BMI's Executive Summary

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The Sector At A Glance

Key Insights On The Freight Transport Sector Of Estonia

In December the government was finalising details of its re-purchase of a 66% majority stakeholding in Eesti Raudtee (Estonian Railway, or EVR). By an agreement reached with the former majority owner Baltic Rail Services (BRS), control of the company would revert to the state by January 12, 2007 at the latest, said economy ministry spokeswoman Anu Hallik-Jurgenstein. In December, Parliament had approved a bill on the repurchase of Eesti Raudtee shares from BRS for the sum of EEK2.35bn (US$197.8mn). The company had been privatised five years earlier for EEK1bn (US$84.2mn), but had been the subject of multiple disputes between the authorities and its private sector owners. The question now is whether, back in state hands, the railway system will benefit from the necessary investment to develop the freight transit business. Despite this uncertainty, in our new Estonia Freight Transport Report, BMI concludes that rail freight traffic is set to grow at a reasonably attractive annual average of 5.9% per annum in 2007-2011, a little higher than the 5.3% rate achieved in the preceding five years.

Various factors underpin this forecast. The Estonian economy is set to achieve one of the fastest economic growth rates in the European Union, at an annual average of 7.1% for the next five-year period. The freight transit business – hauling mainly Russian cargoes to and from the port of Tallinn – will be volatile but essentially strong. Competition from other rail operators will be a factor, but EVR is guaranteed a central role as track operator. Even during the height of its dispute with the government, the company reported a small operating profit of EEK61.8mn (US$5mn) in 2005. According to the latest figures, the volume of freight carriage on EVR track grew to 3.77mn tonnes in November, up by more than 6% year-on-year (y-o-y).

The outlook for other parts of Estonia’s freight business looks good. There are encouraging signs that Estonia’s Baltic ports can hold their own in competition against Russian outlets. Within the road sector, after a large surge in road haulage carried in 2003 (which was up by a massive 46.5%) we expect the annual average increase to stabilise at around 7.1% in the five years to 2011, ahead of rail. Port traffic is also expected to continue to show strong growth. Estonia has been investing significantly in its ports to retain its role as a key transit point for Russian freight and also to cater for domestic growth. We expect to see annual average increases in maritime freight of 9.6% over the forecast period. Airfreight will continue to be dynamic sector, although it is expanding from a small base: we expect annual average growth in airfreight carried of 9.2%. Average annual freight carried across all modes, measured in million-tonne km (mntkm) will grow by 6.8% during the forecast period. The operating environment is supportive. BMI’s composite score for Estonia’s freight transport business environment is 41 (out of a theoretical total of 70). This places it just above the average for its peers in the European region. Areas of strength include long-term political and economic risk, and the regulatory environment. Comparatively speaking, there is room for improvement in the competitive environment and the rate of freight growth.

According to our latest forecasts, the total value of transport and communications GDP will rise to US$3.87bn in nominal terms by 2011, representing 15.3% of Estonia’s GDP. The transport and communications sector employed 55,000 people, or 9.5% of the labour force, in 2005. We see that figure staying virtually flat at 54,400 by 2011.

Contents

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Chapter 1 - SWOT Analysis

Freight Industry SWOT

Chapter 2 - Business Environment Overview

Europe Business Environment Ranking

Business Environment Ranking

Economics – Long-Term Risk

Politics – Long-Term Risk

Freight Transport Growth

Transport Infrastructure Growth

Regulatory Environment

Competitive Environment

Transport Intensity Index

Political Risk Summary

Economic Risk Summary

Business Environment Risk Summary

Chapter 3 - Industry Trends and Developments

Road

Rail

Sea

Pipelines

Chapter 4 - Industry Forecast Scenario

Macroeconomic Environment

Table: GDP, Output And Population

Transport Outlook

Table: Freight Transport Indicators

Table: Freight Carried

Value of imports by category (US$mn)

Value of exports by category (US$mn)

Chapter 5 - Country Snapshot: Estonia Demographic Data

Section 1: Population

Table: Demographic Indicators (2005)

Table: Rural/Urban Breakdown

Section 2: Education And Healthcare

Table: Education

Table: Healthcare: Vital Statistics

Table: Healthcare: Expenditure

Section 3: Labour Market And Spending Power

Table: Employment Indicators

Table: Consumption And Stratification

Table: Wages Per Annum

Chapter 6 - Market Overview

Multimodal

Competitive Landscape: Multimodal

Road

Infrastructure

Competitive Landscape: Road

Rail

Infrastructure

Competitive Landscape: Rail

Company Profiles

Air

Infrastructure

Competitive Landscape: Aviation

Company Profile

Sea

Infrastructure

Competitive Landscape: Sea

Company Profile

Pipelines

Competitive Landscape: Pipelines

Chapter 7 - BMI Forecast Modelling

How We Generate Our Industry Forecasts

Transport Industry

Sources

Chapter 8 - Appendix: Regional Demographic Data

Wages (ave labour force per annum), US$ PPP

Population

Household Spending Per Capita, US$

Private Consumption Per Capita, US$ PPP

Market Size, GDP, US$bn

Competitive Landscape for Europe Freight Transport Reports: Sample of Companies Ranked

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Analysis of latest projects across the freight transport sector – road, rail, air, sea, logistics – including market overview which provides an outline of the key elements driving development. SWOT analysis of the state’s business environment, transport sector, politics and economics, which carefully evaluates the short- and medium-term issues facing the industry.

Network of European Freight Sources

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BMI's European Freight Transport Reports are based on an extensive network of multilateral organisations, government departments, freight transport industry associations, chambers of commerce and company reports. Information sources include: