The transport sector in the Baltic States is currently in a delicate position since the area constitutes the EU border with Russia and Belarus. In an interview with RailFreight.com, the Latvian Ministry of Transport underlined that the impact of the sanctions on Russia now starts becoming all the more noticeable, “The future geopolitical outlook is bleak and leaves little room for optimism that strong cargo flows would return any time soon”, the Ministry stressed.

Karlis Engelis, Director of the Railway Policy Department, and Andris Maldups, Deputy Director of the Transport Logistics and International Cooperation Coordination Department, provided their insights about current obstacles and possible solutions concerning rail freight in Latvia and, more broadly, in the Baltics. Among the main topics discussed were the impact of sanctions on the Latvian rail sector, the possible implementation of standard gauge, and the need for alternative routes.

Impact of sanctions on Russia noticeable now

Engelis and Maldups pointed out that Latvian Railways has been facing a drop in transit volumes already since the second half of 2019. The causes of this decline were “the diversion of energy resources cargo to Russian ports, sanctions against Belarus from 2020, disruptions of the logistics chains due to COVID-19 pandemic and finally Russia`s military invasion of Ukraine”.

One of the most interesting aspects pointed out by Engelis and Maldups is that the impact of the sanctions on Russia and Belarus is much more visible at the beginning of 2023. “In the first two months of 2023, we see the  cargo volumes moved by rail decreased by 35,6 per cent”. As they explained, in 2022 more than half of the international cargo arriving in Latvia was coming from Russia. This is because “EU sanctions on Russian coal import were introduced only in August 2022. Sanctions on oil and oil products import from Russia were introduced only in December 2022 and February 2023”.

Latvia looking for alternative routes to Central Asia

The current geopolitical situation has forced Latvia to look for alternative routes for trade with countries in Central Asia. For example, Latvia will start a pilot service for transport to the Baltic and Scandinavian countries from Central Asia in the context of the Transport Corridor Europe-Caucasus-Asia (TRACECA). The United States Agency for International Development Office in Central Asia is also involved in this project.

It is important to mention that transport volumes between Latvia and Central Asian countries significantly increased. “The freight volumes between Latvia and Kazakhstan last year have increased almost four times mainly due to coal import from Kazakhstan”, the Ministry said. However, these volumes do not concern solely rail, since they are also moved to Latvia via the Russian Baltic ports.

Latvia is therefore considering the TRACECA corridor as an alternative way to connect Northern Europe to Central Asia. “It is essential to note that the cargo turnover between the Central Asian countries, particularly Kazakhstan and Uzbekistan, and Latvia is growing”, the Ministry added. This new trend creates the necessity for new routes, especially considering the current issues when transporting goods to Northern Europe via Russia.

Broad or standard gauge? Probably both

Another point of discussion that has been highlighted in the Baltics lately is that of the European gauge. “Currently there are no standard gauge railways in Latvia”, the spokespersons stated. With the Rail Baltica project, the Baltics are working on building a high-speed railway with standard gauge to connect with Poland on a North-South axis. However, the transformation of broad gauge lines into standard gauge ones is a costly and demanding procedure, as the Ministry put it. This vision is shared by Estonia as well as Finland.

This is because the initiative would entail changing the width of all existing tracks as well as the modernisation of the energy and control-command systems. The Ministry highlighted, the existing infrastructure is based on outdated legacy systems and all new projects need to be TSI compliant. Moreover, this process would force the closure of railway sections for years while the works are carried out. This, according to the Latvian Ministry, would be “a total overhaul of the infrastructure with costs comparable to building a new line”.

One of the challenges faced by Latvia when it comes to differences in rail gauges is to ensure rail connectivity for Ukraine and its agricultural sector via the Baltic ports. “We see that for cargo movement between Ukraine and the Baltic States, Rail Baltica infrastructure is critical”, the spokespersons added. On the other hand, having broad gauge rail lines in Latvia, and the Baltics in general, would still be essential. This is because the East-West transit corridor, which connects Latvia to Russia can still play an important role for the Baltic country.

Restructuring of Latvian Railways and intra-Baltic cooperation

Latvian Railways is also planning structural changes. The company submitted a proposal for its restructuring to the Latvian government, which will review the application this month. The Ministry did mention that the proposal is confidential but revolves around thinning the company’s administrative layer. The recent and repeated changes in management led to notable cuts, calculated by the Ministry at 40 million euros every year. “​​Cutting costs further becomes more difficult since approximately 70 per cent are fixed costs”, Englis and Maldups underlined.

On a more positive note, the Latvian Ministry of Transport praised the collaborative spirit of the three Baltic States. Latvia is looking to attract new cargo volumes through joint initiatives with the other Baltic States, as the Amber Train project shows. “The cooperation between the state-owned operators is much stronger now than a few years ago. There is a potential to double the local cargo market for rail in 3-5 years”. The Ministry concluded by adding that there is a need for investments in strategically located infrastructure to incentivise rail-road intermodal operations.

Also read:

• ‘Too soon to scrap away broad gauge tracks,’ says Latvia
• Standard gauge in all of EU, plans need to be ready by 2025-2026
• Latvia and Lithuania pledge for collective effort on Russian rail ban