CIS countries are looking to capitalise on the huge growth in rail traffic between Europe and China
The growing interest in container block train services between China and Europe, and vice versa, has created many opportunities for the Commonwealth of Independent States (CIS - comprising Armenia, Azerbaijan, Belarus, Georgia, Kazakhstan, Kyrgyzstan, Moldova, Russia, Tajikistan, Turkmenistan, Ukraine and Uzbekistan), and this situation looks set to continue.
In 2018, an estimated 380,000/400,000 TEU was moved by rail from China to Europe, up more than 35% on the previous year, and a similar rate of growth is projected in 2019. These numbers compare with less than 60,000 TEU in 2012.
The routing of this cargo has changed. Whereas six years ago virtually everything was moved via either the China/Russia and China/Mongolia/Russia borders to the Belarus border with Poland via the TSR, now the Central Asia States (CAS) play a much bigger role. Indeed, estimates suggest that as much as 75% of cargo transits Kazakhstan, involves switching in Khorgos, and is moved by KTZ railway (see accompanying map).
Khorgos has become the transfer station for most services, including the transCaucasian corridors via the CAS, and also a southern route that transits northern Iran. The inland port, in which China Cosco Shipping and the Port of Lianyungang have a 49% shareholding, is on course to handle over 500,000 TEU in 2020.
The fastest growing of these links are the trans-Caucasian routes, often referred to as the middle corridor. It includes the use of rail systems in countries such as Kazakhstan, Azerbaijan, Georgia and Turkey. This is the corridor that has attracted the most significant capital investment in recent years, and where the most exciting development projects exist.
Partly, this is because the success of rail and subsequent increase in east-west traffic has encouraged governments, provincial agencies, state-controlled and private companies to consider similar opportunities in north-south corridors connecting India/Middle East (Gulf) with Russia/ Eastern Europe, and which also transit the region. By bypassing the Suez Canal and the Mediterranean Sea, rail transfers can be highly cost-effective and much faster than shipping services.
Increasingly, though, it is about how these countries can tap into at least some of the cargo transiting their states and carve out opportunities in value-added logistics, processing, assembly and even manufacturing. It is also about how the cargo can be used to improve their infrastructure further. There is intense competition between the CAS in this regard.
Black and Caspian
Earlier this year, the foreign ministers of Georgia, Romania, Azerbaijan and Turkmenistan signed a document establishing the Black Sea-Caspian Sea Freight Transport Corridor. The objective is to create the most effective freight artery between Central Asia and Europe, by harmonising tariffs, simplifying customs procedures, improving infrastructure, and ensuring that smooth cargo transfers occur at the borders, various ports and rail yards. These include Constantza (Romania), Poti (Georgia), Baku (Azerbaijan) and Turkmenbashi (Turkmenistan).
At the moment, the most ambitious developments are taking place in Georgia, Kazakhstan, Azerbaijan and Turkmenistan, where upgrades to these countries’ ports, highways and rail networks are in full swing.
In Georgia, the most ambitious project is the building of an integrated deepsea port and special economic zone (SEZ) at Anaklia. Spearheaded by the Anaklia Development Consortium (ADC), which is investing approximately S$2.5B in the complex, the first phase is scheduled to open in early 2021.
The port complex will feature a 1.5 Mtpa dry bulk handling facility and 900,000 TEU capacity container terminal. It will have a draught of 16m that will allow calls by Bosphorus-Max ships (approximately 9,500 TEU). Meanwhile, the
first stage of the SEZ will cover 400-ha of land and comprise a mix of logistics and industrial clients.
However, the whole project is proving controversial, and at the time of writing, Georgia’s minister of regional development and infrastructure, Maia Tskitishvili, has openly questioned whether the finances are in place to meet the project deadlines. She said that investors are demanding a feasibility study for each phase and say that the port development should not be linked to any specific date and should start only after the feasibility study is done.
Her comments prompted an immediate rebuttal from ADC, which accused the minister of making “false, biased and distorted statements. These harm this project and its construction process, as well as the international investors, willing to take part in the construction of the port, who took risks and made solid investments just 4 km away from the conflict zone, near Abkhazia”.
ADC sees the port/SEZ as being transformational for Georgia and for the customers that choose to call, given the size of vessel that can be used and the range of services available. But ADC must realise that attracting cargoes could be challenging, at least initially, given the relatively small size of the local/regional market, ocean carriers’ general reluctance to shift terminals, and the likely response on rates from existing facilities.
Last year, an MoU was signed by Anaklia City JSC, a company set up by ADC to develop the SEZ, with Kerry Globalink, a member company of Hong Kong-headquartered Kerry Logistics Network Ltd. Kerry has considerable freight forwarding and logistics experience in the Caucasus region, and it is knowledge that ADC is keen to tap.
On completion, the Anaklia SEZ will cover 2,000-ha and the port will have the capacity to process just under 100 Mtpa. This will include 3M-plus TEU of containerised cargo. But the country’s two other ports, Batumi and Poti, are also being modernised, and new cargo handling terminals developed. In both cases, the projects are partially related to the growth in the transit trade and Georgia’s potential as a maritime gateway for the CAS.
Upping the PACE
In Poti, PACE Group is investing US$120M on completing a terminal that it started in 2015. Initially, the group, which is being backed by a 15-year, US$50M loan from US-based Overseas Private Investment Corporation, will finish building 293m of quay wall. This is supported by 10-ha of open storage yard and warehousing facilities that can store up to 80,000t of cargo. Currently, the terminal can handle 1.5 Mtpa.
According to PACE, strong growth in its core fertiliser business means that more capacity and handling equipment is needed. Hence, the group is moving forward on phase two. It is hoped that work will start on constructing an additional 407m of wharf, new warehouses and storage capacity for liquid cargoes by mid-2019. PACE wants the expanded facility to be fully operational by the end of 2020.
Elsewhere in Poti, a consortium of APM Terminals, which runs the port’s main container terminal and handles in excess of 80% of the country’s box traffic, and Poti New Terminals have submitted plans for a new dry bulk facility. It comprises a 700m quay with a depth alongside of 14m, and opened and covered storage areas for a range of cargoes, including grain, minerals, ores and fertilisers. Georgia’s Ministry of Economy and Sustainable Development is reviewing the design.
In the port of Batumi to the south, Manila-based International Container Terminal Services Inc. (ICTSI) is expanding its Batumi International Container Terminal (BICT) multipurpose/container handling facility.
“This new investment consolidates and expands BICT’s competitive position in the region,” said Hans-Ole Madsen, ICTSI’s senior VP for Europe, the Middle East and Africa. “A comprehensive dredging programme being undertaken
in cooperation with Batumi Sea Port will provide an 11.5m draught in the port’s fairway and alongside BICT’s quay. This will allow easy access for Feedermax vessels at the port, and will make it Georgia’s deepest draught port.”
Feeder ships remain the most common type of vessel calling in the easternmost part of the Black Sea.
Overall, the expansion plan will increase BICT’s box handling capacity to 200,000 TEU/year and raise its general cargo and dry bulk processing capacities. In Kazakhstan, both the dry (rail) port of Khorgos and its main sea port at Aktau on the Caspian Sea are being expanded as transit cargo moving to/from China increases rapidly. Khorgos is where containers have to be switched from the Chinese to the Soviet rail gauge system, and so it is viewed as one of the most important transfer points in the Middle Corridor and a nodal hub for investment. The terminal is believed to be the only inland rail terminal in the world that runs the Navis N4 TOS to manage its container handling.
DP World has been working with the Kazakhstan Government for more than two years, but mainly in an advisory capacity. Specifically, the global terminal operator has been providing management services at both Aktau and Khorgos, but it wants a more tangible presence. Following recent meetings between the parties, two framework agreements are now in place for the development of SEZs in the above mentioned ports.
“Our expertise in developing logistics and trade-enabling infrastructure will benefit the needs of local businesses,” said DP World’s chairman and CEO, Sultan Ahmed Bin Sulayem. “We believe that the economic fundamentals of Kazakhstan are very strong, which is why we look forward to continue investing there.”
Elsewhere in the CAS, in May last year, the Turkmenbashi International Sea Port (TISP) was opened. It is located on the Europe-Caucasus-Asia trade route and its modern facilities should see it become a major transit hub. TISP is substantially bigger than the port it replaced, and it has several dedicated terminals, including for containers, dry bulk, ferries and general cargo. Overall, it has the annual capacity to handle 300,000 passengers, 75,000 trucks, 4 Mt of general cargo, 3 Mt of dry bulk products and 400,000 TEU.
In Azerbaijan, the new Baku International Sea Trade Port, which is actually located in Alat, is also well placed to handle substantially more Asia/CAS and Asia/ China transit cargo, as it also serves as the eastern terminus for the Baku-TbilisiKars (BTK) railroad. It is also located on the north-south rail corridor connecting Russia and Iran.
Opened in late 2017, BTK links the Azerbaijan port with Georgia’s capital city Tbilisi and Kars, which is an important border and railway town in northeast Turkey. From Kars, cargo can be carried across Turkey’s entire freight rail network, but with the most important corridors being Istanbul, Izmir and Mersin. Approximately 7 Mtpa of cargo can be carried on the 826 km line, but this can be increased to 17 Mtpa.
The railway’s traffic is expanding and this is also evident from activity at the port of Baku. In 2018, an estimated 21,000 TEU was handled, up over 45% on the corresponding period of 2017. It was almost entirely transit cargo.
Currently, the port authority is relocating the Main Freight Terminal from the old Baku International Sea Trade Port, which will boost cargo volumes further. Once the expansion programme has been completed, the new port of Baku
will have an annual handling capacity of 100,000 TEU and 15 Mtpa of dry cargo.
Work is also taking place on an adjacent 115-ha free trade zone. It is hoped that a mix of logistics and industrial enterprises will be attracted to the park, and that it will allow Azerbaijan to partake in a full range of value-added distribution services, processing and manufacturing activities. These are also the sectors that Anaklia, Aktau Khorgos and Turkmenbashi are competing for.
Getting cosy with Iran
Armenia also views the logistics sector as an opportunity, but it sees closer cooperation with Iran as crucial to its future. It has opened an SEZ in its southern-most city of Meghri, which is located on the Iranian border. In addition to boosting its own trade with Iran, which now totals more than US$210M a year, the Armenia Government believes the zone will allow Iranian-domiciled companies to process goods. It could then act as an intermediary to facilitate Iran’s trade with the Eurasian Economic Union, the Russialed trade organisation of which Armenia is a member.
But with other free economic zones in the country struggling to retain, let alone secure, new business, the prospects for this development appear slim. Moreover, political pressures from Azerbaijan will not help, as it is the latter country that is determined to forge closer relationships with its southern neighbour.
In the past 15 months, the Azerbaijan Government has lent Iran US$500M to build a 205 km rail line between the Azerbaijan border (Astara) and Rasht, which then connects with the Middle East country’s national network. The deal
also includes a lease arrangement whereby Azerbaijan Railways rents the track for 25 years. The Azerbaijan Government hopes that this arrangement will boost trade from a current level of just over 0.6 Mtpa to 25 Mtpa by the end of the rental deal.
Meanwhile, Azerbaijan has been instrumental in convening meetings at ministerial level between itself and Iran, Turkey and Georgia. These have resulted in a general consensus to increase the transit cargo potential of the four countries, and to cooperate where possible on implementing projects that will improve the transport infrastructure and freight carrying capacity of the countries.