Melting Ice Caps and New Shipping Lanes
While the disappearing Arctic ice cap is a foreboding global issue, it also has the potential to boost the shipping industry by redrawing global shipping routes. The melting Arctic has created new shipping lanes in previously unnavigable routes between Northwest Europe and countries such as China, Japan and South Korea.
According to a report by the Council on Foreign Relations (CFR), the retreating ice caps are opening lanes that could complement conventional routes used during the summer. The Northern Sea Route (NSR) is clear during the summer but the CFR expects that it will be available year-round by 2030.
The NSR became ice-free in 2007 and is gaining traction as an alternative route. The number of vessels using the NSR has steadily increased in the last five years. In 2010, only four cargo ships used the route. That number jumped to 53 last year.
The NSR reduces transit time from Japan to north European countries by 37 percent, from South Korea by 31 percent, China 23 percent and Taiwan 17 percent.
The “Suez of the North”?
Egypt expects its newly-expanded Suez Canal to allow 34,000 vessels to transit each year, but that lofty number may not be achieved if Russia has its way. Russia is investing nearly $5 billion into Arctic infrastructure to make the NSR the “Suez of the North.”
In April, Moscow formed the Russian Arctic Commission to develop its economic interests in the area. The main objective of the commission is the harmonization of government activities and the establishment of regional authorities.
Russia is also building ten relief ports along the Siberian coastline for ships that need repair, and China recently signed a free trade agreement (FTA) with Iceland in anticipation of using the NSR.
Of course, if Russia is successful in making the NSR the new Suez, this could lead to a drop in shipping volume through the original Suez. Prior to its expansion, the Suez Canal handled about eight percent of world trade. The CFR report states that the volume could fall by about two-thirds if Russia is able to successfully utilize the NSR.
But there are still a few hurdles to cross before the NSR becomes the Suez of the North. Weather is the primary hurdle because the environment is harsh even in the summer. And because of the unpredictability of weather and ice, ships often require icebreaker escorts. Ships are also required to take out additional insurance policies when using the NSR. These costs often offset the NSR’s potential fuel savings. Furthermore, Russia’s control over most of the NSR troubles some shipping executives, who believe Moscow will abruptly raise prices.