Monika Lilles, an official spokeswoman for Estonian Railways, previously stated in an interview with Eesti Rahvusringhääling (ERR), the Estonian radio and television organisation, that the losses are primarily due to a reduction in transportation volumes. This decline has been observed in recent years, mainly as a result of COVID-19 and later sanctions against Russia.

The cost picture

The growing losses also came about due to a significant increase in costs, which are associated with the technical maintenance of the railway network in Estonia.

In this regard, Estonian Railways places its hopes on an increase in state support. According to the company, in most EU countries only 20% to 30% of the costs for railway infrastructure are presently covered by fees from carriers, while the rest are provided by the state in the form of subsidies and other support.

Currently, the company is unable to cover most of these costs due to a generally tough financial situation and a significant drop in its cargo transportation. If in the past its annual freight traffic amounted to 40 million tonnes, in recent years it has declined to only three million tonnes.

Same goals despite altered context

Russian oil products used to pass through Estonia in the past, which allowed for the railway to be maintained without the participation of taxpayers, according to Ain Tatter, the Head of the Roads and Railways Department of the Estonian Ministry of Climate. The situation changed after 2022. Starting 1 January 2023, the Estonian government imposed a ban on the deliveries of Russian and Belarus rail freight via its territory.

Now, according to Tatter, the state’s goal remains the same: to increase the volume of freight traffic and to reduce state expenditures. However, in the absence of transit with Russia and limited domestic transportation capabilities, it is difficult to significantly increase volumes. One of the possible options may involve the increase of transport from Kazakhstan, although implementation of these plans will be associated with complex logistics issues.

No opportunities for improvement

In this regard, Tatter does not see any opportunities to reduce the accumulating losses currently. The threshold for the profitability of transportation is at least 20-25 million tonnes, Tatter said.

In 2024, 7,1 million tonnes of freight were transported by Estonian Railways (-30.1% compared to 2023). Its freight performance fell by 24% to 585.8 million tonne-kilometres. Most analysts expect that these figures will further decline in 2025. Among the most prevalent freight categories were oil shale, bulk cargo and mineral fuels.

Private companies in Russia own between five and eight thousand locomotives. In total, 20% is owned by industrial railway enterprises. Those are separate companies that provide transport services for mines or manufacturing plants, usually transporting products to nearby RZD stations.

In other words, they are a critical part of Russian logistics and the national economy. But it is exactly those companies that are not able to renew their fleet. “Updating the industrial railway fleet happens rarely, the situation is approaching an emergency”, the ROLLINGSTOCK Agency representative writes. “Soon, industrial railway locomotives will not be able to get access rights to mainline tracks.”

Chinese replacements?

The president of the Russian National Research Centre for Transportation and Infrastructure points out in local media that those industrial railway companies do not have a whole lot of money. “Even with a 50% discount, only a few would be able to acquire locomotives.”

Russian locomotives are too expensive for the industrial railways, and the sky-high central bank interest rate does not help in that regard either. The companies cannot get the necessary funding to keep operations going in the long run.

As a result, some companies are now looking to Russia’s neighbour China. A representative of an association uniting 194 companies visited a Beijing expo to express interest in Chinese locomotives. Companies from China offer locomotives at prices that Russian manufacturers could never hope to match.

“Taking into consideration that we have chosen a course of technological independence over the past three years, the presence of Chinese rolling stock on industrial tracks is, probably, not the most optimal thing”, the research centre president commented on the development.

The situation creates a dilemma for Russian rail companies. Chinese locomotives may be cheap, but setting up long-time maintenance and spare part imports is an additional investment. In the long run, it may not pay off to rely on Chinese rolling stock after all, but “home-made” locomotives are out of reach in the short term.

Russian manufacturers cede ground to China

It is not just the operators that are feeling the heat. Whereas Russian locomotive manufacturers have plenty of production capacity, according to Russian media, they are being out-competed by the Chinese in the broad-gauge world: Kazakhstan, Uzbekistan, Georgia and more.

The Kazakh private rail freight association lists a number of factors putting Russian manufacturers at a disadvantage. On the top of the list is the risk of secondary sanctions, which was the primary reason for Georgian Railways to opt for Chinese rolling stock, rather than Russian locomotives.

In second place comes the high interest rate in Russia, which makes it impossible to acquire funding against competitive rates. And lastly, Chinese companies get considerable state support, allowing them to offer locomotives at very low prices.

For Russian companies, relying on Chinese rolling stock is a long-term risk that is unlikely to get support from the political establishment. To break the deadlock, there needs to be high-level coordination and (financial) state support, say local experts. The question only remains where that money is supposed to come from amid Russia’s tightening budgetary constraints.

Sanctions have not put an end to transit traffic for Europe-bound goods from Asia, but have severely limited imports and exports with the EU. Many goods are prohibited from entering the EU altogether. That has forced Belarus to look elsewhere, and options are not plentiful: Russia is its only “friendly” neighbour.

“In cooperation with Belarusian businesses, we have developed and implemented transit shipments through Russia, utilising both seaports and overland routes”, BZhD CEO Verenich said. “We are strengthening international cooperation with foreign railways through both bilateral and multilateral formats, including within international transport organisations and integration associations. We are developing efficient delivery schemes for Belarusian products to alternative markets.”

Growth or no growth?

Verenich lists many positive recent developments: shipments to Central Asian countries grew by between 10% and 30%, and BZhD is now expanding operations along the International North-South Transport Corridor. It also participates in transport to Pakistan, all the way to the Indian Ocean.

In other words, things are happening. Yet, the raw numbers still show a significant decline in transport volumes for the rail operator. In 2018, BZhD moved nearly 160 million tonnes, but in pandemic year 2020, that slowed to 125 million tonnes. Invasion year 2022 brought another drop: from around 129 million tonnes down to 103 million tonnes: -19.7%. In 2023, the rail freight volume dipped below 100 million tonnes.

EU rail exports grow despite sanctions

Belarus may be exploring new routes, as Verenich said, but it has not been able to offset sanction (and pandemic-related) losses. In fact, despite the sanctions, traffic with Belarus’ eastern partners has not grown substantially. Rather, it has shrunk. The volume of freight between Belarus and other countries of the Eurasian Economic Union (EAEU, which includes Russia) declined by 6.6% between 2023 and 2024: from 57,9 to 54,7 million tonnes.

By contrast, BZhD reports that rail exports to EU member states expanded in 2024 compared to 2023 by 19.1%: from 2,3 million tonnes to nearly 2,8 million tonnes. Yet, the overall movement of goods between the EU and Belarus still dwarfs that of the EAEU: it amounted to around 10 million tonnes in 2024, less than 20% of the Eurasian Economic Union trade.

An interesting observation here is that Belarus imported more goods from the EAEU and exported less. The opposite is true for the EU: Belarus exported more in that direction, and imported less from its western neighbours. Yet, its exports to the EU remain very modest and amounted to fewer than 10% of the total rail exports of the country.

China is the way forward…

In 2025, Belarusian Railways aims to develop container and intermodal transportation. “The development of container transportation is an important issue in the current situation. There is a global “containerisation” of transportation in terms of the container becoming a universal means of transportation, a container for various types of cargo”, its CEO said in September 2024.

This is not entirely surprising in light of the fastest growing major business category for BZhD, which is transit from China. Between 2023 and 2024, it more than doubled: from around 1,3 million tonnes to 2,8 million tonnes. Chinese transit is responsible for approximately a quarter of all transit, and so remains relatively modest.

However, it is the only major country from which rail traffic is showing serious growth potential. Going into the future, Belarusian efforts to mitigate some of the recent economic damage will likely have to focus on capturing as much container traffic as possible.

… but it’s beyond predictability

To answer the question from the introduction: Sanctions are hard limitations, and so they clearly are not a positive factor. And despite the claims of the CEO of Belarusian Railways, the company has not managed to find significant alternative sources of revenue and volumes in other directions. The only promising market segment going into the future, again, seems to be Chinese container transit. But that business, too, is heavily dependent on tariffs, trade wars, geopolitics and European purchases of Chinese goods. Its future remains therefore uncertain.

Cross-continental rail logistics remain complicated, but are a seemingly attractive option nonetheless. The CEO of the Aprin Dry Port in Tehran, which received the incoming train from China, sees plenty of benefit.

Speed, money and sanctions

For example, he points out that trains are much faster than ships. Whereas a ship would take 30 days to reach Iran, the Xi’an – Tehran train covered the entire distance in only 15 days. Moreover, the Tehran Times has called rail “the most suitable, closest, safest, and cheapest option for China’s access to markets in West Asia and Europe”, based on expert insights.

However, speed and money are not the only factors that count. Iran and China are both motivated to find more secure trade routes, meaning less exposed to American naval power. After all, the American navy remains the dominant force at sea, and the White House is considering a plan to inspect Iranian ships to block maritime oil shipments, Reuters reported in March. The US has instated far-reaching sanctions against Iran, limiting its ability to fuel its economy through trade.

China – Europe

Despite not being subject to those same sanctions, China has similar reasoning. It also wants to maintain connections to foreign markets (importantly, Europe, for which Iran can be a transit country) to keep the money flowing into its coffers. Having a viable overland route makes logistics less vulnerable, in case maritime routes are not, or less, available. So when in pertains to Iran, China can better guarantee oil imports.

In line with those interests, countries are now putting together plans to facilitate greater trade flows via the rails. For example, Iran and key transit country Turkmenistan are reportedly working on a framework to grow the annual rail freight turnover from 1,6 million tonnes to 4 million tonnes annually. To make that happen, Iran has identified the Sarajs, Lotfabad, and Incheburun border crossings as locations to “resolve a set of problems”.

The sanctions have impacted thousands of China – Europe containers. Even though Russia introduced the sanctions in October, Chinese freight companies only found out weeks later – too late to prevent freight seizures.

Russia remains an attractive route

Subsequently, various reports claimed that transit through Russia had plummeted in recent months, which would be in line with the sentiment expressed by SCMP’s source. RailFreight.com, however, has not been able to verify those claims with data from Russian Railways.

A Chinese market source explained that Russia remains the best route for non-sanctioned goods, and estimates that dual-use goods made up around 25 per cent of the pre-sanction shipments through Russia. If all of those goods are no longer transiting Russia, that would mean a significant decline in transit traffic.

The economy does not help

The Russian rail freight sector, for its part, is also observing a decline in freight for transport. However, their findings reflect a different economic development altogether. According to Russian publication Kommersant, the high interest and a decrease in purchasing power are suppressing the demand for imported goods.

“There is no freight”, a market source tells Kommersant. A strange situation, considering that the dollar is now relatively cheap and the Chinese holiday season is over. March is usually the month of growing volumes, but there is still an ongoing decline.

Due to Russia’s high interest rate, goods that are usually financed with loans (for instance, clothing and automobiles) are now in low demand. Imports of clothing have shrunk by 30 per cent, and Russian warehouses of Chinese cars are full, because none of it is being sold.

Fear of high interest

Simultaneously, an expectation that Western sanctions against Russia will be weakened have put consumers in “waiting mode” (reports indicate that the White House is considering options to provide Russia with sanctions relief). Why buy now, if things may be cheaper in the near future?

All of these factors are having a bad impact on the Russian rail freight sector. The market has a difficult time estimating when the trend will reverse, but they made clear that they fear another interest rate hike.

Transit through Lithuania to Kaliningrad has thus shrunk by 30 per cent over the past year. Only the quota for cement supplies has reportedly grown by 20,000 tonnes. The transit reduction forces Russia to look for alternative modes of transportation – with sea shipping being the only real other option.

Currently, there are around 30 ships providing freight transportation services to Kaliningrad from Russia. Last year, Russia announced plans to build extra rail ferries to send rail freight to the exclave across the Baltic Sea. The head of the region said at the time that he wanted to achieve “total independence” from the EU for logistics needs. By the end of 2024, the volume of subsidies to support sea shipping to Kaliningrad amounted to 4,6 billion rubles (48 million euros)

Russian ban on dual-use goods

Both Russia and the EU have imposed limitations on transiting freight. For its part, Russia introduced a new ban on dual-use civilian-military goods transiting its territory to the EU from October 2024. It is possible that that is leading to a decrease in freight transiting Russia in the China – Europe direction.

Martin Koubek, Silk Road and CIS director at METRANS, points to various factors contributing to the development. Russia implemented sanctions against dual military-civilian use goods transiting its territory, which led to more than a thousand containers being blocked at the very least. “In containerised cargo, those sanctions were implemented last year which caused the first decline. This situation is now somehow solved, not so much cargo as per my knowledge is blocked”, Koubek explains.

EU sanctions also have an impact

“The second reason for the lower cross-border volume are more strict sanctions towards bulk cargo which was crossing from the east, like fertilisers, wooden plates and glass, which partly came into the newest sanction list”, Koubek continues. “Therefore, this type of cargo is not coming from Russia or Belarus into the EU anymore, thus less trains.”

Besides that, there are seasonal factors at play. For example, Chinese New Year took place in early February, which also meant that fewer export shipments were carried out to Europe.

Middle Corridor growth

That also means that things will likely start to pick up again later in the year. “I am expecting that later this year, hopefully already in March, the intermodal trains will start to increase also via the Malaszewicze area and our terminal and also others will gain more work”, says Koubek.

There is also the possibility that the decline at Malaszewicze does not accurately reflect a drop in China – Europe freight traffic. “In the meantime, we have seen more cargo through the Middle Corridor, where METRANS takes over the trains in the EU and distribute it in the METRANS network. We see some small increase in the Middle Corridor route”, Koubek explains.

Some checks and blockades used to happen occasionally, even before the October 2024 directive. However, a representative of China-based company Bangdatong Logistics told Chinese media that the current blockades were “unprecedented”. Containers with machinery and electronic components are reportedly stopped most frequently, but other containers are also stopped and sent back into China.

Over a thousand containers

RailFreight.com knows of at least three Romanian companies, one Italian and a Dutch company that have had containers blocked by Russia. However, there are likely quite a bit more. Over a thousand containers have been blocked since October, according to Chinese media.

For example, a RailFreight.com source explained that they had exactly that scenario play out. Russia blocked a number of containers at the border and sent them back. The company’s Chinese agent reassured them that there were no sanctioned goods present in the container – but they were rejected by Russia nonetheless.

Resolved or ongoing?

It remains unclear if the issues with the container blockades are still ongoing. One source told RailFreight.com that the problems had been resolved after complying with Russia’s restrictions on dual-use goods. On the contrary, others have recently reported issues, which indicate that logistics companies are still experiencing obstacles with containers transit through Russia.

Media in China report that Chinese businesses fear a drop in container shipments along the route. The unpredictability of the route, as well as the risk of incurring increased costs due to delay, could push European companies to find other routes to import goods.

“After introducing a ban on the import of LPG from Russia to the EU before the New Year, Kazakh liquefied gas also came under attack – hundreds of railway tankers with gas sent at the end of December 2024 cannot cross the Belarusian-Polish border”, the industry says.

Stricter customs

Reportedly, Poland has been asking for more and more proof of the origin of the LPG in the wagons. It wants to make sure that the LPG is from Kazakhstan, and not from Russia.

“The image of Kazakhstan as a country assisting Russia in circumventing EU sanctions has played a cruel joke – and EU customs authorities are seriously concerned that Russian LPG will be re-exported under the guise of Kazakh LPG”, the Kazakh industry writes. Wagons are reportedly getting stuck in Brest and Baranavichy.

The Kazakh embassy in Brussels has been reaching out to the EU to resolve the situation, but has reportedly not yet attained any success.

Before the takeover by Operail, it was Latvia’s state operator LDz that was transporting the palm oil from Russia. Unlike Estonia, its southern neighbour did not stop its rail company from transporting the load.

Privatisation

Earlier, Estonia opted to privatise Operail in an attempt to make the company competitive again. After the loss of crucial volumes of Russian freight due to sanctions, the company’s financial situation deteriorated significantly. In December 2024, real estate company Tiigi Keskus purchased the company for 19 million euros.