The construction of a railway to connect the Laotian capital, Vientiane, with the Port of Vung Ang in central Vietnam, will start soon, possibly in November, according to the Vientiane Times newspaper.

The move is the Laotian government’s latest effort to turn the capital into a logistics hub by forging rail links with China, Vietnam and Thailand.

“A groundbreaking ceremony to kick off construction will take place in November,” Chanthone Sitthixay, chairman of Petroleum Trading Lao Public Co (PetroTrade), was quoted by the daily as telling Xaysomphone Phomvihane, president of the National Assembly, recently. Feasibility studies for the project were completed in mid-March.

Last December, Vientiane Logistics Park opened in the city, the day after the China-Laos high-speed railway — the first of its kind in Southeast Asia — was completed as part of China’s Belt and Road Initiative.

The opening ceremony for the facility was attended by Prime Minister Phankham Viphavanh, who was able to see goods-laden trucks leaving for their destinations in Cambodia, Thailand and Vietnam.

The logistics facility was built under a joint project that began in 2020 between the Laotian government and a subsidiary of PetroTrade.

The 3.82 million sqm logistics centre, built at a cost of US$727 million, includes the Thanaleng Dry Port and other facilities. The project will see additional construction this year, including an export processing zone, and office and commercial sections.

On the opposite side of the Mekong River from Vientiane, a plan is taking shape to build a logistics centre in Thailand that will take advantage of the China-Laos high-speed railway.

The impending arrival of the huge logistics centre is announced on large wooden signboards around Natha Station in the northern Thai province of Nong Khai, near the border with Laos.

An artist’s rendering of the centre is on display in the small station building. It depicts rubber and malt being transported to the centre in containers, a station employee said proudly, adding that the station building is to be relocated when the centre is completed.

The State Railway of Thailand (SRT) plans to open the 430,000 sqm logistics centre in 2026. It is to be linked to the Port of Laem Chabang, the country’s biggest trading port, by rail.

The state-owned railway operator envisages building a container yard, freight loading facilities, warehouses and other facilities under a public-private partnership.

The plan calls for freight to be transported via a bridge over the Mekong into Laos and then on to China by the China-Laos railway, which began operating last December.

SRT, which at present operates only two round-trip freight trains a day between Thailand and Laos, plans to raise the number to 24 by 2026. It intends to build a new railway bridge, as the existing First Thai-Laos Friendship Bridge, which has only one track, is unlikely to be able to handle the expected rise in freight traffic. While the existing bridge uses Thai rail gauge, the new bridge will be able to accommodate Chinese and Laotian trains.

Laos lacks major industries, aside from hydropower, which takes advantage of the country’s abundant water resources. The country’s per capita income was US$2,630 in 2020, the third-lowest in the Association of Southeast Asian Nations, ahead of Cambodia and Myanmar. Its GDP per person was less than 5% of that of Singapore.

When a railway connecting Kunming, in China’s Yunnan Province, and Vientiane opened in December 2021, a project to make the railroad the backbone of logistics between China and Asean quickly became feasible.

Although rail freight transportation between Thailand and Laos began in 2019, demand was limited as most freight was transported by truck. But the China-Laos railway has greatly reduced the time it takes to ship goods from Thailand to China via Laos.

In January, Thailand exported 1,000 tons of rice to China via the China-Laos high-speed railway, the Ministry of Agriculture and Cooperatives announced.

According to the ministry of transport, following the opening of the railway, exports from Nong Khai Province increased 2.6 times in weight and about 50% in value from the previous year. Fruit such as durian, and natural rubber, which are in high demand in China, are also important goods transported by the railway.

Transporting goods from Vientiane to Kunming by truck takes two to three days. Rail can do the job in 20 to 24 hours, reducing transportation costs by 20% to 40%.

According to Chinese and Laotian state media reports, imports to China via the China-Laos Railway exceeded 120,000 tons, while exports from China exceeded 70,000 tons, as of mid-March.

Interest in the railway is growing as crude oil prices rise, triggered by Russia’s invasion of Ukraine, and due to China’s tighter measures to control Covid-19.

Higher fuel prices have raised the relative cost of road transport. And snags in customs clearance have stranded trucks travelling from Vietnam and Laos at the Chinese border, due to the stricter Covid measures put in place at the end of last year. Rail transport flows more smoothly to China, spurring interest in the railway.

German logistics company DHL is the first international freight forwarder to offer two-way rail freight service between Kunming and Vientiane via the China-Laos railway.

Bruno Selmoni, vice president of road freight and multimodal at DHL Global Forwarding Southeast Asia, said: “We see a steady demand for the two-way rail freight services on the Laos-China railway, influenced by congestion at the China-Vietnam border due to the local Covid-19 situation.

“There are currently a few thousand trucks waiting to cross the China-Vietnam border in both directions, and this situation has made the Laos-China rail connection a key mode of transport for goods between China and Southeast Asia,” Selmoni said.

The Laotian government is trying to turn Vientiane into a node connecting Asean and the Chinese market by both road and rail, by concentrating customs clearance and logistics services in the city.

If the cost of logistics is greatly reduced by these efforts, Laos will enhance its trade competitiveness and stimulate investment, according to Viengsavath Siphandon, the country’s public works and transport minister.

Freight transport using the China-Laos railway faces many challenges, including operational management. “There are a lot of problems in the freight operation. Products are often damaged when taking them out of containers,” a representative of a Laotian logistics company said.

“Freight transportation on the railway is not easy to use,” said Kenichiro Yamada, a senior director at the Japan External Trade Organization’s Vientiane office.

“A charter contract must be signed with the railway company more than two weeks in advance specifying the items to be transported, and advance payment is required. In addition, (the railway) is not able to cope with small-lot transportation at present. Companies are still sorting out information,” Yamada said.