Arctic shipping is a risky business, and governance can make it profitable

– Sven Boren

The northeast and northwest passages in the Arctic are subject to harsh weather conditions. The International Maritime Organisation (IMO) has designed a code for shipping operations in polar waters (International Maritime Organization, 2015), which stipulates that ships have to be designed for harsh weather conditions and manage to operate despite ice conditions on the water and on deck/rig/superstructure. Another example of further demands by this code is that external communication abilities have to be improved, as ordinary satellites are not so precise in polar waters and Internet communication becomes slower. This in combination with frequent foggy conditions and icebergs sudden appearance makes the navigation in polar waters a risky business.

map sven

Map of the Arctic region showing shipping routes Northeast Passage, Northern Sea Route, and Northwest passage; and bathymetry 

Map Source:   http://www.arctic.noaa.gov/detect/documents/AMSA_2009_Report_2nd_print.pdf

Screenshot 2016-06-09 10.44.57.png

Summary of scenario simulations when comparing shipping costs from Rotterdam to Shanghai/Yokohama via Arctic routes or the Suez canal. Date from Lasserre, 2015.

Simulations by Lasserre (2015) compares costs for shipping to/from Europe to Asia through the Arctic via Northeast (NEP) or Northwest (NWP) passage, or via the Suez canal. These simulations accounts for a significant increase in costs on the Arctic routes regarding insurance, H&M, P&I, and transit fees, but the fuel cost is lowered because of lower speed. The simulations conclude that shipping via the NWP route during summer (May 1st to November 1st) is compared to the Suez route profitable from Rotterdam to Yokohama but not to Shanghai. The NEP transit fee can though is some cases be discounted by Russian authorities for competitiveness reasons, which is shown in parentheses in the table below, and would then make the NEP route competitive when shipping cargo from Rotterdam to Yokohama. If shipping from Rotterdam, the arctic routing compared to the Suez canal route seems to have a ‘break even point’ somewhere between Shanghai and Yokohama.

The simulations by Lasserre (2015) show that the Arctic routes are more fuel cost efficient per km, but not competitive when comparing total cost per km. The simulation for shipping in polar waters does not include the cost for environmental damages or

‘cleaning up’ if a shipping disaster happens. Governance in terms of transit fees plays a great role when making shipping through the Arctic profitable, especially the NEP route.

References:

International Maritime Organization, 2015. International code for ships operating in

polar waters (Polar code) (No. MEPC 68/21/add.1 Annex 10). IMO.

Lasserre, F., 2015. Simulations of shipping along Arctic routes: comparison, analysis and economic perspectives. Polar Record 51, 239–259. doi:10.1017/S0032247413000958

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