Is the Arctic Shipping Route Closer to Being a Viable Alternative?

By: Benjamin Glick

is-the-arctic-shipping-route-closer-to-being-a-viable-alternativeIn May 2016, state political leaders in Alaska considered plans for expanding port facilities in the city of Nome, on the state’s western coast.

Ships seldom make the voyage to the community of 3,800 residents less than 200 miles from the Arctic Circle, but city and state leaders have reasons to be interested.

In January 2015, the Army Corps of Engineers released a study of deep draft capability for Nome and the surrounding area to accommodate large ships.

The study outlined plans for extending the city’s piers and breakwaters and dredging its channel entrance.

“The Arctic is changing,” the Army Corps of Engineers report said. “Diminishing sea ice and expanded natural resource extraction are happening now. From drilling in the Chukchi Sea, dredging for gold in Nome, to ore and gas concentrate tankers going over the top to/from Europe, Alaska is experiencing more and more traffic past its shores.”

As climate change continues to lengthen the Arctic melt season, waterways are opening new shipping routes not possible before.

This is especially good news for shippers on opposite ends of the Eurasian continent. Flagging in the wake of declining global trade since the 2008 global recession, the shipping industry may find the reduced risk, time and travel costs associated with Arctic to be attractive.

A ship sailing from Shanghai, China to Hamburg, Germany – a common route for goods traveling between Europe and Asia – takes around 35-40 days to complete. The proposed Arctic route cuts this down by two weeks.

To complete the journey, ships would have to pass through the Bering Strait, not far from Nome.

In addition, shippers in China have been trying to find a faster route to ports in the Eastern U.S., and this search for alternate routes has prompted states like Maine to begin assessing their port capabilities.

What Does this Mean for Current Cargo Routes?

nomeDespite opportunity northerly cities like Nome face, fewer than 20 ships went through the Artic passages in 2015. By contrast, nearly 14,000 ships went through the Panama Canal and 18,000 through the Suez Canal.

To see an impact, however, only a few ships need to divert from the Panama-Suez trade corridors to “change the face” of global trade, as Business Insider put it.

An average Panamax vessel carrying a standard cargo of 4,500 standardized twenty-foot equivalent units (TEUs) can expect to pay around $450,000 in fees to pass through the Panama Canal. To pass through Suez, it can cost the same ship around $235,000.

Considering how many ships go through both canals, fees costs shippers an estimated $10.5 billion per year for canal passage alone. Shifting a small number of ships to the Arctic passages would potentially result in millions of dollars in savings not only for logistic firms, but for companies that rely on importing and exporting goods on these vessels

Taking possible insurance increases into account, the offset cost of avoiding canal fees may still be enough to tip the balance in favor of shippers looking to blaze Arctic paths – so long as climate trends allow waterways to remain navigable.

International Trade Impacts of an Arctic Waterway

The potential of expanded Arctic trade expeditions has drawn the interest of many countries with a large stake in international trade. None more perhaps than Russia.

A vessel from China bound for Europe – China’s largest export market – must pass through roughly 3,500 miles of Russian coastline if it takes the route.

Since 2011, Russian president Vladimir Putin has made a point of reasserting his country’s claims over Arctic territory.

Although ships traveling the Arctic Passages must go through U.S., Canadian, and Russian territorial waters and may be charged to use port facilities, foreign ships cannot be charged to pass through the territory of another country.

Dovetailing with its concurrent attempts to develop the Arctic’s energy resources, opening up trade along Russia’s northern coasts would be an even larger gain to the country’s Artic ambitions.

Putin is committed to “resurrecting” the historic Northeast Passage which disintegrated after the collapse of the Soviet Union, but it will take more than warming seas to overcome some obstacles before the route becomes viable.

A member of Russia’s lower parliament hopes to transport 10 times more cargo through the route over the next 20 to 25 years.

In addition to the sobering timescales make the possibilities of an Arctic trade route seem unworkable in the short term, and the sudden drop in oil prices has also highlighted the route’s impracticality because the overall savings are not enough to warrant a switch to the Arctic, which is more dangerous by comparison.

In an interview for the British newspaper Financial Times Vladimir Korchanov, a vice-president of Fesco, a Russian shipping company said despite marginal savings, it still wouldn’t draw the kind of volume seen in other well-travelled trade corridors.

“They will calculate everything,” he said. “And just a 10 percent saving won’t drive them to switch from the Malacca Straits to the Northern Sea Route.”

The Malacca Straits are one of the most important shipping lanes in the world, virtually linking commerce East to West.

Shippers themselves have also criticized the route, citing an overreliance on Russian icebreakers, weather data, and supply and maintenance.

With renewed sanctions and rising tensions between Russia and the U.S. – two countries essential to make the route work – resurrection of the Northeast Passage is becoming even less realistic.

Government Initiatives May Overtake Private Enterprise

However, despite the prior mentioned obstacles, this has not stopped the Russian government from injecting billions of foreign investment dollars into developing it’s far-north energy resources and shipping infrastructure.

In 2013 China National Petroleum Corporation – a Chinese state-owned energy company – bought a 20 percent stake in OAO Novatek’s – a private Russian natural gas producer – $20 billion Yamal natural gas project following the signage of an Arctic cooperative deal between the two countries.

Developing shipping infrastructure in the Artic would be one way to ensure the steady flow of oil and natural gas from Russia to its neighbors.

Currently, China spends around $15 million on annual expeditions to the Antarctic and Arctic, and in 2012 the Chinese government spent $60 million to refurbish polar facilities, and $300 million for an ice breaker, and ice-capable planes.

A well-developed shipping infrastructure in the Arctic may make it more attractive.

Additionally, there has long been demand from Chinese exporters to more efficiently ship goods to the Eastern United States and the promise of increased commercial activity via the Arctic is prompting not only the Chinese government, but other nations, to investigate plans to take advantage of future trade opportunities.

Curiously, the U.S. Army Corps of Engineers, whose interest in the region was dormant for almost 50 years, released its report calling for renewed investment in American port facilities in the Arctic not long after Moscow and Beijing began showing interest.

It’s possible that if incentive from private enterprise doesn’t develop the Arctic route into a viable shipping lane, there’s a good chance government fiat from Russia and China will, and the Arctic may become the ground for a commercial arms race between the world’s major powers.

Whichever way political winds spread the fallout of Artic development, the Northeast Passage likely won’t replace any of the world’s current major trade arteries, but it will add a vital link between Europe and the Eastern United States to East Asia and open a new bypass for the world’s water highways.



About the Contributor 

Benjamin Glick is a student assistant at the Van Andel Global Trade Center. He has written for the Grand Valley State University student newspaper, The Lanthorn, and is double-majoring in English literature and journalism.

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