MASTER OF BUSINESS ADMINISTRATION

(INTERNATIONAL BUSINESS)
(WEEKEND)
2023-2026

INSTC, Black Sea Corridor and Bosphorous Strait:

India’s logistical Choices for connecting to EAST
Europe and Russia

Submitted To: Submitted By:

Prof. Ram Singh Ajay Kumar 05
Apoorva 15
Neeharika 33
Rahat 39
Sanil 45
Abstract:
The launch of the International North-South Transport Corridor (INSTC) and its connection to
latitudinal transport corridors will enable the creation of a single Eurasian transport framework.
Significantly shorter delivery time is the key advantage that the INSTC will have relative to the
other transport routes. This report looks at potential INSTC freight traffic, which is estimated at
14.6–24.7 million tonnes per year. The gravity model points to a huge trade expansion potential,
subject to achievement of “seamless” transport routes improving the quality of the transport
infrastructure and digitisation of the international corridor. With a global drive for decarbonisation
under way, the authors also assess the INSTC carbon footprint, which is comparable with that of
deep-sea maritime transport. In the future, the transport corridor may become an economic
development corridor for the EAEU member states, through expansion of production cooperation
and build-up of logistical chains with the countries along the INSTC. N
Introduction:

International transport corridors are essential for boosting trade and economic cooperation
between countries and fostering regional economic integration. They enhance freight traffic
management, streamline laws and regulations, and attract infrastructure investments. These
corridors are crucial for landlocked countries, reducing travel time and improving connectivity, as
endorsed by the UN General Assembly for landlocked developing countries.

The International North–South Transport Corridor (INSTC), connecting Northwestern Europe with
Central Asia and the Persian Gulf, exemplifies this. Originating in the late 19th century and
rejuvenated in the late 20th century, the INSTC aims to shift freight traffic from sea routes, like
the Suez Canal, to land and multimodal routes. This shift is vital, highlighted by the Suez Canal
blockage in March 2021 that disrupted global trade.

Despite its potential, the INSTC faces challenges such as different transport systems, unfinished
railway sections in Iran, varied customs regimes, and a lack of a unified multimodal operator.
These issues hinder its ability to attract significant container traffic.

Recent developments like the new railway line connecting Kazakhstan, Turkmenistan, and Iran,
and efforts to establish Free Trade Agreements (FTAs) with India and Iran, are steps toward
enhancing the corridor's effectiveness. The Eurasian Economic Union (EAEU) is actively
promoting integration into global markets, making the North–South transport routes increasingly
vital.

In summary, developing the INSTC and its routes is crucial for fostering trade between Europe
and Asia, and addressing the constraints requires concerted efforts to develop both hard and soft
infrastructure.
orth–South Transport Corridor:

Promoting Eurasia’s Intra-

and Transcontinental
Connectivity
Reports and Working Papers 21/5
 Introduction

1. INSTC — Meridional Corridor

of the Eurasian Transport Framework

of the INSTC through Synergies

3. INSTC “Seamlessness”
and the Environmental Agenda

References

4
Summary
The International North–South Transport Corridor (INSTC) is a multimodal route linking the
northwestern part of the Eurasian Economic Union (EAEU) and Nordic countries with Central Asia, the
Persian Gulf, and the Indian Ocean. It includes railways, roads, sea, and inland waterways, connecting
key ports in the Caspian Sea and Persian Gulf. Established by India, Iran, and Russia in 2000, the
corridor is gaining importance due to growing trade between the EAEU, India, Iran, and others.

Key developments include new railway lines between Kazakhstan, Turkmenistan, and Iran, as well as
free trade agreements between the EAEU and Iran, with discussions ongoing with India. The INSTC
offers faster cargo transit compared to sea routes, with significant reductions in delivery times from
India to Europe. Despite higher freight rates compared to sea routes, its stable rates and shorter times
enhance economic viability.

The INSTC is projected to handle 325,000–662,000 TEU container traffic by 2030. It plays a crucial role
in Eurasian connectivity and supports the sustainable development goals, while also offering
environmental benefits through reduced carbon emissions compared to maritime transport. However,
challenges include tariff barriers, infrastructure bottlenecks, and uncoordinated transport policies
among member countries

INSTC — Meridional Corridor of the Eurasian Transport Framework

Bereket

Tbilisi
Poti

Transport Corridor

Transport Corridor

5
INSTC Transport Infrastructure Facilities in the Caspian Region

Kiev

Tikhoretsk
Elista

Uzen (Tenge)

Eraliyevo
Poti
Tbilisi

Bereket

Etrek

Ferry Lines

SCFI, thousand USD ERAI, thousand USD Freight Turnover, thousand TEU

5 60
4.62
thousand USD

thousand TEU
50
4

40
3

Ever Given 30
Incident,
2
20

0.89

0 2020 0
February August

6
The main advantage of the INSTC compared to the other routes, including the sea route via
the Suez Canal, is the significant reduction of cargo delivery times. For example, it takes 30
to 45 days to deliver cargo from Mumbai to Saint Petersburg by the traditional route through
the Suez Canal, while INSTC land route delivery times may vary from 15 to 24 days. Moreover,
using the Eastern route of the corridor that runs through Kazakhstan and Turkmenistan
can reduce delivery times to 15–18 days, and they are set to become even shorter afler
the commissioning of the Iran section of the Astara–Rasht railway. Reduced delivery times
are critical for many products that may be transported through the corridor, including food,
textiles, household appliances, consumer electronics, etc. Higher capital turnover rates (lower
in-transit cargo costs) are critical for manufacturers of expensive goods.

Expansion of INSTC container freight traffic is of considerable interest to the EAEU member
states. By 2030, incremental freight traffic between them and the countries of South Asia
and the Persian Gulf may amount to 245,000–501,000 TEU (4.4–9.0 mln tonnes), or about 75%
of total potential container traffic. The main contribution to potential container traffic can be
provided by the freight flows between the EAEU on the one hand and Azerbaijan, Iran, India, and
Pakistan on the other. Interlinking the INSTC and the Baku–Tbilisi–Kars (BTK) latitudinal railway
route can also have a significant favourable impact on the EAEU member states. That connection
will enable expansion of railway container traffic between the EAEU, Georgia, and Turkey.

Currently the main INSTC product categories suitable for containerisation in all corresponding
traded pairs, including non-traditional product categories, are as follows: Food Products (excluding
Grain and Bulk Oil) with an aggregate potential of 69,000–164,000 TEU in 2030; Metals (Ferrous
and Non-Ferrous Metals, Metal Products) with an aggregate potential of 54,000–113,000 TEU
in 2030; Wood, Wood Products, and Paper with an aggregate potential of 31,000–68,000 TEU
in 2030; Machinery and Equipment with an aggregate potential of 27,000–60,000 TEU in 2030;

In the future, the INSTC may become a development corridor for the EAEU. Implementation
of large-scale transport infrastructure projects will not only reduce time in transit and carrier
operating costs, but also indirectly promote sustainable development. Thus, in addition
to expanding trade, development of the ITC will promote construction of industrial parks
and special economic zones along transit routes, facilitate cooperation in the production
of goods and services, and accelerate creation of new manufacturing and logistical chains
between the EAEU member states and the large developing countries of the Persian Gulf
and the Indian Ocean, including Iran, India, and Pakistan. This, in turn, will create new jobs,
improve economic growth prospects, and increase the well-being of the local population.
Moreover, with the development of the ITC, freight traffic will switch from maritime transport
to railway transport — environmentally friendly mode of freight transport in terms of CO2
emissions (as measured in grams per tonne-kilometre).

7
1. INSTC — Meridional Corridor of the
Eurasian Transport Framework
1.1 INSTC Development Prerequisites

The legal basis for the creation of the North–South corridor was provided by the signing by
three countries (the Republic of India, the Islamic Republic of Iran, and the Russian Federation)
of the Inter-Governmental Agreement on the International North–South Transport Corridor
at the Second International Eurasian Conference on Transport (Saint Petersburg, Russian
Federation) on 12 September 2000.

Following the ratification of the agreement by all three parties, it came into force on 16 May
2002. The Coordination Council of the International North–South Transport Corridor was
established to deal with matters related to implementation of the Agreement and practical
application of its provisions. The Charter of the Coordination Council was developed
and adopted in 2002. In 2002–2021, there were seven meetings of the Coordination Council
(the latest was on 5 March 2019 in Tehran, Islamic Republic of Iran), and several meetings
of INSTC expert teams.

The Agreement provides the following definition of the term “international transport corridor”
(Article 1, paragraph 1.8): “International transport corridor — a network of main transport
systems (both existing and to be constructed) connecting the Parties, as a rule equipped

Founders:
Republic of India — date of ratification of the Agreement: April 2001;
Islamic Republic of Iran — October 2001;
Russian Federation — March 2002

New Members:

Observer:

adequately to handle various modes of transport, which shall ensure international transportation
of passengers and goods especially in the directions of their most concentration”. Paragraph 1.9
of Article 1 says that the INSTC supports transport from India, Oman via sea, to and through
Iran, the Caspian region, the Russian Federation and further, and transport in the reverse
direction.

8
Four of the five EAEU member states are parties to the Agreement. Turkmenistan has not yet
acceded to the Agreement, even though it is traversed by the new Zhanaozen–Gyzylgaya–
Bereket–Etrek–Gorgan railway line opened in 2014, one of the INSTC routes running along
the eastern shore of the Caspian Sea.

The need to develop the INSTC and its significance were repeatedly reaffirmed at the highest
political level during the meetings of the Presidents of the Russian Federation, the Republic
of Azerbaijan, and the Islamic Republic of Iran held in Baku on 8 August 2016, and in Tehran
on 1 November 2017.

Supporting the rapidly growing trade between India on the one hand, and the EU member states
and CIS countries on the other, is traditionally considered the key INSTC development driver.
Over the last decade, the volume of trade between India and the EU has doubled, and continues
to increase. The EU member states account for about one fiflh of total Indian exports.

India’s interest in the development of the INSTC is manifested by its active position in bilateral
negotiations (with Iran, Russia, etc.) and multilateral negotiations (within the INSTC Coordination
Council, various venues hosted by international organisations), and by its willingness to invest
in the development of INSTC infrastructure and use the Indian container fleet for transport
of cargo along the INSTC.

India’s investments in INSTC infrastructure have amounted to about USD 2.1 billion, including
construction of the port of Chabahar2 in the Islamic Republic of Iran (USD 0.5 billion),
and reconstruction of the existing and construction of new railway lines connecting Chabahar
with the railway hub in Zahedan (the capital of the Iranian province Sistan and Baluchistan)
and the Zaranj station in the Islamic Emirate of Afghanistan (USD 1.6 billion). Another USD 0.5
billion was allocated to Iranian Railways for acquisition of locomotives (Iran.ru, 2019).

The port facilities built under the first of the five stages of the project for expansion of the Iranian
port of Chabahar were unveiled by Iranian President Hassan Rouhani on 3 December 2017.
As a result, the port’s cargo-handling capacity tripled to 8.5 million tonnes (which is equal
to the aggregate capacity of all northern Iranian ports), and it is now capable of processing
ultra-large container ships (with deadweight of up to 120 thousand tonnes).

The state Indian company IRCON is participating in the construction of a 500-km Chabahar–
Zahedan railway line, whose completion was scheduled for mid-2021.

The development of the INSTC will be further facilitated by the agreement executed in New
Delhi on 25 February 2020 between the Russian company RZhD Logistika and the Container
Corporation of India Ltd (CONCOR), the largest railway containers operator in India. According
to the agreement, the Indian company will provide a fleet of high-capacity universal containers
and other equipment required to support INSTC freight operations.

The Islamic Republic of Iran is interested in the development of the INSTC in order to use
the country’s national railway and road networks to support transit freight traffic from India,
the countries of the Persian Gulf, Afghanistan, and the states of Central Asia, and to increase
hard currency revenues from transit operations. Iran is seeking to expand economic cooperation
and trade ties with the other Caspian countries traversed by the INSTC by using its free
economic zones, in particular the FEZ Anzali, in the vicinity of Anzali (Bandar-e Anzali), Iran’s
oldest and largest Caspian Sea port.

Over the last several years, Iran has been actively attracting foreign investments
in the development of its road and railway infrastructure; for example, Indian investors are co-
financing the construction of the Chabahar–Zahedan railway line, and investors from Azerbaijan

9
are involved in the last stages of construction of the Rasht–Astara railway line.

One of the parties interested in the development of the INSTC is the Republic of Azerbaijan.
At this time, the INSTC is servicing primarily Russian–Azerbaijani transport and economic ties
(more than 90% of the total international freight traffic through the corridor). During the first two
decades of the 21st century, the Republic of Azerbaijan pursued an active strategy to expand
its transport infrastructure, including large-scale reconstruction and new construction
of Grade 1 four-lane highways from the Russian border to the Iranian border, construction
and commissioning in 2018 of a new Astara (Azerbaijan)–Astara (Iran) railway line, reconstruction
of automobile and railway crossing points at the border with Russia, and construction of a new
sea trading port and the region’s largest logistical centre in Alat.

The priorities of the Russian Federation in development of the INSTC were articulated
in numerous policy documents dealing with transport development, including the following:

• Sub-programme International Transport Corridors of the Federal Special-Purpose

Programme Modernisation of the Transport System of Russia (2002–2010) (2005);

• Russian Federation Transport Strategy 2030 (2008);

• Railway Transport Development Strategy 2030 (2008);

• Russian Federation Inland Water Transport Development Strategy 2030 (2016);

• Russian Caspian Sea Ports Development Strategy 2030 (including Railway and Road Access
Routes) (2017);

• Russian Federation Spatial Development Strategy 2025 (2019).

The INSTC development priorities include the following:

• Creation of competitive container and piggyback routes on the basis of technically

and technologically integrated transport and logistical infrastructure and supply chain
business process coordination systems, attraction of freight traffic between the countries
of Asia and Europe to land transport networks (railways and highways), and construction
of high-speed highways along the INSTC routes (The Russian Government, 2014);

• Creation of direct railway routes to Iran, and expansion of international railway traffic
between Europe and the countries of the Persian Gulf and the Indian Ocean (The Russian
Government, 2008);

• Development of container and piggyback transport of containerisable cargo along

the International North–South Transport Corridor using inland water transport (The Russian
Government, 2016).

The Russian Federation Spatial Development Strategy (The Russian Government, 2019)
points out that the main railways and highways comprising the INSTC have limited-capacity
sections, including federal highway sections in the central, southern, and northwestern regions
of the European part of the Russian Federation and in the Volga region, and railway access
routes leading to large sea ports and transport hubs, and to international border-crossing
points.

According to the Strategy, development of INSTC infrastructure is required to provide Russian

enterprises and organisations with efficient access to foreign markets, increase transit

10
freight traffic between Asia and Europe across the Russian Federation, and promote export
of transport services by high-potential large centres of economic growth in the constituent
entities of the Russian Federation.

One of the priorities defined by the Strategy is preferential development of high-speed transport,
including INSTC rail and road routes supporting transport links between Iran, India, other
countries of the Caspian region, western and southern Asia on the one hand, and countries
of Europe on the other, through the territory of the Russian Federation. It is also proposed
to expand international social and economic cooperation with the INSTC member states,
and to develop appropriate port infrastructure, as well as railway and road access to sea ports.

By the same token, India can strengthen its positions in the INSTC project by gaining access
to a short route to Georgia, the Black Sea ports, and the EAEU market (Sarkisyan, 2021).
However, Armenia will be able to connect to the international transport corridor only upon
completion of construction of the Armenian section of the national North–South highway, which
will reduce the travelling distance from the Georgian to the Iranian border (Krasnaya Vesna
information agency, 2021). It should be noted that the Foreign Ministers of Armenia and Iran
discussed the barriers to freight transit from Iran to Armenia and ways to overcome those
barriers, at the 76th Session of the UN General Assembly. In that connection, the Foreign Minister
of Armenia disclosed the details of construction of a new section of the Sisian–Kajaran highway
within the framework of the North–South highway corridor. Thus, at the end of September
2021, the Government of Armenia approved an investment programme for construction of that
highway section to connect the southern regions of the country to the centre of Armenia (ARKA
information agency, 2021). Design work is under way on the Kajaran–Agarak section, which will
facilitate access to Iran. Construction of the relevant sections of the North–South highway
corridor will proceed with the participation of international partners, including tendering
and fundraising activities.

The deepening of regionalisation in the Eurasian space is based on the establishment

of close, mutually beneficial economic ties between the EAEU and the other countries
of the continent, including those in its southern part. Development of Eurasian integration
is accompanied by the growing role of the EAEU in linking Europe and Asia, and improvement
of transport connectivity within the Eurasian continent. In turn, realisation of the transport
potential of Eurasia has a beneficial impact on the development of integration ties along
the INSTC, giving rise to a new round of integration. Most importantly, at the end of the day
such cooperation not only promotes development of Eurasian integration on the international
level, but may also significantly improve interaction among interior Eurasian regions (Central
Asia, Siberia, the Urals, and the Caucasus) (Vinokurov, 2019).

1.2 Configuration and Distinctive Features of the INSTC Routes

The INSTC includes railway, road, and inland water transport infrastructure, Caspian Sea ports
(Astrakhan, Olya, Makhachkala, Baku/Alat, Aktau/Kuryk, Türkmenbasy, Anzali, Nowshahr,
Amirabad), Persian Gulf ports (Bandar Abbas and Chabahar), automobile and railway crossing
points, and international airports.

The main direction of the corridor, as stipulated by the Agreement, is as follows: border with
the Republic of Finland — Saint Petersburg — Moscow — Astrakhan — (Makhachkala — border
with the Republic of Azerbaijan) — Caspian Sea — Iran — countries of the Persian Gulf/India

Table 1. Geography of Transport and Economic Ties Supported by Various INSTC Routes

INSTC Route Modes of Transport Transport and Economic Ties

11
 Western railway transport, Western Europe — Belarus — central regions
road transport of Russia — Russian Volga region and North
Caucasus — Azerbaijan — Iran
Northern Europe — central regions
of Russia – Russian Volga regions and North
Caucasus — Azerbaijan — Iran
Baltic ports — central regions of Russia —
Russian Volga region and North Caucasus —
Azerbaijan — Iran
Northern Europe — Baltic ports — central
regions of Russia — Kazakhstan — countries
of Central Asia
Multimodal inland water trans- Central and northwestern regions of Russia,
(Trans-Caspian) port, railway trans- Volga regions, North Caucasus, Southern
port, road transport Urals — Russian Caspian ports — Iranian
Caspian ports — Iran
Central and northwestern regions of Russia,
Volga region, North Caucasus, Southern
Urals — Russian Caspian ports — port
of Türkmenbasy — Turkmenistan — countries
of Central Asia
Kazakhstan — ports of Aktau/Kuryk —
Iranian Caspian ports — Iran

Eastern railway transport, Kazakhstan — Turkmenistan — Iran

road transport China — Kazakhstan — Turkmenistan — Iran
Russia (Urals, Siberia, Far East) —
Kazakhstan – Turkmenistan — Iran
Source: UNECE (2012).

Following the commissioning in 2014 of the Zhanaozen–Gyzylgaya–Bereket–Etrek–Gorgan

railway line providing access to the Kazakhstan railway network through Aktau and Beyneu, there
is a route through Kazakhstan, Turkmenistan, and Iran along the eastern coast of the Caspian
Sea (even though Turkmenistan has not yet acceded to the INSTC Agreement).

Therefore, the corridor has three main routes:

1. Western (along the western coast of the Caspian Sea through Russia and the Republic
of Azerbaijan) — approximately 5,100 km from the Russian–Finnish border to the port
of Bandar Abbas, Iran’s main export port on the Persian Gulf, with the best connections
to railway and road networks;

2. Multimodal (Trans-Caspian) (using ferry and container lines across the Caspian Sea) —
approximately 4,900 km from the Russian–Finnish border to the Iranian port of Bandar
Abbas;

Figure 1. INSTC — Meridional Corridor of the Eurasian Transport Framework

12
 Bereket

Tbilisi
Poti

Transport Corridor

Transport Corridor

Source: EDB.

3. Eastern (along the eastern coast of the Caspian Sea through Kazakhstan and Turkmenistan),
sometimes called the KTI (Kazakhstan–Turkmenistan–Iran) corridor — approximately 6,100
km from the Russian–Finnish border to the Iranian port of Bandar Abbas.

The northern direction of the corridor (coinciding with Pan-European International Transport
Corridor No. 9) supports export and import traffic between Russia, the Baltic countries,
and the countries of Northern Europe. Most export and import cargo transported along the northern
part of the INSTC is processed at the trading ports on the Baltic Sea. The northern direction
of the corridor supports transport between the Republic of Kazakhstan, countries of Central Asia,
the Republic of Azerbaijan, and the Republic of Armenia on the one hand, and the Baltic ports
on the other.

The railway lines of the northern INSTC have sophisticated technological infrastructure — most
of them are double-track electrified lines. The highways of the northern direction, with the exception
of access roads leading to the Caspian ports, are Grade 1 or Grade 2 federal highways.

13
Unlocking the Potential of the INSTC through synergies:
1.1. Foreign Economic and Transport Ties of Countries along the INSTC Routes

INSTC Participating Countries

Subject to current market conditions, freight rates, the regulatory framework governing
international transport operations, etc., the list of countries whose foreign trade benefits from
using the INSTC routes includes:

In the South:

• Countries that are directly interested in using the corridor, and are parties to the INSTC
Agreement: Republic of Azerbaijan, Republic of Kazakhstan, India, Islamic Republic of Iran,
Sultanate of Oman.

• Countries that are directly interested in using the corridor, but are not parties to the INSTC
Agreement: Pakistan, Turkmenistan, Islamic Emirate of Afghanistan.

• Countries that are parties to the INSTC Agreement, but have not yet used the corridor
infrastructure for political and economic reasons: Republic of Armenia, Syrian Arab
Republic, Republic of Tajikistan.

In the North:

• Countries that are directly interested in using the corridor, and are parties to the INSTC
Agreement: Republic of Belarus, Russian Federation.

• EU countries that could conduct foreign trade with the countries of the CIS, the Persian
Gulf, and the Indian Ocean using the corridor infrastructure: Germany, Latvia, Lithuania,
Poland, Finland, Sweden, Estonia.

The key feature uniting most countries in the groups under review is that their foreign trade can
be served both by the transport corridors running along the East–West axis, and by the INSTC.
Trade between Azerbaijan, Kazakhstan, and Turkmenistan on the one hand, and EU countries
on the other, can develop especially, using the infrastructure of the TRACECA ITC and its
branches. Accordingly, for those countries, there is a possibility of:

• Freight traffic to/from the EU countries, switching between the corridors depending
on market conditions, rates, transport terms, and border-crossing procedures;

14
2. UNLOCKING THE POTENTIAL OF THE INSTC THROUGH SYNERGIES

India

India — European Union

The bulk of the transcontinental (Eurasian) trade that might potentially be served by the INSTC
relates to foreign trade between India and the European Union. In 2020, India accounted
for more than 72% of total foreign trade of the Top Five EU trading partners situated in the
southern part of the INSTC. Today, India is one of the main parties interested in the
development of freight transport along the INSTC in order to realise its trade potential with
the EU, the EAEU, and the Islamic Republic of Iran.

The European Union and India are currently expanding their strategic partnership. The EU
is India’s largest trading partner, and India is, in turn, the No. 9 trading partner for the EU. Over
the last several years, EU–India foreign trade turnover has been steadily growing, and only in 2020
did the volume of their mutual trade decline, because of the COVID-19 pandemic. According
to Eurostat, in 2020 EU–India foreign trade turnover was EUR 66.3 billion (2019: EUR 91.5 billion).

In 2020, almost 6.4 million tonnes of cargo was transported between India and the seven
EU countries along the INSTC (Germany, Latvia, Lithuania, Poland, Finland, Sweden, Estonia),
including 2.22 million tonnes from India to the EU, and 4.15 million tonnes from the EU to India.
The key destination countries for Indian cargo are Germany and Poland: according to Eurostat,
in 2020, freight traffic from India to Germany and from India to Poland was 1.3 million tonnes
and 0.7 million tonnes, respectively. Generally, in 2015–2020, total freight traffic from India
to the seven EU countries listed above increased by 16%, and only during the pandemic was
there a slight decline: by 8.3% in 2020 vs. 2019.

Unlike China, whose freight traffic to the EU countries exceeds the reverse flow, freight traffic
from the EU countries to India is almost double that from India to the EU countries. In 2020,
a total of 4.1 million tonnes of cargo was transported from the aforementioned seven EU
countries to India, with the bulk of that cargo also originating in Germany (2 million tonnes)
and Poland (1.2 million tonnes). In 2015–2020, total freight traffic increased by 13%, primarily
because of the growth of freight traffic from Germany and Poland.

India — EAEU

The Russian Federation is India’s largest trading partner in the EAEU. According to the Federal
Customs Service of Russia, in 2020, foreign trade turnover between the Russian Federation
and India amounted to USD 9.3 billion, with Russian exports and imports accounting for USD
5.8 billion and USD 3.5 billion, respectively. The share of India in Russia’s total trade turnover
in 2020 was 1.6% (2015: 1.4%). In 2020, India occupied 16th place in the list of the largest trading
partners of the Russian Federation (2015: 17th place). In 2020, Russia’s trade balance with India
traditionally remained positive and amounted to USD 2.4 billion, having declined by 29.4% (USD
3.3 billion) vs. 2015.

15
THE INTERNATIONAL NORTH–SOUTH TRANSPORT CORRIDOR: PROMOTING EURASIA’S INTRA-
AND TRANSCONTINENTAL CONNECTIVITY

Cargo moving between Russia and India is carried by maritime transport, primarily through
the Russian Azov–Black Sea ports and Far Eastern ports, and through the ports of neighbouring
countries with subsequent delivery to the end user by railway and road transport. In 2020, total
export cargo sent to India through Russian sea ports amounted to 13.2 million tonnes, a 2.2-
fold increase vs. 2015. Coal and Coke accounted for almost 57% of all cargo exported to India
in 2020, Bulk Oil for 10.5%, Chemical Cargoes and Mineral Fertilisers for 12.3%.

In 2015–2020, the largest increase in the volume of cargo loaded in sea ports was recorded
for Bulk Oil, Bulk Food Products (Vegetable Oil), and Other Dry Cargo. The volume of cargo
imported from India to Russia and transhipped in Russian sea ports in 2020 was 26.7 thousand
tonnes, a 63.6% decrease vs. 2015.

In 2015–2020, the volume of Other Dry Cargo imported through Russian sea ports decreased by
63.6%. Because of the commodity structure of Russian–Indian trade, container freight traffic
between the two countries is not significant, and in 2020 it amounted to merely 146 thousand
tonnes, i.e., less than 7,000 TEU. In 2015–2020, container freight traffic between the two
countries declined by 60%. In 2020, transhipment in Russian sea ports of containers with Russian
cargo exported to India decreased by 67.4% vs. 2015, and amounted to 98.6 thousand tonnes.
In 2015–2020, container freight traffic from India to Russia decreased by 10.6%, and amounted
to 47.4 thousand tonnes. Container transport between Russia and India was channelled primarily
through the Russian Azov–Black Sea ports and Far Eastern ports.

Transport and economic ties between the other EAEU member states and India are currently
expanding, with the relevant freight traffic using the infrastructure of the Russian Azov–Black
Sea ports and, to a lesser extent, Far Eastern ports. The Republic of Kazakhstan supplies to India
mostly Oil (using infrastructure of the Caspian Pipeline Consortium) and Petroleum Products
(a total of about 5 million tonnes in 2020). The bulk of export cargo carried from the Republic
of Belarus to India is represented by Mineral Fertilisers (about 1 million tonnes in 2020). Exports
to India from the Republic of Armenia and the Kyrgyz Republic in 2019–2020 were insignificant.
Most of the cargo imported from India to the EAEU member states in 2020 was represented by
Food Products (7 thousand tonnes to Armenia, 20.2 thousand tonnes to the Republic of Belarus,
16.2 thousand tonnes to the Republic of Kazakhstan, and 1.1 thousand tonnes to the Kyrgyz
Republic). Other product categories included Chemical Cargoes, Construction Materials, and,
to a lesser extent, Metals and Metal Products.

In 2020, the volume of Russian cargo exported to Iran through Russian sea ports was 4.1 million
tonnes, a 43.8% increase vs. 2015. In 2015–2020, there was an increase in transhipment of Grain
(by 60.4%), Chemical Products (6.2 times), and Food Products (23.8 times). The following
products had the largest shares in total export freight traffic from Russia to Iran transhipped
through Russian ports: Grain (63.1%), Timber (10.6%), and Food Products (24%). In 2015–2020,
transhipment of Iranian imports to Russia through Russian ports increased by 79.8% to 559.6
thousand tonnes. During the same period, there was an increase in the volume of transhipped
Construction Cargo (by 94.7%) and Other Dry Cargo (by 55.7%).

In 2020, transhipment in Russian sea ports of containers with Russian cargo exported to Iran
decreased by 63.6% vs. 2015, and amounted to 6.6 thousand tonnes. In 2020, container freight
traffic from Iran to Russia through Russian sea ports amounted to 16.2 thousand tonnes,
a 29.3% decrease vs. 2015.

16
Transport and economic ties between the Islamic Republic of Iran and the other EAEU
member states are currently expanding, with the relevant freight traffic using the infrastructure
of the Caspian Sea ports, the Western INSTC route (Republic of Belarus), and the Eastern INSTC
route (Republic of Kazakhstan and Kyrgyz Republic). Cargo moving between the Republic
of Armenia and the Islamic Republic of Iran is carried through the automobile crossing points
at the Armenian–Iranian border.

The bulk of cargoes delivered from the Republic of Kazakhstan to the Islamic Republic of Iran
are Food Products (1.7 million tonnes in 2018, and 1.4 million tonnes in 2019), with Grain (barley)
accounting for more than 95% of the total. Most Iranian export cargo goes to the Republic
of Armenia (more than 1 million tonnes in 2018, and almost 1.3 million tonnes in 2019). Construction
Materials and Petroleum Products dominate the freight traffic structure. Considerable volumes
of Construction Materials are carried from the Islamic Republic of Iran to the Republic of
Kazakhstan.

1.2. INSTC Development Drivers and Opportunities

In the foreseeable future, development of the INSTC will be shaped by the following:

• Geopolitical drivers;

• Transport policy drivers;

• Trade and economic drivers;

• Infrastructural drivers;

• Multilateral climate change policy drivers;

• Transport diplomacy pursued by the countries of the region to realise the advantages of their
national transport systems and carriers in the regional and global markets for transport services.

Development of trade and economic cooperation between the countries of Eurasia

and the largest developing countries of the Persian Gulf and the Indian Ocean, primarily Iran,
India, and Pakistan, can become a deep and long-term trend. Accession of India and Pakistan
to the Shanghai Cooperation Organisation (SCO), and establishment by the EAEU of free trade areas
with India and Iran, will facilitate cooperation in the production of goods and services, and promote
emergence of new production facilities and creation of new manufacturing and logistical chains.
That, in turn, may stimulate attraction to the INSTC routes of foreign trade freight traffic that will be
economically different from the container transit traditionally perceived as the key source of freight
traffic in the corridor.

The member states can regard development of the INSTC as insurance that will secure
uninterrupted trade between Asia and Europe in the context of operational disruptions at the Suez
Canal, including, for example, the stranding of the Ever Given container ship in March 2021.
It is the positioning of the INSTC as an alternative to the deep-sea route through the Suez Canal that
is the focus of the transport diplomacy of a number of countries of the region, primarily the Islamic
Republic of Iran and Turkmenistan. Easing of the sanctions imposed on the Islamic Republic of Iran
will facilitate implementation of that model.

The expansion of trade between the Islamic Republic of Iran and the PRC should become
an important factor in development of the corridor. In this case, special significance will be
attached to the Eastern Route of the corridor, traversing Turkmenistan and Kazakhstan, which will

17
be positioned by the Chinese side as part of the Silk Road Economic Belt, within the framework
of the OBOR (One Belt One Road) project.

The Eastern Route will become even more relevant upon establishment of the trans-Afghan corridor
connecting the countries of Central Asia, Afghanistan, Iran, Pakistan, and India. That project is part
of the international effort to restore peace in Afghanistan (RECCA).

Another crucial factor is the development of five-sided cooperation among the countries
of the Caspian region that are traversed by the INSTC. One of the priority tasks listed in the final
statements of the Caspian summits is the deepening of multilateral and bilateral cooperation
among the coastal countries in certain areas, including transport. It is particularly expected that

INSTC international freight traffic will expand and its efficiency will increase, due to the ongoing
improvement of international legal aspects of Caspian maritime transport (preparation of five-
sided documents defining maritime navigation standards and practical regulation issues),
and development of regular shipping routes, notably ferry services; coordination of efforts
undertaken by the parties to expand road infrastructure and increase road traffic in the region;
cooperation in railway transport development, including establishment of circum-Caspian
railway service; promotion of innovations in the transport complex through the deployment
of innovative technologies, materials, and technical solutions while implementing transport projects,
and improving transport safety and reducing the deleterious impact of transport on the environment.

The international climate agenda and progress towards zero-carbon transport are important
factors in increasing the role of railway transport in freight operations. Transport of cargo by
electrified lines using “green” power generated by RES is completely carbon-neutral. It is expected
that GHG emissions-trading schemes will be implemented in the global transport sector in order
to ensure carbon neutrality (by 2050 in the EU and Japan, by 2060 in China and the United
States). One such system, CORSIA, has already been developed by the International Civil Aviation
Organisation (ICAO) for airlines. Introduction of similar mechanisms for other modes of transport
will make railway freight services more competitive, with freight traffic switching to railways from
alternative routes.

Development of transport infrastructure, including elimination of missing links and bottlenecks,

will enable attraction of additional cargoes, including containerised cargoes. The main missing link
in the INSTC is the unfinished section between Rasht and Astara in the Islamic Republic of Iran —
it prevents the use of the Western INSTC Route for regular container service. Cargo between Rasht
and Astara is currently moved by road.

18
THE INTERNATIONAL NORTH–SOUTH TRANSPORT CORRIDOR: PROMOTING EURASIA’S INTRA-
AND TRANSCONTINENTAL CONNECTIVITY

1.3. INSTC Freight Transport Times and Costs

Price, along with speed and accuracy of delivery, is the main factor that determines the choice
of a route by cargo owners, forwarders, and logistical companies and, accordingly, affects
the potential and directions of development of any international transport corridor.

It takes 30–45 days to deliver cargo from Mumbai to Saint Petersburg by the traditional route
through the Suez Canal, including the time needed to complete customs formalities (ERAI,
2020b). If that route is selected, cargoes also need to be transhipped in German or Dutch
ports. The launch of the INSTC may significantly reduce this time compared to the existing sea
route, subject to efficient administration and coordination between national agencies.

So far, there have been three dry runs to determine the cost and time of delivery of containerised
cargo through the INSTC routes vs. the traditional sea route through the Suez Canal. That
initiative also made it possible to identify transport infrastructure bottlenecks and constraints
affecting further development of the INSTC.

In 2014, the Federation of Freight Forwarders' Associations in India (FFFAI) dispatched the first
two containers along the following two INSTC routes:

• Route 1. Sea section: Nhava Sheva (India) — Bandar Abbas (Iran) (1,265 nautical miles); road
section: Bandar Abbas — Baku (Azerbaijan) (1,250 km).

• Route 2. Sea section: Nhava Sheva (India) — Bandar Abbas (Iran) (1,265 nautical miles); road
section: Bandar Abbas — Amirabad (Iran) (1,500 km); sea section (across the Caspian Sea):
Amirabad — Astrakhan (Russia) (1,000 nautical miles).

According to the FFFAI test report (2014), Mumbai–Russia cargo delivery times may vary from
15 to 24 days depending on the route. Specifically, delivery using Route 1 may take from 17
to 20 days, while delivery using Route 2 may take from 18 to 24 days. Using the railway running
through Kazakhstan reduces the delivery time to 15–18 days.

Test delivery in 2016 of two twenty-foot equivalent units with industrial radiators along
the INSTC route confirmed those delivery times. The cargo was dispatched from the sea port
of Nhava Sheva (India) to Vorsino (Russia), and its delivery took 23 days (Dayal, 2019).

In June 2021, a test shipment of paper in 32 forty-foot equivalent units was dispatched from
Finland to India along the INSTC (Tsots, 2021). The container train started from the Vuosaari
station (Finland), and six days later the cargo was delivered to the Astara station (Azerbaijan)
at the border with Iran. In Iran, the train was unloaded, and the containers were trucked to the port
of Bandar Abbas and then by sea to the final destination, the port of Nhava Sheva (India). Time
en route was 30 days. The cargo could have been delivered in 18 days (12 days were spent waiting
for the cargo to be loaded onto the vessel at the port). For comparison, delivery of a cargo from
Finland to India using the existing sea route can take 38–46 days (Shipa Freight, 2021).

Therefore, based on the outcomes of the three dry runs, it can be concluded that the time
of delivery of cargo through the INSTC routes can be half of that required for delivery by
the traditional sea route through the Suez Canal. Moreover, it is expected that the INSTC
delivery times will become even shorter when the Astara–Rasht railway goes live in Iran.

19
2. UNLOCKING THE POTENTIAL OF THE INSTC THROUGH SYNERGIES

Figure 5. SCFI and ERAI Values and Europe–China/China–Europe Railway Container

Traffic

SCFI, thousand USD ERAI, thousand USD Freight Turnover, thousand TEU
thousand USD

thousand TEU
5 60
4.62

50
4

40
3

Ever Given 30
Incident,
2
20

0.89

0 2020 0
February August

Source: Thomson Reuters (2021), ERAI (2021).

While the use of the INSTC transport routes enables a reduction of cargo delivery times by
at least 25%, the associated freight charges can hardly be described as a competitive
advantage of that alternative route, as they are relatively high despite the short time en route.
The rate charged by RZhD Logistika for transportation of a twenty-foot equivalent unit using
the INSTC route from the Indian port of Nhava Sheva to the village of Vorsino in Kaluga Region
currently stands at USD 2,650 (assuming a round trip). By comparison, before the COVID-19
pandemic, maritime freight rates charged for delivery of similar cargo through the Suez Canal
were about two times lower, ranging from USD 1,000 to USD 1,200.

However, during the COVID-19 pandemic, a major supply chain disruption provoked
extreme volatility of maritime freight rates in contrast to land freight rates. Figure 5 shows
the movement of the Shanghai Containerised Freight Index (SCFI) and the Eurasian Rail Alliance
Index (ERAI). The SCFI is a composite index reflecting fluctuation of freight rates charged
for the transportation of a TEU to 13 key destinations. The ERAI shows the cost of transit
for railway container freight through the Eurasian corridor from China to Europe and from
Europe to China. During the pandemic, the SCFI increased from USD 890 in March 2020 to USD
4,623 in August 2021, while the ERI decreased during the same period from USD 2,799 to USD
2,703 (ERAI, 2021). Therefore, the COVID-19 pandemic exposed the need for an additional
freight traffic channel.

The attractive railway freight pricing combined with the significant increase of maritime
freight rates during the pandemic resulted in a spike in railway freight traffic along the China–
Europe/Europe–China route. This is confirmed by cargo turnover figures based on the data
provided by JSC UTLC ERA, a company which accounts for 85% of total transit railway container

20
THE INTERNATIONAL NORTH–SOUTH TRANSPORT CORRIDOR: PROMOTING EURASIA’S INTRA-
AND TRANSCONTINENTAL CONNECTIVITY

Figure 6. Global Changes in Maritime Freight Rates during the COVID-19 Pandemic

North America
(west)
South America
1283%
(west)
311%

North America
(east)
South America
(east)
260% China/East Asia
North Europe
Europe

Mediterranean

Source: compiled by the authors using data provided by Thomson Reuters (2021).

traffic along the Europe–China/China–Europe route. Cargo turnover on these routes increased
from 26,830 TEU in January 2020 to 52,440 TEU in August 2021.

It should be noted that the largest increase in maritime freight rates was recorded on the routes
originating in Southeast Asia/China, primarily on the routes from China to Europe and North
America, because of a shortage of containers (see Figure 6). That was attributable, among other
things, to changes in consumer behaviour models and expansion of e-commerce caused by
the pandemic.

In the future, the INSTC member states will implement investment plans designed to improve
transport infrastructure and transport support, and engage in various institutional measures
at the national and international levels. These measures may include, for example, establishment
of a single operator, introduction of a single end-to-end freight rate, improvement of customs
and border procedures, as well as other steps that will fuse an assembly of disparate logistical
routes into a single system, and facilitate achievement of “seamless” transport routes along
the entire length of the INSTC and, accordingly, further reduce delivery times and costs
and improve accuracy of delivery. The combined stability of end-to-end freight rates and short
delivery times assure economic viability of the INSTC.

21
2. UNLOCKING THE POTENTIAL OF THE INSTC THROUGH SYNERGIES

1.4. INSTC Container Freight Potential

Table 2. Average Freight Rates for Container Deliveries

Direction Maritime Transport Railway Transport

Before the Pandemic During the Pandemic

From India/Pakistan/Iran/ 1,000–1,200 4,000–5,000 500* + 3,000** = 3,500
Oman to Europe, USD per TEU

From Europe to India/Pakistan/ 900–1,000 3,500–4,500 3,000** + 500* = 3,500

Iran/Oman, USD per TEU

Source: EDB
2. UNLOCKING THE POTENTIAL OF THE INSTC THROUGH SYNERGIES

Figure 7. Potential Container Traffic Figure 8. Potential Container Traffic

on the Key INSTC Routes in 2030 (thousand of the EAEU and Europe with INSTC Southern
TEU) Partners in 2030 (thousand TEU)
thousand TEU

thousand TEU

700 700
662 662

59
600 600

500 500

400 400

325 325
300 300 26
54

200 464 200

245
223

0 0
Baseline Case Baseline Case

The aggregate potential INSTC container freight traffic, including all three main routes
and taking into consideration the assumptions discussed above, may be as high as 325,000–
662,000 TEU (5.9–11.9 million tonnes) by 2030, depending on the scenario (see Figure 7
and Table 3). Given the current geographical and commodity structure of foreign trade flows
among the countries situated in the north and south of the transport corridor, an increase
of north–south freight traffic appears to be more likely. That traffic may potentially reach 223–
464 thousand TEU (about 70% of the total) by 2030. The reverse (south–north) traffic may be
103–198 thousand TEU (about 30% of the total). Accordingly, by 2030, railway container traffic
is projected at 9–18 pairs of container trains per day15.

22
Expansion of INSTC container freight traffic is of considerable interest to the EAEU member
states (see Figure 8). Those states could generate freight traffic of 245–501 thousand TEU by 2030
(4.4–9 million tonnes, or 7–13 pairs of container trains per day), or about 75% of total potential
container traffic. The existing structure of trade relations between the EAEU and the countries
in the south of the transport corridor implies a significant surplus of the potential north–south
freight traffic (182–370 thousand TEU) over the reverse south–north traffic (63–132 thousand TEU).

The main contribution to the potential container traffic is made by cargo flows between
the EAEU on the one hand, and Azerbaijan, Iran, India, and Pakistan on the other (see Figure 9).
Interlinking of the INSTC and the BTK latitudinal corridor can also have a significant favourable

23
THE INTERNATIONAL NORTH–SOUTH TRANSPORT CORRIDOR: PROMOTING EURASIA’S INTRA-
AND TRANSCONTINENTAL CONNECTIVITY

Figure 18. Commodity Structure of the Total Potential Freight Traffic on the INSTC
Routes under the Baseline and Best-Case Scenarios (%)

60% 9% 7% 4% 3% 2% 2% 100%

8 40%
6 60%

30
52% 8% 5% 4% 3% 2% 100%

20
Best-Case Scenario

48%
52%

Road Transport

Road freight traffic along the INSTC covers a vast space from Europe to Iran. Its legal framework
consists of a series of bilateral inter-governmental international road transport agreements
executed by pairs of countries participating in the corridor (see Box 2). The agreements define
all terms that govern provision of transport services, requirements that apply to specific types
of vehicles, permit systems, etc.

The Islamic Republic of Iran is the key INSTC country in terms of expansion of international
road freight traffic. It can transport not only cargo related to bilateral trade (in particular,
trade between Iran and Kazakhstan, Iran and Russia, Iran and Turkmenistan), but also cargo
that arrives from third countries through the Iranian sea trading ports on the Persian Gulf.
In addition, two countries (Kazakhstan and Turkmenistan) have effective bilateral agreements
with the Islamic Republic of Iran.

24
However, so far freight traffic from third countries through Iran to the EAEU member states has
been insignificant, and to the EU countries — non-existent.

Road freight traffic between Belarus, Russia, Kazakhstan, and Turkmenistan on the one hand,
and Iran on the other, is extremely asymmetric, with freight traffic from north to south (to Iran)
exceeding freight traffic from south to north (from Iran) by an order of magnitude.

About 120 thousand tonnes of cargo (which is equivalent to approximately 7 thousand TEU)
is carried by road transport along the INSTC from Russia to Iran, and only 10 thousand tonnes
(0.6 thousand TEU) in the reverse direction.

Russian carriers account for about 70% of the market, Iranian and third-country (mostly
Azerbaijani) carriers for 10% and 20%, respectively.

25
2. UNLOCKING THE POTENTIAL OF THE INSTC THROUGH SYNERGIES

The structure of Russia–Iran road freight traffic is dominated by Machinery and Equipment
(about 70% of total traffic), Metals (about 15%), and Chemical Products (about 8%). Food
Products and, to a lesser extent, Textiles and Textile Products are among the top products
moved in the reverse direction.

Road transport is extremely important for SMEs interested in delivery of small cargoes.
In addition, road transport plays an important feeder role in the delivery of cargoes to the
Caspian Sea ports on the multimodal Trans-Caspian route. The role of road transport is
irreplaceable in a multimodal (rail and road) corridor.

The international road transport development potential of the INSTC depends on the transport
capacity of border-crossing points, cost and duration of border control procedures, cost of motor
fuel, requirements that apply to motor vehicles (their environmental class), and other factors.

All told, road transport will be able to carry up to 600–700 thousand tonnes of cargo by
2025, and 800–900 thousand tonnes by 2030 along all INSTC routes (with a 3:1 ratio in favour
of the Western Route), which is equivalent to 30–40 thousand TEU and 45–50 thousand TEU,
respectively.

Requirements related to GHG emission limits and vehicle environmental classes may become
a major constraint that could hamper expansion of international road freight traffic.

Inland Water Transport

Inland water transport could potentially contribute to the expansion of INSTC international
freight traffic, in particular, through the Unified Deep Water System of the Russian Federation,
connecting the Caspian Sea via the Volga to the Azov, Black, Baltic, and North Sea basins.

26
THE INTERNATIONAL NORTH–SOUTH TRANSPORT CORRIDOR: PROMOTING EURASIA’S INTRA-
AND TRANSCONTINENTAL CONNECTIVITY

International cargoes traditionally carried along the Volga include Construction Materials,
Grain, and Timber, but in the future it will be necessary to consider the use of inland water
transport for the carriage of container cargo from the European part of Russia and the ports
of the Baltic basin to the Caspian ports in Iran, Kazakhstan, Turkmenistan, and Azerbaijan.
Combined river-sea navigation vessels can be used for transhipment-free water carriage.

The key advantages of inland water transport are low transport costs and a relatively small
carbon footprint (in that respect, inland water transport is second only to railway transport).

On the other hand, the use of inland water transport is constrained by the following factors:

• Limited navigation period (which is somewhat longer for upstream navigation along
the Volga);

• Accumulation of sediment at the bottom of the Volga-Caspian Sea Shipping Canal, which
necessitates regular dredging and reduces the canal’s transport capacity;

• Narrow stretches at hydropower facilities;

• Insufficient deadweight of existing fleet vessels that could be used for container transport.

Potential inland water transport freight traffic from Iranian and/or Russian ports
on the Caspian Sea is estimated at 5–10 thousand TEU by 2025, and 10–20 thousand TEU
by 2030.

27
3. INSTC “SEAMLESSNESS” AND THE ENVIRONMENTAL AGENDA

2. INSTC “Seamlessness” and the Environmental Agenda

2.1. Trade Effects of Transport Infrastructure Development

The quality of transport infrastructure is one of the key trade development drivers. This Section
describes the outcomes of a gravity-model assessment of the effect that the quality of various
types of transport infrastructure has on trade flows in the countries along the INSTC routes.
For a detailed description of the gravity model.

There is a positive correlation between the quality of transport infrastructure and trade,
as shown by the ascending trend in. Azerbaijan and the Sultanate of Oman have the highest
levels of transport infrastructure quality and trade volume, expressed as a percentage of GDP
(gross domestic product), among all INSTC Agreement member states.

The econometric model used four control variables (see Appendix 15): GDP of exporters, GDP
of importers, distance between capital cities, and availability of a common language. Coefficients
of the variables “GDP of exporters” and “GDP of importers” indicating the size of the market
are positive and statistically significant, which implies that trade flows between the countries
with large markets are more intensive. Large distance between the countries has a negative
effect on their mutual trade due to higher transaction costs, as confirmed by economic literature.
On the other hand, availability of a common language has a positive and statistically significant
effect on mutual trade, as it considerably reduces information costs.

The qualitative indicators for all types of transport infrastructure (railway, road, air, and maritime)
were taken from Global Competitiveness Index Reports published by the World Economic
Forum (WEF) (WEF, 2018). That organisation conducts annual surveys of entrepreneurs from
more than 140 countries; the respondents assess, among other things, the quality of their
country’s transport infrastructure on a scale from 1 to 7, where the rating of “1” indicates that
the transport infrastructure is one of the worst in the world, while the rating of “7” is assigned
to countries with the most developed infrastructure.

Descriptive statistical indicators related to the quality of transport infrastructure show that
in 2017, entrepreneurs from the INSTC member states16 were most satisfied with the quality
of air transport infrastructure. The average value of the indicator is 4.56 points out of 7.
Compared to road infrastructure (4.31)17 and railway infrastructure (4.01), the respondents were
least satisfied with the quality of port infrastructure (3.72). Entrepreneurs from the countries
of the European Union scored the highest satisfaction ratings with respect to all types
of transport infrastructure. Significant backlogs were recorded for port infrastructure
(1.12 points), air transport infrastructure (0.58 points), and road transport infrastructure (0.46
points). At the same time, the score assigned to railway transport infrastructure was lower by
merely 0.27 points.

The level of satisfaction with transport infrastructure in the EAEU member states was
considerably lower. While the quality of railway transport infrastructure and road transport
infrastructure was rated at 3.49 points and 3.44 points, respectively, the average port

28
THE INTERNATIONAL NORTH–SOUTH TRANSPORT CORRIDOR: PROMOTING EURASIA’S INTRA-
AND TRANSCONTINENTAL CONNECTIVITY

Figure 19. Correlation between Trade Volume and Transport Infrastructure Quality

200
Trade (% of GDP)

50

0
3 4 5 6

Transport Infrastructure Quality*

infrastructure quality score was only 2.8 points. These data point to a need to join forces
in order to improve the efficiency of transport infrastructure in the region.

The gravity model outcomes demonstrated a positive and statistically significant correlation
between qualitative transport infrastructure indicators and trade. Thus, it is expected that, if
the quality of port infrastructure is improved by 0.1 points, the average trade volume in exporter
countries will increase by 5%, provided that all other factors remain unchanged. The impact
of enhancement of railway infrastructure on promoting trade between the countries that
could potentially benefit from the international North–South transport corridor is the highest
relative to the other modes of transport. Thus, it is expected that, if the quality of railway
infrastructure is improved by 0.1 points, the average increase in foreign trade will be 5.8% 18, all
other things being equal.

The main areas for improvement of the quality of transport infrastructure are construction
and modernisation of infrastructure facilities, and acquisition of modern vehicles. Wear
and tear on plant and equipment have been noted for all types of transport infrastructure
in the INSTC Agreement member states. For example, in 2019 the degree of wear and tear

29
3. INSTC “SEAMLESSNESS” AND THE ENVIRONMENTAL AGENDA

Figure 20. Gravity Model Coefficients for Transport Infrastructure Types

0.456

0.406

0.25 0.30 0.35 0.40 0.45 0.50 0.55

Source: Authors’ calculations.

on freight assets used in the Russian Federation by railway transport, road transport,
and maritime transport was 38.7%, 48.5%, and 36.6%, respectively (Rosstat, 2020). The standard
service lives of numerous technical vehicles still in operation have expired. The poor state
of repair of transport infrastructure and its noncompliance with technical standards impair
the quality and reduce the capacity of the transport system, and increase operating costs
and the number of accidents on transport routes.

As regards the INSTC, development of the Western and Eastern Routes, which primarily
use railway transport, must be a priority, as improvement of the railway infrastructure has
the greatest impact on expansion of trade. An ESCAP report (ESCAP, 2019) contains a similar
conclusion to the effect that railway transport has the best chances of success in terms of cargo
freight between Iran and the Russian Federation and beyond. Conversely, the multimodal
corridor running across the Caspian Sea is rated as the least viable option because of low freight
traffic, disruptions in port services, need for additional transhipment of cargo, longer transit
times, and higher costs. Nevertheless, Figure 20 shows that, for countries along the INSTC,
maritime transport has a significant foreign trade expansion potential, second only to that
of railway transport.

In addition to qualitative indicators, the report also uses certain quantitative indicators
describing transport infrastructure, specifically, the time and cost needed to border
compliances. Figure 21 and Figure 22 show the medians of those indicators for the INSTC
Agreement member states, as well as for the EAEU member states and the European Union
countries.

In the INSTC Agreement member states, the median and average costs to export related
to retrieval, preparation, and submission of border and customs documents are about
USD 296.15 and USD 376.12, respectively. In the EAEU member states, those indicators
are considerably lower, following simplification of a number of border and customs procedures.

30
THE INTERNATIONAL NORTH–SOUTH TRANSPORT CORRIDOR: PROMOTING EURASIA’S INTRA-
AND TRANSCONTINENTAL CONNECTIVITY

Figure 21. Cost to Export in Dollars Related Figure 22. Time Export Costs in Hours
to Border and Customs Formalities by Related to Border and Customs Formalities
Groups of Countries, 2019 by Groups of Countries, 2019

hours
1,200 120
USD

1,000 100

Source: World Bank Doing Business reports.

At the same time, entrepreneurs from the European Union bear lower financial costs associated
with the export of goods and services. Notably, according to Doing Business reports, no such
costs are reported in 19 European countries.

Time related to completion of border and customs formalities are higher in the INSTC
Agreement member states. The median and average values of that indicator are 39.8 hours
and 51.33 hours, respectively. In the EU countries, the median value is 0 hours, as there are no
time restrictions at all on export of goods in 14 EU countries.

The gravity model outputs also indicate that time and costs have a negative and statistically
significant effect on international trade. For example, an increase in export costs by USD 100
results in an average decline of trade flows in the countries along the INSTC by 2%, all other
things being equal. Therefore, if the costs to export in the INSTC Agreement member states
are reduced to the average EU level (USD 79.65), mutual trade in those countries may increase
by 5.9% vs. 2019, or by USD 59.08 billion19.

If the time spent on customs clearance and completion of border and customs formalities
increases by one hour, it results in an average decline of foreign trade by 1.2%, all other things
being equal. If that indicator were reduced to the European average (7.48 hours), mutual
trade in the countries under review might increase by 52.6% (or by USD 526 billion) vs. 2019.
It is important to note that our data are consistent with the findings of a survey conducted by
the ADB for Asian countries, where reduction of time costs by 10% was expected to increase
the volume of trade by 5% (Ismail and Mahyideen, 2015). Therefore, the INSTC Agreement
member states have huge foreign trade expansion potential, provided that they harmonise
their international shipping standards and border-crossing procedures.

19
Data for Syria and Tajikistan are not included, as they are not in the UN COMTRADE database.

31
3. INSTC “SEAMLESSNESS” AND THE ENVIRONMENTAL AGENDA

Conclusion
The central theme of this report is the assessment of INSTC freight potential in the context
of increasingly active interaction between the EAEU on the one hand, and India, Iran, and other
countries of South Asia and the Persian Gulf on the other; significant opportunities that may emerge
from synergies between the transport corridor and global and regional latitudinal transport routes;
expansion of digitisation processes; and a marked increase of the climate agenda in the field of freight
transport.

Accordingly, we performed a comprehensive review of current trade relations among all countries
along the INSTC, identified two main commodity groups (containerisable and non-containerisable
goods), and examined freight transport geography. Based on available research, expert assessments,
reports on dry runs, and operator proposals, we determined INSTC freight transport times and costs,
and looked at how they compare to the traditional route through the Suez Canal.

Finally, taking into account the prospects of development of international markets and economies
of the main countries forming the basis of freight transport along the route, possible geopolitical
developments, especially concerning the Islamic Republic of Iran, and the impact of synergies with
the latitudinal Eurasian transport corridors, we prepared scenario-based freight traffic estimates
for all modes of transport and all transport corridor routes: Western, Multimodal (Trans-Caspian),
and Eastern.

Our main conclusions are as follows:

• The key factors in increasing the importance of transport routes along the North–South
axis over the last several years have been the active interaction of the EAEU with India, Iran,
and other countries in the southern part of the corridor in implementation of the Greater
Eurasia concept, as well as the increasingly intensive involvement of Azerbaijan,
Kazakhstan, Turkmenistan, and other countries along the INSTC in the expansion of transit
and multimodal corridors in the Caspian region.

• Delivery times along the INSTC Mumbai–Russia land route may vary from 15 to 24 days.
Using the Eastern Route of the corridor running through Kazakhstan and Turkmenistan
reduces this to 15–18 days, while it takes 30 to 45 days to deliver cargo from Mumbai to Saint
Petersburg by the traditional route through the Suez Canal.

• INSTC freight costs remain relatively high, despite the expeditious delivery. The average
railway freight rate charged for delivery of cargo from India/Pakistan/Iran/Oman to Europe
is USD 3,500. By comparison, before the COVID-19 pandemic, maritime freight rates
charged for delivery of similar cargoes through the Suez Canal were about two times lower,
ranging from USD 1,000 to USD 1,200.

• Aggregate potential INSTC container freight traffic, including all three main routes,
might be as high as 325,000–662,000 TEU (5.9–11.9 million tonnes) by 2030, depending
on the scenario. The synergy between the INSTC and Eurasian east-west latitudinal
transport corridors is equivalent to 127–246 thousand TEU (2.3–4.4 million tonnes), or about
40% of total potential freight traffic.

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CONCLUSION

• Aggregate railway container traffic along the INSTC is projected at 9–18 pairs of container
trains per day by 2030. That is consistent with the transport capacity of the corridor’s
single-track railway lines (up to 24 pairs per day).

• Expansion of INSTC container freight traffic is of considerable interest to the EAEU member
states. By 2030, incremental freight traffic between them and the countries of South Asia
and the Persian Gulf could amount to 245–501 thousand TEU (4.4–9.0 million tonnes), or
about 75% of total potential railway container traffic. The main contribution to potential
container traffic could be provided by freight flows between the EAEU on the one hand,
and Azerbaijan, Iran, India, and Pakistan on the other.

• Grain is classified under a separate category and, in terms of freight traffic, is the main
product currently transported through the INSTC, especially through its Eastern Route.
It is projected that by 2030, INSTC grain cargo traffic may reach 8.7–12.8 million tonnes,
and will continue to exceed potential container freight traffic generated by all other product
categories combined (5.9–11.9 million tonnes).

• By 2030, total potential INSTC container traffic, including the two product categories
(containerisable and non-containerisable goods), is expected to reach 14.6–24.7 million tonnes.

• All three INSTC container freight routes are important for realisation of the transit transport
potential. However, most of that potential is associated with two railway routes —
the Western Route and the Eastern Route. Their shares in total potential freight traffic
are about 60% and 24%, respectively.

• INSTC potential road and inland water freight traffic is much less than the potential railway
freight traffic, and is expected to reach 45–50 thousand TEU (0.8–0.9 million tonnes) and 10–
20 thousand TEU (0.2–0.4 million tonnes), respectively, by 2030, depending on the scenario.

• The great importance of railway transport in development of the INSTC is illustrated by

the “mono-modality” of the corridor, which can currently be observed in some of its sections.
Its efficiency is supported by gravity model outputs showing that the effect of the railway
infrastructure enhancement on promoting trade between the countries along the international
North–South transport corridor is the highest relative to all other modes of transport.

• The INSTC is only one of several transport corridors connecting Europe and Asia. Its unique
direction enables connection to the other global and regional east-west transport corridors
and, accordingly, creation of a single “Eurasian transport framework”.

The significant potential of INSTC development hinges on expansion not only of the corridor’s
“hard” infrastructure, but also of its “sofl” infrastructure. The Report describes the outcomes
of a gravity model assessment of the effect that the quality of various types of transport
infrastructure and digitisation have on trade flows in the countries along the INSTC routes.

The gravity model outputs show that:

• Reduction of the costs to export related to border compliance in the INSTC Agreement
member states, from the current USD 376.12 to USD 79.65 (European average) may result
in their foreign trade increasing by 5.9% (or by USD 59.08 billion) vs. 2019;

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THE INTERNATIONAL NORTH–SOUTH TRANSPORT CORRIDOR: PROMOTING EURASIA’S INTRA-
AND TRANSCONTINENTAL CONNECTIVITY

• Reduction of the time required for customs clearance and completion of border and customs
formalities in the INSTC Agreement member states from the current 51.33 hours to 7.48
hours (the European average) may result in their foreign trade increasing by 52.6% (or by
USD 526 billion) vs. 2019;

• Introduction of intelligent transport systems and digitisation of international multimodal

transport and logistics using CIM/CMGS and CMR electronic waybills, eTIR carnets,
and satellite navigation systems has a beneficial impact on foreign trade in the INSTC
Agreement member states, and can open up new opportunities for simplifying border-
crossing procedures, reducing cargo delivery times, and improving the INSTC safety record.

In addition, in response to the climate agenda, the Report provides an assessment of direct
and indirect greenhouse gas emissions produced by railway transport compared to the other
modes of transport.

• Total emissions of greenhouse gases, particulate matter, and nitrogen oxides that may
be produced by railway transport while moving the potential amount of cargo identified
for the INSTC may range from 1,598 thousand tonnes to 2,714 thousand tonnes of CO2
depending on the scenario.

• Railway transport is considerably more environmentally friendly than air transport and road
transport, and is comparable to deep-sea transport. The average level of direct and indirect
GHG emissions generated by railway transport is 18 g/tkm, which is only marginally higher than
that of maritime transport used for long-distance freight (12 g/tkm). Compared to the other
modes of transport, railway transport produces two times less emissions than inland water
transport, seven times less than road transport, and 30 times less than air transport.

• If we take into account emissions not only of greenhouse gases, but also of particulate
matter and nitrogen oxides, which also have a deleterious effect on the natural environment
and human health, then railway transport can be safely described as the undisputed leader
in environmental performance.

In conclusion, we would like to draw the readers’ attention to two critical issues that, in our opinion,
will determine the future development of the INSTC, and indicate important areas of further
research.

First, the gravity model outcomes point to a significant potential for trade interactions
between the countries along the INSTC in expansion of “sofl” infrastructure and reduction
of the negative impact produced by non-tariff barriers. In the future, it will be important
to implement investment plans designed to improve transport infrastructure and transport
support, including elimination of missing links and bottlenecks, and enhancement
of the infrastructure facilities used by railway and road border-crossing points and sea
ports (for an analysis of barriers and recommenced investment targets, see, for example,
Vinokurov et al., 2018a). However, realisation of various institutional activities at the national
and international levels may prove to be more pertinent for the purposes of using existing
INSTC freight traffic and expanding potential future INSTC traffic. Those activities may include,
for example, establishment of a single operator, introduction of a single end-to-end freight
rate, improvement of customs and border procedures, as well as other steps that will fuse
an assembly of disparate logistical routes into a single system, and facilitate achievement

34
CONCLUSION

Figure 25. Evolutionary Stages of the Economic Development Corridor

Feasibility

Infrastructure

Infrastructure

Source: Hope and Cox (2015).

of “seamless” transport routes along the entire length of the INSTC and, accordingly, further
reduce delivery times and costs and improve the accuracy of delivery.

Second, in the future, the INSTC may be transformed from a transport corridor into an
EAEU economic development corridor (see Figure 25). Implementation of large-scale
transport infrastructure projects and achievement of “seamlessness” will not only build up
the “Eurasian transport framework” and reduce time in transit and vehicle operation costs,
but also indirectly promote sustainable development of the entire Eurasian region. In addition
to expanding trade, development of ITCs particularly promotes construction of industrial parks
and special economic zones along transit routes, facilitates cooperation in production of goods
and services, and accelerates creation of new manufacturing and logistical chains between
the EAEU member states and the large developing countries of the Persian Gulf and Indian
Ocean, including Iran, India, and Pakistan. This, in turn, helps to create new jobs, improves
economic growth prospects, and increases the well-being of the local population. Efficient
operation of the transport corridor encourages economic activity that stimulates investment
processes, and the transport corridor is ultimately transformed into an economic development
corridor (Hope and Cox, 2015).