Current Situation of the International North South Transport Corridor
International North-South Transport Corridor (INSTC) project was established in 2000 by Russia, India and Iran with a purpose of creating a corridor shorter than the current maritime Suez Canal transportation route in order to reduce the time and transportation costs of trade in goods. Later on, Belarus, Kazakhstan, Tajikistan, Oman, Armenia, Azerbaijan, Ukraine, Kyrgyzstan and Turkey joined the INSTC project.
The route starts from the Nhava Sheva port in Mumbai, India, and goes through the Arabian Sea to the Bandar Abbas port in Iran (1200 nautical miles). The overland part of the INSTC passes through the Iranian territory to the Bandar-e Anzali port located in the northern part of the country (1300 km). The second maritime section of the route crosses the Caspian Sea (800 nautical mile) and reaches the Astrakhan port in Russia. Afterwards, cargos could reach Moscow (1700 km) and run to the European countries from the RussianFinnish border. There are a number of reasons that stalled the progress of the project and kept it from becoming operational in the last 15 years. One of the reasons is that India decided to freeze the project for a 10-year period after facing some logistics problems and due to the lack of the customs clearance support. Another reason is increased pressure on the Iranian economy by the USA and the EU countries on the subject of the nuclear program development in early 2000s. However, after the softening of the Iranian approach towards the negotiation process with the P5+1 Group and the reaching of the Joint Comprehensive Plan of Action, which caused lifting of the economic sanctions against Iran, the project was revived by the support of the founding members, especially by India in 2015. During the VI Coordination Council of the INSTC project members held in Delhi in August 2015, senior officials from India, Iran and Russia, as well as representatives from other member-countries approved the Draft Agreement on the transit and customs issues. Then, the Draft Agreement became an important step for moving the project to the next level guiding the legal basis for freight by ship, railroad and road connecting India, Iran and Russia. After foreseeing the lifting of the sanctions, India started to invest in infrastructural projects in order to improve the current conditions of roads, railroads and ports along the International North-South Transport Corridor. For instance, The Minister of Road Transport and Highways of India, Nitin Gadkari, and his Iranian counterpart, Abbas Ahmad Akhoundi, signed a Memorandum of Understanding on the development of the Chabahar port worth $85 million in May 2015. In addition, India is planning to spend $100 million for building a 220 km road from Delaram in western Afghanistan to Zaranj at the Iran-Afghan border to link up with the Chabahar port. Besides, investments in the Chabahar port in the Gulf of Oman correspond with the Indian strategy to expand its economic influence over the Persian Gulf transport facilities in response to China’s dominance in the Gwadar port of Pakistan. In addition, with the completion of the Chabahar port modernization, India will get an opportunity to have a direct transit connection with Afghanistan and Central Asia bypassing Pakistan and to increase the trade potential between the countries. Moreover, due to its strategic importance, the INSTC project was highlighted in such Indian foreign policy concepts as the “Foreign Trade Policy of India for 2015-2020” accept- ed in April 2015 and the “Connect Central Asia” policy approved in June 2012. Therefore, in order to analyze the potential and bottlenecks of the transport corridor, the Federation of Freight Forwarders’ Associations of India conducted dry run test on the route in August 2014. The test results indicated that the INSTC shorten the transit time by 40% and the cost by 30% compared with the current mari-time Suez Canal route. According to the current transportation costs, shipment of a 20ft dry container from Mumbai to Moscow will cost around $2100-2800 and transit time will be completed within 32-37 days by going through 8700 nautical miles along the Suez Canal route. On the contrary, the costs of cargo shipment through the INSTC route will be around $1260 (adding approximate costs through 2 ports transshipment of $260) and the transit time will be a little over 19 days by going through 2200 nautical miles plus 3000 km.
Technical report of the dry run test identified that an export worth $60.6 billion (18.9% of total export) and an import worth $107.4 billion (23.4 % of total import) could be transported via the INSTC. In this sense, the Indian goods delivered through this transport corridor will become more competitive since their transit time and transport costs will decrease significantly. However, currently there are still a number of issues preventing the INSTC project to achieve its full potential. For instance, future development of the Chabahar port was hindered due to the dispute between India and Iran over the major construction projects in the seaport. Furthermore, in practice, there are still a number of issues related to the establishment of a strong controlling mechanism over the customs procedures and to the allocation of funds to the infrastructural projects. In addition, the INSTC project members are still in the process of solving the problem of the occupancy of containers on their way back from Russia to India, which causes the transportation costs to increase.
In conclusion, if participants of the INSTC could manage to overcome the existing difficulties, the launched economic corridor would significantly affect the regional trade and would bring new opportunities both to enter new markets and to strengthen the competitiveness of trade in goods.
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Prepared by Lidiya Parkhomchik, Hayal Ayca Simsek, Saule Akhmetkaliyeva, Cengizhan Canaltay.
