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Arctic Shipping; a future rival for the Suez Canal?

The melting of the Polar ice caps has opened the potential for a new shipping route which could cut thousands of kilometres between Asia and Europe, offering long-term hope for the shipping industry.

The North Sea Route, a Russian regulated shipping lane between Murmansk in the Barents Sea and the Bering Strait, has seen over 213 applications to date in 2013, with 204 approved. Compared to 2012, where only 46 ships sailed, and two the previous year.

Historically, the route was always limited by frozen waters. As climate change persists, the ice is becoming less of an obstacle. It will still take decades before it represents a commercially viable alternative to the Suez Canal, but the opportunity is present nonetheless. The South Korean Maritime Institute estimates that the route could account for a quarter of European Asian trade by 2030. Russian oil and liquefied natural gas interests would also be well served by the addition of a new shipping route.

An open Northern Sea shipping line would permit a ship to travel from Rotterdam, Netherlands to Kobe, Japan or Busan, South Korea in 23 days, compared to 33 days using the Suez Canal. Starting in Murmansk, it would take 18 days, compared to 37 with Suez. Both European and Asian nations are considering the potential gains, with Iceland mulling on the construction of Arctic port in Finna Fjord with Bremenports.

The shipping industry has suffered since the economic slowdown, with excess capacity, falling prices, and decelerating demand. Many shipping liners have been coerced into forming alliances to help improve their economies of scale to compensate for this, such as the G6 alliance, or CMA CGM allying with the Mediterranean Shipping Company. It has even forced some customers into vertical integration; Brazilian commodity company Vale now possesses its own fleet of Valemax ships, large enough to deliver returns on its iron ore shipping to China.

Shipping companies have been forced to do the same, with the top three players purchasing ever larger units, such as the Triple E-Class for Maersk. When the Northern Sea Route becomes economically viable, it will help European operators to keep costs down due to the shorter length of their journeys.

The prospect of a new route has caused the International Maritime Organisation to adopt a mandatory code for Arctic Shipping by 2015, with implementation by 2016. There is currently an absence of a regulatory framework regarding safety. Some of Europe’s largest ship-owners have voiced concerns about the vacuum of a framework.

Another consideration is the Suez Canal’s future. Currently one of Egypt’s largest sources of foreign currency, a competitor with a shorter route would spell further trouble for the Egyptian economy in the long run. Fees were raised recently for its usage, as the Egyptian Pound faced a crisis. It is unclear whether Egyptian economic and political turmoil will not be addressed in the short term; however this presents further problems for the country.

This could represent a clear opportunity for the shipping industry to help deal with its chronic capacity problems, and attract demand due to lower distance costs. The other potential consequences of climate change could be more deleterious.

Find this interesting? You may also like our Europe Marine Freight Industry Profile and Asia Pacific Marine Freight Industry Profile.




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