Northeast Passage to revolutionize global shipping

Source: DVIDSHUB's flickr photostream, courtesy photo.

Developing the Northeast Passage could revitalize Arctic regions, allow the shipping industry to bypass politically unstable areas and reduce travel costs and carbon emissions. But the project is dependent on huge investments, better regulations and political will.

It was a historical moment when, in 2010, the bulk carrier “MV Nordic Barents” carried iron ore from a mine in Kirkenes, a remote Norwegian city at the Russian border, to Lianyungang, China. The trip marked the first commercial voyage of a non-Russian vessel through the mythical Northeast Passage. The voyage took 21 days compared to 37 through the Suez Canal, saving the company an estimated $300,000, one-way. The trip followed Russia’s northern coastline across the cold and hazardous Arctic Ocean to the Bering Strait, and was previously inaccessible to all but a few daring vessels that made the trip during the short summer months.

Due to global warming, however, the sea ice is rapidly disappearing, making passage both practically possible and commercially viable. The passage has the potential to become the Suez of our century by reducing intercontinental shipping by several weeks. But it also faces unique political, environmental and safety concerns.

Human activity made passage possible

Like the colossal efforts to carve out the Panama Canal and the Suez Canal more than a century ago, the opening of the Northeast Passage is also – arguably – due to human activity. The polar ice sheet is disappearing at an alarming rate because of higher global temperatures. The average size of the ice cap in September – the time where the ice is at its smallest – is getting thinner year after year. Scientists at the Arctic Monitoring and Assessment Program, a Norwegian group researching climate change in the Arctic, estimates that the Arctic Ocean will be entirely ice-free during the summer within 30 to 40 years.

The effects of global warming are seen quickest north of the Arctic Circle. The environmental consequences of a warmer climate are predicted to be catastrophic: killing off large parts of the polar bear population; disrupting migration routes and spawning grounds for fish species; and further accelerating global warming by releasing frozen ground reserves of methane gas.

While local communities and animals face an uncertain future, dwindling sea ice and warmer weather means new opportunities for the petroleum industry – easing exploration in the harsh region – and for global freight companies.

Revolutionizing sea trade

The Northeast Passage voyage cuts a journey between Rotterdam and Yokohoma, among the world’s busiest ports, with 4450 miles in 13 days. Travelling from Vancouver to Rotterdam through the Arctic rather than through Panama saves 2242 miles.

Shipping companies have been quick to capitalize on this shortcut. In 2010, only 4 commercial ships sailed through the Northeast Passage. This number increased to 46 in 2012 and 71 in 2013 (for comparison, 18,000 vessels go through Suez every year). With more than 90 percent of trade carried by sea, China is starting to realize this potential.

If, by 2020, 10 percent of its export is transported through the Northeast, it will be worth an estimated $700 billion, bringing immense values through a region that previously held minimal economic interest.

Replacing pirates with icebergs

Travelling through the Arctic does not only save time and fuel costs and cut carbon emissions for global shipping, it also bypasses politically troubled areas. While piracy activity in the Gulf of Aden has declined sharply as a result of military efforts, it is still a real threat for ships going through Suez, as well as in the Strait of Malacca. Political instability in Yemen and on the Sinai Peninsula has also raised concern for terrorist attacks, with a report last year warning of the risk of an “imminent attack” on British ships by an Al-Qaida affiliated group in Aden.

While lacking pirates and terrorists, the Northeast Passage suffers from a unique combination of harsh climate, remote location and bureaucratic obstacles. Even during the summer the ships risk hitting icebergs and therefore often require expensive escort from Rosatomflot, Russia’s fleet of nuclear-powered icebreakers.

Local skippers are necessary for traversing the eastern parts of the passage, which is notorious for its unpredictable ice and fog. The remoteness of the journey complicates any rescue operations, and the Arctic environment is far more vulnerable to oil leaks than warmer regions, as toxic substances break down very slowly in cold climate.

An Arctic highway is Putin’s dream

The Arctic has an enormous geopolitical importance for Russia, and developing the Northeast Passage is a key priority for President Putin. Russia recently created the Northern Sea Route Administration (NSRA) to develop infrastructure and ease the process of issuing permits for trips. They have announced a plan to invest billions of rubles in new port facilities, increased satellite coverage, better rescue services and upgrading its aging fleet of icebreakers, all of which are desperately needed after decades of decline in the post-Soviet era.

Russia holds the key to the future of the passage and has the strategic interest, political will and resources necessary for its development. Others worry about Kremlin’s control, fearing obstacles either from slow Russian bureaucracy or from political authorities that previously used economic interest as strategic weapons, as in the case of the Ukrainian gas crisis.

The importance of the North

Global Risk Insights has previously explored the growing strategic and economic interest in the Arctic regions as the effects of global warming become more noticeable. The Northeast Passage – as well as its Canadian counterpart, the Northwest Passage – is likely to develop into a major alternative to both Suez and Panama, but this will take decades.

Meanwhile, authorities in Alaska, Norway and Russia are hoping to transform remote port cities into logistical hubs. Developing infrastructure in the Arctic would also have the added benefit of easing explorations and extractions of petroleum fields in the Arctic Ocean and the Barents Sea, which is today seriously hampered by the remoteness of the region.

We have, however, yet to see how political control of the new sea lanes will be managed – and what issues will arise when, not if, sea trade increases in the Arctic.

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Categories: Economics, International

Author:Havard Bergo

Håvard Bergo has lived and worked in the US, Europe and Asia, and has worked as an intern for the United Nations Office on Drugs and Crime in Bangkok and as a freelance journalist for Norwegian publications. Håvard holds an MSc in International Relations from the London School of Economics and a BA from NTNU in Norway. He has focused on studying East and Southeast Asia, and his interest in understanding regional affairs has resulted in extensive trips throughout the regions. His key passion and expertise is however in Myanmar. Having traveled there on multiple occasions, Håvard wrote his MSc dissertation on the political and economic liberalizations and is constantly staying up-to-date on developments in the country.

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