EU demand boosts Azerbaijan's role as regional transit hub German perspective on nation’s logistics

The disruption of transport and supply chains in the Eurasian space, compounded by the crisis in the Red Sea, has significantly increased the demand of European Union states for alternative transport routes with Asia. The Middle Corridor passing through Azerbaijan occupies a key position in this regard, with the Baku International Sea Trade Port (BISTP) being a crucial link in this logistic chain.

The Alat port is expanding its capacities, and potential partners for investment in its infrastructure could be business circles from the Federal Republic of Germany (FRG). Recently, ten companies from the FRG visited the BISTP as part of a business delegation led by the Executive Director of the Eastern Committee of the German Economy, Michael Harms.

The ongoing geopolitical crisis in Ukraine for the third year has significantly reshaped the transit and logistics landscape of Eurasia. As the competitiveness of the Northern Corridor weakens, there has been a noticeable increase in applications from European freight forwarders and logistics companies for alternative trans-Caspian routes, where Azerbaijan's position is quite strong. Baku is an active participant in the European Union-initiated Europe-Caucasus-Asia Transport Corridor (TRACECA), as well as the Trans-Caspian International Transport Route (TITR) and the Lapis Lazuli route. Together with Bucharest, Tbilisi, and Ashgabat, Azerbaijan is involved in shaping the prospective route "Black Sea - Caspian Sea".

In perspective, the development of these trends will only expand further, considering the European Union's plans to allocate $10 billion for the development of port and railway infrastructure along the Middle Corridor in the Caspian region, as well as support for the implementation of digital solutions to ensure seamless cargo transit, increase container and ferry fleet. The digitization of the route will significantly increase container traffic volumes, which could potentially transport up to 600,000 containers per year (ten times the current limit).

Many shippers prefer container transportation, and this aspect, in particular, will be taken into account in the work of TRACECA for the period 2024-2026. The European Commission's (EC) long-term plans include expanding cooperation with Eastern European and Asian TRACECA member states within the framework of the Trans-European Transport System. This involves integrating states in the Black Sea-Caspian region into the Trans-European Transport Network (TENs) with the creation of a southeast axis to increase multimodal transportation.

By 2030, this project envisages creating a new transport system within the EU, which will unite 94 seaports, 38 international airports, and approximately 15,000 kilometres of high-speed railways. In the eastern direction, the convergence of the TENs network with the infrastructure potential of TRACECA and TITR is planned.

In particular, Azerbaijan's key maritime port, the Port of Alat, has long been actively involved in various initiatives initiated by European partners. For instance, as early as mid-2019, it joined the project "Promoting the development of 'green' ports in the Caspian Sea region" — a crucial component of the TENs strategy. The initiative aimed to utilize renewable energy sources in port operations, digitize and streamline trade and transport procedures to ensure sustainable connectivity, prepare a "roadmap" for port automation processes and digitization of all document flow, and create a unified digital platform for data exchange between ports in the Caspian Sea — Aktau and Turkmenbashi. Having implemented all necessary reforms in line with European standards, in 2022, the Baku International Sea Trade Port became the first in the Caspian Sea to receive the status of a "green" port and was also included in the list of 30 ports in Europe with the same status.

Now, considering the implementation of projects to expand transit cargo transportation volumes between the West and the East, a large-scale modernization of port infrastructure is underway. The throughput capacity of the Baku International Sea Trade Port will be increased from the current 15 million to 25 million tons per year.

The logistical potential of the port has expanded after the commissioning of a terminal for handling and storing mineral fertilizers in October 2023, with the capacity to handle approximately 2.5-3 million tons annually. In turn, by the end of this year, a new grain terminal will start operating at the Port of Alat, and in the second half of 2024, construction will begin on a new phase of the container terminal, with capacities allowing for the annual handling of 500,000 TEU containers.

"Through increasing the handling of containerized cargo, the Port of Alat will expand its operations: construction of a container terminal will commence at the port this year, and these steps are linked to the development of the Middle Corridor. To develop this international transport route, we must enhance the infrastructure for container transportation and attract more cargo from China," stated Khudayar Hasanli, Head of the Department of Strategic Planning and Development at Baku International Sea Trade Port CJSC, recently.

It is not surprising that these large-scale infrastructure projects are generating genuine interest among specialized transportation, logistics, and service companies from EU countries, including contractors who aim to participate in infrastructure construction works and equipment supplies. Judging by the outcomes of recent negotiations between the management of Baku International Sea Trade Port (BISTP) and representatives of the delegation led by the Chairman of the Eastern Committee of the German Economy, Michael Harms, companies from Germany may become potential partners in the port's modernization.

"Discussions were held at the Port of Alat about ongoing infrastructure projects in Azerbaijan, the country's key role in the development of the Middle Corridor, as well as potential opportunities for investors from Germany and the prospects of such cooperation," as stated in the BISTP's announcement.

German business circles visited the port and familiarized themselves with the operations at the terminals. Primarily, these were leading German companies such as Knauf International, Falk Beratung, VNG, Edison Technologies, Rhenus, Gerber Architekten, HHLA International, ATLAS International, Kranich Design, and Marburger Tapatenfabrik, representing the construction, industrial, transportation, and logistics sectors.

It is important to note that Azerbaijan traditionally places great importance on the development of trade, economic, and investment cooperation with the leading economy of the EU - Germany. These ties are dynamically evolving: for instance, in 2023, the trade turnover between the two countries reached $1.8 billion, increasing by 45.4 per cent. Additionally, approximately 180 German companies registered in Azerbaijan are actively involved in various subcontracting projects in industries such as manufacturing, construction materials production, agriculture, energy, telecommunications, digitalization projects, and so on.

It is noteworthy that within the framework of the business delegation visit under the auspices of the Eastern Committee of the German Economy, productive negotiations were held with representatives of the Ministry of Economy and the Azerbaijan Investment Holding. In particular, discussions focused on the prospects for German companies' participation in dynamically developing projects in the field of transportation and logistics, as well as the investment potential of industrial clusters in the republic, including in the Alat Free Economic Zone.

Azerbaijan effectively collaborates on various platforms with countries participating in the Special Programme for the Economies of Central Asia (SPECA), and agreements on preferential trade signed with a number of states serve to simplify trade relations. All of this collectively serves as a significant incentive for attracting direct German investment into our economy.