Speed, efficiency, feasibility: why Azerbaijan is key in North-South Corridor transit direction

Economy Materials 20 April 2023 09:15 (UTC +04:00)
Speed, efficiency, feasibility: why Azerbaijan is key in North-South Corridor transit direction
Emin Sevdimaliyev
Emin Sevdimaliyev
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BAKU, Azerbaijan, April 20. In the XXI century trade remains a key aspect of cooperation between people, and today, it serves as a backbone of modern society, in addition to ensuring peace among nations.

From the perspective of international trade, one of the most well-known and discussed routes is the International North-South Transport Corridor, usually referred to as North-South Corridor, which stretches from Russia, through Azerbaijan and Iran to India. It is a system of rail, road, and maritime transportation that aims to streamline trade between the start and endpoints of the route.

While the idea existed for quite some time, the importance of the proposed route increased during the past year, particularly due to geopolitical tensions. As Russia and Iran are both heavily sanctioned, it is in their interest to facilitate trade in various fields to overcome the adverse effects of Western sanctions. Additional benefits of the route include significant improvements in domestic infrastructure and economic growth. Furthermore, the route has several transit options to choose from.

One option is the route via Azerbaijan, labeled as the 'Western route'. Another possibility is to utilize Turkmenistan and Kazakhstan as transit countries. There are two routes available to choose from, however, they both come together at one point in Turkmenistan. This route is sometimes described as the 'Eastern route'. Finally, the third option is a maritime route via the Caspian Sea, with a start point in various Iranian ports and ending in the Russian ports of Astrakhan or Makhachkala. This option is described as the 'Trans-Caspian route'.

Also, there is a proposed route that will link Iran and Russia via Armenia and Georgia, which will be briefly discussed below.

With such a diverse set of possibilities that the North-South corridor offers, it is intuitive to assume that these routes are all equally feasible. There is a catch, though. Not all “North-South corridors” are created equal, and most have significant flaws, which make them niche routes.

The Eastern route

The Eastern route goes through one of the two possible border crossings on the border between Iran and Turkmenistan - Ak-Yayla or Saraghs. The goods will then proceed via the railroad to Kazakhstan, with Russia being the final destination. The Eastern route through Saraghs is considerably longer, as it goes to the north-eastern point of the border between the states.

The shortest option can be utilized by moving cargo through the Ak-Yayla border. While this is considered a shorter route, its length, nevertheless, exceeds 2,500 kilometers. Consequently, this would directly correlate with increasing costs and time in transit.

This makes the Eastern branch of the North-South corridor less appealing, considering that the prime objective of the route is to decrease costs and reduce delivery times. While the length of the route makes it the longest option compared to Western and Trans-Caspian directions, this is not the only drawback.

Another challenge is that transited goods have to comply with the regulations of additional countries, i.e. Turkmenistan and Kazakhstan. This would mean an increase in transit fees, additional legal paperwork, as well as the necessity to comply with extra regulations.

Consequently, every expense that transit companies will face during the journey will have to be compensated by the end customer. The problem here is that businesses may lose their competitive advantage, as their competitors will have an opportunity to offer similar goods cheaper, should they choose a more effective transit route.

Perhaps, the volume of goods transited via the Turkmenistan directions is the best indicator of the attractiveness of the Eastern branch of the transport corridor. From 1 January through 28 March 2023, 64,500 tons of cargo were transited through the Ak-Yayla and Saraghs checkpoints. While the thirtyfold increase is impressive, it is important to keep in mind that overall volume of transited goods remains small.

All this doesn't mean that the Eastern route is pointless. It should not be seen as an all-encompassing transit opportunity, which will enable businesses to move their goods from India to Europe. The Eastern route has some niche implementation opportunities, particularly if parts of the goods are intended for Kazakh or Turkmen markets.

The Trans-Caspian route

As noted earlier, the Trans-Caspian route will link Iran and Russia by means of maritime transport, bypassing any other transit country. The length varies between 1,100-1,200 kilometers, depending on the departure port.

While this sounds good, there is an issue associated with this approach to transit. Cargo ships are considerably slower. For example, the fastest cargo ship, Algol-class vehicle cargo ships, is capable of traveling at 33 knots, which is the equivalent of 61 kilometers per hour. Due to their unavailability to Iran and Russia, the ships that will be utilized for servicing the Trans-Caspian branch of the North-South Corridor will realistically be able to travel at around 20–25 knots (37-46.3 kilometers per hour).

Additionally, higher speed leads to higher fuel consumption, which limits profitability and leaves a significant carbon footprint. Cargo ships consume between 20 and 400 tons of fuel per day, depending on size, speed, and distance, which would endanger the fragile ecosystem of the Caspian Sea.

Overall, 74,200 tons of cargo were transited via the Trans-Caspian branch of the North-South Corridor from 1 January through 28 March 2023. This is a threefold growth, in year-over-year terms, compared to 2022.

One final issue, necessary to highlight in this context, is the significant need for investments, should Iran and Russia decide to make this route the key artery. Ports will have to be modernized significantly, in addition to procuring or building the number of ships necessary to ensure the seamless transit of goods.

These factors decrease the attractiveness of the Trans-Caspian direction of the trade corridor. Once again, niche use is possible, however, the perspectives of the Trans-Caspian direction to become the main transit artery are dubious due to the inherent shortcomings.

Proposed Iran-Armenia railroad link

This is the part where analysis becomes pure speculation. The agreement between Iran and Armenia on the construction of a railroad was reached a long time ago. Regardless, the project was not implemented due to two major reasons: its predicted unfeasibility and the subsequent lack of financing.

In theory, the route will start in Iran, then proceed through the territory of Armenia, further to Georgia, and Russia. While in Georgia, it would be possible to transit goods via the Black Sea to Europe.

The key problem here is, once again, that this project exists only on paper. Another challenge is the number of borders that the goods need to cross, which will inflate the costs and increase the duration of transit.

The future of this branch of the North-South route remains questionable, considering that attracting investments and developing the necessary infrastructure will be a time-consuming process. Also, attracting investors will become a challenge as the project constitutes a high-risk investment in exchange for unclear rewards, from a business perspective. As nothing concrete exists, this direction cannot be considered seriously for the time being.

The Western route

The Western route stretches from Iran via Azerbaijan with an endpoint in Russia. This North-South Corridor route is, perhaps, the most well-known and widely developed direction. The figures speak for themselves, as the volume of goods transited by the Western branch amounted to 2.15 million tons from 1 January through 28 March 2023, a stunning 84.37 percent growth compared to 1.16 million tons transited in 2022.

What makes this direction more attractive? First, there is only one transit country, Azerbaijan, which reduces the time in transit. Additionally, Azerbaijan is actively working on becoming a key transport hub in the region, thanks to the available infrastructure and advantageous geographical positioning.

This brings us to another important element, which made the Western direction a more attractive option, is the fact that Azerbaijan is the place where the North-South Corridor meets the Trans-Caspian International Trade Route, also known as the Middle Corridor. As both corridors meet here, businesses and governments looking to transport their goods, receive a higher level of flexibility. In other words, a transit starting its journey in the framework of the North-South Corridor may be diverted to the Middle Corridor, should it become necessary. Trans-Caspian and Eastern directions of the North-South route are unable to offer this level of fluidity, which is certainly, another reason that makes the Western branch more attractive.

The third reason is the rather short distance that goods have to spend in transit. The length of this branch roughly equals 1,450 kilometers. Although, it is more, compared to the Trans-Caspian transit direction, the comparatively higher speed of cargo trains compensates for the difference in the distance.

The only obstacle remaining to the completion of the route is the construction of the 164-kilometer-long Rasht-Astara railway line. Earlier, Deputy Director of the Construction and Development of Transportation Infrastructures Company of Iran, Abbas Khatibi said that the agreement between Iran and Russia on the construction of the railway is expected to be signed before 21 May 2023.

Once the construction is finalized, the Western route of the North-South Corridor will be completed and fully functional.

Summing things up

The increasing cargo turnover indicates that the North-South Corridor is the real deal, and the opportunities that it offers to the countries involved in the project are major ones. The differences in the various routes, or directions of the corridor, however, are too major for businesses to disregard. As it was demonstrated, the Western route, passing through Azerbaijan, is the most popular direction for transit. If we look at the cargo turnover of the Western branch of the North-South Corridor, it becomes clear that it is the most popular route.

It is true that other routes are also becoming much more in demand, however, their niche application deprives them of the competitive advantage that the Western route possesses.

By comparatively analyzing the four directions, we can see that the Western route is currently the clear winner by a significant margin. Several factors, such as the approximate distance, lack of a need for significant investments, efficiency, and the large cargo turnover make this route the undisputed king of the North-South transport architecture.