Lithuania Freight Transport Report 2013

BMI continues to see signs of a slowdown in economic activity over the coming quarters, which weexpect to persist into 2013. However, a slight adjustment to our net export forecasts has seen our realGDP growth forecast for 2012 move up from 1.9% to 2.3%. This should provide some degree of comfortfor the country's freight industry. The air and maritime sectors in Lithuania are set to perform the best outof all the modes, while 2013 will mark something of a rebound following the dismal 12 monthspreviously.

Central to the success of Lithuania's freight industry is the health of the eurozone and Russia - thecountry's two largest export markets. In terms of the eurozone, the European Central Bank (ECB)'s planto purchase encumbered eurozone sovereign debt could already be starting to unravel, with the recentslide in the euro being a warning signal for policymakers that investor sentiment remains fragile.

During the height of the eurozone sovereign debt crisis, we argued that Greece had become an importantlitmus test for the efficacy of combined fiscal consolidation and internal devaluation - an unorthodoxpolicy that, if successful, would become the benchmark for reform elsewhere in the eurozone. Rather, it isnow Spain that has become the new battleground over which the future of the euro will be fought.

In the same way that Greece was a test bed for unorthodox crisis resolution policies, Spain will become acrucial cast study in the efficacy of ECB's new bond purchase facility in stabilising sovereign debatemarkets and simultaneously fostering economic reform. Spanish Prime Minister Mariano Rajoy may notrealise it, but he has inadvertently become the guardian of systemic stability in the eurozone.

Headline Industry Data

We expect air freight volumes to grow 4.40% to 10,650 tonnes in 2013. We believe growth will average 3.94% a year in the five years to 2017.

At the Port of Klaipeda, we forecast growth in cargo volume of 4.69% to 39.76mn tonnes in 2013

We expect rail freight volumes to grow by 1.33% to 52.6mn tonnes in 2013.

In 2013, we expect total road tonnage volume to increase by 2.05% to 47.47mn tonnes.

Key Industry Trends

Baltic Box Competition Heats Up

Lithuania's Port of Klaipeda was crowned the best port in the Baltics in terms of box throughput oncemore in the first quarter of 2012. We highlight that its rivals are gaining, however, as ports in Latvia andEstonia switch their strategies toward the box shipping sector in order to diversify away from the liquidbulk market, which is drying up as Russia decreases its use of Baltic ports for its oil and petroleumproducts exports.

AAA Intermodal Introduces Container Rail Service

AAA Intermodal introduced a new weekly rail freight service linking Lithuania's Port of Klaipeda withthe Russian capital Moscow on March 23 2012. The intermodal container rail service, which has atransportation capacity of 114 twenty-foot equivalent units (TEUs), was launched in cooperation with railcompanies in Lithuania, Belarus and Russia. The trains are scheduled to depart from the port each Fridayand will take two days to complete the journey.

Lithuania Signs Permit Deal With Russia

An agreement was reached between Lithuania and Russia in September 2012 over the issuance oftransportation permits so that Lithuanian carriers could ensure smooth road freight passage into Russia,according to LETA/ELTA.

Risks To Outlook

We see plenty of reasons to be cheerful in terms of Lithuania's budding relationship with global powerChina, with the freight industry well placed to benefit in the future. Marking the 21st anniversary ofbilateral relations between the two countries, LETA/ELTA reported in August 2012 that Lithuania couldprove to be the gateway to Europe for China.

Danas Vaitkevicius, commercial attache and head of the commercial section of the Lithuanian embassy inBeijing, explained: 'Taking Lithuania as a bridge to enter the EU market, especially Eastern Europe,benefits both China and Lithuania.' As it stands, Eurostat reports that both exports and imports betweenthe two countries accounted for a total of US$710mn in 2011, up almost 17% on 12 months previously.

Vaitkevicius added: 'The business cooperation between China and Lithuania is just at a very early stage.

We know little about China, and China knows little about us. Introducing my country to China, andunderstanding China better are the main tasks for us today.'

However, some cause for concern presents itself with the news that the European Commission accusedLithuania of standing in the way of free competition due to existing cargo handling port operators gettingalleged priority in terms of the renewal of lease agreements.