Turkey, the project's throughput can increase by 2-3 million tons as soon as possible.

Georgia is also hopeful to use the perspective opportunity. The country is interested in attracting additional transit cargo traffic to the BTK corridor. This issue was recently discussed during a meeting in Baku between the President of Azerbaijan Ilham Aliyev and the Minister of Economy and Sustainable Development of Georgia Natia Turnava.

"Thanks to the BTK corridor, the regional countries turn into an important transport and logistics hub of Eurasia. The objective of our efforts to strengthen international corridors is to increase the transit potential of the participating countries," Javid Gurbanov, Chairman of Azerbaijan Railways CJSC said at the meeting with Georgian delegation.

Today we are witnessing a fundamentally new situation, which provides for convergence and complementarity of the Trans-Siberian and Baku-Tbilisi-Kars railway lines. The actors of these projects are no longer competitors but partners. It is difficult to overestimate the interest of the Azerbaijani railway administration in such cooperation with Russian Railways.