Arctic shipping? Still a dream

ADAM MINTER Today Online 12 Sep 16;

For centuries, a harsh climate and ice-choked seas dashed the dreams of sailors attempting to cross the Canadian Northwest Passage between Asia and Europe. Now, thanks to climate change and reduced ice cover, the trip is not nearly so daunting. This month, the Crystal Serenity, a luxury cruise ship, carried a record thousand-plus passengers and crew through the passage. Next year, it will do the same.

Does this mean that the age-old vision of a time-saving, money-making Arctic passage for the world’s shippers is finally coming true? Do not bet on it.

In theory, it is a terrific idea. Travelling from Shanghai to Rotterdam via the Northwest Passage is about 3,540km shorter than going through the Panama Canal. In 2013, the Nordic Orion became the first bulk cargo carrier to traverse the passage. Bound for Finland from Vancouver, it shaved more than 1,600km — and US$200,000 (S$271,800) — off a more typical route.

Not long after, officials at China’s Polar Research Institute predicted that 5 per cent to 15 per cent of China’s international trade would use the Northeast Passage, which skirts the Russian Arctic, by 2020.

And yet, only 13 ships went through the Northwest Passage last year, and 18 through the Northeast Passage. By contrast, 13,874 ships went through the Panama Canal and 17,834 went through the Suez. That is because traversing the Arctic, even as the climate warms, still makes very little sense for shipping companies.

The first problem is a familiar one: Ice. The Arctic is warming, but it remains ice-covered most of the year. A route that cannot be accessed for months at a time is not attractive to large-scale shippers dependent on timing and reliability.

Things do not get much easier in the summer, either: Although the ice is receding, there is considerable variability in where and how it does so, rendering polar passages difficult and dangerous, no matter what the season. Worse, parts of the passage are unusually shallow, and thus can only accommodate lighter cargo.

Ice and shallow waters are more than just navigation hazards. They are also insurance risks that can take a big bite out of the potential cost savings of an Arctic voyage. The short history of shipping in the region makes risk assessment difficult, while fear of being associated with a high-profile accident makes insurers skittish.

As a result, according to one study, shippers could expect to pay an Arctic insurance premium of 50 per cent to 100 per cent, in addition to their standard policies. That path-breaking Nordic Orion voyage was almost scuttled by a lack of coverage.

Perhaps the biggest problem is that the business case for Arctic shipping is weak. Major international shippers create routes with lots of intermediate stops, so a container vessel travelling from Los Angeles to Hong Kong might visit 10 ports along the way, picking up and dropping off cargo throughout Asia.

Needless to say, the Arctic is not bustling with the markets and ports needed to sustain this kind of business.

As sea ice recedes further in the years ahead, the Arctic may well become more commercially significant. It contains major oil and mineral deposits, and if extraction started in earnest, Arctic shipping would become an important factor in conveying raw material around the world.

That might not be for a while, though: Over the past two years, companies relinquished billions of dollars in drilling rights in the United States Arctic as oil prices fell. Barring a new commodities boom, it will be many years before drilling under the icy seas makes sense again. For now, at least, the Northwest Passage remains frozen to everyone but the tourists. BLOOMBERG


Adam Minter is an American writer based in Asia, where he covers politics, culture and business. He is the author of Junkyard Planet: Travels in the Billion-Dollar Trash Trade.