Kazakhstan aims for larger share of China-Europe transit trade

By bne IntelliNews November 15, 2013

Clare Nuttall in Astana -

Kazakhstan is planning a major push to capture a larger share of the transit trade between Europe and China. State railways operator Kazakhstan Temir Zholy (KTZ) is spearheading the project, part of modernisation plans that will see as much as $60bn spent on Kazakhstan's transport and logistics infrastructure.

At present just 60,000 tonnes of freight carried between China and Europe goes through Kazakhstan each year, which is just 0.05% of the more than 100m tonnes total. By 2020, annual trade between China and Europe is expected to grow by 1.5-times to reach $1 trillion, with Astana aiming to have 8% of that transported through Kazakhstan, according to Kanat Alpysbayev, KTZ's vice president of logistics.

The Kazakh government launched the New Silk Way project in 2013 with the aim of reviving trans-continental trading routes and establishing Kazakhstan as a transit hub, especially between China and Europe. One of the first steps taken was to merge air and marine transport infrastructure into KTZ - expanding what is already Kazakhstan's largest company into a vast conglomerate spanning rail, air and sea transport. In total, over $60bn will be invested into modernisation of Kazakhstan's transport and logistics infrastructure, KTZ's president, Askar Mamin, told the New Silk Way forum in Astana on November 7.

While Kazakhstan represents a more direct route between China and Europe, KTZ is competing with both cheaper sea freight carriers and alternative rail routes. "Kazakhstan's geographic location alone is not enough. All of the relevant competencies need to be concentrated together to provide a logistics service, and KTZ was chosen as the backbone for this," Alpysbayev said in an interview with bne. "It's very important to provide a one-window service, combining railway, port operation and marine operation. This isn't only a consolidation of assets; it's bringing new competencies and changing people's mindsets, as we make the transition from a railway business to a logistics business."

Existing lines

KTZ already operates container trains on the Chengdu-Lodz and Chongqing-Duisburg routes, which take 13 and 16 days respectively, compared to up to 45 days by sea. "The price by rail is higher than for sea freight, but we are working specifically with companies that produce high value added products such as computers, which allows them to use rail to get their goods from China to Europe," says Alpysbayev.

A partial shift in Chinese manufacturing away from the coastal cities to Xinjiang, around 2,000 kilometres closer to European markets, is also benefiting Kazakhstan, which borders western China. According to Alpysbayev, the company is "very positive about the development of Kazakhstan as a transit hub because of drivers such as the Chinese government policy to develop western China. Beijing wants to invest over $1 trillion in development of the Xinjiang region, which borders Kazakhstan."

Hewlett-Packard, for example, has started to move some of its plants from coastal china to Xinjiang, where laptops and inkjet printers are now produced, the company's senior vice president, Tony Prophet, told the New Silk Way forum. HP has also switched from air to rail transport, working with KTZ to transport its goods to Europe.

Most of Kazakhstan's recent investments into new railway lines have been to reorient the network on an east-west axis, since the railway Kazakhstan inherited from the Soviet Union ran mainly from north to south. Today, while Kazakhstan also wants to be part of international north-south routes, the majority of transport is between China and Europe.

In 2012, Kazakhstan's second rail connection with China, the Almaty-Korgos line, started operation; this was followed in 2013 with the launch of construction on the Zhezkazgan-Beineu line, which will reduce the distance travelled from the Dostyk border crossing with China to the port of Aktau by 800 km.

A sea change

In addition to building new railways, KTZ's plans now include investment into ports, airports and logistics facilities. There are plans to invest around $160m to expand the port of Aktau on Kazakhstan's Caspian coast, opening up a second route to Europe. While the sea crossing makes this more complex than the land route, it gives a much faster journey time to Turkey and Southeast Europe.

Landlocked Kazakhstan is also investing in sea terminals abroad. During his visit to Kazakhstan in September, Chinese President Xi Jinping gave the go-ahead for Kazakhstan to build a $100m terminal at the Yellow Sea port of Lianyungang, with construction due to start in 2014. Kazakhstan already has a presence on the Black Sea through state oil company KazMunaiGas' terminal at Batumi, and KTZ is looking at various options to develop its activities on the Baltic coast.

Eleven airports in cities including Astana (though not Kazakhstan's largest city Almaty) are also being placed under KTZ's control, and the company is working with international firms including Lufthansa Consulting, Swissport and Zurich Airport to develop the air transport sector. Growth of up to 500% in passenger traffic and an even larger increase in cargo transportation are being targeted by 2030. However, the first step will be getting Kazakhstani airlines off the EU's air safety blacklist - a major obstacle to development of the sector.

KTZ already has a management agreement for the Port of Aktau and the Korgos-Eastern Gate special economic zone on the border with China. Construction of first a logistics zone, then an industrial zone at Korgos is due to start in 2014. On November 7, KTZ signed an agreement with Dubai-based DP World, one of the world's largest marine terminal operators, to develop both Aktau and Khorgos. Speaking at the New Silk Way forum, DP World's chairman, Sultan Ahmad Bin Sulayem, compared the opening up of cross-Kazakhstan routes to the opening of the Panama Canal or Suez Canal.

Meanwhile, in 2014 and 2015, KTZ will build a network of transport logistics centres, with A and B class facilities, across Kazakhstan. These will cover all major cities in Kazakhstan, in some cases working with private sector logistics companies, to meet the country's pressing need for better logistics facilities.

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