ANALYSIS

Latvia boosts cooperation with Central Asian countries: the end of the tunnel or a trap?

Photo: Pixabay.Rob Willhoft.

Latvia and the Baltic States are among the hardest hit countries in terms of rail freight volume losses since the war in Ukraine started. Stranded in Europe’s northeast and on the border with Russia, Latvia saw its freight volumes dropping abruptly during spring and found itself looking for alternatives. Central Asian countries like Kazakhstan and Uzbekistan were among the first and most potent candidates for the country’s diversification strategy. However, is this approach paying off?

In the latest developments on the freight flow diversification front, Latvian State Railways (LDz) and the Freeport of Riga signed MoUs with Uzbekistan Railways. Earlier, Kazakhstan monopolised the country’s interest since, just Like Lithuania and Estonia, Latvia saw in the Central Asian country the solution to what seemed a dead end.

In April, the Latvian transport minister Tālis Linkaits stated that “since autumn 2021, Latvia has been receiving cargo from Kazakhstan, specifically coal. Moreover, Kazakhstan is looking into ways to use Latvia as an alternative to St. Petersburg” and that “the ministry is hard at work negotiating with countries like Kazakhstan, Uzbekistan and China to secure freight.”

Later, when releasing the ports’ cargo turnover numbers for the first half of 2022, the Latvian transport ministry illustrated an optimistic picture with coal rail freight volumes coming from Kazakhstan, resulting in an increase of 15,2 per cent compared to 2021 and equivalent to 3,1 million tonnes of cargo.

Is Central Asia the holy grail of volumes?

With Uzbekistan also in the rail freight game, Latvia aims to secure another ally and save the day for its disintegrating freight volumes. On the one hand, LDz “sees potential in increasing the volume of railway cargo between Latvia and Uzbekistan, taking into account the cooperation so far, the interest of both companies at the moment and the already started work on attracting cargo,” according to the words of its chairman Māris Kleinbergs.

On the other hand, the Freeport of Riga expects a “noteworthy potential for future cooperation with Uzbekistan and its national railway company” because the increased traffic numbers between the two are very positive. Specifically, since the war in Ukraine started, cargo turnover with Uzbekistan in the port of Riga has snowballed, with “48,9 thousand tons of cargo received from Uzbekistan mainly plastic products, nuts and fruit, as well as mineral fertilisers,” commented the port.

In this sense, agreements with Central Asian countries have benefited Latvia greatly. However, the lower-than-expected volumes that the Baltic state marked in July and some other insisting problems prove that this solution is not the holy grail and that Latvia needs more to sustain its volumes and presence in the supply chain.

Also read: Is the Russian railway industry facing a crisis?

What could change?

Coal, coal, coal and more coal. This is how the rail cargo looks currently in Latvia. And this makes sense for two reasons. First, as already analysed, coal from Kazakhstan is an excellent source of volume and revenue. Second, the EU is probably facing the largest-scale energy crisis in its recent history, and coal seems to have a catalytic role to play in resolving it.

Yet, there are three points in this situation that could improve and ensure the viability of Latvia’s ports and railways. First, Latvia’s greatest volume and revenue losses came from the inability to keep transporting Russian oil products because of the sanctions. Provided that Russian oil monopolised the Latvian transport network, it is safe to say that promoting such dependability again could prove a trap. What would happen if rail transit between Latvia and Kazakhstan got restricted, for instance?

Secondly, as the council of the Latvian Stevedoring Company Association (LSA) highlighted in its latest meeting, if it is to depend on coal cargo, especially when relying on it to resolve an EU crisis, then tariffs should be adjusted accordingly. This is a step that could be taken from day one. That being said, Latvia could tend to make its rail freight market more attractive in terms of pricing to ensure, partially, that its customers would not consider redirecting their routes. This is something that Estonian operators already requested in July.

Finally, LSA’s council highlighted another issue. That of infrastructure. No matter what, infrastructure is key in any kind of transport method. However, no matter how big Latvia’s volumes grow, without new or well-maintained infrastructure, it can’t really serve them. That is why the LSA hoped for a part of the revenue to be used in maintaining port facilities that could also partially ensure the efficient and timely transhipment of coal arriving at ports by rail to other destinations.

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Author: Nikos Papatolios

Nikos Papatolios is editor of RailFreight.com, the online magazine for rail freight professionals.

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