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Unlocking Eurasian Trade: How the Trans-Caspian Corridor Reshapes Global Supply Chains

  At the third “Belt and Road” International Cooperation Summit Forum to be held in October 2023, China proposed eight actions to support high-quality joint construction of the “Belt and Road”, and clearly proposed to participate in the construction of the Trans-Caspian International Transport Corridor and work with all parties Build a new logistics channel for the Eurasian continent supported by railway and road transportation.
Unleashing huge transport potential

  Before the collapse of the Soviet Union, the Caspian Sea was a lake between the Soviet Union and Iran. After the disintegration of the Soviet Union, five Caspian Sea coastal countries emerged: Kazakhstan, Iran, Azerbaijan, Russia, and Turkmenistan. The Trans-Caspian International Transport Corridor (also known as the “Middle Corridor”) is a transnational transport corridor construction project connecting the Eurasian continent. It aims to establish an efficient transport system connecting the two ends of the Eurasian continent. The project starts from the China-Kazakhstan border and has a total length of approximately 4,766 kilometers, passing through Kazakhstan, Azerbaijan and Georgia, and extending to Turkey and Europe. As an international transportation project connecting countries along the Caspian Sea, the Trans-Caspian International Transport Corridor originated from the European-Caucasus-Asia Transport Corridor Plan (TRACECA) proposed by the European Union in 1993. The plan involves 12 countries in the European Union, Eastern Europe, Central Asia, and the Caucasus. Member States, with the aim of strengthening economic, trade and transport links between the Black Sea Basin, South Caucasus and Central Asia. Due to the huge investment, the TRACECA plan has developed slowly.
  With the increase in cargo transportation volume, the potential of the Trans-Caspian International Transport Corridor has attracted the attention of many countries. In order to increase the freight flow of the trans-Caspian international transport route, the Trans-Caspian International Transport Corridor Coordination Committee was established in Kazakhstan in February 2014, and in 2016 it was upgraded to a regional international transport organization – the Trans-Caspian International Transport Corridor International Association. The Trans-Baku-Tbilisi-Kars International Railway (BTK Railway) was completed and opened to traffic in 2017. This railway connects the railways of Azerbaijan, Georgia, and Turkey, marking the key infrastructure of the Trans-Caspian International Transport Corridor and Europe. The railway network is connected.
  Once connected to the European rail network, the Trans-Caspian International Transport Corridor unlocks huge transport potential. From 2017 to 2022, the total freight volume of the Trans-Caspian International Transport Corridor increased rapidly, and the container transportation volume increased rapidly from 8,900 TEUs in 2017 to 18,000 TEUs in 2022. According to the European Bank for Reconstruction and Development, the annual transportation volume of the corridor will reach 130,000 TEUs by 2040.
Strategic value highlights in the context of Ukraine crisis

  As a trade channel connecting the two ends of the Eurasian continent, the rapid development of the Trans-Caspian International Transport Corridor has attracted the attention of countries along the route, regional powers and global powers. In the context of the escalating crisis in Ukraine, the strategic value of the Trans-Caspian International Transport Corridor is even more prominent. It can enable Central Asian and Caucasus countries to directly integrate into the global supply chain, industrial chain and value chain. It is also a starting point for European countries to improve their economic security capabilities. one. The strategic value of this corridor mainly includes:
  First, some Western developed countries intend to use this corridor to ensure supply chain security. “Friendly outsourcing” and “critical mineral supply alliances” have been of great concern to developed economies in recent years. In essence, they reroute supply chains to countries with low political and economic security risks, thereby ensuring the stable operation of related businesses. Countries in Central Asia and the Caucasus are rich in critical mineral resources. The Trans-Caspian International Transport Corridor is viewed by some developed economies as a new channel for the supply of critical minerals. At the same time, in the view of some Western countries, the area where the corridor is located can be integrated with the India-Middle East-Europe Corridor (IMEC) and the Trans-European Transport Network (TEN-T) to form a transport network across the Eurasian continent. Transportation networks more efficiently manage the operating costs of “friendly shore outsourcing”.
  Second, some countries believe that the corridor will help strengthen the security of the industrial chain. Through the coordination and decentralized production network of the Trans-Caspian International Transport Corridor, some countries in the region can expand the international market for specific industries and promote regional industrial integration and upgrading, directly connecting with the global industrial network. For example, the corridor will connect the energy development, production and transportation networks of Kazakhstan and Azerbaijan. This not only broadens the market for Kazakhstan’s energy industry, but also increases the added value of its energy industry. The docking of the energy industries of Afghanistan, Kazakhstan, and Turkey (Kurmenistan) can produce aggregation effects, thereby improving its status in the international energy industry chain. From the EU’s perspective, it can obtain a relatively stable energy supply and avoid the risk of Kazakhstan’s energy being transferred from Russia (Caspian Sea oil pipeline). By diversifying energy supply, the security of its industrial chain can be strengthened.
  The third is to use this corridor to optimize value chain security. Compared with traditional maritime routes, China transports goods to European places such as Amsterdam and Hamburg through the Trans-Caspian International Transport Corridor, and the transportation time will be shortened from about 45 days to about 20 days. Therefore, this corridor saves enterprises’ logistics and warehousing costs to a great extent and optimizes the enterprise value chain. Currently, through the Trans-Caspian International Transport Corridor, it takes 16 to 23 days to go from China’s Horgos Port to Kazakhstan’s Aktau Port to Istanbul, Turkey, and the freight rate per TEU is US$2,363. For TEUs of the same size, it takes 25 days to ship goods from Ningbo Port in China to Istanbul by sea, and the price per TEU is approximately US$1,940 to US$2,200. Although there is no obvious advantage in terms of cost, the Trans-Caspian International Transport Corridor has the advantages of being low-carbon and environmentally friendly, having relatively few container thefts and transfers, being less affected by weather conditions, and having punctual transportation times.
Future development faces three major challenges

  Although the Trans-Caspian International Transport Corridor has high strategic value, its future development also faces many challenges.
  First, the attitudes of relevant stakeholders will affect future corridor upgrades. Due to different interests, relevant countries have different attitudes towards the construction of this corridor. Countries represented by Kazakhstan, Azerbaijan, and Georgia have a positive and supportive attitude. They hope to obtain new development opportunities during the construction of the corridor. In order to build itself into a trade and transportation hub in Eurasia and increase its geopolitical influence on Central Asian countries, Turkey also actively supports the corridor. China’s high-quality construction of the “Belt and Road” and accelerating the development of China-Europe freight trains also require the support of the Trans-Caspian International Transport Corridor. After the crisis in Ukraine escalated, the United States and the European Union linked support for the construction of the corridor with the goals of maintaining supply chain security and curbing Russian influence.
  In the short term, the construction of the Trans-Caspian International Transportation Corridor will do more good than harm to Russia, because it is a transportation channel that can circumvent Western sanctions and allows Russia and Iran to obtain some restricted materials. But in the long run, this channel will weaken Russia’s control over Central Asian countries, which is an outcome it does not want to see.

  Secondly, insufficient infrastructure supply leads to increased transportation time, and price subsidies affect market-oriented development. This corridor adopts a multimodal transport model, with the main body being land railway, and a section of the corridor needs to be converted from railway transport to shipping. Currently, there are only 13 ferries operating on the Baku-Aktau and Baku-Turkmenbash routes, and ferry and port services are insufficient to balance the railway throughput capacity on both sides of the Caspian Sea. Insufficient infrastructure supply increases transportation time, making it less competitive than the Eurasian continental bridge. The Eurasian Continental Bridge has two lines. The First Eurasian Continental Bridge starts from Khabarovsk and Vladivostok in eastern Russia, passes through the world’s longest railway – the Trans-Siberian Railway, leads to European countries, and finally reaches the Port of Rotterdam in the Netherlands. The Second Eurasian Continental Bridge starts from Lianyungang in my country in the east, exits from Alashankou in Xinjiang, passes through Kazakhstan, Russia, Belarus, Poland, and Germany, and reaches the port of Rotterdam. The freight capacity of the Trans-Caspian International Transport Corridor is only about 5% of that of the Eurasian Continental Bridge. In order to attract more goods to be transported through the Trans-Caspian International Transport Corridor, some countries along the route have subsidized freight rates. Subsidies have improved price competitiveness to a certain extent, but will have greater negative effects in the long run.
  Thirdly, there is a huge funding gap for upgrading and reconstructing corridors. The construction of the Trans-Caspian International Transport Corridor requires large-scale capital investment. Of the initially estimated total cost of US$38.8 billion, the 11 member states of the “Central Asia Regional Economic Cooperation” mechanism are the main investors, accounting for 52.3% of the total investment. However, about US$1.8 billion in funds still need to be provided by the private sector. This part of the funds is difficult to guarantee due to a serious mismatch between the project construction progress and the financing cycle. Even so, there is a large funding gap to upgrade the corridor.
Four indicators worth observing

  With the reintegration of the global supply chain industry chain, the Trans-Caspian International Transport Corridor has gained unprecedented development opportunities. Whether the corridor can achieve its development goals can be determined by observing the following indicators:
  First, the level of railway electrification construction. Turkey is electrifying and upgrading the Istanbul-Bulgaria border section of the railway. In addition, Kazakhstan is promoting the electrification of the Dostyk-Moint section of the railway. Through these measures, the transport capacity of the Trans-Caspian International Transport Corridor is expected to increase fivefold, which will effectively alleviate transport bottlenecks.
  The second is the speed at which logistics efficiency is improved. In order to promote the level of trade facilitation, relevant countries are promoting some work under the trade integration agenda of the “Central Asia Regional Economic Cooperation” framework, such as simplifying and unifying customs procedures, data exchange and sharing, risk management and auditing, joint customs control, etc. These cooperation will effectively improve the efficiency of logistics transit, reduce transportation timeliness, and improve the competitiveness of the corridor.
  The third is the implementation of standards and cooperation mechanisms. The parties along the route have reached a series of agreements within the International Association of Trans-Caspian International Transport Corridors, which establish time limits for the delivery and handling of containers between transport parties, as well as the responsibilities of both parties if they fail to comply with the established delivery deadlines. and a series of standards. Reaching an agreement is only an important step to improve transportation efficiency. It is also necessary to observe the implementation of these standards and cooperation mechanisms.
  The fourth is the guarantee of investment and financing. At present, China has included the Trans-Caspian International Transport Corridor into eight actions for high-quality joint construction of the “Belt and Road Initiative”. At the same time, the European Bank for Reconstruction and Development, the United States Agency for International Development, and the “Partnership for Global Infrastructure and Investment” (PGII) led by the Group of Seven have expressed high interest in the corridor. Countries in Central Asia and the Caucasus are promoting the cooperative development of the Trans-Caspian International Transport Corridor. Therefore, the corridor’s funding shortfall is expected to be resolved.
  In summary, the Trans-Caspian International Transport Corridor has strategic value that cannot be ignored. This corridor will play an important role in the diversified development of global supply chains, the collaborative integration of industrial chains, and the optimization and upgrading of value chains, helping to solve the problem of the disconnect between economic growth and economic development in countries along the route. For China, the corridor can enable China to diversify its supply chain, thereby improving and ensuring the vitality of the industrial chain, value chain and innovation chain, and assisting China’s modernization drive.

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