In Latvia, the price of almost all goods and services continued to increase, and inflation skyrocketed to 13% year on year. Inflation in April confirms the same causes as the previous months: global supply-chain disruptions and food price hikes resulting from lockdowns, and energy policies aggravated by the recent war. During the pandemic, the European Union made its fiscal rules on maximum budget deficit more flexible. Plus, while facing higher inflation, the push for the green agenda accelerated the search for a speedy solution to the energy supply. For example, in April most fluctuations in the diesel price in Latvia could be explained by the requirement for a larger share of biofuels. What is the hope for rail carriages?

It should be taken into account that the hike in food prices has been very steep during the last few months and, according to the global trends, this pressure will not alleviate for some groups of unprocessed food in the nearest future. Those with low income are mostly hit, as they spend a larger share of their earnings on food than more well-off groups. Higher energy prices and the desire to give up Russian energy imports have contributed to the promotion of renewable energy sources and support for their more widespread introduction and use that is in line with the sustainability goals. Although these efforts require considerable investment at the beginning, in the long-term the use of renewables may be more financially profitable and boost energy independence, as well as facilitate the development of a greener economy. Only if the compression of traditional energy sources will come with the sufficient development of alternative sources.

In this scenario, the Latvian transport sector is an important and even irreplaceable component of other sectors, ensuring the carriage of people and cargoes. Historically, due to its location between the East and the West, Latvia has been important in servicing transport flows and active engagement in international transportation chains. It has allowed for the development of an extensive infrastructure: an internal road network, three comparatively large ports with access to the Baltic Sea, as well as a rail connection with the CIS and Asia. At the end of the 20th century, transport became one of the drivers of the economy and, as pointed out by the Bank of Latvia, generated more than 14% of the total added value in the economy. However, now its role has diminished. Irrespective of the ever-increasing demand for transportation and storage of goods and logistics services, the growth of the transport sector has gradually slowed down. In 2021, the sector generated just 7.2% of the added value in the economy.

Recently, growth in transport and storage has been one of the slowest in Latvia. It was caused by several factors: little investment in transport and infrastructure, sustained deterioration in transit flows, weak multi-modal connectivity between various transport modes, obsolete procedures, and stalling productivity. Furthermore, the pandemic has also had a significant effect on the transportation sector, disrupting the international supply chains and limiting passenger traffic. Historically, the Latvian transport sector has also had relatively sizeable added value among the EU Member States. 20 years ago Latvia had the highest contribution from the transport sector to the economy among the EU Member States, but the situation has significantly changed since. Though growth has become much slower in the European transport sector during the last few years, and the contribution of transport has also decreased, the Latvian transport sector has contracted at a much faster pace.

In Latvia, transit mostly involves rail carriage. Almost 90% of all import rail consignments arrive from Russia or Belarus and are destined mostly for the European market. The Latvian ports that handle, process, load and unload the consignments also offer a significant contribution to further transit flows. Still, the importance of rail and ports has significantly deteriorated of late due to the rapid decline in transit. For many years, the Russian transport policy has aimed to develop the national transport infrastructure to ensure logistics independent of the transit countries such as Latvia. Thus, the reduction in the volume of consignments has not been so much attributable to deteriorating accessibility by rail or sea, but to the Russian reorganization of transit routes. Until recently, the share of transhipped transit consignments in Latvia was 70–80%, but now this share has become relatively minor in all Latvian ports. Targeted rerouting of Russian cargoes has made the Latvian ports look for other opportunities and find other directions that will mitigate the effects of the sanctions against the Russian and Belarus transit consignments.

As to coal transit, there were close to no such consignments via the Latvian ports in 2020: partly also due to climate neutrality aspirations that dramatically cut the demand for fossil energy in Europe. However, in some product segments, cargo interruptions are also expected in the nearest future. This mostly pertains to the Russian oil products that were already rerouted to the local Russian ports in Ust-Luga and Primorsk in the Baltic Sea. The recovery of rail carriage in Latvia will depend on the new Rail Baltica project that will include Latvia in the new transport network with Central and Western Europe. Furthermore, this project has become ever more important considering the current geopolitical situation. It is expected that the railway could take over some road consignments, improve the interconnectivity of various transport modes in the Latvian transport system and expand local and international passenger flows in the Northern-Southern direction. Still, due to the sanctions, a rail crossroad between Russia or a transition point between two rail gauges no longer seems feasible.