Transport and logistics

Downturn continues in transport industry

Even though the transport and logistics industry is one of the most important sectors of the national economy of Latvia, downturn is continuing in the sector because of the uncertain situation in Europe and tensions with Russia. Year on year, the proportion of transport and warehousing in the total gross domestic product decreased 0.5 percentage points.

Transport and logistics sector in brief:

* Transport and logistics are among Latvia’s priority sectors.
* Transport and logistics constituted 9.2% of total added value in Latvia in the third quarter of 2016.
* In the national economy of Latvia, transport and logistics account for about one-third of total export of services.

Facts about the transit sector

* Latvia is being positioned as a transit and logistics center among the European Union, C.I.S. and Asian markets. Providing their services in Latvia are operators of ports, railroads, trucking companies, customs warehouses and brokerage companies, logistics centers, shipping agents, freight forwarders, operators of oil and oil product pipelines.  The transit and logistics sector ensures a considerable share of service export in Latvia’s economy. Therefore it receives special attention at state and company levels, and the largest investments go into transport infrastructure.
* Three major ports that are ice-free during winter – Riga, Ventspils and Liepāja – handle more than 75 million tons of cargo. Regular ferry services connect Latvian, Swedish and German ports.
* The most important highways, railroads, ports and airports are part of the European Union’s TEN-T network. Latvia’s transit corridors are also included in other international transport networks, for example – the United Nations’ AGR network, the AGC network, AGTC combined transport network, EATL Eurasian transport corridor, and network of the Organization for Cooperation of Railways OSZD.
* Latvian, Belarusian and Estonian railroads in 2009 launched container train ZUBR, connecting Tallinn, Riga, Minsk, Kiev, Odesa, and Chornomorsk. Active work is under way to achieve closer cooperation in transit with China.
* State companies JSC Latvijas Dzelzceļš (Latvian Railways) and its subsidiary LDZ Cargo Ltd. maintain their leading positions in the sector. Riga and Ventspils are the leading ports, Pro Logistic Services Ltd. dominates cargo transport, Skonto metāls Ltd. – stevedore services, while national airline airBaltic is the leader in passenger transportation by air.

Industry’s ups and downs

2016 was a negative year for Latvian transport industry. For example, rail transport volume reduced more than 20% from 2015. International transport volumes reduced even more, by 21%. On the other hand, domestic freight transport volume rose 16%. Rail transport volumes had an immediate effect on ports’ operations. In the first few months of 2016, Latvian ports’ cargo turnover fell approximately 15% year on year. Furthermore, Russia announced halting oil product exports through Baltic ports by 2018. Being aware of Russia’s intentions, JSC Latvijas Dzelzceļš (LDz) had been preparing for this, and LDz is continuing active work to find cargoes that would compensate for the fall. 
At the same time, various decisions were taken on investments in transport infrastructure. Last year the government approved in principle investing EUR 465 million in continuing Latvian railroad electrification project. More transit freights are to be brought to Latvia in cooperation with Belarus this year.
After lengthy uncertainty, Latvian government and German businessman Ralf Dieter Montag-Girmes signed national airline airBaltic shareholder agreement. Under the agreement, the German investor received 20% of airBaltic shares for investing EUR 52 million in the airline.

Progress with Rail Baltica project

Significant project was achieved last year with implementation of the European standard-gauge rail line Rail Baltica. Regardless of some local governments’ objections, Latvian government approved the route of Rail Baltica through Latvia in 2016. In January 2017, Baltic prime ministers met in Tallinn to sign intergovernmental agreement on implementation of the Rail Baltica project. The agreement confirms the Baltic countries’ commitment to implementing the project by 2025, so the rail line could be put in operation in 2026. The agreement also emphasizes the importance of EU funding for the implementation of the project. The EU support is estimated to be up to 85% of the project’s cost.

Closer contacts with China

Pursuing closer cooperation in transit with China has been high on the Latvian government’s agenda for quite a while. During the Riga Summit of Central and Eastern European Countries and China (16+1) last year, this cooperation began to take shape. In October, the first pilot container train left the Chinese city of Yiwu for Riga to cover a total of 11,066 kilometers. The pilot train was organized by LDz Loģistika and Chinese rail companies in cooperation with TransContainer. In the meantime, a Logistics Coordination Center has been set up at the Transport Ministry, and an online platform was launched for coordinating the 16+1 cooperation. Special transport attaches of the Transport Ministry have been working in China and Kazakhstan since April 2016 to make use of the opportunities presented by Latvia being the coordinator of the 16+1 cooperation, as well as opportunities provided by the development of the New Silk Road.

New cargoes being sought

Experts are wary in their comments about the industry’s prospects in 2017, taking into account that Latvian transit and logistics sector is closely linked to geopolitical developments elsewhere in the world. In order to foster the development of transport industry, companies will have to think more about increasing their competitiveness, which in turn will bring more cargoes to Latvia. Market players should also consider establishing new contacts so that, should the existing partners act unpredictably, they could continue cooperation with the new partners.

Major projects under consideration

Several major investment projects are to be implemented in the coming years. One of the largest of these is the railroad electrification project. This past January the government finally approved the rules for implementation of the Latvian railroad electrification project. The total length of Latvian public-use rail lines was 1,861.8 kilometers in 2015. At the moment, 14% of Latvian railroad infrastructure has been electrified, which is substantially less than the European Union’s average of 55%. 
The protracted procurement of new trains for the Pasažieru vilciens (Passenger Train) company will continue this year. Continuing the procurement process will be the greatest challenge for the company in 2017 – it has time until the end of the year to conclude a contract on purchase of 32 new electric trains.
Finally, preparatory works for construction of the Skanstes tram line in Riga, which has come in for a lot of criticism, will also continue in 2017. Earlier this year, Rīgas Satiksme public transport company submitted the Skanstes tram line project to the Central Finance and Contracting Agency and, if the circumstances are right, construction of the new tram line could commence in mid-2018.