Read our related article on why the Middle Corridor remains a central focus.
While the prospects for the Middle Corridor have improved, regional nations need to intensify their focus to develop growth prospects
The Middle Corridor, also known as the Trans-Caspian International Transport Route, is gaining popularity as a key East-West connection, particularly following Russia’s invasion of Ukraine and subsequent sanctions. This route, along with the surrounding countries, holds significant potential for businesses. First, the Middle Corridor offers a route that is at least 2,000 kilometers shorter than the Northern Corridor, which passes through Russia. This translates to reduced travel time, with the potential to shorten the journey between China and Europe to as little as 12 days, while the Northern Corridor currently takes 19 days. Most importantly, the Middle Corridor helps companies mitigate risks, uncertainties, and sanctions-compliance issues associated with transit through Russia. The development phase of the route also opens up new opportunities for B2B and B2G engagements in logistics, transportation, and infrastructure construction, as the countries strive to modernize and expand their railway systems and seaports. It also offers access to new markets, with an estimated population over 80 million along the route. The Middle Corridor is already being utilized by various global logistics companies, including Austria’s Rail Cargo Group, Denmark’s Maersk, Finland’s Nurminen Logistics, and the Netherlands’ Rail Bridge Cargo. MNCs should see increased traffic along the Middle Corridor in the near term, but the limitations in transport capacities and cost disadvantages in comparison to the Northern Corridor are unlikely to be resolved in 2023 and will necessitate additional time and financial resources, making it more of an opportunity in 2024 and beyond.
Overview
- On May 19, Chinese leader Xi Jinping met with five Central Asia leaders during the China-Central Asia summit in Xi’an, described as China’s top diplomatic event of 2023 by the Chinese Foreign Ministry.
- Regional connectivity was a focal point of the discussion, with key topics including the completion and early launch of the China-Kyrgyzstan-Uzbekistan railway project, along with the Kazakh-Chinese railway, and the construction of several highways that will play integral roles in the Middle Corridor.
- In 2022, Kazakhstan witnessed a more than twofold increase in cargo volumes along the Middle Corridor compared to 2021, reaching 1.5 million tons, while the traditional Northern Route experienced a 34% decline in shipping volume. Despite this substantial surge, the Middle Corridor currently represents less than 10% of total cargo transported via the Northern Route due to several bottlenecks.
- The primary obstacles lie in the limited capacities of seaports and railways, the absence of a unified tariff structure and single operator causing transit delays, and the intricate geopolitics where the interests of key players such as Russia, Turkiye, and China do not consistently align.
- Looking ahead, the countries involved, including Azerbaijan, Georgia, Kazakhstan, and Turkiye, have set a target to enhance the Middle Corridor’s capacity to 10 million tons per year by 2025 as they deliver the roadmap agreement signed in November 2022.
- The Middle Corridor also presents an opportunity to boost energy exports from Central Asia to Europe. In its efforts to diversify transport routes, Kazakhstan aims to ship 1.5 million tons of oil (2–3% of its oil exports) to Europe this year through the Middle Corridor.
Our View
We do not anticipate the Middle Corridor to come close to eliminating the Northern Corridor even over the medium term; therefore, it is essential to approach the optimism surrounding it with caution. So far, the countries have not been able to harmonize and simplify the regulatory and customs procedures for the transit cargo, whereas within the Northern Corridor, European importers can enjoy a single price quote and streamlined delivery managed by a single operator. In addition, major logistics companies in the region highlight challenges such as limited railway capacity, particularly in Georgia, and a shortage of ships in the Caspian Sea. In response, both Azerbaijan and Kazakhstan are actively working on the expansion of their seaports. For instance, Azerbaijan plans to enhance the cargo capacity of its Baku Sea Port from the existing 15 million tons to 25 million tons—well below the capacity (over 100 million tons) offered by the Northern Route.
However, strong political appetite from the participating countries and availability of financial resources in Azerbaijan, Kazakhstan, Turkiye, and China can help facilitate dialogue and support infrastructure development. The burgeoning relationships between China and Central Asia are experiencing a revitalized momentum, as evidenced by the ambitious declaration signed during the recent Central Asia-China Summit, emphasizing the urgency to accelerate the development of the Trans-Caspian Route and other regional connectivity initiatives in Central Asia.
Looking ahead, challenges to transit Russia via the Northern Corridor due to sanctions and uncertainty look set to persist for the long term, providing an opportunity for the enhancement of the Middle Corridor. While the Middle Corridor’s multi-modal nature may limit efficiency and potentially hinder huge volumes of traffic, it undoubtedly presents alternative options, diversifies supply routes, and provides a secure market access for South Caucasus and Central Asian exporters.
It should also be noted that caution among the participating countries, especially in Central Asia, toward Moscow has resulted in a subdued approach toward the realization of the Middle Corridor for a long time. However, global trade realignment as a result of the war in Ukraine and Western sanctions has significantly altered the situation, making the development of the Middle Corridor an inevitable choice.
At FrontierView, our mission is to help our clients grow and win in their most important markets. We are excited to share that FiscalNote, a leading technology provider of global policy and market intelligence has acquired FrontierView. We will continue to cover issues and topics driving growth in your business, while fully leveraging FiscalNote’s portfolio within the global risk, ESG, and geopolitical advisory product suite.
Subscribe to our weekly newsletter The Lens published by our Global Economics and Scenarios team which highlights high-impact developments and trends for business professionals. For full access to our offerings, start your free trial today and download our complimentary mobile app, available on iOS and Android.