At the end of April, Azerbaijan Railways CJSC (ADY) finally announced that the modernization of the 184-km Georgian section of the Baku-Tbilisi-Kars (BTK) railway was completed, and that cargo would start flowing through it in May. The first cargo moved on the modernized BTK on May 20 and reached its destination, Kars, on May 25. After that, there was almost a month of silence regarding BTK. Instead, the leadership of ADY issued statements and promises that everything was fine and that they were ready to reach a cargo volume of 5 million tons per year on the BTK. However, it’s hard to believe these promises. The ADY leadership previously promised that the modernization of the Georgian section of the BTK would be completed by the end of 2023, but in reality, it was only finished in April 2024. And there’s no 100% certainty that it has truly been completed.
What Is Really Happening with BTK?
Most likely, the cargo that went through the BTK at the end of May was a test run, as if to check the modernized section under combat conditions. Since then, there has been silence...
What does this indicate? There are two possible scenarios. The first is that something went wrong during the test, and somewhere on the modernized section, not everything is smooth. This means that despite the assurances of ADY leadership, the BTK is not actually ready to handle serious cargo volumes. The second scenario is that ADY leadership was simply in a hurry to announce the completion of modernization work to show how well they were doing. Therefore, they sent one cargo to calm everyone down and avoid criticism for slow work. Both scenarios are plausible, but the second one seems more likely.
In general, there are questions about the prospects of the BTK. Firstly, it is still unclear how much the modernization of the Georgian section cost. The initial estimate for the modernization work was $100 million, but as is often the case with ADY, they never stick to the original budget. Therefore, the initial estimate can probably be doubled. Even if we are wrong, it’s likely not by much. Moreover, there is no information on how these funds will be recouped. The initial BTK agreement was based on the Georgian side's obligation to repay the debt from BTK revenues. But does this position extend to the current repairs? Or did ADY essentially gift these funds to the Georgian side?
Secondly, why has ADY not yet reached agreements with shippers to use the BTK? The Head of ADY told one of the Azerbaijani media outlets that there is an agreement to ship 60,000 tons of copper annually via ADY. And that’s all; there are no other agreements. Moreover, he did not provide contract details, and it’s unclear with whom the agreement was made and how long this cargo will be transported on the BTK.
It turns out that everyone at ADY is resting on their laurels, thinking they’ve done a great job by completing the modernization of the BTK. If ADY thinks that a queue of shippers will now line up before them, they are gravely mistaken. Every potential client needs to be fought for. By the time the BTK modernization was completed, ADY should have had dozens of contracts with shippers in hand. Instead, ADY is only now negotiating to attract cargo to the BTK. It can be said with confidence that most of these negotiations will not yield results, as shippers do not particularly trust ADY. The example of the Russian, Kazakh, and Uzbek railways shows that they are genuinely doing everything to attract cargo to their sections. Meanwhile, ADY sits and waits for cargo to come to them. That doesn’t happen. Moreover, ADY has never been particularly distinguished by economically sound tariff policies.
Everyone Knows the Numbers...
An analysis of data from the State Statistical Committee and the State Customs Committee shows that ADY has serious problems with cargo transportation. According to the State Statistical Committee, in January-May 2024, 7.65 million tons of cargo were transported by rail, which is only 0.9% more than in the same period last year. Meanwhile, ADY prefers to emphasize that the volume of transit cargo by rail increased by more than 10%. The result is that in the pursuit of transit cargo, ADY has lost domestic cargo. It’s also worth noting that 2023 was an unsuccessful year for ADY in terms of cargo transportation, following an exceptionally successful 2022. Moreover, ADY had no role in the growth of 2022. Due to the Russia-Ukraine war, shippers sought alternatives for their cargo transportation and came to ADY on their own. This is a very important point. In 2023, 18.2 million tons of cargo were transported by rail, a decrease of 2.6% compared to 2022 (18.7 million tons). This is a direct consequence of ADY’s poor performance, as shippers realized there was nothing to gain here and started leaving our route. These figures show that rail transport is stagnant and ADY is doing nothing to attract new shippers. The restart of the BTK will not bring significant benefits to ADY. It should be understood that the modernization of the Georgian section of the BTK was funded by the Azerbaijani side, not Georgia. So, the Georgian side doesn’t really care how well the BTK operates. However, ADY leadership should care. They will be the ones held accountable. Investments in BTK modernization should generate income. If only 1-2 million tons of cargo are transported annually via the BTK, then it’s clear that investment recovery cannot be expected, let alone profit... we can forget about that. Türkiye is eagerly awaiting the launch in practice, not just in words. President Recep Tayyip Erdoğan has raised this topic several times in the past month, including during a meeting with the Georgian Prime Minister.
Based on the data for the first five months of 2024, we can project that the total cargo volume for this year will be 18.2-18.3 million tons, roughly on par with 2023, maybe slightly higher but certainly not reaching the 2022 level. Dreaming about achieving the best performance of the last 10 years – 23 million tons (in 2013) – is not possible. And the record cargo transportation figure of 30 million tons, which was achieved in 2006, is entirely unattainable if ADY continues to operate in this manner. Sure, one could artificially improve the statistics a bit, but that doesn’t solve the problem. The problem is that ADY is doing a poor job, letting everything slide, and not attracting new cargo on the railways.
Here are a few more figures. According to the State Customs Committee, in the first five months of 2024, around 1.1 million tons of cargo were exported by rail, a decrease of 15.4% compared to January-May 2023. As for import cargo, in the first five months of 2024, around 1.8 million tons were transported by rail, a decrease of 5.3% compared to the previous year. Wherever you point your finger, ADY shows declines in performance. This is a sign of systemic problems in the railway leadership.
Now, regarding container transportation, the situation is also dismal. Let’s look at the numbers for the last three years: in 2021, 5,824 containers arrived from China; in 2022, 7,269; and in 2023, only 588. The growth in 2022 was not linked to ADY’s efficiency. As mentioned above, it was the result of the Russia-Ukraine war, meaning the cargo fell into ADY’s lap. The 2023 figure is a clear example of ADY’s negligent work, losing nearly all shippers as the number of containers from China plummeted by 12.5 times. While competitors took advantage of the opportunity due to the Russia-Ukraine war and increased container transportation, ADY lost not only new shippers but also old ones. Now, ADY is frantically trying to rectify the situation, promising container block trains from China. Let’s see what ADY is promising us: over 250 container block trains will arrive from the Chinese port of Xi'an via the Middle Corridor in 2024. But what are 250 block trains? About 200,000 tons. Insignificant volumes. For comparison, an average of 7-8 thousand container trains pass through Kazakhstan from China annually.
Overall, ADY is significantly lagging in container transportation. The whole world is actively developing container transportation today. This is a trend of the 21st century. ADY’s approach to this direction remains stuck in the 20th century. In 2023, railway container cargo transportation amounted to 10.5 thousand TEU, of which almost 40% were empty (incidentally, an anti-record for the last five years). So far, there are no signs that the trend will change and ADY will achieve any positive results in this direction.
In terms of transit volumes, ADY expects only 8 million tons in 2024. But this is not due to ADY’s efforts. The increase in transit today and in the medium term is ensured by oil transportation. If in 2019 the share of oil in transit cargo was 32%, in 2023 it reached 42%, and it will continue to grow as Kazakhstan plans to increase oil transit volumes through Azerbaijan. ADY has no role in the growth of oil cargo transportation; this is the result of the work of other agencies. Comparing the transit volumes of 2008-2010, when volumes reached 8.4 million tons, or the promises of the Ministry of Transport to reach 25-30 million tons of transit per year, it becomes clear that achieving these figures is an unattainable "rosy dream" for ADY in its current state. It should be noted that according to private shippers, in 2023, transit shipments from China fell by 8.2%, and from Central Asian countries, transit fell by 24%. So, ADY has nothing to boast about in reality.
Moreover, there is still no clear information on how long it takes for cargo to reach Europe from China. ADY assures that cargo now arrives in Azerbaijan much faster, but surveys among private shippers show that nothing has changed, and cargo still takes 20-21 days to reach Azerbaijan.
Summary: ADY Is Unable to Meet the Set Tasks
An analysis of the situation based on official figures shows that there are significant problems within the ADY system in terms of cargo transportation. The railway leadership today focuses on obtaining funds, both budgetary and from international financial institutions, for various projects, simply put, construction work, where theoretically one can make good money. Most projects, however, are economically unprofitable. For example, ADY leadership has stated that in the future, they plan to lease or build a terminal in China. Why does ADY need to build a terminal in China? Are such large volumes of cargo coming from there, or does ADY have a magic wand to attract such cargo? Of course not. It’s a useless project from an economic point of view. Therefore, such proposals are aimed at once again obtaining money from the state budget and investing it in an unprofitable project. Moreover, this reflects ADY’s desire to monopolize the cargo transportation market from China, pushing private Azerbaijani players out of the market (who already have effective developments in the Chinese direction) and forcing them to use other routes for shipping cargo. This will lead to nothing good.
This year, ADY has already built a terminal in Astara. It’s unknown how much money was spent on it, but it is expected that cargo transportation via the North-South ITC will increase by only 10-15% in 2024. Considering how ADY tends to embellish its work and manipulate numbers, the real growth will be even less if there is any growth at all, which is doubtful.
Speaking of the North-South ITC, ADY plans to start modernizing the Baku-Astara railway next year. Once again, construction, idle roads, and reduced cargo flow. It’s almost sabotage. Freight forwarders will again be forced to fix the situation using trucks. It is thanks to them that there is an increase in cargo transportation in Azerbaijan (overall cargo transportation grew by 3.4% in five months, while truck transportation increased by 7.7%). Moreover, it is currently being discussed that an additional loan from the Asian Development Bank will be attracted, including for the modernization of the Baku-Yalama railway (a $400 million loan has already been attracted for this project from ADB). This means construction again, with inflated costs and all the ensuing consequences. In the end, ADY is in the black, while shippers are in the red.
Regarding the Middle Corridor, we now see particular activity from Kazakhstan to increase cargo transportation volumes. The goal for 2024 is to transport 4.2 million tons of cargo via the Trans-Caspian route and, in the medium term, to reach 10 million tons of cargo annually. Although not everything is smooth here either, as the Kazakhstan Audit Chamber has calculated that Kazakhstan Railways are on the verge of default: 73% of cargo transported in 2020-2023 was transported at rates below cost. This means that Kazakhstan Railways may raise freight rates, which could lead to a decrease in cargo transportation via the Middle Corridor. But in Kazakhstan, at least they strive to attract new cargo to the corridor and conduct various activities for this. What does ADY do? Sit and hope their Kazakh colleagues succeed? Or will ADY again raise the prices for their services, leading to shippers fleeing to another route? There are enough competitive routes.
The current situation shows that ADY, with its current approach, cannot ensure the achievement of the set goals: increasing cargo transportation volumes on the BTK to 5 million tons (although when the BTK was launched in 2017, it was expected to transport 6.5 million tons annually), significantly increasing transit transportation through Azerbaijan, ensuring the economic profitability of its activities, and ensuring the return on state investments in railway infrastructure modernization. Let’s not forget that in 2028-2029, the Zangezur corridor is expected to launch, capable of transporting 5-8 million tons annually, which also needs to be filled, and this task should be undertaken by ADY.
Meanwhile, in the last two years, Azerbaijan has had the best chance in the last 30 years to develop transit transportation for both objective and subjective reasons. While truckers are showing good growth, railway workers take one step forward and then two steps back, constantly juggling numbers. Hiding the unfavorable, emphasizing rare successes.
The railway authorities should simply come out to journalists and commit to a timeline for when transportation volumes will reach the declared 5 million tons on the BTK. Unfortunately, I think we won’t get an answer to this question.
So, for now, ADY's performance can only be described as unsatisfactory.
@cascargo_az