Beijing eyes railway with Northern Europe
In November 2016, a trial container train from Yiwu City in Zhejiang province in China arrived in Latvia after completing an 11,000 km journey over 12 days through Northeastern China and Siberia. It was a major logistical achievement and signalled China’s commitment to extend its Belt and Road Initiative westward, possibly to Latvia, too. The timing of this China-eu shipment fits within China’s larger goals of increasing trade with Europe through the $4 trillion infrastructure investment program they launched in 2013, known as the Belt and Road Initiative (BRI) or the One Belt, One Road (OBOR) Initiative. With over 1 billion Euros in trade between China and the EU every day, both continents are heavily incentivised to improve the efficiency of their trade routes. To provide more answers for the bid, China now looks forward to the high-profile Belt and Road Forum in May 2017 as the groundbreaking for numerous large-scale infrastructure developments expected over the next several years with a “go” from the sides.
Europe’s Railway Leaders
China’s preliminary plans to re-establish the old Silk Road routes through Central Asia would connect China with middle latitude European countries such as the economic powerhouses of Germany, France, and the Netherlands. It has developed separate plans for Southern Europe that would utilize a combination of rail and sea routes to access China through Greece and Italy via the Mediterranean Sea. Although there is currently no clear leader for establishing improved freight routes that connect China with Northern Europe, Finland and Latvia are emerging as the two favourites due to a combination of geographic, economic, and logistical considerations.
Finland has a long track record of initiating transportation linkages between the EU and its eastern neighbours. The Helsinki Airport’s marketing efforts to position Finland as the “gateway to Europe” increased tourism to the region from three Asian markets, including China. 2016 was a record-setting year for tourism to Finnish Lapland due to these marketing efforts. Visa-free travel between the ports of Helsinki and St. Petersburg has also been a boom for tourism between Finland and Russia for several years. It is clear that Finland has no shortage of ideas related to increasing access to Asian markets. Now, Finnish academics and business leaders have proposed an ambitious arctic railway that would connect China to Sweden via a railway that runs through Northern Finland, which will be further discussed during the upcoming Kouvola Rail Forum in September 2017.
The other logical alternative for new railway linkages between China and Northern Europe is Latvia. As the closest geographic point to China, Latvia is the most cost-effective alternative to become the primary shipping hub between the EU and China.
Dr. Maris Andžans, Research Fellow at the Latvian Institute of International Affairs, states that Latvia has numerous advantages in terms of transport and cargo shipping, including: “… geographic location, experience in East-west transit, professional and multi-lingual personnel, part of the EU single market, (and) enhanced multi-modality with Riga International Airport, with its cargo handling capabilities and experience, e.g. cargo transportation to and from Afghanistan, compared to Estonia or Lithuania.”
When asked whether there are any potential challenges that must be addressed in Latvia prior to actively pursuing improved transport connection between Latvia and China, And ans responded: “A better harmonization of Latvian transportation routes that cover land, sea, air, preferably synchronized with other transit countries on the route.” He went on to state that improved bordercrossing facilitation across the trade routes are needed. “Otherwise,” he stated, “due to objective factors, it is difficult to compete with already existing rail lines connecting China and Europe, except some cargo destined for Scandinavia.”
Andris Maldups, Director of the Transit Policy department of the Ministry of Transport, also makes the case for an increased role as a regional leader in rail freight. “Latvia pays great attention to the development of cooperation with China in the transport and logistics sector in the framework of the Belt and Road Initiative, since its geographical location in the center of the Baltic Sea region, three large ice-free ports and highly developed transport and logistics infrastructure (railways, roads, aviation sector, maritime connections) makes the country a natural Silk Road logistics hub between Asia and Northern Europe, providing a gateway for Chinese goods to the Scandinavian market yet to be explored.
New Railway Infrastructure Challenges
Despite its numerous economic advantages, Latvia faces three major challenges in its efforts to become Northern Europe’s gateway to China. First, Latvia would require substantial freight rail infrastructure investment to reduce shipping times from China to under 12 days. Second, trade is currently lopsided between the two regions. In order for the Latvia-russia-china corridor to become viable, it will need to attract shipments from Northern European manufacturers and suppliers to Chinese buyers. Third, the current geopolitical uncertainties related to economic sanctions with Russia and international military manoeuvering along its borders may carry enough risk to inhibit private investment. If it can navigate these three challenges, Latvia may successfully evolve into a logistics and supply-chain hub for Europe with tens of thousands of locally-grown jobs.
According to Mr. Maldups, future trains from China to Riga will extend the route further to continental Europe by combining rail-to-sea transport modes. He identified five large infrastructure development projects that have been submitted to the National Development and Reform Commission that would improve the country’s logistics capacity by coordinating with China’s BRI: “The five most significant investment projects have been identified and submitted to the National Development and Reform Commission’s consideration are: a logistics center at the Freeport of Riga, a new harbor in the Freeport of Ventspils, the Rail Baltica Intermodal Logistics Centre near Salaspils, a logistics center in Riga International Airport, and a strategic partnership with airbaltic. There are also several more private investment projects in the transport and logistics sector (related to) the 16+1 format.”
However, Mr. Maldups also mentioned that the trade route needs to increase the viability of reciprocal shipments from Europe into China, in order for it to be a truly effective cargo route. “We need to increase its popularity and advertise its advantages in China, attract Chinese investors and logistics companies to the Latvian transit corridor, look for new cargo in China and work on cargo attraction for the way backwards. Currently, we are actively working on all these issues. Regarding the attraction of reverse cargo, we see one of the potential partners-the Swedish industry—importers and exporters interested to use Eurasian transit corridors to transport goods to China, as well as other Scandinavian and Western European countries.”
Noticeably absent in the aforementioned list of largescale logistics investments is an East-west rail infrastructure investment to improve connections between China’s Belt and Road Initiative and Latvia’s ice-free ports that could carry goods further to Scandinavia. Although Rail Baltica has been actively pursued to construct a Northsouth high-speed rail corridor through the Baltics, there have been no government proposals or discussions to improve East-west freight rail infrastructure from Riga eastwards through Russia. Ideally, these two rail infrastructure projects could intersect in Riga, which would further bolster Latvia’s role as a shipping and logistics hub and create the types of high-paying, locally-created jobs and business opportunities that would bring Latvian emigrants back to their homeland.
Container shipments between China and Riga need to break the nearly two-week transit benchmark via improved handling times between trains and reduced bottlenecks in metropolitan areas. But, this may only be possible via significant rail infrastructure investment. The accompanying map, which was provided by the Ministry of Transport of the Republic of Latvia, illustrates the degree to which the bottleneck in Moscow delays shipments between China and Latvia.
It takes approximately 922 km per day to traverse the Riga-yiwu container route and up to 744 km per day on the Baltika-transit container train, but container trains on the Riga-moscow route only move 482 km per day. An objective comparison of these three container trains on the Latvia-china corridor suggests that investment in an improved Riga-moscow connection via a combination of public and private funds from the EU, Latvia, Russia, and China should be prioritised. Rail infrastructure improvements between Riga and Moscow, including new dedicated freight lines or a new highspeed freight rail line, could shave a day or more off the average transit time between the two cities.
Latvian Freight Expansion
The business case for improvements to the freight rail infrastructure connecting Riga and Moscow are growing by the day. According to Helmuts Kols, the Attaché of the Ministry of Transport at the Embassy of the Republic of Latvia to the People’s Republic of China, “The number of containers transported by railways from Latvia during the last year increased by 108 per cent and the number of containers sent to Latvia increased by 93 per cent. Latvian terminals managed to increase container turnover by 8 per cent in 2016 and reached a new record of 377,400 TEU (annual throughput) despite the continued backdrop of Russian sanctions.”
Latvia is emerging as a
“Despite its numerous economic advantages, Latvia faces three major challenges in its efforts to become Northern Europe’s gateway to China. First, Latvia would require substantial freight rail infrastructure investment to reduce shipping times from China to under 12 days. Second, trade is currently lopsided between the two regions. Third, the current geopolitical uncertainties related to economic sanctions with Russia and international military manoeuvring along its borders may carry enough risk to inhibit private investment.”
It takes approximately 922 km per day to traverse the Riga-yiwu container route and up to 744 km per day on the Baltikatransit container train, but container trains on the Riga-moscow route only move 482 km per day.