Laying the Landscape for Shipping in the Arctic – Geopolitics, Economics and Sustainability of the Northern Sea Route (NSR)
Team Leader: Hannah Baltrop
Primary Contributor: Jessica Ho
Global warming is changing the structure of transportation networks, especially in areas surrounding the North Pole. Since the 1990s, countries have been slowly building technology allowing them to take advantage of the melting ice which creates new trade routes, acting as alternatives to the Suez or Panama Canal.[i] The Northern Sea Route (NSR), surrounding the Russian border, is the most viable Arctic shipping route, and is the topic of territorial debate and economic feasibility. It is ice-free between July and October and is seen as an economic opportunity to decrease shipping costs and transit times as it is, on average, 3,000 nautical miles, or 11 days shorter than the Suez Canal.[ii]
Geopolitics and Sovereignty
While several countries have claimed territory in the Arctic, including China, the United States, and the European Union, Russia and Canada have the most legitimate claim to any shipping routes. The NSR is currently controlled by Russia through the United Nations (UN) Law of the Sea, Article 234 that provides for a state to take ‘specific environmental protection measures’ regarding seas that are covered by ice for most of the year.[iii] For the last decade, Russia has implemented a mandatory piloting scheme that charges companies for the use of the NSR, including a transport and navigational ship that leads the client from one port to the other, as well as ice-breaking ships to ensure that the path is ice-free.
Before shipping companies invest in the infrastructure necessary to conduct business in the Arctic, they must anticipate the geopolitical risks associated with the opening of a new shipping route. Corporations must recognize that new enterprises will have high levels of uncertainty and can lead to unforeseen economic and political losses. Cautiousness should be maintained by diversifying their suppliers and ensuring that their chosen shipping routes are not concentrated in the Arctic.
Economic Situation
With advantages of shorter transit times, corporations are analyzing the feasibility of this route. However, the profitability of the NSR is questionable given the extensive investment needed and high costs associated with using current routes. These include the use of speciality fuel, Russian tariffs, and higher insurance premiums and labour wages due to the danger the route poses. Furthermore, the lack of ports in the Arctic means that ships will only be able to operate at a 50% load factor.
Before investing in the NSR, companies must determine whether the benefits outweigh the costs identified. They must identify the Arctic’s profitability based on average transit speed, number of rotations on the load factor, and the importance of securing a large enough market for a direct transit route to make a profit.[iv]
Environmental Factors
If the NSR were to witness a higher volume of traffic, it increases the likelihood of a substantial oil spill that would ruin the Arctic’s ecosystem – cold weather prevents oil from being efficiently and effectively removed.[v] As the Arctic melts, mining companies will find it attractive to drill into the ice to search for natural resources leading to further environmental degradation.[vi] Large shipping containers ruin habitats for endangered species such as the polar bear, arctic fox, and the beluga whale.[vii] By destroying their habitats, shipping companies will be expediting their extinction. ‘Black carbon’ – a type of pollution emitted from shipping boats will accelerate the ice-melt in the Arctic because of its ability to absorb heat rather than reflect it.[viii] This has global repercussions including rising sea levels, climbing global temperatures, and more extreme weather.
[i] William Booth and Amie Ferris-Rotman, “Russia’s Suez Canal? Ships start plying a less-icy Arctic, thanks to climate change,” Accessed 4 November 2018. https://www.washingtonpost.com/world/europe/russias-suez-canal-ships-start-plying-an-ice-free-arctic-thanks-to-climate-change/2018/09/08/59d50986-ac5a-11e8-9a7d-cd30504ff902_story.html?utm_term=.e531226145bf.
[ii] Ibid.
[iii] Emmanuel Guy & Frederic Lassere, “Commercial shipping in the Arctic: new perspectives, challenges and regulations,” Cambridge University Press: Polar Record, Volume 52, Issue 3, (January 2016), pp. 295.
[iv] Ibid. 258.
[v] Selby-Green, Michael. “The world’s largest shipping company is trialing the Arctic route – and it is a worrying sign for the future of the planet.” Business Insider. 23 August 2018.
https://www.businessinsider.com/maersk-launches-arctic-shipping-route-in-a-worrying-environmental-sign-2018-8
[vi] Emmanuel Guy & Frederic Lassere, “Commercial shipping in the Arctic,” pp. 296.
[vii] Unique Nature Habitats. “Top 10 Endangered Animals in the Arctic Tundra Region.” UN Habitat. 20 November 2017. Accessed 4 November 2018. http://www.un-habitat.org/endangered-animals-arctic-region/.
[viii] Booth, William., and Ferris-Rotman, Amie. “Russia’s Suez Canal?” The Washington Post. 8 September 2018. https://www.washingtonpost.com/world/europe/russias-suez-canal-ships-start-plying-an-ice-free-arctic-thanks-to-climate-change/2018/09/08/59d50986-ac5a-11e8-9a7d-cd30504ff902_story.html?utm_term=.e531226145bf.
