Lithuania Freight Transport 2011

An increase in rail cargo tariffs in Latvia was expected to benefit the Lithuanian Port of Klaipeda, it was reported in August 2010. Latvia raised its average rail transportation tariffs by 1.5% in July 2010, which may push Russian cargoes to the Port of Klaipeda resulting in a loss of a significant share by Latvian ports.

Meanwhile, stevedores at the Port of Klaipeda had not raised their tariffs for services for the preceding three years, and Lithuanian state-owned rail operator Lietuvos Gelezinkeliai had left its tariffs unchanged for two years. Klaipeda is a modern port that handles all the countrys freight and international ferry services, and is also the major node for the countrys Russia-EU trans-shipment network. We believe that Klaipedas strength lies in Lithuanias location: as the Baltic state closest to central Europe it has potential to develop as a gateway for trade bound for Central and Eastern Europe as well as states in Central Asia.

After a severe recession in 2009 the Lithuanian economy has begun to stabilise, but we see fairly weak growth ahead as the centre-right coalition government struggles to fix persistent economic problems. The macroeconomic environment is therefore only moderately supportive of the countrys freight transport industry.

Prime Minister Andrius Kubilius has a daunting series of challenges. His government is pursuing an internal devaluation strategy designed to increase competitiveness. This requires continued fiscal austerity, pro-market reforms, and an overhaul of the countrys energy policy, since Lithuania is now almost completely dependent on Russia for electricity and natural gas imports. Political risk is also significant, since the government is unpopular and opposition may be able to win a vote of confidence, triggering elections before the end of Kubilius term in 2012.

As a result of our analysis, we estimate 2010 GDP growth of 0.1% (following on from the massive 14.7% GDP slump the previous year). Our outlook for 2011 is for moderate GDP growth of 2.0%, falling back to 2.7% in 2012. In the five years to 2015 we expect growth to average 2.7% per annum, significantly lower than in the pre-2009 period.

Lithuania suffered a very negative combination of factors for its small airlines industry, with the bankruptcy of its flag carrier preceding the worst of the global recession. As a result air cargo volume slumped for the three years 2008, 2009, and 2010, with double-digit percentage falls in each of them.

We are forecasting the beginning of the recovery in 2011, with volume expected to grow 8.3% to 5.886mn tonnes.

At the Port of Klaipeda, Lithuanias largest, we are predicting moderate to strong growth in 2011, with cargo volume up by 6.0% to 31.496mn tonnes. This comes after an estimated gain of 6.5% in 2010. The last big downturn in activity at the port came in 2009, so 2011 will represent the second consecutive year of expansion at Klaipeda. The development of Russias own Baltic sea ports at Ust Luga and elsewhere remains an important threat, but we also see a variety of new opportunities opening up.

In terms of cargo volume, we are predicting continuing small annual increases in tonnage carried by Lithuanian Railways. In 2011 we expect volumes to grow by 0.9% to 54.36mn tonnes. A similar pattern is expected for railfreight carried (volume x distance) measured in billion tonnes per kilometre. In 2011 we project a 1.0% increase to 14.54mntkm.

In 2011 we expect total road tonnage volume to increase by a muted 1.1% to 48.212mn tonnes, following a 0.9% gain in 2010. In terms of road freight carried (volume x distance) there will be a gain of 1.2% in 2011, and an average expansion of 1.6% over the next five years.

In real terms Estonian trade slumped by over one-fifth (-22.863%) in 2009, had a recovery year in 2010 (estimated growth of 10.3%) and is set to experience a loss of dynamism in 2011 (we forecast growth of 3.3%). Lithuanias trade will see low to moderate growth in the five years to 2015 (+4.2%). In nominal terms we are expecting import growth of 4.6% in 2011 to US$20.79bn, with exports growing a little faster by 6.1% to US$22.81bn. In the five years to 2015 average import growth in real terms will be 3.8% per annum, behind exports at 4.5%.