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ITE Transport and Logistics

Transport sector vital for Iran post-sanction prosperity

Iran is the Middle East’s second largest economy, and is reported to be the largest to re-enter global markets since the Soviet Union in 1991. A number of UN-imposed sanctions were removed at the start of 2016, paving the way for a brighter economic future for Iran. 
 
The transport industry will prove a major factor in establishing Iran’s worldwide economic position in the coming years.
 
Despite years of sanctions, Iran’s domestic manufacturing and production levels have kept its economy very stable. A strong GDP, a youthful, growing population, and the third highest number of annual engineering graduates in the world, are all factors playing into a massive resurgence in the transport and logistics industry in Iran.
 
Road
 
Iran’s primary method of transport, both passenger and freight, is by road. Pre-sanctions, Iran was a major automobile manufacturer, ranked 12th in the world, which saw a collection of foreign companies set up operations there.
 
Once the sanctions were imposed, however, activity in what was Iran’s second largest economic sector behind oil and gas slowed. Local plants struggled to import the requisite parts and machinery needed for manufacturing and repairs. Now that sanctions have been repealed, international carmakers are returning to Iran and ready to restore the nation’s status as a leading automobile manufacturing hub.
 
Peugeot, who previously drew 12% of total sales from Iran pre-sanctions, signed a €400 million ($454 million) deal to begin shipping parts & machinery to Iran in January 2016. China’s Geely Automobile is heading to the market soon too, so Iran’s auto industry will be back to its former glories - and is going to be a goldmine for exporters.
 
As road transport is still the default transportation method in Iran, the government is aiming to step up investment levels in both public transport and its road network. Updates to roads across the nation will provide international trucking firms with many new routes to explore. And, given Iran’s favourable geographic location, this could provide a highly lucrative revenue stream for transport and logistics firms.
 
Rail
 
Mid-February 2016 saw the first Chinese freight train arrive in Tehran – something which will certainly become a familiar sight in the coming years. Iran is quickly becoming a global rail hub between East and West, and so the levels of international investment and cooperation in this sector have skyrocketed in recent months. 
 
With the linking of Iran to China via the so called “Silk Road” rail, the two nations have agreed to increased trade levels to $600 billion annually. Russia and Iran have also recently inked rail deals at the Oil, Rail & Ports conference in Tehran. A direct rail link between Iran, Russia and Azerbaijan is in the works alongside a joint Iran-Russia electrification project on 495 kilometres of track on the Garmsar-Ince line.
 
Within its borders, Iran aims to expand its national rail connections from 15,000km to 25,000km by 2025. This has been kicked off by Italian rail operator Ferrovie dello Stato’s Memorandum of Understanding to design and build two high speed rail lines in Iran, connecting Tehran with Hamedan and Qom.
 
A high speed rail connection between Tehran and Isfahan is currently under construction. Whilst the project is said to be costing Iran almost $30 billion, it is estimated that the rail connection could save almost $22 million annually in fuel consumption.
 
Given Iran’s position has a key global oil producer, establishing international rail links is vital for its oil trade. Plans to expand the domestic rail will be essential in creating strong railway connections between Iran and neighbouring states. Opportunities abound for rail freight operators, railway operators and other associated sector members in Iran. 
 
Sea
 
Iran is quickly reasserting itself as one of the world’s foremost oil producers. The vast majority of the country’s oil exports are by sea. As such, significant investment in upgrading existing facilities, or construction of new ports, is being seen. Much of this investment is being sourced from international organisations.
 
For example, India’s Petroleum and Natural Gas Ministry announced in 2016 that it will be investing $20 billion in the development of a major port at Chabahar on Iran’s southern coast. A Special Economic Zone, which could potentially include petrochemical and fertiliser plants, a LNG plant and a gas cracker, is planned for inclusion in the new Chabahar facility. 
 
In return for India’s investment, it has been discussed that two docks would be leased to India for 10 years in the hope of slicing India’s oil transportation costs by around 30 per cent. India had originally agreed to develop the port in 2003, but increased sanctions on Iran led to the project’s postponement.
 
Streamlined operations are also being seen on Iran’s North Coast in the Caspian Sea region. A Caspian transport service is being launched to transfer freight between Russia and Iran with a travel time of just five days. Nearby Kazakhstan is also collaborating with Iran to establish a joint shipping company venture to step up bilateral trade levels to $2 billion annually.
 
Iran is planning to spend further $2.5 billion on upgrading and maintaining its oil tanker fleet.
 
Outside of the oil trade, a number of sea freight operators are either re-entering Iran or signing Memorandums of Understanding (MoU) to begin work. New maritime ties have been established, including with Swiss MSC allowing Swiss and Iranian companies to form joint ventures, as well as with South Korea to allow both countries to enjoy mutual unrestricted port calls and search and rescue assistance.
 
Air
 
In 2015, before the lifting of the UN sanctions, close to $28 billion worth of contracts were awarded between Iran and a wealth of international air freight operators. Much of this investment comes in the form of increasing air fleets or by building new airport facilities.
 
Iran currently has close to 300 airports. 50 of these ports are for commercial use while only a handful serve international flights. The Iran Airports and Aviation Development Forum announced in 2015 that it will be investing some $8 billion in 27 new terminals around the country.
 
Seven new international airports are planned for construction across the next decade, it was announced in October 2015 by Iran’s Minister of Roads and Urban Development Abbas Akhoundi. While the locations of these seven new ports have yet to be revealed, French construction firm Vinci has signed an MoU to build develop two sites in Mashhad and Isfahan.  
 
In January, 2016, it was announced that state-owned carrier Iran Air will be seeing an influx of new aircraft as Iran inked a $25 billion deal with Airbus. The French firm will be supplying 118 new jets, including its flagship A380 model, to Iran in a deal that will shake up the nation’s commercial and trade operations. Boeing is also said to be supplying Iran with 100 new aircraft as well.
 
Transporting Iran to a golden future
 
With huge levels of transport and logistics investment planned or underway, Iran’s transport industry has the potential to become a major economic sector for the country. Attractiveness for international finance in the transport industry is also on the rise. Iran jumped up 12 spots from rank 27 to 15 with the lifting of international sanctions on Transport Intelligence’s rankings for emerging markets in January 2016. 
 
Many are the opportunities in Iran’s transport sector and the nation will be one to watch in the coming years.


 

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