Azerbaijan attracting regional transit Caliber.Az review

Geopolitical changes in the wake of the war in Ukraine have multiplied the demand for alternative transport routes for road carriers from Central Asian countries and Iran, which still use the Northern Corridor to transship cargo to the European Union (EU). In this regard, following the results of a conference held in Iran last weekend, an agreement was signed on the development of cooperation in the auto-transit sphere. The need to simplify cross-border road transport along the "Middle Corridor" is an urgent task, especially given the ban imposed by the Russian government on international road transport through the territory of Russia from October 10, 2022, for transport companies from the EU, Ukraine, the UK and Norway.

The confrontation between Russia and the collective West and the ensuing sanctions brawl have qualitatively refashioned the transit and logistical picture of Eurasia. The situation worsens month by month as the confrontation in Ukraine intensifies. For example, in the initial stage of the conflict, it was EU countries that initiated bans on the use of their ports and overland routes by Russian merchant ships, as well as rail and road cargo carriers. However, amidst the widening energy and food crisis by early summer, some EU countries tried to increase supplies of Russian energy, agricultural raw materials and fertilisers (including Belarusian ones) as an exception. There were even expectations to expand raw material transit from Central Asia, including via the Northern Corridor, as these cargoes were not subject to EU restrictions.

However, military confrontation dictates a different logic, and Russia has been quite sceptical about the prospects of expanding alternative supplies of energy and other raw materials from Central Asia. Suffice it to recall the vicissitudes experienced by the Caspian Pipeline Consortium (CPC), which was periodically closed for various reasons. By the way, the situation around the CPC is still too complicated, and at the end of September, the international rating agency Standard & Poor's downgraded the rating of oil company Tengizchevroil LLP from BBB- to BB+ because of the increased risk of further disruption of the main export route - the CPC oil pipeline.

To all appearances, one should not expect the situation around the Northern Corridor to get better soon: on October 10, the Russian government imposed counter-sanctions - a ban on international cargo transportation through the territory of Russia for transport companies from the EU, Ukraine, the UK, and Northern Ireland, and Norway. The ban came into force on October 10 and will be effective until December 31, 2022, with room for further extension. As follows from the text of the Russian Cabinet of Ministers' resolution, the ban on international cargo deliveries through Russian territory is imposed on carriers registered in countries that had previously imposed relevant restrictions on Russian transport companies. In particular, the ban also applies to bilateral and transit shipments (hello to the Central Asian countries!), as well as shipments from or to the territory of a third country.

Such a decision essentially draws the curtain around the potential for preserving the traditional transit routes for the transhipment of cargo by road between the EU states and the Central Asian countries neutral to the Russian-Ukrainian confrontation, as well as China, the South Asian region, etc., that have been established for decades.    

One way or another, as the competitiveness of the Northern Corridor, has weakened, the number of applications from freight forwarders and logistics companies in Europe, Türkiye, Central Asia, China, and Iran has increased appreciably, with initiatives to boost the potential of the Silk Way by increasing freight traffic along several Middle Corridor routes.

Almost all the transit routes of this corridor pass through Azerbaijan, and it is not surprising that the country has become the key beneficiary of the increased freight traffic in recent months. It is worth noting that from January-July 2022, within the framework of the Transport Corridor Europe Caucasus Asia (TRACECA), over 15.466 million tonnes of cargo, or 54 per cent of the total volume of transportation through the TRACECA corridor, were handled through the territory of Azerbaijan by road. As a result, the cargo trucking volumes rose by 16.2 per cent compared to last year.

Domestic road carriers demonstrated even more impressive dynamics. According to the State Road Transport Service under the Ministry of Digital Development and Transport of Azerbaijan, in the first half of this year, the number of Azerbaijani carrier companies involved in international road transport increased by 2.9 times, and the number of vehicles operating in international road transport increased by 2. .7 times - up to 7,208 units.

It has not been without its challenges: the trucking boom, which has intensified since the end of February 2022, faced several obstacles by the end of the first decade of July due to the extremely congested port and railway infrastructure. The increased transhipment intensity of truck cargo due to the large cargo flow on the Middle Corridor led to the fact that heavy-duty trucks occupied a significant part of the loading places on ferries and RO-RO vessels, thereby reducing the transhipment of railway wagons.

As a result, over 800, and then almost 1,500 wagons, bound for Kazakhstan and Turkmenistan, accumulated in the port in Alat on the outskirts of Azerbaijan’s capital Baku. Therefore, from July 10, a temporary convention ban was introduced on ferry transportation of loaded railway cars for the Alat-Kuryk, Alat-Aktau, and Alat-Turkmenbashi ferry crossings. These restrictions were lifted on August 1, and since then the Trans-Caspian crossing has been operating normally.

Nevertheless, the intensity of the flow of road cargo through Azerbaijan is currently still high, and judging by the transit ban adopted by the Russian government on October 10, it will increase even more in the foreseeable future. In the current circumstances, the countries of the region are forced to further coordinate efforts to expand the capacity of the Trans-Caspian International Transport Route (TITR) and other corridors connecting the Central Asian region with Türkiye and European countries.

This work is carried out in several directions at once, intergovernmental agreements are being developed between Azerbaijan, Kazakhstan, and Uzbekistan, and negotiations are underway through the relevant structures of the EU, as well as the US Agency for International Development (USAID).

“The potential of TITR has not yet been fully realized. Taking into account the potential of Kazakhstan, as well as the flow of cargo that trucking companies from other Central Asian countries plan to transfer to TITR, it is extremely important to develop a highly efficient transit system integrated with Azerbaijan, Georgia and Türkiye,” the USAID official representative office in Kazakhstan said in a statement released the day before.

It is appropriate to note that with the active cooperation of Baku, Ankara, and Astana, since the end of last year, a passport for the TITR corridor has been developed, within which bottlenecks have been identified and work is underway to eliminate them to attract additional investment here. At present, the partners are agreeing on the concept of a joint venture (JV), which will be charged with the functions of managing the flow of goods, as well as expanding the possibilities for attracting additional cargo to the TITR route. The early start of the joint venture is an extremely important issue, since, taking into account the multiple increases in cargo transportation, the project participants will have to agree on several urgent issues. It is necessary to agree on recent tariff changes for transit cargo, discuss aspects of further simplification of cross-border and customs procedures and the use of unified IT solutions, and consolidate transit cargo on the route. To expand the transhipment of vehicles, it is also necessary to optimize the schedules for the movement of ferries, and RO-RO vessels between the ports of the eastern and western coasts of the Caspian Sea.

Similar work is being carried out by Uzbekistan and Azerbaijan, working out a new draft intergovernmental agreement in the field of transit road transportation: the draft agreement, in particular, provides for the exemption of road carriers of the two countries from tolls.

The issue of simplification and expansion of transit trans-Caspian cargo transportation is also being considered in a broader context. Thus, a conference on transport issues was recently held in Tehran, during which representatives of Azerbaijan, Iran, Russia, as well as Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, and Uzbekistan signed a statement on regional transit coordination and cooperation in transport policy issues. In particular, the conference participants agreed on cooperation in the field of tariff unification and issuance of annual visas for drivers of heavy vehicles engaged in transit traffic.