The Middle Trade and Transport Corridor: new prospects

After the outbreak of the armed conflict in Ukraine, the issue of developing transport corridors that would not pass through Russian territory became more pressing than ever. In this regard, special attention is paid to the Middle Transport Corridor, which until recently was considered a weak alternative to roads through Russia. Will the new route be able to replace the traditional transport arteries connecting China and Europe?

From first plans to implementation

The Middle Trade and Transport Corridor or Trans-Caspian Transport Route is an infrastructure project through which goods can be delivered from China to Europe through the territories of Kazakhstan, Azerbaijan, Georgia and Turkey, that is, bypassing Russia. The idea of the project was first expressed in 2013, and the first practical steps to create the necessary infrastructure and remove trade barriers between the participating countries began in 2015.

Before the events of February 2022, many experts and politicians were quite skeptical about the idea of a transport corridor, emphasizing the existence of a number of problems, such as opaque pricing and logistical difficulties. But the lack of special interest in this route from China was especially emphasized: “In the absence of China’s geo-economic involvement, the development of the Middle Corridor still has little economic basis.”

Transport corridor in the context of Ukraine

The situation changed greatly after the start of the conflict in Ukraine: business immediately turned its attention to the Trans-Caspian transport corridor.

Thus, according to the International Association TITR, which unites shipping companies and ports, the volume of transportation along this corridor in 2022 increased by 86% and reached 2.8 million tons compared to 1.5 million in 2021 – then 586,000 tons were transported in 2021. According to the World Bank, in 2022 the volume of container traffic on this route increased by 33% compared to 2021

Political interest in expanding freight transport capabilities across Central Asia has also grown markedly: in November 2022, Azerbaijan, Georgia, Kazakhstan and Turkey signed a so-called road map that identifies priority areas for investments and activities needed to improve the Trans-Caucasus Transport Corridor (TCTC). In June 2023, Azerbaijan, Georgia and Kazakhstan agreed to create a single logistics operator.

The importance of the new route was also discussed in Brussels: European officials announced Europe’s intention to abandon the transit of goods through Russia, through which 86% of goods from China passed before the war.

The EU’s interest in the new transport route is expressed not only in words, but also in concrete steps. Thus, in January 2024, the Global Gateway Investors Forum for EU-Central Asia Transport Connectivity was held in Brussels, during which politicians and businessmen made a number of important statements directly related to this project. In particular, it was announced that the forum participants would invest $10 billion in the development of the region’s transport infrastructure.

In addition, the European Commission announced:

● the launch of the EU-funded Regional Transport Programme, which will be adopted in 2025 (Regional Transport Programme). Under this new programme, the EU will offer technical assistance to modernize and maintain transport routes.

● creation of a Coordination Platform to quickly solve current problems that require joint efforts of partners.

● the emergence of new positions in the Ministries of Transport of all five Central Asian countries from 2024, which will directly work on the implementation of the new transport corridor.

For its part, the European Investment Bank (EIB) signed memorandums of understanding totaling €1.47 billion with the governments of Kazakhstan, Kyrgyzstan and Uzbekistan, as well as the Development Bank of Kazakhstan. These loans will be possible thanks to guarantees provided by the European Commission.

Finally, the European Bank for Reconstruction and Development (EBRD) signed a memorandum of understanding with Kazakhstan, with an investment portfolio of €1.5 billion. These funds will be used to implement already selected projects.

Current issues

Despite the fact that in light of the armed conflict between Russia and Ukraine, the transport corridor began to be used more and more often, and European and regional politicians expressed full support for the project, many problems have not been resolved, as World Bank experts write about in a special report dated November 2023 .

“The capacity of the UK was not exhausted, however, problems with border crossing, transshipment and coordination led to very large delays in transportation and a subsequent return to alternative corridors. As a result, the volume of container traffic in 2023 (over 8 months) decreased by 37% compared to the same period in 2022,” the study emphasizes.

What worries business today:

● Cost of transportation. With reference to surveyed transportation participants, World Bank experts state that one of the main problems is the cost of transporting goods, which is comparable to the cost of transportation through Russia, although that route is much faster.

● Transportation time. In 2022, transporting goods from Dostyk or Khorgos to Constanta via the UK took an average of 50-53 days, which is twice the time required when transiting through Russia.

Why is this happening:

● Lack of a single operator who would be responsible for transporting cargo along the entire route. Currently, customers need to track their cargo on the websites of different country operators.

● The second limitation is related to the low operational efficiency of ports on the Caspian and Black Seas, as well as maritime transport in the Caspian Sea.

For example, some ports do not operate when the wind at sea is very strong, which immediately affects the speed of cargo delivery. For example, in September 2023, the president of the NC Aktau International Sea Trade Port, Abay Turikpenbaev, said that their mobile inspection complex cannot operate in strong gusts of wind.

● The third limiting factor is the lack of end-to-end rail infrastructure, which causes delays when cargo needs to be moved from rail to sea.

● Delays at border crossing points due to the lack of a single operator.

● Integration of document flow (each country has its own documents, forms, etc.).

Future prospects

According to World Bank analysts, the overall increase in trade turnover between China and the EU will increase by about 30% by 2030, and the volume of cargo transported along this route will increase 3 times. However, if measures to improve the operation of the Trans-Caspian Corridor are not implemented, then demand for transportation will be 35% lower than the projected increase.

At the same time, as World Bank experts predict, even with the successful implementation of all infrastructure projects, this route will play a more important role in regional rather than transcontinental trade: by 2030, trade between Europe and China will account for less than 40% of the volume of transported cargo.

In any case, in the context of deteriorating relations between Russia and Europe, the EU is extremely interested in expanding the capabilities of the Trans-Caspian corridor, so it will invest material, technical and political resources in this project.