The Middle Corridor: A Renaissance in Global Commerce

commentary

Mar 12, 2024

Freight cars with containers are loaded onto a ferry ship to be transported across the Caspian Sea, in Kuryk, Kazakhstan, June 22, 2023, photo by Jens Büttner/dpa via Reuters Connect

Freight cars with containers are loaded onto a ferry ship to be transported across the Caspian Sea, in Kuryk, Kazakhstan, June 22, 2023

Photo by Jens Büttner/dpa via Reuters Connect

This commentary originally appeared on The Diplomat on March 11, 2024.

With the rise of Houthi attacks in the Red Sea and a litany of international sanctions levied against Russia, the most popular global shipping routes have become increasingly unreliable. Some companies are avoiding the Suez route altogether, preferring to go around the Cape of Good Hope in South Africa. In Russia, westbound cargo throughput along its railways has plummeted since the full-scale invasion of Ukraine. A lesser-known route, the Middle Corridor, could prove to be a viable alternative for international markets moving forward.

The Red Sea and the Suez Canal are vital junctures for international shipping and trade. It is estimated that up to 15 percent of global trade goes through the Suez Canal, as does up to 30 percent of global container shipping volumes. Since November, the Houthis have launched nearly 60 attacks on commercial and military ships in the Red Sea and Gulf of Aden. Despite the continued attacks, shipping companies still operate along this route. However, many of these companies are adding fees, including emergency surcharges, that can be thousands of dollars per container, to offset the dangers for ships and their crews.

Other companies are taking steps to avoid the Suez route altogether, even if it incurs more transit time and higher costs. Analysts estimate that about 90 percent of the usual container capacity transiting through the Red Sea and Suez Canal has been rerouted around the Cape of Good Hope in South Africa. For deliveries from East Asia to Europe, this can add up to 10 more days of transit time. Some companies have even taken to air freight as a means of moving their cargo. While this method significantly reduces transit time and is far safer, the costs of air freight can be up to 15 times more expensive than the traditional sea-based Suez route.

The costs of air freight can be up to 15 times more expensive than the traditional sea-based Suez route.

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Sanctions against Russia and an increased aversion to using the Northern Corridor have seen shipping volumes drop substantially along the route. During 2023, westbound shipping volumes were down 51 percent along the Northern Corridor route when compared to the previous year. The Middle Corridor could offer safer, shorter, and more-affordable alternative to both routes.

What Is the Middle Corridor?

The Middle Corridor, also known as the Trans-Caspian International Transport Route (TITR), is a trade route from the Black Sea and the Caucasus to the Central Asian steppe. It is an important artery linking the markets of China, East Asia, and Europe. The Middle Corridor is the shortest route between western China and Europe, compared with the Northern Corridor through Russia and sea lanes through the Suez.

The Middle Corridor roughly follows the route of the ancient Silk Road. While the historic trade route navigated south of the Caspian Sea and through Persia (modern-day Iran), the Middle Corridor bypasses Iran by leveraging ports in Kazakhstan and Turkmenistan to transport goods across the Caspian Sea and into Azerbaijan. From there, cargo makes its way to Europe from Georgian ports, or across the Turkish interior.

The Middle Corridor is not a singular transportation route, but rather, a network of interconnected road, rail, and sea routes. A variety of infrastructure projects in the past three decades have helped modernize the Middle Corridor and reduce transit times for shipping. In addition to massive investment from China's Belt and Road Initiative, the European Union has invested substantial amounts into the Middle Corridor. Earlier this year, European and international financial institutions pledged to invest roughly $10.8 billion into developing the TITR in Central Asia. The European Union's renewed interest in the route was spurred by Russia's full-scale invasion of Ukraine, as the European Union seeks to reduce its reliance on Russia's Northern Corridor route for international trade from East Asia.

The Eurasian countries that constitute the Middle Corridor have put considerable time and resources toward improving the existing infrastructure as well. In late 2022, foreign affairs and transportation ministers of Kazakhstan, Georgia, Azerbaijan, and Turkey convened to identify ways for accelerating development along the route and expanding cargo throughput. The ministers announced a five-year plan that focused largely on railway modernization, expected to double rail capacity once completed. By 2027, the countries expect to have throughput capacity of 10 million tons per year, and transit times of 14–18 days.

Relative Advantages of the Middle Corridor

When compared to the Red Sea route, the Middle Corridor offers a variety of advantages for international shipping. For starters, the relative security of cargo traveling along this route is safer than cargo passing through the Red Sea. Furthermore, a huge selling point of the Middle Corridor is its potential for dramatically reduced transit times. The projected 14–18 days of transit time, when compared with the 19-day journey through Russia or the 22–37 days of travel along the southern sea routes, make the Middle Corridor an attractive alternative for commercial shipping.

At the beginning of 2023, cargo transported through the Middle Corridor totaled over 1 million tons, a nearly 65 percent increase compared with the previous period in 2022. While the throughput capacity is a fraction of what is seen in the Suez, the reduction in total days of transit time could convince commercial shipping companies to divert some of their cargo to this route.

In addition to added security and reduced transit times, utilizing the Middle Corridor has the potential to improve economic opportunities throughout Central Asia, where labor migration is a common theme. Even after Russia's full-scale invasion of Ukraine, over a million Central Asian laborers still joined Russia's labor force. Central Asian governments, such as Uzbekistan, are seeking ways to diversify destinations of labor migration. Renewed investment from the European Union and various international institutions may offer a way for labor migration to rotate throughout Central Asia and the Caucasus, encouraging greater cross-country cooperation along the route.

On top of increased economic opportunities, an uptick in shipping volumes along the Middle Corridor will increase revenues from associated transit fees. In 2021, Egypt earned $6.3 billion in transit fees on cargo ships passing through the Suez. These record-breaking numbers were produced despite the coronavirus pandemic and the six-day blockage of the canal by the Ever Given cargo ship. While the volume passing through the Suez is orders of magnitude larger than the Middle Corridor's anticipated capacity, an increase in volume along the Middle Corridor would provide a steady stream of revenue for all countries involved.

Challenges Along the Route

Currently, the Middle Corridor can boast that it has relatively few points of friction and conflict along its route. The largest friction point—the war in Ukraine and its spillover into the Black Sea—could be mitigated by utilizing a Turkish land route from the Caucasus. However, what happens to the lucrativeness and accessibility of the Middle Corridor if a regional conflict—such as a reigniting of hostilities between Armenia and Azerbaijan—disrupts trade? If Russia repositions its Black Sea Fleet in the occupied territory of Abkhazia along Georgia's western coast, would investors and shipping magnates shy away from using this route for fear of spillover from the war in Ukraine?

These are indeed possibilities, but the risk calculus for shipping companies may not necessarily lead to an immediate abandonment of the Middle Corridor. It could prompt a reassessment of risk management strategies that enable diverting some traffic along the Middle Corridor route in trials to test the feasibility of increasing shipping volume in the long run.

An increase in volume along the Middle Corridor would provide a steady stream of revenue for all countries involved.

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A second challenge lies in competition with existing sea routes. Even with the persistent threat from Houthis and various piracy groups operating in the Red Sea, these sea routes have been a staple in commercial shipping. In 2021, nearly 1.3 billion tons of cargo passed through the canal, underscoring the dominance of these sea lanes in modern shipping. And even if companies elect to avoid the Suez and make their way around the southern tip of Africa, this may still be a more-familiar alternative than trekking the Middle Corridor. Familiarity, coupled with well-established infrastructure, cements the dominance of existing sea routes despite their inherent challenges.

The Middle Corridor's Renaissance

Although the Middle Corridor offers promise, its journey toward becoming a viable strategic alternative to existing trade routes will be met with tough challenges. Security concerns, infrastructure development needs, and entrenched market perceptions surrounding existing trade routes collectively loom as barriers to the Middle Corridor's widespread adoption and success.

While the Middle Corridor embodies a vision of transformative potential in the realm of global trade and commerce, its realization hinges upon addressing these challenges. However, with renewed international investment and cooperation, the Middle Corridor can transcend its current limitations and emerge as a cornerstone of 21st-century trade connectivity across the Eurasian landscape and beyond.


Hunter Stoll is a defense analyst at RAND and a captain in the U.S. Army Reserve.

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