UNINTERRUPTED TRAFFIC FLOW

In 2023, Azerbaijan and its partners in the Trans-Caspian International Transport Route (TCITR) will start the implementation of large-scale projects to expand the logistics infrastructure of the Middle Corridor. The objective is to eliminate the bottlenecks and increase the throughput capacity of the TCITR, simplify cross-border, customs and tariff regimes, given the expected growth of cargo transportation in Eurasia. President Ilham Aliyev addressed the existing potential and perspectives of the corridor during a recent panel session at the World Economic Forum (WEF) in Davos.

Pros of the new route

One of the consequences of the Russia-Ukraine war and the subsequent sanctions confrontation between the West and Moscow has been the refusal to cooperate with Russian transport institutions. Throughout last year, Western transport and forwarding companies have consistently suspended cargo transportation and terminated logistics contracts with Russian companies providing port, railway, warehousing and other services. At the same time, cargo traffic along the Northern Corridor to Europe from China, Japan, and Central Asian states via the Russian railway network has been reduced to the minimum. Today, the potential of the Trans-Siberian Railway, Baikal-Amur Mainline and other railway networks is mainly used to deliver cargo from Asia directly to the Russian domestic market. Transit volumes have been maintained at minimum.

With the diminishing competitiveness of Russian routes, the Middle Corridor is getting increasingly popular as a key transport artery in the wider Eurasian region, connecting China via Central Asia and the South Caucasus with Turkey and Europe. The railway-port and road infrastructure along the route has been shaped over the past 25 years by the international project Europe-Caucasus-Asia (TRACECA). For quite a long period of time the Silk Road route has been mainly used to transport oil and other commodities from Central Asia and Azerbaijan to the West.

However, in the last five years we have seen a tangible diversification of the corridor's functions. In 2018, Ankara, Baku, Tbilisi and Astana launched the TCITR, while in December of the same year the Lapis Lazuli route initiated by Azerbaijan and Turkmenistan began to handle the cargo transportation. Both routes are the components of the Middle Corridor with focus on non-oil cargo transportation thanks to a multimodal transport scheme.

The advantages of the Middle Corridor routes include relatively shorter distances, as well as a milder climate that allows for uninterrupted traffic flow in winter. For example, a standard container block train on the TCITR takes an average of 20-25 days to deliver Chinese goods to Europe. This is noticeably faster than from China and Southeast Asia via the Suez Canal, which takes on average about 40 days.

Growth statistics

Global geopolitical changes considerably increased the volume of cargo traffic via TCITR and TRACECA in 2022. This made Azerbaijan one of the key beneficiaries of the global transport diversification. Over the past two decades, our country has invested billions of dollars in the transport infrastructure development, as well as in the procurement of commercial ships and railway wagons, reinforcing its position as an international transport hub in Eurasia. "Being a natural geographical bridge between West and East, Azerbaijan has made large investments in transport infrastructure in recent years. At the same time, our country has the largest commercial fleet on the Caspian Sea, 53 ships. In fact, all the necessary infrastructure facilities in Azerbaijan are ready to receive large volumes of cargo through the Middle Corridor. Increased cargo traffic will not only allow us to diversify exports, as the country will export services, but at the same time will create additional opportunities for business in Azerbaijan," President Ilham Aliyev said in Davos at the panel session Eurasian Middle Corridor: From a Path to Highway.

In fact, Azerbaijan has enjoyed tangible benefits from participation in regional cargo traffic operations since last year. Transit cargo traffic through Azerbaijan has increased by 75%, which had a positive impact on the revenues of transport companies. In general, all seaports (in Alat, Baku, Astara, Lankaran and Sumgayit) increased cargo transportation by 32.4% in 2022, to more than 11.75 million tons. The largest growth indicators have been demonstrated by the passenger car transport segment (3 times) and TIRs. Container traffic by ferries, feeder ships and other dry cargo vessels has also increased by 16% at Alat. Finally, in 2022 there was a 27% increase in railway transportation for the first time in three years. By the way, almost three-quarters of all cargo has been in transit. The high degree of transit transportation has been due to the mixing of cargo traffic from China and Central Asian countries previously oriented towards the railway networks of Russia, Ukraine and Belarus.

Last year's statistical data on the TRACECA route also confirm the growth in transit traffic. Thus, the volume of cargo transported through Azerbaijan increased by 29% in January-November 2022. At the same time, the share of transit cargo along this corridor was recorded at 26.8%.

Port Alat is an important link

Today, Azerbaijan and its partners under TCITR need to further expand the capacity of the Middle Corridor in order to make it easier and faster to transport goods. With this in mind, last year Kazakhstan started the construction of a container hub at the Aktau Sea Port FEZ. Kazakhstan will add four more ferries to its commercial fleet on the Caspian Sea. It is also planned that the construction of second tracks at and the electrification of the Dostyk-Moyinty railway section will be over by 2025. China has recently initiated a new China-Kyrgyzstan-Uzbekistan railway project. This mainline through the ports of the Caspian Sea will provide additional cargo traffic to Azerbaijan.

"Azerbaijan is currently increasing the annual throughput capacity of the Baku International Sea Port in Alat from the current 15 million tons to 25 million tons of cargo. We have already allocated necessary funding from the state budget for this purpose," President Ilham Aliyev said.

In particular, the current scope of works at the port includes the construction of a mineral fertiliser terminal with annual capacity of 2.5 million tonnes. The terminal is primarily designed to serve exporters from Kazakhstan, Uzbekistan and Turkmenistan, the largest producers of fertilizers in the region. The annual production potential of these countries is estimated at 10 million tonnes. Azerbaijan has already reached preliminary agreements on the transit of mineral fertilisers for onward transportation to the EU.

It is also planned to build a grain terminal in the Port Alat, which will improve the food security of Azerbaijan and expand the port's transit capacity. On July 15, 2022 Azerbaijan signed an agreement with Albayrak Group, the largest Turkish holding, planning to attract additional 60,000 TIR to the Port Alat. It is therefore planned to build a TIR park in the port.

In the medium and long terms, it is planned to construct a large container terminal as part of the second phase of the port expansion, which will increase its throughput capacity from 100,000 to 500,000 TEU containers. It is possible that an additional terminal for loading/unloading and further transportation of block-trains and a multimodal logistics terminal for processing and packaging of import cargo be constructed as part of the upgrade works at the port.

Cooperation and collaboration

"Today it is also important to work on the transportation along the East-West route for the cargo transportation from China, Central Asia to Europe, as well as the expansion of transportation in the opposite direction from West to East," President Aliyev said. He highlighted the high level of cooperation and collaboration with Georgia and Turkey, Azerbaijan's key partners in all regional and international transport projects. In order to strengthen the infrastructure of the Middle Corridor to the west, it is planned to provide funding to increase the capacity of the Baku-Tbilisi-Kars corridor (BTK) this year.

"Azerbaijan and Georgia are connected by highways and railways, including the BTK, a strategically important transport project for both countries. Today, together with Baku, we are implementing a project to upgrade the BTK in order to expand its capacity to 5 million tonnes. Just recently Azerbaijan has provided additional funding for this project, which we plan to complete by 2024," Georgian Prime Minister Irakli Garibashvili said at the WEF session. The upgrade of the Marabda section of the Georgian-Turkish border, as well as the completion of logistic terminals in Akhalkalaki, Georgia, and Kars, Turkey along the BTK route are expected to be accelerated.

At the same time, Azerbaijan plans to provide funding for the infrastructure projects along the TCITR route not only through the state budget, but also by attracting international donors. Thus, the European Bank for Reconstruction and Development (EBRD) has already approved a loan to Azerbaijan's Gemza Group LLC for the construction of three modern warehouses with a total area of 24,000 sq.m. The total value of the project is estimated at €19.1 million. It should solve the problem with the lack of modern warehouses along the Middle Corridor routes. It is also possible that another large loan from the EBRD ($100 million) may soon be provided to Azerbaijan Caspian Shipping Company (ASCO). Among other things, this will help upgrade the ASCO fleet, further expanding its capacity to handle cargo traffic flow along the Middle Corridor.

Simplifying cross-border procedures and speeding up the passage of commodities along the Middle Corridor are equally important for strengthening regional transport links. "I believe we now need closer cooperation between all the countries involved—in Central Asia, the South Caucasus and Europe—to actively work on customs administration, to achieve common approaches on single window and on tariff policies. It is necessary to create a kind of steering committee, a governing council, including all the interested parties, and by joint efforts to increase the commercial attractiveness of this route," President Aliyev said. No doubt that the goal will be achieved in the shortest possible time. After all, Azerbaijan's partners are also well aware that now, amid the growing demand and interest in new transport routes, is the right time to accelerate the implementation of planned projects and to occupy the respective vacant niches in a timely manner.