Azerbaijan

Key Findings

CPMM road transport data for 2022 showed the following year-on-year changes from 2021 in Azerbaijan:

1. Border-crossing time fell slightly from 5.8 hours in 2021 to 4.0 hours in 2022. This followed a similar reduction in 2021 from 2020.
2. Border-crossing cost dropped from $106 in 2021 to $52 in 2022.
3. Total transport cost (per 500 km) rose from $27 to $50.
4. SWOD increased slightly from 52.3 km/h to 53.3 km/h, while SWD slowed to 28.9 km/h from 39.1 km/h.
5. The average time needed to clear Krasny Most (Red Bridge) BCP jumped from 2.9 hours to 13.6 hours for outbound traffic. The time for inbound traffic fell from 3.7 to 3.1 hours.
6. The average inbound cost to cross Krasny Most (Red Bridge) BCP declined from $120 to $69. The outbound cost rose from $26 to $43.

Table 3.1: Trade Facilitation Indicators for Azerbaijan, 2020–2021

km = kilometer, km/h = kilometers per hour, SWOD = speed without delay, TFI = trade facilitation indicator.

Source: Asian Development Bank.

Table 3.2: Border-Crossing Performance in Azerbaijan, 2020–2022

BCP = border-crossing point.

Note: The estimates for the Baku seaport BCP are for land-side operations only. The water-side delays are more significant.

Source: Asian Development Bank.

Trends and Developments

Border-crossing time and cost both declined from the 2021 levels. As economies emerged from the COVID-19 pandemic and construction and engineering resumed, total transport cost rose due to the nature of the cargo, as special permits handling is required to move heavy, oversized, and irregularly shaped machinery needed for these projects from Georgia’s Poti seaport to Central Asia.

Azerbaijan is a critical transit country for CAREC Corridor 2, the TITR (also known as the Middle Corridor), and the Transport Corridor Europe Caucasus Asia (TRACECA) initiative.[1] It is a founding member of the TITR and a key participant in efforts to market the Middle Corridor to the shipping community.

The government seeks to make Azerbaijan a major hub for trade between Europe and Asia and has built the largest maritime port on the Caspian Sea to support this goal. The Baku International Sea Trade Port at Alat can currently handle 15 million tons a year and plans to add another 10 million tons of capacity in the future. Construction was completed in 2022 on an expansion of the nearby Alat Free Economic Zone (AFEZ). Modern logistics centers are being developed, and a new airport is planned. The AFEZ facilities and favorable laws should attract substantial international investments. Value-added tax and customs duties will be waived for businesses that are located in the AFEZ as long as the goods are not used for domestic consumption. The zone’s private property rights protections are strong, and corporate taxes for businesses established within the AFEZ law.

[1] The TRACECA initiative aims to foster the development of transport along routes between Europe and Asia through the Caucasus and Central Asia, and to ensure that economies of the now independent republics of the former Soviet Union will be better connected to Europe instead of the Russian Federation. 

Azerbaijan has taken important steps to help develop the Middle Corridor (aka the TITR) and will greatly benefit if the overall effort bears fruit. But an initial upswing in its use was reversed during thesecond half of 2022 by the daunting array of challenges, complexities, and infrastructure deficiencies of the Middle Corridor.

To reach a European consignee, outbound shipments along the corridor from the PRC must pass through four ports, cross two seas, switch transport modes five times, and be handled by as many as nine separate operators. Merely to reach the western shore of the Black Sea–still a long way, for instance,  from major export destinations such as Germany or the Benelux countries—these operators need to organize the pickup trucker at the shipment’s origin; China Railway; Kazakhstan Temir Zholy; Azerbaijan Demir Yollari; Georgia Railway; a trans-Caspian shipping company; a Black Sea vessel operator; and handling at the ports of Aktau or Kuryk, Baku, Poti or Batumi, and one of the European seaports such as Constanta. Each of these Middle Corridor modal changes creates significant failure risks and make the supply chain more fragile and complex. Cargo visibility is quite poor. Door-to-door transport quotes come more slowly than those for shipments on the Northern Corridor through the Russian Federation due to the multiple players involved. The logistics costs can be quite unpredictable, making it difficult for shippers to quote a firm price for delivery to destination, leading to lost sales.

These issues undermined the brief bump in the Middle Corridor use that followed the invasion of Ukraine by the Russian Federation and the ensuing international sanctions. Traffic on the Middle Corridor suddenly jumped but then quickly overwhelmed the infrastructure, management processes, and capacities of the multiple operators on each link of the logistics chain. Delays grew tremendously at the Middle Corridor ports, shippers and receivers could not locate their cargos, and a journey from the PRC to Europe that normally took 12–15 days on the Northern Corridor required additional weeks to move through the Middle Corridor. Shippers who found ways to avoid the international sanctions quickly returned to the Northern Corridor or shifted to ocean trade routes.

Recommendations

Establish a Middle Corridor operating company. Many of the Middle Corridor issues could be solved by establishing a master operating company to manage its entire length. This company should have full authority could set schedules, manage the movement of shipments from end to end, provide stable rates through long-term contracts with the corridor’s rail and sea operators, organize the development of adequate transport capacity, and serve as a single point of contact for users (e.g., for cargo tracking and tracing). Ownership could be shared by the key countries along the corridor, such as Azerbaijan, Georgia, and Kazakhstan[1] as well as the PRC, which is a key cargo source and transit country for cargo from countries like Korea and Japan.

Identify the Middle Corridor chokepoints. A thorough study of the important bottlenecks would enable policymakers to move decisively on eliminating them. The improvements should not be limited to infrastructure expansion, which is costly and can take years. They should also streamline processes through using the principles of total quality management and lean manufacturing.

Digitalize the transport and logistics process. Establishing a holistic digital ecosystem for users and stakeholders would make the corridor’s logistics network seamless and the supply chain more agile, resilient, and efficient. For instance, Aktau and Baku seaports still do not exchange vessel and shipment data digitally. By using widely adopted data sharing  technologies and standards such data could be shared in an automated manner.

[1] Azerbaijan, Georgia and Kazakhstan have created a consortium of companies led by the national railway operators in these three companies, as well as major freight forwarders, into an association. The association reviews and sets the tariffs. However, a shipper still need to wait for two weeks to obtain a quotation from the companies in this association. This suggested that the process is complicated and the idea of a proposed operating company is to improve the efficiency. More information about the association and the consortium can be found at https://middlecorridor.com/en/about-the-association/consortium.