How the war moved Finland

Finland has long been building itself a gateway to Asia. We have benefited from having the nearest European airport and the fastest train connection to Beijing.

“When this is lost, it puts us at a distance from Asia,” says Minna Kivimäki, Permanent Secretary of the Ministry of Transport and Communications.

Becoming a transit country has been a key strategy in improving Finland’s international accessibility, as we have also benefited from transit traffic ourselves. Russia’s invasion of Ukraine has therefore had a major impact on Finland’s accessibility.

“The foundation on which we’ve built Finland’s logistics and accessibi­lity has changed considerably. The current situation highlights the fact that we’re at the far end of Europe,” says Kivimäki.

In the Baltic Sea’s changed security environment, Finland must consider different types of scenarios than before.

“For example, we cannot rule out the possibility of events that would hinder maritime traffic in the Baltic Sea,” says Kivimäki.

She says that maritime transport will continue to form the basis of Finland’s logistical accessibility. No other mode of transport can match the quantities and volumes than can be transported by sea. Until now, logistics strategies have been drawn up with the needs of business in mind.

“And we’ll continue to do so in the future, as it’s very important for us in terms of competitiveness and the national economy. But alongside this, we also have to consider accessibility more broadly in terms of security of supply and operational reliability.”

This issue will be on the agenda during negotiations with the EU Commission when the Union revises its decisions on the Trans-European Transport Network (TEN-T).

“We’re looking westwards in a completely different way than before. We must have ports and traffic everywhere. A well-functioning transport market is a prerequisite for accessibility,” says Kivimäki.

The distance to Asia has grown 

An emphasis on western and northern connections can already be seen in the Futures Review published by the Ministry of Transport and Communications in mid-September. Although no choices have yet been made, discussions on the diversification of western and northern connections are also underway with Sweden and Norway.

The coronavirus pandemic has already changed the routes and sche­dules of vessel traffic. And in recent years, Finnish maritime transport has also been affected by the global shortage of containers. These shortages have only gotten worse now that St Petersburg is now longer in the container 
cycle. 

“The dynamics of logistics in the Baltic Sea have changed as a result of this. We can see how maritime transport is becoming even more important, and our vulnerabilities have also become more visible.”

Russia’s war of aggression has distanced Finland from Asia in particular. Kivimäki points out that, in addition to transit traffic, some of Finland’s own goods flows are also seeking new routes.

“It will probably take a while for us to see all of the effects,” she says.

Finland is something of a backwater, which will also increase the logistics costs of companies operating in the country. It also seems that traffic to and from its ports is more road-based than in other countries, and as climate emissions become more and more expensive, so will the costs of road transport. So is improving rail connections between ports the best way to improve Finland’s competitiveness?

“We’ll certainly be considering that option. However, certain preconditions also govern development of the rail network. The country’s internal goods flows often come from places to which it has not been profitable to build a railway line until now. Rail transport is not suitable for everything, even though developing the rail network is consi­dered a priority. This is an equation that needs to work as a whole,” says Kivimäki.

There has recently been extensive discussion of new high-speed rail connections in Finland, but mainly from the perspective of passenger traffic. However, new passenger connections would also have an impact on goods traffic.

“The fact is, that if passenger traffic improves (by way of new connections), it will free up other capacity,” says Kivimäki.

Any logistical costs may be offset by the fact that the Nordic region will most likely overcome the energy crisis more quickly than countries in Central and Southern Europe.

“The energy transition now has new drivers. The current geopolitical situation is driving us in the same direction that the green transition has already been taking us.

We’ve been diversi­fying our energy palette for a long time, and are therefore in a relatively good position.”

Traditionally, Finland has also developed maritime solutions that it has been able to sell to others. Kivimäki says that a lot of development work is also underway in the field of clean  energy solutions.

“We need to get things moving on an even bigger scale. We can benefit from being fast in the same way that we’ve benefited from the energy transition,” she says.

Winter shipping will not cease in 2030

Of the decisions affecting the transport network, it is the EU’s climate package that will have the greatest impact on shipping. Kivimäki thinks that the final legislative texts for the majority of the package may well be ready before the turn of the year, that is, during the Czech Presidency of the EU. The Council of the EU (that is, the Member

States and Parliament) have formulated – and are now attempting to reconcile – their opinions. 

“The negotiations have reached the final straight. It seems clear that emissions trading will also be coming to shipping, even though the details have yet to be specified.

The promotion of alternative fuels for shipping is also on its way, along with other major regulations from a climate and sustainability perspective. It will constitute a major systemic change for the shipping industry. And our sector strongly supports the green transition,” says Kivimäki.

Brussels has also gained an increased understanding of winter shipping and why it is important for Finland. Kivimäki describes getting winter shipping included in the package as “quite a struggle”. Both the EU Parliament and Council have recognised the special features of winter shipping.

“We just have to keep our fingers crossed until the gavel comes down,” says Kivimäki.

The Fit for 55 package has set a target of 2030. This does not mean that the Union has only a fixed-term understanding of winter shipping.

“I believe that the ink will barely have time to dry on the agreement before the Commission is forced to start thinking about 2040 and 2050 perspectives. We’ve certainly pointed out that winter shipping will not cease in 2030,” says Kivimäki.

Services to improve accessibility

The Prime Minister’s Office is coordi­nating the maritime policy action plan, and the Ministry of Transport and Communications is naturally involved as well. The plan constitutes a comprehensive review of maritime policy that combines everything that occurs at sea in a variety of sectors, including research, energy production and the use of marine areas. The Ministry of Transport and Communications is respons­ible for the section on shipping policy and logistics. Kivimäki says that the plan is not a consequence of changes in the geopolitical situation.

“We’ve been working on maritime policy for a long time, and it’s been renewed from time to time. The current situation will, of course, bring new elements. For example, when it comes to energy production, we’ll have to consider how to reconcile all of the various functions within a marine area. The current situation has boosted wind power construction, and this will have a major impact on the use of marine 
areas,” says Kivimäki.

Alongside the green transition, she sees the digital transition as another “huge leap” that the logistics industry needs to take.

“Digitalisation is a development that is happening in everything. And it’s through logistics services in particular that Finland’s accessibility can be improved. Infrastructure is an expensive and slow way to handle things. Infrastructure solutions are definitely needed, but will take some time to complete. Harnessing the potential of digitalisation is a faster way of making our logistics services more efficient,” says Kivimäki.

The Ministry is pleased to note that Finnish ports have started developing information exchange platforms and digital infrastructure.

“We strongly encourage this and want to be involved.”

A Logistics Digitalisation Forum is currently being launched, and Kivimäki predicts that even more will be invested in it in the future. 

“Our logistics sectors are already highly involved in the transition. They realise that it’s important for future development, including the attractiveness of the sector.”

EU trade agreements now even more important

Developing the EU’s internal market has traditionally been one of the cornerstones of Finland’s trade policy. Among Member States, Finland has even been seen as the leader of the “internal market group”. The majority of Finland’s exports are to other EU countries.

Yet Finland must now win new market shares to make up for its lost exports to Russia. These markets will most likely be located outside the EU, as many other EU countries are in the same position. This will underline the importance of EU trade agreements.

“I can see how EU trade agreements have become even more important for us. We’ll gain access to new markets as part of the Union,” says Kivimäki.

For example, the EU does not currently have a trade agreement with the USA. although there is a joint EU–US Trade and Technology Council that discusses trade-related matters even without an agreement.

“Some results have been obtained through it. However, when it comes to the United States, Finland must also promote its own exports. And we have cooperation agreements with many US states as well,” says Kivimäki.