Operail looks to Central Asia and China to replace Russian goods

Operail freight trains.
Operail freight trains. Source: Matthias Rikka/Operail

Estonian-based international railway logistics company Operail is looking to China and Central Asia to replace some of the transport options it has lost as a result of Russian sanctions. Nevertheless, prior volumes cannot be completely replaced, and Russia can decide to block shipments.

Raul Toomsalu, chairman of the management board at Operail, told ERR that rail freight volumes in Estonia had plummeted by more than 60 percent as a result of Russia-related sanctions.

"In 2013, we transported an average of 1,200,000 tons per month. In the first half of this year, and in June especially, there has been a significant decline in freight transport, which now constitutes 500,000 tons a month," Toomsalu said.

This has resulted in a large number of empty wagons as well as locomotives at a standstill.

Operail is now looking to China and Central Asian countries such as Kazakhstan, Uzbekistan and Turkmenistan to transport the goods they produce.

"Kazakhstan is perhaps the country with the most potential, and it would make sense for its goods to be transported through the Baltic corridor and via Finland," the board chairman noted.

Coal might be imported from Kazakhstan, but Estonia no longer has the capacity to receive large quantities of it in its freight terminals. Moreover, Russia could decide at any time not to permit wagons bound for Estonia on its rails.

"There is a case in point. A few months earlier, Latvia was still transporting a substantial amount of coal from Kazakhstan, but this abruptly ceased the moment Russia decided to stop it," Toomsalu said. "This does not prevent Kazakhstan from exporting coal, but they will have to find new trade corridors in cooperation with Russia."

Logistics expert Raivo Vare gave a comparable example from China. Without naming the company, he described a situation in which a proposal to transport commodities from China to Sweden via Russia and Estonia failed due to objections from Russia.

"The Chinese stated that they were willing to do anything except deal with the Russians directly," Vare said. "Again, the Russians erected roadblocks and insisted that the items are directed elsewhere, so that the goods don't pass through our direction."

Moreover, shipping raw materials from China is not as cost effective as shipping them from Central Asia. This means that there aren't many goods that could be transported from China, and as there is nothing to bring back to China either, this makes it difficult to run a successful freight business on this route.

Toomsalu said that roughly one fifth of future trade volumes may originate from the East, and that Estonia should look further north and south as well as collaborate with Latvia, Lithuania and Finland.

"Or support Ukraine, etc.," he continued. "Although neither of them are quick and simple solutions, there is nothing more we can do now; we have to make an effort."

With a revenue of €73 million at year's end, railway logistics operator AS Operail saw 12 percent growth over the last year. The group's earnings before interest, taxes, depreciation and amortization (EBITDA) climbed to €17.2 million as a result of the higher volumes and improved operational efficiency. After accounting for the exceptional effects of the asset write-down in 2021, however, the year nonetheless ended with a loss of €5 million.


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Editor: Kristina Kersa

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