By Pēteris Celms, Finance Strategy and Economics Unit Lead, RB Rail AS
The public conversation about Rail Baltica is a conversation about cost – budgets, deadlines, audits. Legitimate questions, all of them. But they treat the railway as a bill to be paid rather than a machine to be used, and a region that discusses only what its infrastructure costs never arrives at the more interesting question: what it could earn. Countries do not get rich on the infrastructure they own. They get rich on what they sell, and what the Baltic states can sell to Europe is limited today less by what we can make than by what we can move.
The cost of transport is an invisible tariff every economy pays to reach its markets. And this tariff discriminates. A tonne of software crosses a border for free. A tonne of pharmaceuticals pays a rounding error. A tonne of engineered timber, prefabricated concrete or fabricated steel pays dearly, because its value is spread across weight and bulk, and because for most of the region the overland route to continental Europe still means trucks: small consignments, long distances, rising tolls, a chronic shortage of drivers, carbon pricing arriving on schedule.
Now set that against what the Baltics actually have. This is not a region short of manufacturing skill. Estonia is Europe’s largest exporter of prefabricated wooden houses, with roughly a quarter of the entire European market. Lithuania, with fewer than three million people, is one of Europe’s top five furniture exporters and among IKEA’s largest suppliers in the world. Latvian firms ship prefabricated concrete and steel structures and engineered elements machined to millimetre precision. Nor is it a region short of inputs, being among the most forested in Europe, with an industrial workforce and fabrication base to match.
But look closely at what these champions have in common. Flat-pack furniture and road-width building modules are industries that designed themselves around the truck. The product is shaped by the transport: module widths set by road rules, furniture engineered to pack dense. The destinations tell the same story: Estonian house factories sell overwhelmingly to Norway, Sweden and Finland; Latvian fabricators ship structures to Scandinavia. The map of the region’s heavy exports is, almost exactly, the map of where ships can go. This is the reality of geography plus infrastructure, but only one of these has to remain constant.
Meanwhile, the largest markets for what we could build next lie inland. Take the clearest example: Germany and Austria dominate European demand for mass timber – a market growing at nearly nine percent a year, pushed by EU procurement rules that write carbon requirements into public construction, and chronically short of production capacity. Sea freight cannot close that gap: a ship from Tallinn or Riga ends its journey at a foreign port, and from there the cargo still has to travel overland to reach a building site in, say, Bavaria. Road transport handles it worst of all. The standard European road envelope allows 2.55 metres of width and a 13.6-metre trailer; large-format building elements routinely exceed it, which means special permits, route restrictions and case-by-case approvals, truck by truck, border by border. More telling still, producers often size their products down simply to fit the road at all. The same constraint that shaped the region’s flat-pack champions quietly caps what anyone here can build next. And timber is only the sharpest illustration. The same arithmetic applies to anything heavy, oversized or delivered against the clock, because the buyer of high-value goods is not buying tonnes; he is buying delivery windows, elements arriving in sequence, on schedule. One scheduled freight train replaces dozens of trucks and their dozens of permits with a single movement on a single timetable. None of this requires a modal revolution. Trucks will keep the last mile and most of the short haul; rail needs to win only the long, heavy, regular flows.
The beginnings of the alternative are already running. Since 2022, when the European-gauge line from Poland was connected to the Kaunas intermodal terminal, a scheduled intermodal service has linked Kaunas with Duisburg three times a week, thirty-six semi-trailers or containers per train, over 1,500 kilometres on one timetable. The route added a stop in Łódź last year, and this year its operator invested in a fleet of new wagons to expand capacity. It is a keyhole, not yet a door: one connection, serving one city, while twenty-four million tonnes of freight still cross the Polish–Lithuanian border by road each year. But it proves the model runs and grows, and Rail Baltica is that keyhole widened into a heavy-freight artery from Tallinn to Warsaw.
We have, after all, been here before – in reverse. Baltic industry was built to serve a market reached by rail: before 1914, Riga and Tallinn were among the most advanced manufacturing centres of the Russian Empire, and Soviet-era plants across all three republics shipped railcars, electronics, machinery and vehicles east to more than 200 million people on the 1520 mm network. When the Soviet Union collapsed, some of that industry genuinely could not compete on quality. But those who could compete faced a second wall: the new market lay west, and every artery of heavy transport pointed east. The Baltic states have spent three decades turning westward – their politics, their trade, their currencies, their alliances. The railway is the last major piece of infrastructure still pointing the other way.
The honest objection is the chicken and the egg: trains need cargo, and cargo commits to trains that already run. But infrastructure of this scale is not valued by the traffic that precedes it; it is valued by the production decisions it makes possible. An investor choosing where to put the next mass timber line finds a region with the fibre, the skills and direct heavy-rail access to the continent. A manufacturer of prefabricated building elements finds the continental half of its market suddenly within reach. A producer of wind turbine towers, bridge sections, or any of the outsized industrial components Europe’s energy transition and infrastructure renewal consume by the trainload finds a location where “too big for the road” stops being a roadblock. None of these industries needs to be invented here; each needs only a reason to scale here rather than somewhere closer to the customer. Industry locates on credible infrastructure.
Growth forecasts across all three Baltic capitals currently sit well below the pace these economies once knew and well below the pace their convergence with Western Europe still requires. Growth is not a promise, it is a mechanism: an economy that wants to outgrow Europe must sell Europe more valuable things. There are only so many ways to do that and moving up the value ladder in the goods we already know how to make is the most direct one available.
The security case and the economic case, it turns out, are one argument. The axle loads that carry armour north carry building elements, machinery and furniture south. The terminals that can transload a brigade can transload a factory’s monthly output. The defence industries now growing in all three states ship heavy products and need heavy transport: the line that underwrites deterrence underwrites the industrial base behind it.
The Baltic problem has never been a shortage of material or skill. It is that the effective distance to Europe’s industrial heartland is longest for exactly the goods this region is best placed to make. Rail Baltica shortens that distance most where it is longest today.