A series of new logistics projects under construction in Mongolia

The need for transportation improvements in Mongolia is well recognised, and the government has focused resources and expended considerable political will on building roads and rail links, and in developing the new international airport. Where the authorities and Mongolia’s private sector have been lagging, however, is in the area of logistics. Connections are not efficient, warehousing is not sufficient, and goods move slowly due to a lack of proper systems and because of various choke points at ports and other transfer zones. This may be one of the country’s most pressing challenges, as the lack of efficient logistics threatens to keep the cost of imported goods high and exports uncompetitive despite heavy investment in transportation.

According to the World Bank, Mongolia’s Logistics Performance Index stood at 2.355 in 2014, up from 2.08 (out of a possible 5) in 2007, but still below the scores of neighbours and peers China (3.53), Kazakhstan (2.70), Thailand (3.43) and South Korea (3.67). “We are waiting for investment in logistics,” said B. Balidir, executive director at Mongolian Logistics Association. “They are just investing in roads and construction. This is not important for the Mongolian economy. All of the mining is stalled because they do not have logistics.”

Here & There

Nevertheless, despite the weakness of logistics in the country, significant improvements are being made. Multilaterals have been pushing for better logistics and are financing improvements, while the private sector is beginning to see the importance of better-managed systems. At the same time, larger forces are at work that will inevitably improve logistics within the country. Initiatives being undertaken by regional giants, such as China and Russia, and international groups, such as the UN and the Central Asia Regional Economic Cooperation programme, to build Eurasian transportation solutions will put Mongolia at the centre of major global networks.

The new airport, meanwhile, is located precisely on the route between Europe and China, and, as such, could make a good place for a cargo hub. A logistics park for the airport has been considered and has received support from multilaterals.

International transportation companies are increasingly showing interest in Mongolia. In late 2013 the Mongolian Ministry of Roads and Transportation signed a memorandum of understanding with Lufthansa Consulting, with the aim of having the German company assist with the development of the aviation sector.

In the Works

A private logistics centre is being planned 34 km east of Ulaanbaatar on the main rail line between Bumbat and Bayan stations. It is set to be built on 130 ha and is designed for easy access to industrial areas south of the city and the new airport. Work continues on a logistics centre at Zamyn-Uud, where 90% of Mongolia’s imports pass. The project is supported by the Asian Development Bank. A logistics port has also been established at Choir, a city about 200 km south of Ulaanbaatar on the main train line.

The Mongolian Logistics Association believes the focus for the country should be on creating networks that allow for its most valuable raw materials to get to market. While mining is certainly important, the association argues that agriculture should not be overlooked. If the right facilities can be built, Mongolia can better utilise its natural resources and reduce imports.

China

Activities in China are also expected to support Mongolia’s logistic sector. At the land port of Manzhouli, in Inner Mongolia, capacity is set to more than double. The Chinese hope to use the city as a hub for Russian trade, and Mongolia might benefit from increased capacity so close to its territory.

In 2013 Mongolia and China reached an agreement allowing the former to rent 10 ha at the port in Tianjin, through which 70% of Mongolia’s foreign trade passes. Under the agreement, Mongolia will secure a 50-year lease on the area, which will benefit from certain exemptions. In 2014 when Xi Jinping, the Chinese president, visited Ulaanbaatar various trans-shipment agreements were signed allowing Mongolian exports access to ports in the north and north-east of China.