The pandemic and global turmoil of 2022 continued to significantly impact the international logistics and freight transportation market in 2023.
These transformational events prompted industry participants to adapt and expand into new business areas. UTLC ERA, a prominent market leader, is committed to enhancing transit traffic and upholding Russia’s reputation as a reliable logistics partner.
In terms of strengthening UTLC ERA as a pivotal link in the Eurasian rail transportation chain, key focus areas include expanding services in both eastern and western directions, digitalizing processes, ensuring operational transparency, and fostering loyalty among all rail transportation stakeholders.
Macroeconomic situation and overview of key markets
Global economy
In 2023, amid the lasting repercussions of recent events such as the pandemic, escalating geopolitical tensions, and a significant tightening of monetary policies across several countries, the global economy remained volatile.
Estimates suggest that global GDP growth will decelerate by the end of 2023. Throughout the year, Europe witnessed a gradual decline in both industrial output and consumption, partly attributed to the elevated interest rates imposed by the European Central Bank (ECB). Additionally, the global economic growth was hampered by the ambiguous conditions in China. Despite expectations, China experienced a slower economic expansion due to various internal and external challenges.
The dwindling demand for Chinese exports from key trade partners further limited growth prospects. Looking ahead to 2024, the global economy is expected to be characterized by similar trends seen in the previous year. Recent projections from international entities suggest either stagnation or a marginal decrease in global GDP growth rates. The wide range of estimates underscores the significant uncertainty surrounding the current state of the global economy and the potential risks it faces.
Annual growth of world GDP in 2022–2024, %
Sources: World Bank, IMF, UN World Economic Situation and Prospects, OECD
China economy
In 2023, China’s GDP growth reached 5.2%, up from 3.2% the previous year. While this exceeded the Chinese government’s target, it fell short of analysts’ expectations. Analysts revised their forecasts multiple times throughout the year, settling on a consensus of 5.3% by the end of 2023, even though initial expectations ranged from 6 to 8%. Despite expectations of a rapid economic recovery following the lifting of lockdowns in late 2022, this scenario did not unfold as anticipated.
Contrary to expectations, the economy experienced a slower recovery throughout the year, with key indicators displaying weaker-than-expected performance, particularly in quarterly GDP growth. China continues to face persistent domestic challenges, including subdued consumer demand, an aging population, the rising debt and turmoil in the real estate sector, all of which exert pressure on anticipated economic growth. Moreover, weak demand from major trading partners remains a significant external constraint.
In 2024, China is expected to maintain relative flexibility in fiscal deficits to support the economy in case of hardship. Local governments have unveiled plans to bolster consumption and industrial output. Additionally, the government may implement further support measures, such as reforms, in an effort to spur higher economic growth.
5.2 %
China’s GDP growth by the end of 2023
compared to 3.2% a year earlier
China: Growth under pressure
Current challenges are expected to continue to constrain China’s economic growth potential. S&P Global Ratings separately considers a scenario with a deepening crisis in the real estate market, in which GDP growth will amount to only 2.9%.
Quarterly GDP dynamics in China in 2021–2023, %
The unemployment rate in China decreased by 0.4 percentage points in 2023 compared to the previous year, reaching 5.2%. While the overall labor market in China remains stable, there is a significant unemployment rate among individuals aged 16 to 24, standing at 14.9% as of December 2023. This high rate is attributed to the insufficient availability of jobs requiring medium and high qualifications.
The retail trade volume experienced a 7.2% year-on-year growth in 2023, primarily driven by the favorable performance relative to the previous year when China was grappling with the COVID-19 pandemic. Despite this growth, domestic demand did not adequately support the country’s economic expansion, leading to a decline in the consumer price index and entering the deflation zone in July and throughout Q4. Consumer sentiment stagnated due to the lack of substantial government support measures and negative internal and external factors.
China’s industrial production increased by 4.6% year-on-year at the close of 2023. The surge in manufacturing activity in the final months was predominantly influenced by the low comparison base of the previous year. Sectors such as non-ferrous metals, chemicals, electrical equipment, computers, communications equipment, and automobiles witnessed significant growth. However, future growth may face pressure from overseas demand, with the Chinese Academy of Sciences projecting a negative impact of exports on GDP by the end of 2024 (—0.3%), potentially impacting international logistics, especially between China and Europe.
The GDP growth target for 2024 is expected to remain within the range of 4.5% to 5.5%, consistent with the previous year’s target. Analysts anticipate a growth rate between 4.5% and 4.6%. However, ongoing challenges are anticipated to persist and constrain China’s economic growth potential. S&P Global Ratings has outlined a scenario in which a deepening crisis in the real estate market could lead to a GDP growth rate as low as 2.9%.
European economy
According to Eurostat’s initial estimate, the economy of both the EU and the eurozone expanded by 0.5% in annualized terms in 2023, thus averting a recession. This growth rate was the lowest in the past decade, with the exception of 2020, when the pandemic led to a sharp 5.6% decline in GDP. Factors such as tepid demand from international partners, elevated inflationary pressures, and the tightening of monetary policy (MP) significantly curtailed the scope for potential growth, affecting components like exports and household consumption.
Attention should also be focused on the Manufacturing PMI (Purchasing Managers’ Index), which is a pro-active indicator for predicting international transportation demand. In 2023, the PMI index showed a declining trend (falling below 50 points), with negative trends in output and demand. This decline notably impacted trade and logistics demand. However, signs of improvement emerged in Q4, with a less pronounced decline in new orders and purchasing activity, along with a notable increase in business confidence reaching an eight-month high in December. Forecasts suggest a potential gradual recovery of the PMI in early 2024, with the index likely to enter a growth phase (>50 points) in Q2-Q3. This rise could be attributed to price deflation, relaxation of the MP, and subsequent demand growth.
0.5 %
EU and Eurozone economic growth in 2023 in annual terms
according to Eurostat
Quarterly GDP growth dynamics of the European Union and the euro area in 2022–2023, %
Source: Eurostat
Eurozone manufacturing PMI in 2023, %
Source: S&P Global, Trading Economics
Since 2021, the eurozone has experienced a consistent increase in inflation, reaching its peak in October 2022 at 10.6%. Following this peak, inflation gradually declined due to the adjustment of energy prices and the measures taken by the ECB. By November 2023, inflation dropped to a level not seen in over two years, standing at 2.4%. Core inflation at the end of the year remained on a downward trajectory, hitting its lowest point since March 2022. Simultaneously, the shipping crisis in the Suez Canal, coupled with the rerouting of ships through the Cape of Good Hope, and the persistent supply chain disruptions, have the potential to hinder the improving trends in the European economy. This situation may also exacerbate pro-inflationary risks. These factors are influential in the European Central Bank’s (ECB) deliberations on monetary policy easing, a crucial measure to stimulate the economy, bolster trade, and enhance international shipping demand.
10.6 %
eurozone inflation from 2021 to October 2023
2.4 %
eurozone inflation in November 2023
Annual inflation dynamics in the euro area in 2021–2023, %
Source: Eurostat
The eurozone unemployment rate hit historic lows in 2023, dropping to 6.4% by year’s end. However, the ECB’s efforts to combat inflation may have a negative impact on employment, as persistent monetary tightening typically leads to reduced hiring.
6.4 %
eurozone unemployment rate by the end of 2023
In 2023, intra-eurozone retail sales volumes saw a 1.8% year-on-year decline. European consumers have been cutting back on spending steadily since October 2022, in response to escalating inflation, tighter monetary policies, and a general decrease in consumer confidence. Consequently, the eurozone consumer confidence index has remained well below its long-term average since early 2022. Nevertheless, there has been a recent upturn in sentiment: households are more optimistic about their financial situations and have improved expectations for the overall economic outlook. This shift in sentiment is crucial for gauging the prospects for 2024.
Most analysts forecast a rise in GDP growth rates for 2024 compared to the trends observed in 2023, though estimates vary significantly. The OECD anticipates growth of 0.6%, a marginal increase of 0.1 percentage points from 2023. On the other hand, the European Commission voiced a more optimistic projection of +1.2%. An important economic risk is the potential persistence of inflation, which may necessitate keeping interest rates elevated for a longer period than anticipated. Additionally, the outlook could be influenced by the unfolding shipping crisis in the Red Sea, heightened supply chain volatility, and the subsequent rise in ocean freight rates.
Eurozone annual GDP growth forecast for 2024, %
Sources: OECD, World Bank, IMF, EC
Economies of Russia and Belarus
Russia’s GDP growth marking a record high in the past decade, excluding the post-pandemic recovery in 2021. This growth was fueled by robust activity in manufacturing, logistics, and other sectors, buoyed by strong consumer demand and substantial government investments, all amidst heightened global tensions. Similarly, Belarus experienced industrial revitalization and a surge in domestic demand, driving significant economic progress in the country.
An effective gauge of the production industry’s landscape is the Manufacturing PMI. In 2023, Russia consistently reported a PMI figure above 50, reaching its peak in December. This surge was driven by steady growth in output and new orders, fueled by robust domestic demand. Although the PMI for Belarus is unavailable, data indicates a notable 7.7% rise in industrial production, contributing more than half to the country’s GDP growth.
171.0 trillion rub
Russia’s GDP volume by the end of 2023
growth at 3.6%
Quarterly GDP dynamics in Russia in 2022–2023, %
Russia’s manufacturing PMI in 2023, %
Source: S&P Global
In Russia and Belarus, household expenditures have been steadily increasing since April, leading to a significant rise in the demand for imports, including those from China. However, recent data from Rosstat and operational estimates from Sberindex indicate a gradual decrease in consumer spending and imports in Russia since October. Similarly, Belarus has experienced comparable trends, with consumer activity peaking and subsequently declining.
The decrease in consumption was mainly a result of the tightening of monetary policy (MP). Against a backdrop of high inflationary pressure caused by the weakening ruble and strong demand for imports, leading to a trade imbalance, the Central Bank of the Russian Federation (Bank of Russia) raised the key rate multiple times throughout the year. Thus, the rate increased from 7.5% per annum in January to 16% by December. To curb overheated demand, stabilize the ruble, and bring inflation back to the target level in 2024, the Bank of Russia intends to uphold tight monetary conditions in the economy for an extended period, thus impacting import dynamics. Meanwhile, credit conditions in Belarus had been easing in 2023, but due to robust consumption, this trend reversed early in 2024, with adverse effects on imports into the country and subsequently influencing the demand for international transportation.
+7.7 %
industrial production growth in Belarus in 2023
Dynamics of retail trade volumes in the Russian Federation and Belarus in 2023, %
Source: Trading Economics
Bank of Russia key rate and inflation in 2022–2023, %
The most recent GDP forecasts for Russia and Belarus, as published by prominent international organizations, indicate anticipated growth in both economies. However, there is notable variation in the projected values, with Russia’s GDP growth ranging from 1.3% to 2.6%. Despite external pressures and the conflicting impact of sanctions, the economies of Russia and Belarus exhibit resilience. Nevertheless, challenges such as inflation risks, labor shortages, restrictions on importing technological goods, and potential declines in direct foreign investment could constrain their growth prospects.
Forecasts for Russia’s GDP dynamics for 2024, %
Sources: OECD, World Bank, IMF
Mutual trade between China and Europe
Trade between China and the European Union plays a critical role in global commerce and is fundamental for the efficient functioning of rail networks connecting Eurasia.
In 2023, the total trade volume between these partners reached €734.1 billion, with China’s exports at €513.4 billion and the EU’s exports at €220.7 billion. This marked a decrease of 17.9% and 3.0%, respectively, compared to the previous year. The overall volume of trade in 2023 saw a 6.0% decline. The decrease in Chinese exports can be attributed to reduced European demand amidst economic uncertainties in the region and global geopolitical tensions. Conversely, the marginal decline in European exports in terms of value, accompanied by a significant drop in physical trade by 9.3%, could suggest a rising demand for higher-value goods and products in China, alongside a diminished interest in lower-priced but common commodity categories. Furthermore, considering China’s economic conditions and relatively subdued consumer spending, it is likely that the surge in demand is primarily driven by the industrial sector.
It is significant that the upward trend in Europe’s trade deficit with China, which had been ongoing since 2019, came to a halt in 2023. The monthly average trade balance stood at €24.2 billion, down from €33.1 billion in 2022. While there has been an improvement in the trade balance, it is important to note that this change is accompanied by a decrease in Chinese exports, whereas European performance has remained steady. December 2023 marked the lowest trade performance since June 2021, possibly influenced by the shipping crisis in the Red Sea, leading to delayed deliveries of goods.
Mutual trade between China and Europe in 2022–2023, billion euros
Source: Eurostat
Total
trade volume between partners within the framework of the main
commodity
positions based on the results of 2023
-
734.1 bln euro
total volume of trade between partners within the main commodity items
-
513.4 bln euro
China’s export
decreased by 17.9%
-
6.0 %
reduction in the total volume of natural trade for 2023
-
220.7 bln euro
EU exports
decreased by 3.0%
Share of European countries in imports from China, %
Source: Eurostat
Share of European countries in exports to China, %
Source: Eurostat
Shares of goods in China—Europe exports, %
Source: Eurostat
All modalities weakened their positions in favor of maritime transport compared to the same period last year.
Mutual trade between China and Europe in 2022–2023, billion euros
- Trade balance
- EU (27 countries) exports to China
- EU (27 countries) imports from China
Source: Eurostat
Source: Eurostat
Shares of goods in Europe—China exports, %
Source: Eurostat
In 2023, exports from China witnessed a decline across various product categories such as cell phones, computers, steel, and apparel, except for automobile exports. There has been an obvious shift in export destinations, notably with a significant increase in trade between China and Russia. However, this increase in trade volume is insufficient to offset the decrease in trade with Europe, the UK, and the US. The current economic conditions in both China and Europe do not imply a substantial growth potential in trade between the two regions.
Despite these challenges, efforts are being made to ease trade tensions that have been escalating throughout 2023. In September, both parties agreed to exchange information on export controls. Additionally, China expressed its willingness to boost imports of agricultural products from the European Union, hoping for reciprocal lifting of restrictions on high-tech exports to China by the EU. It is anticipated that China’s exports, especially to Europe, may see a rise in the latter half of 2024 due to lower interest rates implemented by global central banks, leading to increased demand.
China—Europe exports by major modes of transport in 2022–2023, % of physical trade
Source: Eurostat
Europe—China exports by major modes of transport in 2022–2023, % of physical trade
Source: Eurostat
Mutual trade between China and Russia
In 2023, the partnership between Russia and China grew stronger amidst a turbulent geopolitical environment and escalating sanctions.
It is important that the progress in trade relations goes beyond just numbers; there is also a qualitative advancement in the trade turnover as both countries engage in the exchange of more intricate products. Many domestic enterprises have forged contracts with Chinese suppliers, who are new for them, and integrated them into their production chains, paving the way for extensive growth in bilateral trade.
Moreover, the shift towards conducting trade in national currencies and reducing reliance on Western payment systems is a significant development. According to Russia’s Ministry of Economic Development, by the end of 2023, nearly 90% of trade with China is now carried out in national currencies, signaling a move towards greater financial independence.
Partners can further enhance their relationship through new advancements in production and investment cooperation, along with the enhancement of mutual trade infrastructure, with a primary focus on transportation.
China’s trade turnover with Russia by the end of 2023
-
240.1 billion dollars
total trade turnover between China and Russia by the end of 2023
+26,3%
-
111.0 billion dollars
the amount of goods transported to Russia
+46,2%
-
129.1 billion dollars
the amount of goods transported to China
+12,7%
Shares of goods in China—Russia imports, %
Shares of goods in Russia—China exports, %
Trends in the logistics industry
Sea container shipping market
The volume of global container trade by sea transport in 2023 remained steady at 173.8 million TEU, showing a modest growth of 0.3% compared to the previous year. Specifically, on the China–Northern Europe route, as reported by the Journal of Commerce (JOC) and Container Trade Statistics (CTS), traffic volumes reached 7.8 million TEU, reflecting a 3.6% increase from 2022.
173.8 mln TEU
volume of global container trade by sea transport in 2023
growth by 0.3%
In 2023, the sea shipping market saw a relative stagnation in demand, yet witnessed a growth of 7–8% in effective fleet capacity. Consequently, the Drewry Market Balance Index dropped below 80 p. (down from approximately 100 p. in 2022).
Amidst stagnant demand and concurrent supply growth, sea freight rates steadily declined throughout 2023. At the start of January, the composite WCI surpassed USD 2.1 thousand, but by the end of October, it had plummeted by nearly 40% to approximately USD 1,340 per SFE. Despite carriers’ attempt at a General Rate Increase (GRI) during the summer, the impact was short-lived, leading to continued rate decreases. Significantly, fluctuations arose at the close of 2023 due to events in the Red Sea, prompting major sea lines to temporarily halt shipping via the Suez Canal and divert their vessels through the Cape of Good Hope.
Concurrently, carriers predictably initiated various supplemental charges, catalyzing a gradual upturn in spot freight prices in December. In the final week of December, the WCI composite surged to USD 1,661 per SFE. When analyzing the Asia—Europe route, the Shanghai—Rotterdam rate peaked at USD 1,667 per SFE, while for the reverse journey, Rotterdam—Shanghai, the rate stood at a fixed USD 466 per SFE. Looking ahead to 2024, the lines have announced additional charges, ranging from USD 1–2 thousand per SFE, particularly during the high season, depending on the destination.
By end of December 2023, the ratio of WCI Shanghai—Rotterdam ocean freight rates to ERAI West rail rates was 0.47, while the ratio for the reverse direction was 0.17. The oversupply in the sea transportation market has resulted in sea transportation costs remaining more attractive than rail transportation costs. This trend has led to a gradual decline in the use of rail transportation in favor of sea services on the China—Europe route. Consequently, the share of UTLC ERA in transportation dropped to 1.8% in the reporting year from 3.7% the previous year.
Most analysts expect positive dynamics in the volume of global container trade in 2024. Forecasts on average assume growth of 2–4%. Due to its maturity, the shipping industry is mainly dependent on the state of affairs in the global economy, so expectations for transportation growth are roughly in line with forecasts for the dynamics of global GDP. According to the latest forecasts, 2024 will remain a "buyer’s market" with a relatively low level of rates due to the continued oversupply, which will grow faster than demand.
Ratio of WCI to ERAI rates by destination in 2020–2023
- The first waves of COVID
- WCI Shanghai-Rotterdam/ ERAI West
- WCI Rotterdam-Shanghai/ ERAI East
The ongoing tensions surrounding the Suez Canal are expected to be a significant focal point. Recent projections indicate that rerouting ships through the longer African route, which adds an extra 10–14 days compared to the Suez Canal, might result in a removal of approximately 9% of global capacity from the market. Specifically, the Asia—Europe routes could face a potential reduction of about 20% in supply. Such diversions are likely to cause disruptions in supply chains due to shifts in ship schedules. Potential consequences include severe delays at European ports and shortages of containers in Asia.
The factors described are significant, and yet they are unlikely to dramatically affect market balance and rate levels in 2024. It is worth highlighting, however, that the complete normalization of the market and the return of rates to previous levels hinge largely on the resolution of the Israel-Palestine conflict. Given the existing tensions, cargo owners are expected to prioritize risk diversification and explore alternative competitive transportation modes, such as air and rail, to mitigate potential disruptions.
Air cargo transportation market
The supply and demand dynamics that became characteristic of the air cargo market at the end of 2022 persisted throughout 2023. Thus, volumes experienced a general decline during the year but exhibited an increase towards the end of 2023, a trend mirrored in the rates. The carrying capacity saw significant year-on-year growth, driven by the increase in the number of passenger flights, particularly noticeable on routes to Asia.
CLIVE Data Services reported a continuous decline in global air cargo volumes for 17 months until September 2023. However, a shift occurred in Q4 2023, with a growth of 2% in October, 5% in November, and 9% in December..
The International Air Transport Association’s (IATA) latest report highlighted contrasting trends in air traffic volumes. While European regions saw a 3.9% reduction by the end of 2023, Asia experienced a 0.9% increase. Volumes have yet to return to their 2019 levels, with Europe and Asia closing the year with declines of 12.6% and 6.9%, respectively.
The supply level in the air cargo market continued its recovery in 2023, showing growth of approximately 11% year-on-year and about 2.5% compared to pre-COVID 2019 levels. The increasing number of international passenger flights, particularly to Asian destinations, is the primary driver of supply growth. This trend is anticipated to persist into 2024.
The transportation volumes dynamics on the international route from Europe to Asia showed gradual improvement throughout 2023. In the first few months, there was a significant decline due to the global economic instability. Volumes remained stagnant in the second and third quarters of 2023, similar to the levels seen in 2022. However, there was a notable increase in demand in the fourth quarter. This surge in demand towards the end of the year can be attributed mainly to the crisis unfolding in the Red Sea. Disruptions in sea transportation, heightened risks, and increased uncertainty compelled cargo owners to opt for air transportation.
In the backdrop of relatively weak demand and simultaneous growth in supply up to September 2023, freight rates gradually declined from the levels seen in 2022. During July and August, the Hong Kong to Europe rate was 42–43% lower than the previous year and 21% below 2021 values. By the end of 2023, a surge in market demand led to a rapid increase in rates. Thus, in December, the cost of transportation from Hong Kong to Europe nearly matched last year’s levels, reaching USD 5.36 per kilogram, representing an increase of about 70% from the pre-pandemic level.
The coming year of 2024 is most likely to be a period of transition for the air cargo industry. With global economic fundamentals still relatively weak, the market is anticipated to continue operating in the coming months amid low demand and high supply due to increased rates and, consequently, high costs of this transportation mode.
A shift in the market scenario is anticipated once the overall economic situation stabilizes and the issue of escalated rates is addressed. Notably, there is potential for improvements as early as 2024, with optimistic economic forecasts for Europe and China suggesting a projected growth in supply that could result in a decrease in rates.
Freight rates for Hong Kong–Europe direction and their change to the previous year in 2022–2023
- Dynamics of change, %
- Freight rates, $/kg
Railway container transportation market
Throughout most of 2023, the geopolitical landscape significantly hindered transit rail transportation between China and Europe. Factors such as normalized sea freight rates, reduced foreign trade in China, and decreased demand from European companies posed major challenges to increasing rail transit volumes. Conversely, trade and transportation between China and Russia experienced substantial growth in 2023. The primary focus for the foreseeable future lies in sustaining current import and export services while establishing new ones, shaping the core development path for the entire market and specifically for the UTLC ERA.
In Russia, by the end of 2023, the volume of container transportation through the JSCo "RZD" network increased by 14.1% to reach 7.439 million TEU. This growth can be attributed to two significant recent trends — the expansion of new transport corridors and routes, and containerization. These trends are a result of the country’s shift towards the east and the increase in production capacity in 2023.
Volumes and share of UTLC ERA in container transportation on the JSCo "RZD" network in 2023, thousand TEU and %
- UTLC ERA (left axis)
- Transportation of containers (loaded and empty) on the JSCo "RZD" network (right axis)
Sources: JSCo "RZD", calculations of JSC "UTLC ERA"
Sources: JSCo "RZD", calculations of JSC UTLC ERA
UTLC ERA’s results
The described trends have significantly influenced UTLC ERA’s operations. Despite the recent challenges, the Company successfully maintained transportation indicators at the level achieved in the record year of 2022, thanks to the implementation of innovative solutions, enhanced flexibility, and swift adaptation to market dynamics in 2023. The total volume of transportation across all services reached 674,011 TEU, with UTLC ERA accounting for approximately 9% of container transportation on JSCo "RZD" network.
Throughout the reporting year, the Company continued to pursue new and promising projects aligned with the current logistics agenda. These included initiatives such as the China—Russia import transportation project to Moscow and other key hubs, as well as the China—Belarus route and other import-related endeavors.
In 2023, these projects constituted the majority of UTLC ERA’s transportation activities, representing 38% of the total transported volumes. The transit traffic between China and Europe accounted for slightly over 31% of the transported goods, while the share of export and other transportation services made up about 31% of the total volume.
Shares of transportation directions in UTLC ERA services in 2022–2023, %
In 2023, the leading positions in terms of cargo value in UTLC ERA services were occupied by:
27.3 %
mechanical equipment and machinery of transported cargo
While mechanical equipment and machinery and computers have consistently been the most in-demand items for several years, automotive equipment saw a significant increase in its share in 2023. This growth can undoubtedly be attributed to the growing Chinese car exports to the Russian and European markets.
-
22.1 %
electrical and communication equipment
-
5.5 %
optics, instruments, and medical equipment
-
13.1 %
automotive equipment
-
2.91 %
pharmaceutical products
-
4.62 %
clothing
The Company has notably boosted the share of import and export transportation on the established main transit routes in the China–Europe–China connection.
-
3
new origination
and absorption points in Belarus -
7
new cargo absorption points have been added to the routes in Russia
-
4
new points of origin of import cargo in China
84 rail transportation
routes UTLC ERA opened in 2023
-
63 roots
opened in the China—Russia direction
-
3 roots
opened in the Europe—China direction
-
11 roots
opened in the China—Belarus direction
-
5 roots
opened in the Belarus—China direction
-
2 roots
opened in the China—Europe direction
Railway transportation
market
China–Europe–China rail transit market
Shipments through all major corridors continued to decline, a trend that began in 2022. By the end of 2023, shipments through the Zabaikalsk corridor had decreased by 72.3% year-on-year to 4.9 thousand TEU. The total volume of shipments through the Naushki corridor dropped by 94.0% to 1,523 TEU. There were no transit container shipments through ports and stations in the Far East during the reporting year. Additionally, in 2023, transit traffic along the TMTM corridor saw a 75.1% decrease and amounted to about 2,754 TEU.
In 2023, UTLC ERA container services transported 211,122 TEU along the transit route through the Dostyk and Altynkol border crossings, marking a 48.6% decrease from 2022. UTLC ERA accounted for 95.8% of the competitive routes during this period. Specifically, 143,292 TEU were transported from China to Europe, and 67,830 TEU were transported in the opposite direction. Volumes in both directions decreased by 48.2% and 49.4% compared to the previous year.
Volumes of rail transit container transportation in total and by direction; shares of major corridors in transportation in 2023, %
Source: UTLC ERA
Source: UTLC ERA
Volume of transit container transportation China–Europe–China in the services of UTLC ERA in 2022-2023, TEU
- 2022
- 2023
Source: UTLC ERA
Source: UTLC ERA
The downward trend in transit transportation volumes, including for UTLC ERA services, is primarily influenced by external factors such as:
- Record low freight rates prevailing throughout 2023. Despite efforts by market players to raise rates, sea freight rates steadily declined over the year. The first notable rate increases occurred in December following the Suez Canal crisis, with the full effect of these logistics changes expected to manifest in 2024.
- Escalating tensions between the European Union and China, driven by Western concerns of growing Chinese influence. This has led to trade restrictions and strategies like "China+1" and reshoring, etc., that hamper trade development. At the same time, in recent months, the EU and China have also taken steps to normalize relations.
- Economic weaknesses in China and Europe. Poor results on business activity and consumption led to a decline in trade between the partners in volume terms. This decline in trade volume between partners has been particularly pronounced in industries critical to the transit freight base, acting as an additional limiting factor for the potential for shipments between China and Europe.
- Additional reduction in the attractiveness of the rail transit market due to decreased subsidies from the Chinese government for rail import shipments to Europe.
- European cargo owners opting to avoid transportation through Russia since March 2022, redirecting cargo flows to alternative modalities or routes.
- Decrease in transportation volumes from Europe to third countries via Russia due to export restrictions on sanctioned goods and technologies (high-tech goods, dual-use goods, etc.).
Notably, amidst the decline in trade with Europe, trade relations between China and Russia and Belarus experienced a boost in 2023. This resulted in a significant increase in import and export services for UTLC ERA, partially offsetting the decrease in transit cargo traffic.
Import rail transportation China–Russia/Belarus
Transportation volumes for imports also saw significant growth along competitive corridors. The volume of import container transshipment at Russian ports surged by 23% to reach 2 million TEU. Import container turnover at ports in the Far East, the Azov–Black Sea basin, and the Baltic region also experienced year-on-year increases of 23.5%, 38.7%, and 9.6% respectively. Key industry players are heavily investing in the development of port and railroad infrastructure in the Far East region, while new maritime and railroad services for cargo delivery from China are rapidly emerging and expanding.
Volume of import container transportation in UTLC ERA services by directions in 2022–2023, TEU
-
38.0 %
import transportation comprised
of the total transportation volume for UTLC ERA
-
Top 3
UTLC ERA ranked within the top 3 by volumes transported
in December 2023, with fierce competition
-
195.6 THOUSAND TEUs
were transported in the China–Russia direction
31.7% increase
-
170.1 THOUSAND TEUs
the Moscow railroad hub handled
the remaining cargo being distributed among St. Petersburg, the Urals, and Tatarstan
-
59.5 THOUSAND TEUs
transportation volumes for another import segment of UTLC ERA, China—Belarus
322% growth
-
2 THOUSAND TEUs
reached volume of import container transshipment at Russian ports
growth by 23%
Volume of import container transportation China–Russia in UTLC ERA services in 2022‑2023, TEU
Russia/Belarus–China export rail transportation
30.8 %
the share of export and other transportation in UTLC ERA services by the end of 2023
Notably, a substantial part of this transportation included the shipment of potassium chloride from Belarus to China, totaling 119,786 TEU.
Overall, within the framework of export and other services of UTLC ERA, a total of 207,767 TEU were transported by the end of the year, reflecting a notable 92.6% increase compared to the previous year.
Monthly volume of Russia/Belarus–China export container transportation in UTLC ERA services in 2022–2023, TEU
Technological
Leadership Strategy
During the reporting year, UTLC ERA executed the Development Strategy until 2025, which was initially approved in 2020. Acting under its established operational model, the Company crafts and presents transport and logistics (freight forwarding) services for container transportation within regular container trains that traverse the railway infrastructures of the Russian Federation, the Republic of Kazakhstan, and the Republic of Belarus.
UTLC ERA specializes in providing transportation and logistics (particularly, freight forwarding) services, which are the subject of the Company’s container service. The components of this container service encompass a range of UTLC ERA’s services, including organizing rail transportation of cargo in containers, handling transportation, customs, and other documentation, ensuring dispatch and delivery of cargo, and other services related to container transportation.
For freight forwarders, cargo owners, and their logistics partners seeking new business opportunities, UTLC ERA offers effective logistics solutions to bolster the development of the Eurasian Economic Space.
The primary objective of the Company is to boost the transport and logistics sector and enhance the EAEU’s influence in Eurasia by promoting railway container transportation on the 1,520 mm gauge. UTLC ERA aims to achieve a transit traffic volume of 1 million TEU per year.
SWOT analysis
-
Strengths
- Enhancing the attractiveness of the Company’s shareholder structure for Chinese partners
- Achieving market leadership through the establishment of an agency system and forging long-term partnerships
- Flexibility of the Company’s business processes in response to external challenges
- Utilizing well-established technology to efficiently organize container trains along the route
- Demonstrating high competence in consolidating services on the 1,520 mm gauge track within the East—West transit corridor
- Ensuring operational and financial stability of the Company
Weaknesses
- Restricting the Company’s operational scope
- Being unable to extend loans to the majority of customers
- Inadequate capacity to manage a fleet of containers
- Interconnection between customers and freight agents
- Low digitalization levels, such as the absence of an IT system for managing relationships with counterparties
- Lack of branches beyond the EAEU
- Specific internal business processes offer room for enhancement
-
Opportunities
- There is a growing demand for import and export transportation with China
- Implementing a coordinated program for the development and integration of the EAEU transport system
- Developing international programs aimed at testing new technologies and services, especially digital ones
- Transforming the structure of the container transportation market, leading to the emergence of new routes, logistics schemes, and players
- Developing the terminal network and railway infrastructure in the EAEU area
- The stability of railway transportation has created potential demand
- International cargo flows are becoming more decentralized
- Enhancing applicable legislation
Threats
- Decrease in subsidies for railway transportation to China
- EU sanctions policy, such as international insurance companies refusing to provide insurance for cargo passing through the Russian Federation
- Rising competition among international transport routes and the growth of alternative border crossings
- Modifications to the tariff policy of national railway companies
- Stricter enforcement of legal regulations
- Adverse market fluctuations impacting currency pairs
- Weather conditions influencing transportation
- Limitations in infrastructure
- Cultural differences with counterparts leading to communication challenges
Basic principles of the Strategy
-
1
Enhancing transit transportation volume and cargo base by integrating high-tech transit container services in the Asia—Europe—Asia traffic route
-
2
Minimizing costs and creating a competitive pricing strategy by optimizing transportation parameters
-
3
Balancing transit routes and enhancing delivery speed
-
4
Launching new logistics services into the market effectively
-
5
Implementing an open tariff policy for all customers to ensure equal access and transparent services for all potential customers
-
6
Adapting transit services to cater to new groups of shippers
Key mechanisms for implementing the Strategy
-
1
Establishing a contractual framework to ensure an adequate supply of railcars, terminals, and other transportation service components
-
2
Aggressive marketing in the international transport and logistics market to enhance service recognition and demand
-
3
Introducing a special regulatory regime for testing regulatory changes prior to aligning national legislations of shareholder countries to expand cargo base and reduce transportation costs
-
4
Developing an international digital technological testing ground at UTLC ERA for testing electronic order processing technology across various platforms
The Company focuses on building constructive and effective engagement and maintaining and developing harmonious relations with all stakeholders, emphasizing honesty, transparency, and mutual respect to foster long-term value creation.
Key stakeholder groups of UTLC ERA
-
Shareholders
Ensuring the sustainable development of the Company and enhancing shareholder value, including the approval of a tariff policy to enhance service competitiveness.
-
Clients
UTLC ERA’s focus is on revenue generation, contributing to the growth of the new cargo base and improving the Company’s financial performance.
-
Container terminal owners
Facilitating the technological chain for container transshipment from 1,520 mm gauge to 1,435 mm gauge.
-
Shippers
Playing a crucial role in the economic development of regions where UTLC ERA operates
-
Rolling stock owners
Providing UTLC ERA with fitting platforms
-
Chinese authorities and logistics platforms
Setting reasonable tariffs for container transportation from central China to the Kazakhstan border, along with subsidizing rail container transportation within China
-
Manufacturers of fitting platforms and leasing companies
Base for expansion of the rolling stock fleet
-
Financial organizations
Ensuring stability of operational activities
UTLC ERA as a high-tech integrator
UTLC ERA development for the period until 2025 follows the "high-tech integrator" approach, known as "integrator+." This strategy involves enhancing new services and offerings by leveraging the Company’s resources. By implementing these initiatives, added value will be generated for all market participants through:
- testing of new technologies that cannot be independently implemented by one company and require international partnership for implementation;
- attracting new cargo flows and expanding product segments;
- maintaining transportation balance between the western and eastern directions.
Establishing a backbone network of terminal and logistics centers
Establishing a backbone network of terminal and logistics centers (TLC) is a strategic initiative within the UTLC ERA’s framework. This network aims to consolidate cargo traffic across Belarus, Kazakhstan, and Russia.
The transport corridors of Central Asia are currently experiencing significant growth in freight transportation and trade with China and European nations. Therefore, the establishment of a backbone TLC network plays a critical role in facilitating these developments.
Key effects of the Strategy implementation
-
1
Enhancing the transit potential of the EAEU market
-
2
Establishing conditions to increase freight transportation volumes, leading to revenue growth from infrastructure payments and transportation
-
3
Maintaining the partnership format and providing UTLC ERA with the opportunity to serve as a guarantor in the open transit transportation market for all participants under equal conditions
In recent years, the transportation industry has faced significant challenges, leading companies to optimize and revise their business models in response to identified risks. In 2023, UTLC ERA continued to adapt to the volatile macroeconomic environment and operate under sanctions restrictions.
The Company is planning to implement the following strategic initiatives:
- Establishing a universal transportation operator along international transport corridors (ITC) with competitive tariff terms and through rates for multimodal transportation. Additionally, developing service centers for transit transport corridors within the transport and logistics business segments of the Russian Railways Holding Company on a geographic basis.
- Introducing trans-Eurasian multimodal transportation schemes based on ITC infrastructure to ensure end-to-end planning, competitiveness, cross-border interoperability, and compliance with time regulations at border stations and checkpoints.
- Organizing container transit and export-import services through new railway lines leading to the ITC of Central Asian countries.
- Enhancing the potential of the Uzbekistan—EU route passing through Russia, Kazakhstan, and Belarus.
- Undertaking digital transformation of transportation and logistics services, including operations at state border checkpoints, and expand electronic document flow with customs authorities of Russia, Kazakhstan, and Belarus.
- Developing the project "Conveyor of electronic accompanying documents and data" to facili-tate digital document flow for transportation on 1,520 mm gauge as a "digital freight forwarder".
- Developing the ERAI analytical index to support the operations of transport corridors for customers, increase demand for railway transportation and end-to-end transport and logistics services, generate synergies from the integration processes of the transport and logistics block, and promote comprehensive economic development of regions along key transit corridors.
- Developing the schedule of accelerated container trains in alignment with customer contracts.
Key strategic initiatives that bolstered the Company’s market position in the reporting year also include:
- Digitization of transit transportation, including establishing an information and communication hub showcasing the national services of the EAEU digital transport corridors ecosystem;
- Enhancing the infrastructure and efficiency of transit potential in EAEU member countries by setting up a core network of terminal and logistics centers to consolidate cargo traffic.