Russia seeks to open its Arctic waters to world shipping

“The first project stage will see the development of a strategy to improve the NSR utilization efficiency while also exploring ways to unlock its transit transportation potential. The partners will particularly look into the options to launch liner shipping of containerized and other commodity cargoes via the Northern Sea Route. They will also assess the financing required to design and build additional ice-class vessels and icebreakers, and the port infrastructure. Another pivotal area is protecting the environment and ensuring the safety of maritime transportation on the NSR,” the Russian Direct Investment Fund said in a statement.

The group is due to report within six months. A further “next-stage” decision is due at that point.

Sultan Ahmed Bin Sulayem, CEO and Chairman of United Arab Emirates’ majority-owned DP World, released a statement. “Today I signed a joint venture… we are working together to develop transit cargo traffic through the Northern Sea Route. We aim to increase the volume of freight traffic through the NSR and Arctic zone of the Russian Federation. To do this, we’ll need to design and construct an additional ice-class fleet and icebreakers, as well as port infrastructure. We are also taking the environment incredibly seriously and are committed to protecting these maritime routes as freight traffic grows there. I’m excited about the possibilities that an NSR development will bring, not only to the Russian economy but to customers in Asia and Europe,” Bin Sulayem said.

Ocean shipping from Asia to Europe via the Northern Sea Route via Russia is a long-held dream. It’s now entering the realm of reality because of global warming caused in part by the widespread burning of fossil fuels. Arctic sea ice is reducing as the Earth warms.

Back in 2009, the Russian Northern Sea Route was already open for about four or five months a year during summer. Academics Verny and Grigentin** were estimating that the Russian Northern Sea Route would be open year-round. Well, it’s now 10 years later. One forecast by the Arctic Institute/Center for Circumpolar Studies sees the extent of Arctic sea-ice as being substantially reduced in 2030 so that much of the Arctic is ice-free.

The key rationale for the Russian Northern Sea Route is that the distance from Asia to Europe is much shorter if a ship sails over the top of the globe rather than going down to the Equator and through the Suez Canal.

For instance, sailing from Yokohama in Japan to Rotterdam in Europe is 13,700 kilometers (8,513 miles) via Russian waters. But it’s a 20,900 kilometers (12,987 miles) trip through the South China Sea, through the Malacca Strait, across the Indian Ocean, up the Red Sea, through the Suez Canal and through the Mediterranean before finally reaching Rotterdam.

Russia’s Northern Sea Route would potentially save both time and money on fuel.

Let’s do a quick illustration.

Presuming it is a lower-carbon world, it can be assumed a ship capable of carrying 10,000 plus twenty-foot equivalent unit (TEU) boxes will slow-steam at 20 knots an hour. That means it would likely consume about 175 metric tons of fuel a day*. A metric ton is 2,204.6 U.S. pounds. Because of IMO 2020, it is assumed the fuel is Marine Gas Oil. Ship & Bunker world bunker prices today reports Marine Gas Oil is priced at US$585 per ton at Hong Kong.

Asia to Europe by Russia is 7,397.4 nautical miles. Asia to Europe by Suez is 11,285.0 nautical miles. Historically, a nautical mile was based on a fraction of time of a degree of latitude (to take into account that the Earth is a sphere). A nautical mile today is 1,852 meters (6,076.12 U.S. feet).

Knowing all that, the hypothetical box ship would take 15 days to sail the Northern Sea Route and it would consume 2,697 metric tons of fuel. The cost of that fuel would be about US$1.58 million at today’s Hong Kong prices.

Conversely, going by Suez would take 24 days and would consume 4,114 metric tons of fuel that would cost just under $2.4 million.

So sailing via Russian waters shaves about one-third of the time and about one-third of the fuel costs per voyage. That is going to be attractive to ship operators. And that’s not all. Further savings would be made on a Northern Sea Route ship in terms of wages, Suez Canal fees and getting the boxship discharged, reloaded and on its way back to Asia before a southern-routed ship even arrives at destination.

That’s a somewhat simplistic analysis, because, of course, there would be many issues with sailing a Russian Northern Sea Route. The Sannikov Strait (a waterborne passage between continental eastern Russia and some of its nearby islands) is shallow. Presumably that will need dredging, which is never a cheap thing to do. Ships using the route will presumably need to be ice-class (stronger and heavier hulls, which will consume more fuel) and would need to be escorted by an icebreaker, which adds to the cost. However, the specially strengthened ice-breaking liquefied natural gas tanker Christophe de Margerie carried a cargo from Norway to South Korea in 2017 without being escorted by a separate icebreaker.

Russia would presumably want to charge transit fees too. And the crew would need to be Arctic-capable which would bump up the cost of wages. Insurance costs would vary from existing routes although the Russian route would likely be much more secure than the dangerous waters of the Sulu Sea (off Indonesia/Philippines), the Malacca Strait (off Singapore) and the sea-space around Somalia.

Another major issue right now is simply a lack of data, knowledge and experience about operating commercial ships in the Russian Arctic water. That leads to a lack of comfort and confidence among shipowners and a hesitancy to commit.

And there’s a really big problem if a large ship, particularly a containership, runs aground for any reason. As the salvage of the boxship Rena, which ran aground in New Zealand in 2012, showed, there can be considerable pollution by fuel oil. Containers were washed off the ship and turned up on the beach. Many containers broke open, spewing their contents over the local coast. Quite a few containers were containing materials, such as foodstuffs and other matter that can decompose. Decomposition fundamentally changes the material carried, which can result in pollution by toxic materials. Some materials also change their nature upon exposure to seawater or oxygen. It took about three years and it was very difficult to handle the salvage of the Rena, which was only a 3,351 TEU size box-ship.

Complexity, logistics, duration and expense of salvage and clean-up would all massively sky-rocket if a monster-sized 10,000 TEU plus vessel ran aground in a remote – and sub-zero – area. For instance, just to illustrate some of the issues, there would be little or no existing medical care in a salvage area. Owing to the vast distances involved, salvors would not only have to take doctors and nurses to the salvage site, they would likely have to build a small medical center capable of stabilizing a severely injured worker for medivac to whatever would be the nearest facility. And they could be there for years.

Opening up of a Russian Northern Sea Route would have massive implications for world trade. Academics Francois and Rojas-Romagosa*** did some analysis. They forecast that if the new route were to open, there would be an average trade cost reduction of about 5 percent of the cost of goods sold. Just under 14 percent of China’s trade would shift to using the Russian Northern Sea Route, academics say. Using the Russian Northern Sea Route for voyages to Europe originating in Japan, South Korea and the big-volume northern Chinese box ports, such as Shanghai, Qingdao, Tianjin and Dalian could look especially attractive.

Francois and Rojas-Romagosa add that the Suez Canal would lose about two-thirds of the world trade that it currently attracts. According to the Suez Canal Authority, in 2018, there were 18,174 crossings by ships of all kinds. So a successful Russian Northern Sea Route could therefore have some profoundly adverse impacts for Egypt.

Meanwhile, there would be a “huge increase” in bilateral trade between Northeast Asia and Northwest Europe “at the expense of less trade with other regions,” Francois and Rojas-Romagosa argue. They add that intra-European trade, particularly north-south trade, would stumble.\

*Note: see diagram “Fuel Consumption by Containership Size and Speed” adapted from Notteboom, T. and P. Carriou (2009) “Fuel surcharge practices of container shipping lines: Is it about cost recovery or revenue making?” at Transport Geography.

**Verny, J. and Grigentin, C. (2009). “Container shipping on the Northern Sea Route”, International Journal of Production Economics 122: 107–117.

*** Francois, J and Rojas-Romagosa, “Melting Ice Caps and the Economic Impact of Opening the Northern Sea Route,” 18 December 2013, paper presented at the International Input-Output Association Conference.