Latvia Shipping Report Q1 2013

Latvia Q1 2013

The port of Riga is set to hold the top position in Latvia's maritime sector in terms of both total tonnage andcontainer throughput in 2013, after another year of healthy growth in 2012.

Riga has a strong position to build on in 2013, enhanced by robust year-on-year (y-o-y) growth in totalthroughput and a double-digit increase in box volumes in 2012.

Over the medium term, we project further throughput growth at the port of Riga. Ventspils, the country'ssecond largest port in terms of the total throughput, continued its recovery in 2012 and reached tonnagelevels comparable to the ones it had before the downturn.

Headline Industry Data

Port of Riga tonnage throughput forecast to grow 2.9% in 2013; over the medium term (2013-2017), weproject a 14% increase.

Port of Liepaja container throughput forecast to grow 8.6% in 2013; over the medium term (2013-2017),we project a 45% increase.

2013 total trade growth forecast stands at 3.3%.

Key Industry Trends

Belarus' mulling of redirecting its shipments via Russian ports rather than the Baltic states' ports will be amajor blow for ports in Latvia and Lithuania, specifically the ports of Riga and Klaipeda. If Belarus movesforward with this plan, it will place downward pressure on our forecasts for Baltic states' ports, becausealthough the positive domestic outlook of these states has been a major growth driver, the facilities havebeen positioning themselves as gateways for trade in and out of the high-growth regions of theCommonwealth of Independent States (CIS). A redirection of freight via Russian ports would benefit theports of Kaliningrad, St Petersburg and Ust-Luga in particular, highlighting a trend we have noted in thefreight transport sector of Belarus and Russia moving closer together.

Risks to Outlook

The base for growth at Latvia's ports stems from BMI's positive outlook for the country's economy, withreal GDP growth estimated to come in at 4.2% for 2012 and 3.9% growth anticipated for 2013. Our positivemedium-term forecast for Latvia's ports' throughput also holds upside risks, with Latvia getting betterconnected, displaying a solid domestic demand outlook and developing its role as a gateway for cargo toand from Russia and Central Asia. This upside risk is further enhanced by Russia's membership of theWorld Trade Organization, on the back of which Latvian ports expect to tranship more of its neighbour'simports and exports.

The main risk to our forecasts for Latvia remains the persistent eurozone sovereign debt crisis. A furtherdeepening of the crisis would pose downside risks to most of our forecasts for Latvia's economy and ourport throughput projections.

Russia's development of the Ust-Luga port near St Petersburg, as it seeks to handle a larger percentage of itsown trade needs, creates another downside risk to our forecasts as it is set to place downward pressure onBaltic states' port throughput.

The possible redirection of Belarus' cargo to Russian ports adds one more downside risk to our forecasts.However, the investment that Russian firms continue to make into Baltic states' ports in an effort todiversify away from an over-reliance on liquid bulk creates an upside risk.