Iran moves closer to unlocking transit potential

Financial Tribune- Iran’s transit capacity amounts to 100 million tons per annum, but at present only 10 million tons of freight worth some $7 billion are being transited through the country annually.

If only 50 million tons of this transit capacity is utilized, Iran can earn $35 billion in annual revenue–$10 billion more than this fiscal year’s (March 2016-17) estimated oil revenue, the Persian daily Shahrvand reported.

In a meeting held in Tehran last week, negotiations were finalized between Iranian and Chinese customs officials and the two sides are now ready to sign a contract based on which China will be shipping its goods to Iranian ports from where they will be transited to Europe by land.

The project is considered the biggest joint plan of action in customs cooperation between Iran and China.

The agreement is part of a bigger Chinese project, introduced by President Xi Jinping in 2013, to revive the ancient Silk Road. The initiative termed “Silk Road Economic Belt and the 21st Maritime Silk Road” aims to connect Asia, Africa and Europe through more efficient transportation networks by building more roads, railroads and airports and is supported by Asian Development Bank.

Beijing has launched the Asian Infrastructure Investment Bank with $100 billion in capital and the $40 billion New Silk Road Fund to fund major infrastructure projects in the region.

Tehran has already pledged to support the initiative with an investment of $6 billion over the next six years.

The preliminary agreements on the project were made during a state visit by Xi to Tehran in January.

The new project opens up fresh opportunities for Iran to unlock some of its transit potential and arrive at the unachieved goal of 50 million tons of freight transit as per the Fifth Five-Year Development Plan (2011-16) and the Sixth FYDP (2016-21).

Transportation Junction

Iran’s strategic location in the Middle East makes it an ideal spot for freight transit. It can become a transit hub as it has, on the one hand, access to the Far East, and on the other, to the Commonwealth of Independent States, Europe and Africa.

It is worth mentioning that from the four railroad routes defined for global transit, three pass through Iran. The first route connects Western Europe to Russia, Kazakhstan and China; the second goes through Europe to Turkey, Iran, South Asia, southern China and Southeast Asia; the third connects Europe to China via Iran and Central Asia; and the fourth passes through Northern Europe to Russia, to Central Asia and the Persian Gulf.

At present, Iran benefits from marine, air, road and rail transportation systems. The Ministry of Roads and Urban Development has set, as part of the Sixth FYDP, an ambitious aim, according to which revenues from freight transit should exceed those from oil.

Cost Advantage

China, based on figures released by Eurostat, the statistical office of the European Union, is the biggest exporter of goods to the EU followed by the US and Russia

EU-China bilateral trade amounted to more than €521 billion in 2015, China Daily reported. Some 20% of all imports to the EU were from China in that year.

China’s exports, if transited through Iran, can significantly help the government fulfill its goals in the transportation sector. But why has China chosen to carry out its transit project through Iran?

“Iran is a cheaper transit route compared to the existing routes. China has common borders with the former Soviet Union and access to the European market. Yet, large-scale shipping of goods would be much cheaper via maritime routes and this is what Iran can provide through its safe routes and borders,” says the former head of the Ports and Maritime Organization, Ataollah Sadr.

Sadr believes that in order to be able to fully exploit this propitious opportunity, the government needs to take several measures and reconsider some transit rules and regulations.

Hurdles to Remove

“We do not have an integrated system for issuing bills of lading in the country and every organization has its own bureaucratic procedures and regulations that need to be followed. This tedious process prolongs clearance process and detains transit freights in Iran,” he said.

Sadr noted that in order to transit freight through Iran, exporters must obtain permits from Iranian customs offices. After that, they need to go through other bureaucratic procedures, depending on the mode of transporting the goods via sea, land or railroad.

“This slows down freight transfer in Iran more than is usual. While our ports operate 24/7, the same doesn’t apply to customs offices. This too causes a lot of problems, including the traffic of trucks carrying goods on certain hours of the day, which itself delays transit,” he said.

Exporters, Sadr concludes, look for the shortest, quickest, cheapest and easiest routes of transportation, and we need to measure up to what international trade standards demand.