Iran-Germany Rail Corridors in the Making

As trade ties between Iran and Europe are strengthening following the removal of nuclear sanctions, plans are underway to shift part of the shipment of commercial exchanges to railroads.

A board member of Islamic Republic of Iran Railways, Hossein Ashouri, has told Financial Tribune that Iran is planning to launch multiple rail corridors to Europe to take advantage of growing trade relations.

"The planned corridors include a route from Azerbaijan and Russia, another from Georgia and Black Sea, and a third through Turkey, which has recently been negotiated," the official said.

“We have been discussing parallel routes with German companies and the officials of participating states.”

German firms DHL, DB Cargo and DB Schenekr are among the companies involved. Islamic Republic of Iran Railways held multilateral meetings with these companies and the authorities in Turkey last month to discuss rail corridors using existing infrastructures. IRIR hopes the negotiations will come to fruition in the coming months.

Another meeting, Ashouri told Financial Tribune, is scheduled to be held within two weeks. Topics to be discussed include commodity tariffs and the Turkish rail timetable.

A division of the German national railroad company Deutsche Bahn AG, DB Schenker focuses on logistics. The company is active in air, land, and sea freight; and a rail division made up from European rail freight companies.

DB Schenker, which comprises DB Schenker Rail and DB Schenker Logistics, is in charge of various modes of transport and logistical activities of Deutsche Bahn in some 2,000 locations in 140 countries. It is the biggest freight operator in the UK after buying out English Welsh & Scottish.

DB Cargo is also a subsidiary of DB Schenker. It is a German railroad cargo carrier operating across Europe, as well as in Central Eastern Asia.

On its map of globally operating logistics routes, DB Cargo has already specified a route to Tehran, via Hungary, Romania, the Black Sea, Georgia and Azerbaijan.

Iran is also considering other routes via Azerbaijan as well, including one through Russia.

All the routes passing through Azerbaijan will depend on the completion of railroads from the Iranian-Azeri border to the city of Qazvin. These rail infrastructures will need a few years to become fully operational. But Iran is keen to activate the planned corridors through a road-rail multimodal network.

"The Iran-Turkey railroad is currently active. Last year, some 350,000 tons of goods were transported through the Razi border crossing where the railroad passes," Ashouri said.

“Cargo is transported via Iran’s Razi border crossing at the Turkish border to the city of Van, whereby freight cars are carried across Lake Van by Ro/Ro vessels,” he said.

The official noted that IRIR is planning to increase the 350,000 figure to 1 million tons this year.

"Once the Germany-Iran corridor becomes operational, the figure could reach 3 million tons next year," he said.

Iranian railroads transported 40.3 million tons of cargo in the last Iranian year (ended March 20, 2017), which has been described by the CEO of Islamic Republic of Iran Railways Saeed Mohammadzadeh as "an all-time record". The volume shows a 35% rise compared to the preceding year.

The share of railroad in cargo transportation currently stands at 12%. The sixth five-year development plan (2017-22) stipulates that the share of rails in cargo transport should rise to 30%.

> Railroad to Benefit From Rising Trade

Efforts to launch rail corridors between Iran and Europe come as two-way trade is on an exponential growth path after trade restrictions on Iran were removed as part of sanctions imposed against the country over its nuclear program.

Nuclear sanctions were lifted in January 2016, as part of a landmark deal Tehran signed with world powers in July 2015.

Ever since the sanctions removal, European companies have been flocking to Iran, some with the aim of regaining their pre-sanctions stature and others to establish new trade connections with the emerging Iranian market of 80 million, which has 400 million consumers in its neighborhood.

Iran’s trade with the European Union stood at €5.3 billion in the first quarter of 2017, rising 163% over the similar period of a year before, Eurostat reported.

Iran exported €2.77 billion to EU, registering a sixfold rise year-on-year. Italy was the biggest importer from Iran among all the European states, as it bought €807.4 million worth of Iranian goods during the period. France, the Netherlands, Spain and Greece with €614.6 million, €356.3 million, €329.6 million and €320 million worth of imports respectively came next.

Iran imported €2.52 billion worth of commodities from the European Union during the first quarter of 2017, recording a %56 YOY rise. Germany topped the list of exporters to Iran, shipping €694.4 million worth of goods to the Islamic Republic. France came second with €461 million and Italy followed with €418.6 million.

“By launching the new corridor [between Iran and Europe], we are trying to shift part of these shipments to rail,” Ashouri has been quoted as saying by the Donya-e-Eqtesad Persian economic daily.

Massive deals have been signed between Iran and Europe after the signing of the nuclear agreement in a wide range of sectors, including automobile production, railroad development, passenger planes and expansion of energy fields.

According to Ashouri, automobile parts shipped from Europe to Iran and petrochemicals exported from Iran to Europe as well as commodities supplied by Siemens to be used in the Iranian projects will be transported via the Iran-Germany train corridor.

The German engineering giant Siemens has signed several deals to develop railroads and energy infrastructures in Iran.

The company said in January it had received a major order for 12 compressor trains for two onshore gas processing plants in Iran.

In March, Iran announced a preliminary deal with Siemens to build a plant to manufacture power equipment in Iran.

Siemens has also been cooperating with Iran’s major industrial conglomerate MAPNA Group. It signed a contract with the Iranian giant in 2011 to supply 150 locomotives to IRIR. It also signed a preliminary in October 2016 with Siemens to manufacture 50 diesel electric locomotives for passenger trains.