Rail has a 52% share of the Lithuanian freight market, higher than any other European country except Estonia, and freight accounted for more than 86% of LG's €500m revenue in 2012. Much of this is transit traffic, with freight between Russia and the exclave of Kaliningrad Oblast accounting for 22.5% of all volumes, while 27% of freight on the LG network passes through the port of Klaipeda, Lithuania's gateway to the Baltic and Scandinavia.

As an important transit country, Lithuania has felt the impact of the economic crisis not just at home but in the markets it relies on for international traffic, particularly Russia, which accounts for 32% of freight volumes on the LG network, and Belarus, where 27.5% of volumes originate.

Lithuanian railfreight volumes declined by 2.7% in 2013, although the broader regional picture suggests LG fared much better than its neighbours. In Estonia railfreight traffic fell by 6.8%, while there was also a sharp downturn in Latvia (-7.9%) and Belarus (-9.2%). This decline was largely the result of a 2.8% drop in railfreight volumes in Russia, a market on which the railways of the Baltic States remain heavily dependent.

In order to soften the impact of the crisis on its revenues, LG has been looking to strengthen its business in other sectors. "It's important for a company like ours to actively look for new markets and new opportunities," says LG general manager Mr Stasys Dailydka. "We are putting a lot of effort into developing our domestic freight business and we're also expanding our intermodal business."

Last November LG launched Nemunas, a rolling road service from Minsk to Kaunas, which it operates in partnership with Belarus Railways (BC). The train currently runs once a week and carries up to 30 lorries. LG is planning to extend the service later this year to serve the Baltic port of Klaipeda.

This launch of Nemunas has been made possible as a result of a joint project between LG, BC, and the Lithuanian and Belarusian authorities to streamline operations at the Kena border crossing near Vilnius. As a result of this initiative, customs procedures for freight trains have been reduced to just 30 minutes with the aid of advanced IT systems and automated inspection.

Another key intermodal service is the Viking train, which LG operates jointly with BC, Ukrainian Railways (UZ), shipping lines, and the port authorities of Klaipeda, Ilyitchovsk, and Odessa.

The train carries containers and semitrailers, which arrive at the port of Klaipeda by sea from Scandinavia for transport by rail to inland terminals in Belarus and Ukraine, as well as Ukraine's Black Sea ports for onward shipment by ferry to Georgia and Turkey. The 1734km journey between Klaipeda and Odessa takes around 52 hours.

"We're currently working with operators in Turkey to extend Viking and we're keen to find partners in other countries to expand the project," says Dailydka.

LithuaniaLG is also looking further east to develop its intermodal business and is eager to tap into the market for transporting containers from central and eastern Asia to western Europe. In 2013 LG established offices in Minsk and Beijing, expanded its presence in Russia, and is currently looking to open an office in Kazakhstan. LG is already operating container services from China and Kazakhstan to western Europe in partnership with other railways and logistics companies.

An important development for Lithuania's links with western Europe will be the completion of the first phase of Rail Baltica, which will see standard-gauge track extended from the Polish border to Kaunas by July 2015. This will allow freight trains from western Europe to operate directly into the heart of Lithuania and serve a new intermodal terminal at Kaunas, where containers will be transhipped between standard and broad-gauge wagons. The facility is currently under construction and is due to be completed later this year.

"Rail Baltica 1 will give us a huge opportunity to develop Poland - Lithuania traffic from 2015 onwards," says Dailydka. "We expect cross-border freight and passenger traffic from Poland to increase several times over when this link is established, and we see the potential for working with international logistics partners such as DB Schenker and PKP Cargo to develop this business. Around 15 million tonnes of freight currently crosses the Poland-Lithuania border by lorry, and the roads at the border are choking on traffic. Freight volumes are constantly increasing, and the road infrastructure can't keep up, so we have a huge opportunity that we must grab with both hands to get this traffic onto rail."

New technical solutions will have a part to play in making this modal shift a reality. Under the EU-funded Efficient Semitrailer Transport on Rail Baltica (Estrab) project, the CargoBeamer intermodal system (IRJ April 2011 p54) will be tested on the Rotterdam - Riga route, with new intermodal terminals being constructed in Leipzig, Germany, and at Mockava in Lithuania. Trials are due to start later this year.

Passenger growth

Passenger operations play a relatively minor role on the LG network, accounting for just 5.1% of revenues in 2012, but nonetheless this is a growing sector which has achieved year-on-year growth since the depths of the economic crisis in 2009. LG carried 4.87 million passengers in 2013, 3.8 million of them on domestic services. International services carried 520,000 passengers, while a further 540,000 passengers passed through Lithuania in transit between neighbouring countries.

The joint initiative between Lithuania and Belarus to speed up border crossings has benefited the Vilnius - Minsk passenger service, and since 2010 the journey time has been cut from four hours to around two hours, primarily by transferring customs controls to the station in Vilnius and reducing the waiting time at the border to less than 30 minutes. Documentation for passengers entering the EU on this route has also been simplified.

LG will introduce double-deck Škoda emus on Minsk services following the completion of electrification in 2016, which will further reduce the journey time to two hours.

LG is currently studying the possibility of reinstating direct passenger trains to Latvia, with proposals for a new service between Šiauliai and Riga. If successful, this could be extended to Vilnius, offering the prospect of a direct link between the two capitals before the completion of Rail Baltica 2. A new service from Vilnius to Lida and Grodno in Belarus is also being evaluated.

Despite the recent downturn in freight traffic, LG is planning a number of infrastructure projects over the next six years to increase capacity and streamline operations in readiness for a return to growth, which is anticipated as economic conditions improve. According to LG's projections, a 30% increase in capacity will be required by 2030 to meet demand on Lithuania's main freight arteries.

LG plans to invest Litas 5.11bn ($US 2.02bn) in infrastructure between 2014 and 2020, of which around Litas 3.09bn will come from European Union sources. Key investments in this period will include:

• extension of standard-gauge track east from Kaunas to Palemonas marshalling yard, including resignalling in the Palemonas area

• Vilnius - Kena (Belarusian border) electrification

• Kaišiadorys - Jonava - Radvilškis electrification, including track-doubling on five single-track sections of the route

• track-doubling on the Telsiai - Lieplauke section of the Radvilškis - Klaipeda line

• track-doubling on the Vilnius bypass

• reconstruction of Pauostis yard near Klaipeda and Klaipeda station yard, and

• Kaunas - Kazlu Ruda - Lenkija (Polish border) resignalling (part of Rail Baltica 1).

At present electrification is limited to the lines from Vilnius to Kaunas, Trakai, and Naujoji Vilnia, although LG is planning to electrify the remainder of the corridor between the Belarusian border and the Baltic coast in phases over the next 13 years. The short section between Naujoji Vilnia and the Belarusian border near Kena will be electrified by 2016. BC recently awarded a contract to electrify the 80km line from the border to Maladzyechna, and these two projects will complete the electrification of the Vilnius - Minsk line. Electrification of the Vilnius bypass and the Kaišiadorys - Radvilškis line will be completed by 2020, while the line between the marshalling yards at Radvilškis and the port of Klaipeda will be electrified by 2027. In the meantime, LG plans to begin operating 6000-tonne trains on the Kena - Radvilškis - Klaipeda corridor by 2020.

Funds have also been allocated by the Lithuanian government for design work on the Lithuanian section of Rail Baltica 2, a new standard-gauge high-speed passenger and freight line which will connect the Polish border and Vilnius with the Latvian capital Riga and Estonia's capital Tallinn.

In addition to infrastructure enhancements, LG will continue the modernisation of its locomotive and rolling stock fleets. In 2014-15 the railway plans to acquire an additional 18 TEM TMH diesel shunting locomotives (see panel) and the company will invest around €82m in 1000 new freight wagons between 2015 and 2020. It will also order six 1520mm-gauge inter-city dmus for the Vilnius - Klaipeda route, together with four emus and three dmus for regional services. All remaining Soviet-era passenger stock is due to be phased out by 2020.

In the longer term, standard-gauge locomotives and rolling stock will be ordered for Rail Baltica 2, and the spread of electrification means a fleet of 1520mm-gauge electric freight locomotives will be required.

With a programme of sustained investment, and the extension of standard-gauge giving improved access to Poland and western Europe, LG appears well positioned to recover from the worst effects of the economic downturn and win freight traffic back to rail. But Dailydka also acknowledges that the prosperity of Lithuania's railways depends largely on what happens beyond the country's borders, and LG is broadening its horizons to develop the international business that is so crucial to its future.

Locomotives unit eyes international business

IN most countries, the days of railways assembling their own locomotives have long gone, so it is perhaps surprising to find that in a country as small as Lithuania this can still be considered a viable activity. Yet since its inception a decade ago, LG subsidiary Vilnius Locomotive Repair Depot (VLRD) has gone from strength-to-strength, and now has international tenders in its sights.

The facility initially concentrated on overhauling locomotives for its parent company, but its capabilities have gradually expanded to include repowering and assembly.Vilnius

In 2009, the workshop began assembling TEM TMH diesel shunting locomotives for LG in partnership with Transmashholding (TMH), Russia, and CZ Loko, Czech Republic. TMH supplies the bogies and frames for the locomotives, while CZ Loko provides electronics. So far VLRD has delivered 50 of the 1550kW units to LG, and has also supplied similar locomotives to a customer in Estonia.

"Our aim is to become a leader in 1520mm-gauge markets and also establish a presence in western Europe," says VLRD CEO Mr Valentas Stadalnykas. "We could also establish joint ventures with suppliers in Ukraine, where there is huge potential for modernising the locomotive fleet."

The company is now planning to bid with TMH for a contract to supply diesel shunting locomotives to VR Group, Finland, and Stadalnykas says he sees the potential to assemble new passenger locomotives for LG.

In addition to locomotives, VLRD has assembled catenary maintenance vehicles in a partnership with SVI, Italy.