After suspending the Free Trade Agreement with Ukraine from January 1, 2016, Russia imposed a food embargo on Ukraine and blocked the transit of Ukrainian goods heading to Central Asian countries and China. Under new regulations, the Ukrainian goods can be transported via Russian railways only in case if Ukraine’s products enter Russia via Belarus. Moreover, in order to prevent goods from being unloaded in Russia it was ordered to have them sealed during transportation through Russian territory. Identified actions are considered by Moscow as preventive measures against flooding the Russian market by the flow of the sanctioned goods from the EU via Ukrainian territory under the Deep and Comprehensive Free Trade Area (DCFTA) agreement.
Under these circumstances, Kiev has to search for alternative transit route to redirect traffic flows in an easterly direction bypassing Russian territory. As a result, Ukraine has decided to join the Trans-Caspian International Transport Route (TITR) aimed at connecting Europe with China by transporting containers via Kazakhstan, Azerbaijan, Georgia and Turkey as its full-fledged member. Currently, the Ukrainian Railways Company Ukrzaliznytsia is in the process of finalizing the agreement for joining the TITR. Actually, for the first time the possibility of Kiev’s participation in the TITR was discussed during an official visit of the President of Ukraine, Petro Poroshenko, to Kazakhstan in October 2015. During the Round table and the International Forum held in Odessa on November 16 and on December 3, 2015, respectively, the TITR’s member states addressed the possible increase of the transit potential capacity of the route following Ukraine’s accession.
Consequently, the Ukrainian Ministry of Infrastructure, Ukrainian Railways and the Coordinating Committee of the TITR could manage to reach the agreement and signed a protocol on setting competitive preferential tariffs for cargo transportation via the TITR. The protocol was signed by representatives from the state-run railway operators from Kazakhstan, Azerbaijan, Georgia and Ukraine at the meeting in Baku on January 14, 2016. The day after inking the protocol the first trial run of a cargo train from Ukraine consisting of 10 wagons (train cars) and 20 standard 40-pound containers (FEU) was launched from Kiev.
According to the initial plan, the Ukrainian route of the TITR includes ferry crossings of the Black and the Caspian Seas. Therefore, the trial cargo train started its journey in Kiev and then moved to Ilyichevsk port located near to Odessa port through Zhmerynka railway station. The goods then traveled from Ilyichevsk port to Batumi port in Georgia, after that the cargo travelled along the Baku – Boyuk Kesik railway through the territory of Azerbaijan. After arrival at the Baku International Trade Port complex, located in the town of Alyat, the carried cargo was loaded on a ferry and crossed the Caspian Sea to Aktau port in Kazakhstan. Therefore, it took about 11-12 days for the train to reach its destination at the border between Kazakhstan and China. However, the parties consider shortening the duration of the train trip up to 9 days.
It is also planned that the cargo partly will stay in Kazakhstan and partly would be shipped to Turkmenistan, Uzbekistan, Tajikistan, Kyrgyzstan and China. The transit of goods to China will be made via the Aktau – Astana – Dostyk route, to Kyrgyzstan via the Aktau port – Shu – Bishkek route and to Uzbekistan, Tajikistan and Turkmenistan via the Aktau – Beineu – Kungrad – Altynkul port. (Dyussembekova, 2016)
Moreover, due to well-developed railway infrastructure shown in Figure 1 Kiev believes that Ukrainian route of the TITR could also be used to transport cargo from China to Europe. Therefore, after reaching Ilyichevsk port in the Black Sea Chinese goods could be moved in the following directions: to Izov located on the border of Ukraine and Poland, to Chop located on the Hungarian-Ukrainian border or to Uzhgorod located on border of Ukraine with Slovakia.
Figure 1. The railway infrastructure of Ukraine
It was planned that the cargo train will run three times a week starting from March 2016 and a uniform tariff policy for cargo traffic from China to Europe through Kazakhstan, Azerbaijan, Georgia and Ukraine would be agreed by the middle of February 2016. However, the parties are still in the process of harmonizing and unifying international tariff policy. Actually, it is obvious that the Ukrainian route would become attractive to the Silk Road investors only in case if the parties manage to lower transportation cost.
Despite the fact that capacity of the Ukrainian railway network and ferry infrastructure makes it possible to implement the TITR project the main thing is to make it competitive in comparison to the traditional overland ones. For instance, the transportation costs over the Trans-Siberian Railway Route via Russia and Belarus is $4,110 per standard 20-pound containers (TEU). At the same time, according to the Head of Commercial Operation Department Ukrainian Railways Company Ukrzaliznytsia, Yuri Merkulov, the cost for shipping goods over the TITR via Ukraine is estimated at over $7,927 per TEU. Moreover, additional costs will arise if there is a need to transport the cargo from the Kazakhstan – China border to Chinese city of Shanghai or Lianyungang. In this case, the estimated cost will reach $12,600. This is 5-7 times more costly than the current sea route from Odessa to Shanghai (Samofalova, 2016). However, according to the primary calculations, the route could be considered as profitable in case if the transport costs will not exceed $5,000 per TEU.
The future of the project therefore depends on the TITR member state ability to deal on the issue of discount for cargo transit. Actually, the parties have already taken some measures to improve the cost effectiveness of freight rail. Thus, in the beginning of 2016 Kazakhstan has reduced the rail freight rates for delivering cargo along the route Dostyk – Aktau by 24% compared to 2015. Furthermore, Ukraine decreased the rail freight rates by 60% for the container trains heading from Ilyichevsk port to the border with the EU countries. (Klemenkova, 2016) However, in order to reduce the total transport costs to amount of $5000 there should be at least 40% tariff cuts in the countries along the route.
Furthermore, there are also doubts on the issue of the duration of the entire trip because of the possible routine delays on the ferries. According to initial plan, the estimated time for delivery of cargo to Georgia’s border is 3.4 days, to Azerbaijan’s border - 5.4 days, to Kazakhstan’s border -- 7.9 days and to China’s border - 10.9 days. However, there is a high risk of weather conditions worsening, which can cause delays in goods shipping by ferries. For instance, the first Ukrainian trial train over the TITR had to reach the Dostyk station at the Kazakh – Chinese border on January 27, 2016. However, due to the unfavorable weather for the ferry in the Caspian Sea it could manage to arrive only on January 31, 2016.
In addition, the Black and Caspian Seas ferry services are suffering from weak infrastructure. For instance, the regular ferry between Ukrainian Odessa port and Georgian Poti ports runs once a week. The only ferry operator on the Ukraine – Georgia line is the private company Ukrferry. However, Kiev promised to provide at least two ferries between Ilyichevsk port and Batumi port, which would be operated by state-owned company Ukrzaliznytsia. Actually, Ukrzaliznytsia has already taken control over three ferries, namely, “Heroes of Plevna”, “Heroes of Shipka” and “Caledonia”, previously leased by Ukrferry. Nevertheless, there is still no guarantee that ferry facilities would be used for improving the Ukraine – Georgia maritime route. Moreover, the ferry route from Baku to Aktau has become overloaded in recent months due to increased number of the truck freight from Turkey, which need to bypass the Russian territories. Actually, there are only two docks in Aktau port, which could maintain the ferry service. As a result, even if Azerbaijan increases the number of ferries it will not significantly increase Baku – Aktau ferry capacity or reduce the time, which is needed for ferries loading and unloading.
In conclusion, it should be admitted that the very idea to join Ukraine to the so-called China's New Silk Road Initiative actually is not new. The TITR project is very similar to the European project called TRACECA launched in 1993 and aimed at establishing and developing the transportation corridor between the EU, the Caucasus and Central Asia. Moreover, the New Silk Road route corresponds with the 10th International Corridor of the Organization for The Collaboration of Railways, which unites the railway lines of the CIS countries, Eastern Europe, Mongolia and China. The only difference between the TRACECA and the 10th International Corridor is that in the TRACECA route uses Aktau port instead of Turkmenbashi. Therefore, it becomes clear why the Ukranian authorities could manage to launch the first trial train along the TITR so fast. However, there is a great deal of work that needs to be undertaken in order to create alternative routes for delivering goods from China to Europe.
Dyussembekova, Z. (2016, January). Silk Road Renewed With Launch of New Commercial Transit Route. Retrieved from http://astanatimes.com/2016/01/silk-road-renewed-with-launch-of-new-comm...
Klemenkova, K. (2016). Ukrainskiy shelkovyi put': est' li perspectivy u voiny s georgafiei . Retrieved from http://365info.kz/2016/01/ukrainskij-shelkovyj-put-est-li-perspektiva-u-...
Samofalova, O. (2016). Silk Road from Ukraine to China – No Tickee No Shirtee . Retrieved from https://awfulavalanche.wordpress.com/2016/02/28/silk-road-from-ukraine-t...
*To be publish in the June 2016 No. 6 issue of the "Asya Avrupa: Haber-Yorum" journal.
Note: The views expressed in this blog are the author's own and do not necessarily reflect the Institute's editorial policy.