by Malte Humpert Part 3 of the series on the future of the Northern Sea Route (NSR) took a closer look at climate change in the Arctic and its impact on the future of the shipping in the High North. Part 4 will analyze the potential for cost savings along the NSR and discusses how credible these claims are.
Reliable figures about actual cost savings along the NSR are limited since less than two dozen commercial vessels traversed the NSR since 2010. Cost savings along the NSR are closely linked to savings in fuel costs. Shipping operators can achieve fuel cost savings in two ways:
A vessel traveling from Murmansk to Yokohama via the NSR will, on average, arrive at its destination seven days earlier than the same vessel sailing through the Suez Canal. Due to the shorter sailing distance the shipping operator realizes fuel cost savings. The operator also derives savings from the reduced number of days at sea which allows the the ship to make more return trips within a given time period resulting in increased revenue and potentially greater profits.
Instead of realizing time savings, operators can also adopt super-slow sailing which more than doubles fuel efficiency. Due to the shorter length of NSR, a ship going from Murmansk to Yokohama can reduce its speed by 40 percent and still arrive in Japan at the same time as a ship sailing at full speed traveling through the Suez Canal. Especially for bulk shipping operators transporting low-value raw materials, such as ore, the primary incentive to travel along the NSR may not be the reduced lead time, but fuel cost savings.
According to Christian Bonfils, CEO of Nordic Bulk Carriers, the operator of the MV Nordic Barents which in 2010 sailed along the NSR from Norway to China, fuel savings were in the range of $550,000 when compared to a journey around the Cape of Good Hope.[1] He further explained that the costs for ice-breaker services amounted to $210,000 which he stated were comparable to transit fees for the Suez Canal. Sovcomflot's Deputy General Director Igor Pankov, in contrast, acknowledges that fees for the Suez Canal are less than ice-breaker assistance fees, but states that “when time and fuel savings are taken into account the picture changes." In addition he expects transit and ice-breaker fees to come down once more ships start sailing the NSR.
Thus far only small and specialized operators have achieved cost savings along the NSR. How likely is it that these cost savings will materialize for a greater range of operators in the future?
Cost savings are closely linked to the origin-destination pair. While a trip from Murmansk to Yokohama is significantly shorter (by 7 days) along the NSR, a trip to Shanghai is not (2 days).[2] For some routes, e.g. from Rotterdam to Singapore or Hong Kong, it is actually shorter to sail through the Suez Canal.
View Shipping Routes in a larger map
As mentioned in Part 2, the world’s major container lines call on a number of ports and optimize their routes along ports that offer developed communication lines into the hinterlands, e.g. river transport and railroads, to distribute goods to customers and consumers. Since the NSR passes through mostly uninhabited territory no such stopovers are possible, strongly reducing the route’s attractiveness for regular liner service operators. In addition, more than 50 percent of trade between Europe and Far East passes through the port of Singapore, for which the NSR does not offer any time or distance savings.[2] Hence, only goods that are shipped from point to point, e.g. crude oil, natural gas, and ore, and along certain routes pairs will benefit from shorter distances.
In addition, the costs of using the NSR are frequently understated or ignored. Besides the frequently cited costs for ice-breaker escorts shipping companies also incur significant indirect costs. In order to sail the NSR operators have to file for a permit with the Administration of the NSR four months in advance. Few operators are able or willing to plan that far in advance and deal with the bureaucracy of obtaining a permit. In comparison, the process of sailing through the Suez Canal only requires a 48-hour advance notice.
Vessels are only allowed to sail along the NSR after they have been inspected for ice worthiness by either the Murmansk Shipping Company or the Far Eastern Shipping Company. The operator bears the logistical costs associated with that inspection. Furthermore, during the inspection and during the actual transit of the NSR, operators often need to hire interpreters as pilots and ice-breaker crews seldom speak English.[2]
Shipping operators also face significantly higher insurance premiums when sailing through the hostile Arctic environment. Navigating the NSR requires significant experience due to a dearth of accurate charts and the unavailability of the standard global positioning system (GPS) in high latitudes. In its place, a system called GLONASS, which is not compatible with some ships, is used along the NSR.
In sum these costs severely restrict the profit that can be materialized along the NSR. A recent study has shown that a 50 percent reduction in ice-breaker fees would be required to make liner service between Rotterdam and Yokohama profitable. Hence, profitability will for the foreseeable future be limited to a small number of specialized bulk carriers traveling along certain point to point routes.
Part 5 on China's Future as a Arctic Maritime Nation and its influence on the development of the NSR will be published on Monday, October 3rd.
Source:
[1] Honor Mahony, “Arctic shipping routes unlikely to be 'Suez of the north'” July 6, 2011, http://euobserver.com/882/32483
[2] Joshua No, "Northern Sea Route may not be as viable as Russia claims" August 24, 2011, http://www.nationmultimedia.com/2011/08/24/opinion/Northern-Sea-route-may-not-be-as-viable-as-Russia--30163470.html
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