Lithuania builds new EU–China transport corridor

Arūnas Spraunius

According to the data published by Eurostat (as of 13 Feb 2012) the export of the 27 European Union (EU) member states to China increased by 21 percent during the first ten months of 2011, compared with the same period of the previous year while import of goods from China to EU increased by 5 percent. As reported by China Customs, the turnover between trade partners reached 567.2 billion dollars throughout the 2011 and rose by 18.3 percent in comparison with 2010. China is second-largest EU trading partner behind the USA while the EU itself is the top partner of dynamically rising Southeast Asian powers and important supplier of advanced technologies.

Competition and Cooperation on the Eastern Coast of the Baltic Sea
As anticipated, intense competition for at least some of East-to-West and West-to-East cargo flows is taking place within the EU as well as with third countries. According to Andrius Šniuolis, head of Water and Railway Transport Policy Department of the Ministry of Transport and Communications of the Republic of Lithuania, Asian market of cargo transportation is immense, so it is understandable that every country, not just the EU, tries to get a portion of it. Therefore, no illusions should be entertained – competition between Baltic countries in this situation will only intensify.

Marius Matulaitis, Deputy Director of Market Research and Development Department of Cargo Transportation Directorate of state-owned railway operator "Lietuvos Geležinkeliai" (Lithuanian Railways) agrees with that, too. According to him, Lithuania competes against its Baltic sisters in cargo transportation sector, however, this competition for it isn’t well-proportioned due to the fact that it can take advantage of only one seaport, whereas its neighbours (Latvia in particular) – of more. Therefore, let us say Latvia can attract to one of its ports a business structure as a shareholder to construct a terminal, which will ensure cargo flows, as well.

Another field of competition, this time in the railway transportation corridors, lies between Belarus Brest (to Poland) and Lithuanian Šeštokai (also to the neighbouring country). This competition poses considerable difficulty for Lithuania as Warsaw can freely choose priorities and means of implementation of its transport policy (direct the freight via Belarus, as well as Lithuania). However, Vilnius doesn’t possess such a room of manoeuvre.

Nonetheless, state-owned railway operator Lithuanian Railways carry on railway projects. "Šeštokai Express", to name one of them, aims to direct the freight from Warsaw through Vilnius to Smolensk, where it is distributed to further destinations.

On the other hand, aside from the competition in certain spheres the Baltics seek pragmatic adjustment of their interests. As an illustration, Baltic States jointly work on equal freight transportation issues employing so-called container trains (Latvians have "Zubrus" carrier while Lithuanians operate "Vikingas", also "Saulė" is gradually being launched). Also, steps are made to resolve tax tariff concerns.  In the meantime, a joint Lithuanian and Latvian task force is being established, which besides other matters will discuss and accommodate pragmatic railway transportation interests.

Seeking to take full advantage of opportunities presented by the "East–West" transport corridor, Lithuania should improve its infrastructure in the sector Klaipeda–Vilnius–Belarus border. In addition to already elongated railway stations, (which are now capable of receiving longer trains) it is essential to lay secondary tracks and encourage more intense locomotion in both directions. By the way, China is also trying to get access to longer and heavier trains that are capable of carrying not just 6 000 tons as of now, but 7, 8 and even more thousand of tons.

The most expensive way of transferring cargo is by air transport, second, in terms of cost, is the railway and the cheapest solution happen to be the marine transport. Obviously, the price is heavily corrected by the existing infrastructure. The majority of freights from Southeast Asia are carried by sea transport, however, it takes time to circumnavigate Africa and pass the Suez Canal. The task confronting any railway company is to build a kind of infrastructure capable of competing with the sea transport. It is sought to adjust railway routes because these provide twice as fast delivery at a competitive price. However, Russia is a factor that has to be taken into consideration as it interferes between pragmatic China and Kazakhstan. Russia's decisions regarding freight transportation are often politicised and not necessarily based on economic considerations.

Moscow does not confine itself to merely economical means in pursue to conduct cargo flows to its rapidly developing sea ports, like Ust-Luga. The port’s capacity is being expanded to 180 million tons per year (in comparison, Klaipeda port currently loads 36–37 million tons, and even after maximal deepening and reconstruction of the quay the new territory and infrastructure will boost its capacity just to 65 million tons). Russian authorities allocate massive investments to expand their ports and related infrastructure.

Investments into Railways and Port
Since time is a key factor in freight transportation business, smooth cooperation between the airport and railway is essential. State-owned railway operator "Lietuvos Geležinkeliai" (Lithuanian Railways) and state enterprise "Klaipėdos valstybinio jūrų uosto direkcija" (Klaipeda State Seaport Authority) join efforts in the shared infrastructure projects and such cooperation intensifies. A balanced development of both sectors is being sought. The importance of these sectors is recognized by the state, too as railway and sea transport at the Ministry of Transport and Communications is supervised by the same Water and Railway Transport Policy Department.

A lot of money has been invested into Klaipeda seaport as well as country’s railway development over the last seven years. The new EU financial prospects for the years 2014–2020 intend new investments, for example, to allow mooring of larger vessels. Currently, different scenarios of port extension are being considered (specific details should show up at the beginning of the next year). Upon realization (it is anticipated to occur after 2020), the port capacity could reach 100 million tons.

The state railway operator Lithuanian Railways invested about 700 million litas into infrastructure in 2012. At the start of this year, the company developed and presented its strategic development project up to the year 2030. This time limit is chosen because of slow momentum typical to the railway industry as a whole due to its long rolling-stock service duration, long lasting implementation of infrastructure projects and slow investment absorption. The strategic transport corridor Kena–Klaipeda is planned to be a two-way road capable of transferring 85 million tons of cargo per year. Klaipeda will extend itself by building new stations: "Draugystė", "Pauostis" and "Rimkai".

By transporting freight via the "East–West" corridor Lithuanian Railways earns its basic income (70 %) and competes with Latvian, Estonian, Russian, Ukrainian and Polish ports, also with Belarus Brest transport corridor. Although working in harsh conditions of competition, according to "Railway statistics" of 2009, Lithuanian Railways still transported less than Italy, UK, Austria but outpaced Romania, Czech Republic, Turkey, Spain, Denmark and Belgium. Due to environmental considerations EU plans to carry at least half of the load by railways and Lithuania already does this. The strategy up to the year 2030 aims to preserve traditional freight market share and seeks to improve cargo handling from Asia.

In 2001, Klaipeda port has reloaded 17.2 million tonnes of cargo and 36.6 million tonnes in 2011, which are even 19.4 million tonnes more. This was strongly influenced by investments – Klaipeda State Seaport Authority invested into port infrastructure about 1.34 billion litas, while companies operating in the port, twice more. In 2013–2015, investments are expected to reach 467 million litas. The new investments will allow integration into European transportation networks and establishment of a sea highway system.

In the wake of dredging operations Klaipeda port has widened to 150 metres and deepened to 14.5 metres. The port is now capable of receiving the so-called "Post-Panamax" class of ships that are 300–310 meters long and 40 meters wide. One more project being implemented is Container Distribution Centre (so-called "Klaipėdos Smeltė" HUB). Upon its completion, "Klaipėdos  Smeltė" has a potential to increase the volume of containers transfer over the decade to up to a million per year.

The bulk cargo distribution centre ("Bega" HUB) operates from the 13 of June, 2013. The Company runs a universal agribulk export and import terminal here suited for all types of agricultural products: corn, various extruded products, rough milling grain, granules, of raw sugar, etc. In technical terms, terminal is capable of both import and export operations, its capacity and technical potential also allow receiving the "Post-Panamax" class of ships.
Container trains as a counterbalance to "political cargo".

The so-called intermodal transportation model equips businesses with a fast and efficient freight transportation means not only to neighbouring countries, but also to more distant economies. One of such container trains "Vikingas" has been put into service in 2003, in Lithuania. This project links the Baltic Sea and the Black Sea regions. A lot of efforts are applied to include Sweden into it; cooperation with the country's national railway carrier is being conducted. For example, talks regarding harmonisation of transportation conditions for component parts to one of the giants of passenger car assembly plants in China are being held. In case of success, the component parts would be carried from Karlshamn in Sweden to Klaipeda port and then, by "Vikingas" would move further to Belarus, where the train connected to another one, would be transported to China once a week.

In the realization of another project "Saulė", the first 42 containers packed with computer hardware have been shipped from China to the port of Antwerp via Šeštokai station. A reverse transportation test also carried out from Klaipeda to China, which took just 11 days. Although the project cost is not terribly competitive, it is still pursued; every month partially filled containers from Klaipeda are heading to China. Lithuanian Railways view this route as a prospective one, particularly in the light of China's plans to develop industry in its western region. This is typical in cargo carrying business – container train "Vikingas" has been running already for more than ten years and is still expanding its geography and attracting new countries.

In 2013, the first container train "Baltijos vėjas" departed from Vilnius Paneriai railway station to Kostanay town in Kazakhstan. The train will transport cargo by this route twice a month and will reach its final destination in a week. The expected volume of each train is up to 120 TEU’s. The train is operated by Vilnius company "Hoptrans Projects". The project implementation is contributed by companies "Transkonteiner", "Autoverslas", "Kedentransservis", "Unico Logistics" and Lithuanian Railways.

The importance of the project is determined by the direction of cargo flow from West to East. Up to now the majority of railway freight in Lithuania flew from East to West. "We intend to carry about 80 containers every month by the train "Baltijos vėjas"," said Valdemaras Zakarauskas, CEO of Lithuanian logistics company "Autoverslas".  "We have a long term contracts with car parts suppliers, so we deliver car bodywork, assemblies and component parts to Kazakhstan. It is extremely difficult to predict the arrival time if cargoes are shipped in a single railcar."

Mr Matulaitis claimed that implementation of the container train projects for Lithuanian Railways is also vital in the sense that this is a counterbalance to so-called "political cargo" (such as oil, fertilisers); although these make up the bulk share of the transported freight (the biggest competitor in this segment is Latvia). In fact, container trains constitute only 5% of all carried cargo.

Representatives of the Chinese Business would not take seriously talks that Lithuanians alone could transport the commodities from China to Europe. Even if Lithuania managed to "snatch" just one percent of this volume, Lithuanian Railways and Klaipeda port would probably not be able to service it. That is why Lithuanian Railways hold talks with their counterparts from China neighbouring Kazakhstan on establishing a joint venture. Discussions are not confined just to cargo carrying issues alone, but also involve the establishment of public logistics centres in Kazakhstan. Such centres could service the container trains coming not only from China, but from the entire Southeast Asia. The cargo would flow to the already being built logistics centres in Vilnius, Kaunas and Klaipeda, reloaded here and transported further to the West via Klaipeda seaport or Polish railway.

Fervour for Public Logistics Centres
Implementation of projects for the establishment of public logistics centres started in 2008 in Vilnius and Kaunas while Klaipeda joined them in 2012. According to estimates of the Lithuanian Railway specialists, such centres will save time (from current 40 to 7–8 hours), that is still taking containers to be dispatched from the seaport by the railway.

The most advanced of all projects is about 360 hectares Vilnius logistics hub near Vaidotai railway station, which is planned to be included into the terminal. The future plans envision building Vilnius roundabout at the terminal, thus ensuring egress to the motorways in the direction of Minsk and Klaipeda. The mandatory requirement for terminal is to be surrounded by transportation and logistics businesses nurturing it with cargo flows. That is why Lithuanian Railways and Vilnius municipality established in 2011 public organization called "Vilniaus logistikos parkas" (Vilnius logistics park), whose purpose is to develop infrastructure and to map land lots around the intermodal terminal. Four land lots are already mapped and offered to potential investors.

The project of Kaunas public logistics centre is linked with the "Rail Baltica" project. The terminal will feature two types of railway track gauge – European and Russian and will boast super fast cargo reloading procedure from one type of railcar to another, also to automotive transport. According to the representative of the "Rail Baltica" project, Domas Jurevičius, the planning stage of European type of railway track gauge is finished from the Polish border to Kaunas and construction works that have started in this sector should be finished at the end of 2015. The European track gauge building is taking place in Lithuania only – neither Latvia nor Estonia has set to work yet.

A lot of discussions draw High Speed Train track construction between Kaunas and Tallinn where trains could be capable of reaching 240 kilometres per hour speeds. Transport ministers of the Baltics have signed a joint statement regarding this issue; so far, this is yet the initial stage at which matters of establishing of a joint venture are discussed. By the 15 of November a specific assessment of impact on environment had been performed, that had to clarify the dilemma of the line route via Panevėžys vs Šiauliai.

European railway track gauge from the Polish border to Kaunas may actualise the North-to-South (Poland–Finland) passage as well as the East-to-West direction in a sense that the cargo reloaded in Kaunas public logistics hub could be transported further to the West via Poland not only through Klaipeda port, but also by the railway. By the way, there are plans to implement the project "The Eighth Corridor", which would connect Belgium, The Netherlands, Germany, Poland and Lithuania.

In reality, taking an advantage of the potential or failing to do so will be decided by various factors – cargo transportation tax rates, cargo volumes and carrying capacity. In Poland, for example, an outdated infrastructure prevents trains from putting on higher speeds. Polish government promises reconstruction of the track width by the year 2024 (by then the high speed train line Kaunas–Tallinn should be launched) permitting to put on speeds up to 160 kph. Poland has actually started reconstruction of the track in certain strips; therefore, it is likely that these pledges will be fulfilled. This would suffice that freight moves smoothly to Western Europe.

Potential is Seen by Everyone
The cargo flows in the direction from the EU to China are still obviously weaker than the opposite China–EU direction, also due to the different levels in development of the parties. Up to the recent time Chinese could not afford purchasing goods "made in Europe". Actually, the Chinese get richer, their middle class increases, thus the country is trying to get rid of the "world factory’" reputation and move on to manufacturing that would be more complex and requiring more expensive technologies. As a result, the Western brands gradually become more attractive to the Chinese. By the way, Scandinavian countries are particularly interested in Chinese market.

As regards competition between the various cargo transportation types from China to the EU (and vice versa), it should be worth noted that it is considerably segmented. Suppose, that the products that should be instantly delivered (such as clothing – China is known as speedy manufacturer and distributor of famous and fashion brands) are transported by aircraft. The vast majority of other commodities are being transported by ships. In regard to railways, projects begin to evolve, including the transnational ones. For example, "Russian Railways" and German company "DB Schenker" have established a joint venture, which carries cargo from China to Western Europe by container trains.

According to M. Matulaitis, this is the mere beginning yet. One of the reasons is that transportation of cargo by railways across China (including third countries) to Europe is too expensive. The Chinese industry just a while ago started to move from its eastern part which is rather urbanised to the western part that is closer to the EU and, therefore, larger quantities of Chinese commodities that will be transported by railways can be expected approximately in five years. Moreover, the Chinese have strong freight shipping companies (such as "Cosco" which is one of the largest in the world) that would not be happy if railways took over their cargo (or part of it).

During the Asian and European "ASEM Transport Ministers’ Meeting 2009" that was held in Vilnius in October 2009, Lithuanian Transport minister Eligijus Masiulis declared that Lithuania wanted to become a bridge between Asia and Europe. At that meeting, the Vilnius declaration was signed.  The document states that closer cooperation between Asia and Europe should be encouraged. Almost at the same time, in the capital of Lithuania the Asian and European transport development forum took place. During the closing conference the China's transport minister Lee Shenglin emphasised that his country was ready to solve the transportation problems actively because it was interested in easier and faster movement of the cargo between China and the EU.

The priority of the European Commission (EC) is to provide environment-friendly, clean transport, and railway belongs to such type of transport. This means greater investment into this sector on a scale of the entire Old Continent. The EC also works on the transport corridors aiming to connect them with the transport networks of so-called third countries (Russia, Belarus, Kazakhstan etc.). The EU cannot make direct investments, let us say, into railway construction somewhere in Belarus, Russia or Kazakhstan. However, the EC can initiate a preparation of a feasibility study of this subject. No doubt, this is crucial in order to take advantage of the cargo flows in the East–West and West–East directions. Also, a joint China and EU work group has been established. Transport issues received a lot of attention in its agenda.

Of course, the business assesses and calculates financial expenses and time ratio and makes its own choice what type of transport – sea, land or their combination – to choose from. Anyway, this discussion is more about the prospects, although initial steps that have been taken already. For example, the project "Saulė" is widely supported by Kazakhstan. There is no shortage of preparatory works, in particular development of infrastructure; however, the potential is seen by all participants.

Notes:
Warsaw can freely choose priorities and means of its transport policy (to direct cargoes through Belarus, as well as through Lithuania); however, Vilnius doesn’t possess such a room of manoeuvre.
Moscow seeks to direct cargo flows to its rapidly developing seaports, such as Ust-Luga, resorting not only to economic measures.
In the wake of implementation of the project "Saulė", the first 42 containers with computer hardware have been delivered to the port of Antwerp via Šeštokai railway station.
Plans are being designed to implement the project "The Eighth Corridor", which will link up Belgium, the Netherlands, Germany, Poland and Lithuania.

Photo: flickr.com