Mikhail Kholosha,  Sergei Smirnov, Russia Gotov Dugerjav, Mongolia

In early 2020, transport and logistics experts from Russia, China, South Korea, Mongolia and Japan took part in a large-scale research project to analyze the reasons for the insufficient functioning of the international transport corridors (ITC) in the “Greater Tumen Region” and to develop proposals to overcome existing bottlenecks in regional logistics.

Initially, the concept of creating ITCs was based on the fact that a cross-border corridor is not just a dogmatically understood transport route serving freight flows of bilateral trade between neighboring NEA countries. The ITCs were supposed to become an effective mechanism for strengthening regional integration, optimizing land and sea routes, ensuring the smooth movement of transit cargo through the territory of the countries participating in the GTI program  Unfortunately, this concept has not yet been fully implemented.

ITCs are a set of separate transport routes today, in some places interconnected, but not united into a regional transport and logistics network. ITCs are rigidly tied to specific transport hubs (border crossing points – BCP, seaports) and serve fixed traffic flows. If difficulties arise at one ITC, its cargo flows cannot be painlessly redirected to another route.

The following factors generate organic flaws in the concept of individual ITCs:

• NEA countries in contrast to, for example, the European Union, have great differences in geographic location, economic development, political system, demography, religion, language and writing. This cannot but affect their strategic priorities and approaches to regional transport and logistics integration. For example, the Republic of Korea and Japan are isolated from continental transport routes and are forced to look for complex options for the delivery of export-import cargo. China experiences significant imbalances between the economically developed South-East and the landlocked North-Eastern provinces included in the GTR. Mongolia as a land-locked country is completely dependent on its “great” neighbors for the transportation of foreign trade goods. The DPRK, which traditionally follows its own unique path, is not yet ready for even the minimum level of cooperation in the field of transport and logistics, although its contribution could be very significant. Russia is probably the only GTI member that, in principle, is not interested in expanding access to transport communications of its NEA neighbors for the delivery of its own cargo, but needs to attract a foreign cargo base and investments to integrate into the regional economy and modernize domestic infrastructure.
• GTI participants develop their internal transport communications and logistics infrastructure based on their own priorities and goals. This does not always take into account the needs and specifics of neighboring states, especially the problems of the development of supranational (regional) economic structures. This is reflected in the disproportionate development of trans-border communications and service infrastructure on different sides of the common border, different procedures for customs, immigration and other types of control of goods and passengers, sometimes in the appearance of suspicion and misinterpretation of the actions of the other side, causing inadequate “response” measures. The latter circumstance, in particular, hinders the implementation of the Chinese ‘Belt & Road’ initiative.
• Continuing the above issue, one cannot but mention the unresolved problem of lack of proper coordination between neighboring parties in terms of design, construction and modernization of transport infrastructure and BCPs, despite the fact that these facilities serve common freight and passenger flows and have a common technological cycle. As a result, adjacent BCPs sometimes have inconsistent operating modes and different throughput, interconnecting roads with different standards and technological operating procedures, and even occasional facts when a BCP is unilaterally built on one side of the border, but cannot function due to a lack of similar facility on the opposite side.
•  NEA has only rudimentary institutions of regional integration, mainly in the field of economics and environmental protection. This is in line with the dominant regionalization model in East Asia, which puts the economy at the forefront, preferring not to touch sensitive areas of politics and security. As the experience of combating the COVID-19 pandemic shows, restoring the normal functioning of the regional economy without the consolidated efforts of the authorities of all regional countries will require much more time and resources.
• Russia, as noted above, occupies a special position in regional transport and logistics sector. The volume of Russian cross-border traffic in the GTR is significantly less than that of neighboring economies. However, the dependence of the Far East of Russia on imports from the NEA countries is high, which was shown by negative experiences of the periodic closure of selected ITCs during a pandemic. What is more important in the context of this article, the Far Eastern territories of Russia have a huge, but currently grossly underutilized transit potential, which is attractive for shippers from the NEA economies.

Let’s add some other problems inhibiting the progress of ITCs:

• The problem of statistics. The collection and analysis of statistical information on freight turnover and freight traffic have the following features and problems of accounting.

1. Differences in the accounting of goods by nomenclature. At the same time, there are national “statistical” and “linguistic” features;

2. The difference in measurement units;

3. Differences in accounting policies and the use of different sources of information.

• The existing system of cross-border bilateral trade and transport organization is not favorable for transit transportation. There is controlled export and import flow in the transport management system, which cannot support transit, and as a result, the bilateral organization of transport management leads to increased tariffs and inhibits multilateral transit.

• Insufficient development of BCP’s infrastructure, especially in Russia and Mongolia. Its modernization, of course, is the sole area of ​​responsibility of each ‘host’ country, though BCP key infrastructure parameters and operational procedures should be mutually agreed with cross-border partner. At the same time it should be noted that in 2020 significantly less cargo was transported through the BCPs in Southern Primorsky Territory of Russia than their current technical capabilities allow. The reason for this was quarantine restrictions, unilaterally point wise introduced by the provincial authorities of the PRC. Russian side as a rule was not notified in advance on the closure of the cross-border communication. It is very difficult to redirect even a part of the export-import cargo flow to the operating checkpoints belonging to other ITC today.
•  Another serious problem is the rigid routing of transport arteries connecting the Russian Far East and neighboring countries of Northeast Asia, especially with regard to seaports. It combines the problems of land transport routes tied to specific ports, and the specialization of the ports themselves, unilaterally determined by their current owners solely for tactical reasons, while not taking into account long-term integration trends in NEA economy.

First of all, this refers to the expansion of major Russian coal exporters which seek to establish control over port facilities in the Pacific coast of Russia and export coal, as long as there is a market slot for this. However, the ever-increasing flow of coal has already led to overloading of TSR and BAM, the modernization progress of both has not kept pace with the appetites of coal tycoons. In a number of Russian ports, the environmental situation has seriously deteriorated due to the transshipment of coal in the open way. But, “green” priorities are becoming more widespread in the world, mostly caused not so much by concern for the environment as by political considerations, which resulted in a firmly taken course towards decarbonization of the global economy. This can lead to a forced termination of the massive purchases of thermal coal not only in Russia, but also in Mongolia and the North-Eastern provinces of China.

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Let us address separately the situation with the transport and logistics sector in Mongolia. In many respects, Mongolia and Russia are experiencing similar problems in this area – underdeveloped infrastructure, especially at border crossing points, insufficient coverage of the territory by railways and roads, the predominance of bulk raw materials (coal, ore concentrate) in exports. It is logical and historically justified to resolve these problematic issues on the basis of common approaches, taking into account 100 years of special relations between our countries. At the same time, we should solve them basing on the “Win-Win” approach, not to the detriment of our GTI partners but in the common interests, jointly shaping a new concept of a joint transport and logistics network in Northeast Asia.

The issue of transportation of export coal and ore concentrates from Mongolia is especially important. Currently, Mongolian coal is almost completely transported by rail along the Tianjin – Mongolia Transport Corridor in the Chinese territory which is greatly overloaded. Therefore, when the Tavantolgoi mining megaproject in the Gobi Desert, Mongolia’s main export hope, is put into operation, the question of delivering its products to seaports for export to consumers from the Asia-Pacific region will become acute.

Of course, the ideal way to solve this problem could be the creation of a new energy / industrial cluster in the area of ​​the deposit, including a copper factory and a large thermal power plant operating on local coal. Modern technologies make it possible to generate electricity on the basis of burning coal with minimal damage to the environment. The new powerful TPP will be able to completely solve the problem of energy self-sufficiency for Mongolia. This strategic goal was listed the second in the program of Prime Minister U. Khurelsukh, which largely contributed to the impressing victory of the Mongolian People’s Party headed by him in the 2020 parliamentary elections. It is much easier and cheaper to organize the transportation of high-purity copper in ingots than bulk millions of tons of coal and ore. In addition, this product is guaranteed a high demand for many years, in contrast to the thermal coal.

However, it is clear that despite the undoubtedly bright prospects for the Gobi Desert energy / industrial cluster project, its implementation will require many years and significant investments, in particular, in the creation of a network of support transport infrastructure.

With the start of work on the Tavantolgoi field (2010), the Mongolian side intended to build about 4,000 km of new railway lines, covering the entire territory of the country. However, despite the participation of reputable global companies in the development of the project, such as McKinsey, the program very soon got mired in a series of corruption scandals and almost led to the bankruptcy of the entire national economy. The truth is that even if Mongolians could manage to implement what was planned 10 years ago even partially, this alone would hardly solve the problem of further transportation of Tavantolgoi products.

Therefore, today the Mongolian side is considering more than 10 options for coal transportation routes through overland communication lines and seaports of China, Russia and possibly, the DPRK.

It should be understood that it will not be easy to organize a large-scale transportation of Mongolian coal via the TSR, given the likely resistance from Russian coal corporations which see Mongolia as a serious market competitor. The Russian government, of course, can provide Mongolian shippers with a certain quota for the delivery of coal through TSR or BAM, but in the long term the problem must be solved using market methods. Thus, Primorye-1 ITC  has a certain throughput reserve capacity on the PRC territory and in principle, is capable of transporting large volumes of Mongolian bulk cargo. There are some other options as well. But for this it is necessary to solve one major problem – to move from a non-flexible system of corridors to a network organization of transport and logistics processes in GTR.

How do experts see the general outlines of the creation of a new network structure?

At the first stage, it is advisable to create local networks by uniting separate routes and looping the existing / under construction communications and logistics hubs where it is feasible.

Subsequently, we can consider the prospect of creating a unified transport and logistics network covering the entire territory of the GTR and even beyond its geographical mandate. The modern challenge for GTR and NEA is the creation of the Integrated Sea-Land Multimodal Transport Network incorporating a set of routes of all means of transportation. Moreover, it is about creation of the integrative infrastructure uniting transport and other industries. Major infrastructure modernization is necessary to create such a network, including both ‘physical’ (Hard) infrastructure (routes, bridges, hubs, warehouses, ports etc.) and operational procedures (Soft) – digitalization of logistics processes, harmonization of different national standards, joint procedures for emergency response. The road ahead is long and challenging. But, the results may elevate our region to a brand new dimension.

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