CPB

Commercial Navigation
Along the Northern
Sea Route
Prospects and Impacts
Discussion Paper

178
Karel van Hussen
Twan de Korte
Rick Janse
Onno de Jong
Marten van den Bossche
Ecorys Netherlands B.V.
Rotterdam

Roundtable

Corporate Partnership
Board

Discussion Paper

178
Karel van Hussen
Twan de Korte
Rick Janse
Onno de Jong
Marten van den Bossche
Ecorys Netherlands B.V.
Rotterdam

Roundtable

Commercial Navigation
Along the Northern
Sea Route
Prospects and Impacts

The International Transport ForumThe International Transport Forum is an intergovernmental organisation with 62 member countries. It acts
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Cite this work as: van Hussen, K. et al. (2020), “Commercial Navigation Along the Northern Sea Route:
Prospects and Impacts”, International Transport Forum Discussion Papers, No. 2020/19, OECD Publishing,Paris.

COMMERCIAL NAVIGATION ALONG THE NORTHERN SEA ROUTE: PROSPECTS AND IMPACTS | DISCUSSION PAPER | ITF ROUNDTABLE 178

Table of contents
Introduction......................................................................................................................................... 4Context for Northern Sea Route utilisation .......................................................................................... 5
Regulatory context .......................................................................................................................... 7

The case for the Northern Sea Route ................................................................................................... 8
Modelling approach and assumptions ........................................................................................... 11
Modelling results ........................................................................................................................... 12
Reflection on the business case for Arctic shipping ....................................................................... 13
Historical traffic on the Northern Sea Route ................................................................................. 15
Main commodities transported over the Northern Sea Route ...................................................... 15
Impacts of using the Northern Sea Route .......................................................................................... 17
Suez Canal...................................................................................................................................... 17
Taking the train: Belt and Road Initiative ....................................................................................... 17
Comparing the Northern Sea Route with alternative routes ......................................................... 17
Environmental and climatic impacts .............................................................................................. 18
Regional development consequences ........................................................................................... 19
Conclusions........................................................................................................................................ 19
Notes ................................................................................................................................................. 22
References ......................................................................................................................................... 23© OECD/ITF 2020

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Introduction
With global warming and sea ice decline, new shipping routes along the Arctic could become available. An
increasing body of literature discusses opportunities for commercial shipping along the Northern Sea
Route (NSR), a shipping route along the Arctic that significantly reduces travel distance between Northwest
Europe and East Asia. This paper discusses both the prospects and potential impacts of commercial
navigation along these routes.
This paper starts with a description of the context for the use of the NSR, briefly describing sea-ice decline,
global trade flows and the geopolitical and regulatory context. It subsequently provides a detailed
description of the use case of the NSR, outlining physical characteristics, including sea ice andbathymetries, the challenges for commercial utilisation and finally, existing approaches and results ofquantitative ex-ante research into commercial NSR use.
As a reflection on these findings (that apply a rough differentiation of types of ships), this paper further
elaborates potentially relevant markets and commodities for which the NSR could be an alternative. It
identifies potential impacts of NSR utilisation on global trade flows, the Arctic environment and climatechange and regional economic development. Finally, it presents conclusions on the role that the NSR could
play in the future.

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Context for Northern Sea Route utilisation
Global warming has different effects on different components of the earth’s system. Important long-termchanges for the maritime sector are occurring in the Arctic. The upcoming IPCC report on “climate change
and oceans and the cryosphere” identifies a number of drastic changes in the Polar Regions due to global
warming. Of these transformations, changing sea ice is the most relevant for maritime transport as it could
reshape accessibility to the Arctic routes (IPCC, forthcoming).1 Although the earth as a whole is slowly
warming, the air temperatures in the Arctic continue to warm at almost twice the rate in comparison to
the world average (Osborne, Richter-Menge and Jeffries, 2018). The effects of these temperature
increases on the polar ice caps are already noticeable on Arctic sea ice conditions.
The Arctic Ocean and its sea ice are a dynamic system when it comes to sea ice extent and sea ice
distribution. Arctic sea ice extends in winter and contracts in summer. The extent of the sea ice has
decreased significantly in the past decades. For example, the extent of the sea ice remaining in the Arctic
Ocean at the end of summer (in September) has been shrinking for the past 30 years (see the figure below).
Furthermore, Arctic sea ice decline has been faster in the past ten years than in the previous 20 years(AMAP, 2012). The lowest minimum extent of the Arctic sea ice was on 17 September 2012, with anaverage of 3.39 million square kilometres (NSIDC, 2018a). The lowest maximum extent of the Arctic sea
ice was on 7 March 2018, where the sea ice averaged 14.40 million square kilometres (NSIDC, 2018b).
Figure 1. Changes in Arctic sea ice extent in summer (left) and winter (right)

Source: NSIDC.org (2019).

Across the entire Arctic, the length of the sea ice melt season has increased by around 20 days since the1980s and the Arctic Ocean is projected to become nearly ice-free in summer within this century, likely
within the next thirty to forty years (AMAP, 2012).
Shipping is the biggest method (in tons and value) of transporting goods over the world. Globally, 90% ofworld trade in volume and 80% in value – and the overwhelming majority of trade between nonneighbouring countries – is carried by ship (Bekkers, Francois and Rojas-Romagosa, 2016). In 1869, theSuez Canal opened, allowing for direct passage from the Atlantic to the Indian Ocean. This new route,hereafter called the Southern Sea Route (SSR) and illustrated in Figure 2, reduced shipping distances by
23% compared to the Cape route via South Africa (Buixadé Farré et al., 2014).

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Figure 2. Overview of the Northern Sea Route and the Southern Sea RouteSource: Bekkers, Francois and Rojas-Romagosa (2016).

With declining sea ice, the NSR will further reduce the distance for ships travelling between Europe and
the Pacific by 40% compared to the SSR (AMAP, 2012). This potentially results in significant time savingsof around 14 days compared to the Suez Canal (see Table 1).
Table 1. Time savings when transporting on the Northern Sea Route
Route

Trip from Hamburg to Yokohoma
Distance (Nm.)

Speed (knots)

Travel time (days)

Suez Canal

11.58515

32

Norhter Sea Route

7.356

14

18

Note: Speed may depend on weather conditions.
Source: Rahman, Saharuddin and Rasdi (2014).

The opening of the Arctic provides economic opportunities, for example, in the field of resource extraction
and shipping. These opportunities lead to a need to define who has the right to extract resources. By
international law, nations can claim up to 370 km off its coast, known as the exclusive economic zone
(EEZ).2 Nations have the right to explore the waters and seabed within their EEZs, but not the surface,which is considered as international water. (Roston and Migliozzi, 2017) However, as the region is slowly
melting, disputes arise as countries claim overlapping grounds (see Figure 3). Notable presences in thearea are Russian and Chinese. Russia as an Arctic nation has been active in the region for decades, while
China is preparing to heighten their stakes in the Arctic as it broadens its Belt and Road initiative for trade

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to include the Arctic.3 Overall, the Arctic is submitted to a diverse range of stakeholders, each with different
interests and strategies to their ambitions in the Arctic region.
Figure 3. Territorial boundaries and claims in the Arctic

Source: AMAP (2012).

Regulatory context
The United Nations Convention on the Law of the Sea gives coastal States “the right to adopt and enforce
non-discriminatory laws and regulations for the prevention, reduction and control of marine pollution fromvessels in ice-covered areas within the limits of the exclusive economic zone, where particularly severe
climatic conditions and the presence of ice covering such areas for most of the year create obstructions or
exceptional hazards to navigation, and pollution of the marine environment could cause major harm to or
irreversible disturbance of the ecological balance. Such laws and regulations shall have due regard tonavigation and the protection and preservation of the marine environment based on the best available
scientific evidence” (UN, 1982).
Moreover, since January 2017, the Polar Code has been in place According to the Polar Code, nearly all
ships with a gross tonnage over 500 tonnes that sail in the Arctic region should have at least a Polar Ship
Certificate and a Polar Water Operational Manual. These documents include guidelines for lifeboats, vessel
construction requirements, clothing, tools, survival packages, navigation devices, provisions, etc. The Codealso addresses the anti-pollution rules. Any form of dumping chemicals is prohibited. In addition, the Codeforbids dumping of sewage water, chemicals, plastic material and food remains.

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The case for the Northern Sea Route
The NSR is a series of sea routes connecting Northeast Asia with Northwest Europe through the Arctic
Ocean. The total length of the NSR, measured, for example, from Rotterdam to Yokohama, isapproximately 13 700 km. There are significant physical and infrastructural challenges to transport freightover the NSR (Buixadé Farré et al., 2014). The part of the route that predominantly constrains business isfrom the Kara Strait, along the Russian Arctic coast to the Chuckchi Sea (approximately 4 800 km in length).
Figure 4. Summary of the Russian maritime Arctic

Source: adapted from Stephenson et al. (2014).

The sea ice levels in the Arctic Ocean are the main barrier to the commercial use of the NSR today. Yearlyvariations of sea ice are relatively unpredictable and need constant monitoring for navigation through the
NSR in the limited navigation season. Furthermore, in the summer, the Arctic Ocean contains ice massifs,
which are variable accumulations of pack ice that cover hundreds of kilometres. Ships encounter them
regularly. These ice blocks are something to take into account as they block the route and present safetyissues, especially when combined with the high probability of inclement weather conditions such as fog
and extremely low temperatures that are typical for the Arctic Sea (OCIMF, 2017; Bekkers, Francois andRojas-Romagosa, 2016). Therefore, even though an official route through the NSR exists, ships might notalways follow the same route each time or are dependent on icebreaker convoys. The actual route,therefore, depends in part on the presence and thickness of sea ice.
While sea ice conditions generally get more favourable with southward distance from the North Pole,bathymetry restrictions tend to be more severe at lower latitudes. These bathymetry restrictions pose aconstraint on shipping through the NSR for various ship sizes.
The continental shelves of the Russian Arctic are broad and shallow, creating limitations that restrict NSR
route choice depending on ship type and load. Using Figure 4 for illustration, the bathymetry in large straits
such as the Vilkitsky Strait (100-200 m) and the Long Strait (33 m) is not a problem for most vessels. The
Dmitry Laptev and Sannikov Straits, south of the New Siberian Islands, are especially shallow at 6.7 m and13 m respectively (Stephenson et al., 2014. The latter two are the most difficult straits to navigate for8© OECD/ITF 2020

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container and bulk ships. Ports along the coastal routes in this region have drafts up to nine metres (with
20 000 DWT cargo capacity, assuming a 30 m beam) whereas for bigger ships using the route to the northof the New Siberian Island may have up to a 12.5 m draft and carry approximately 50 000 DWT cargo. The
northern route, however, brings ships closer to thicker sea ice.
Figure 5. Ice massifs along the Northern Sea RouteSource: OCIMF (2017).

All in all, there is a clear trade-off between vessel size and the navigation potential in the region. Ships
carrying cargoes of more than 50 000 DWT will be more constrained than smaller vessels, with the larger
ships operating fewer days as more northern routes become more ice-prone and farther from coastal
support bases.
Added to this trade-off, the bathymetry and ice conditions together make the NSR east of the Kara Sea acomplicated and extreme system with low predictability. A survey by Lasserre and Pelletier (2011) showsthat the market is aware of these uncertainties.
The benefit of the NSR for commercial shipping is the travel distance and travel time from Europe to East
Asia and vice versa. The NSR (at least under ice-free conditions) can potentially decrease costs and/or
increase sales, as more trips can be made per year compared to the SSR. However, there are a number ofchallenges and investments for navigating the NSR. Principal among those are the bathymetry restrictions
imposed by the NSR, as explained above. The lion’s share of the volume currently transported over theSuez is transported by ships that are too large (in terms of draft) to pass the Laptev or even Sannikov
straits.
Given a specific ship size and bathymetry, the key driver for the attractiveness of the NSR is the costeffectiveness for year-round operations. The main factors that affect the cost-competitiveness and/or© OECD/ITF 2020

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profitability of the Arctic routes are below, building on literature reviews on the topic, notably Lasserre(2014) and Yumashev et al. (2017).
Firstly, before transiting the NSR, companies should evaluate the ship’s capabilities to operate in the Arctic.
Ships should be prepared to operate safely in extreme cold weather conditions. One of the biggest
investments is in ice-capable ship classes with reinforced hulls. Ships with reinforcements are divided into
different ship classes.4 For example, Polar Class (PC) ships are better able to navigate ice-filled water thanother classes and, therefore, have longer navigation seasons. The implication of this reinforcement is that
initial capital investment and depreciation costs of vessels are relatively high. Literature reviews by
Lasserre (2014) and Theocharis et al. (2018) show that most scholars reason that the capital cost premium
for winterisation and ice class vessels are in the order of 20-30% higher compared to a benchmark vessel.
Profits from the use of the NSR need to recover both investments in ice-strengthening and lower fuelefficiency while sailing on the SSR outside of the NSR navigability window. The length of the navigability
window is, therefore, the main factor and also the trend underlying the business case in ice-strengthening
ships for NSR utilisation.
Fuel costs are an important cost factor when taking the NSR. Lasserre (2014) reviewed 26 studies thatanalysed the profitability of commercial Arctic shipping where he found fuel costs to be the largest single
cost factor in every single model simulation. In addition to shorter travel distances, fuel cost depends on
two important parameters: fuel type and fuel consumption rate.
Normal container and bulk ships use fuel type IFO 380. However, these fuels may not be suited for very
cold temperatures. Specialised fuels may, therefore, be necessary but will likely be more expensive.
Various factors affect the fuel consumption rate. Firstly, shipping in the Arctic is slower because of theprevalence of thick ice in the winter, drifting ice and fog during the summer. A lower speed reduces fuelconsumption rates drastically. In fact, ships will sometimes adopt slower speeds on regular waters for
economic reasons, in which case it is referred to as “slow steaming”. NSR shipping may not apply slow
steaming for economic reasons, but will nonetheless achieve higher fuel efficiencies because of it.
Literature reviews by Lasserre (2014) indicate that most studies suggest speeds that are in line with slow
steaming (less than 18 knots). Conversely, an ice-strengthened ship is heavier and, therefore, less fuelefficient, increasing fuel cost when sailing on the SSR outside of the NSR navigability window. In addition,
unexpected sea ice conditions on the NSR may lead to localised rerouting and higher fuel expenditure.
Crewmembers navigating the Arctic, whether on a PC-class ship or a normal ship, require specialised
training. When navigating near ice, it is recommended to have additional lookouts, helmsman for manual
steering, manning the engine room and having a translator for communication with the Russian
icebreakers (OCIMF, 2017). Cost increases in the range of 10% to 28% compared to normal container
shipping over the traditional route are well accepted (Theocharis et al., 2018).
Navigation through one-year sea ice in the NSR requires escorts with icebreakers during certain parts of
the year. It is likely that, with the ongoing trend of sea ice decline, ice-breaker escorts will only be neededat the start and end of the NSR season when ice concentrations are significant. Maintaining and operating
an ice-breaker fleet incurs a cost, leading to an ice-breaking fee to shippers. Due to geostrategic andcommercial reasons, Russia could also choose to vary ice-breaking fee levels in order to change theattractiveness of the Arctic routes.
The certain natural risks of the NSR discussed previously can heighten the risk premium. Among the factors
considered for the risk assessment and thus the rate, are: the experience of the crew in Arctic shipping;
the availability of rescue units; the distance to a port in case of damage; the ice class of the ship; and theprevalence of fog and ice along the route considered (Lasserre, 2014). For non-PC vessels, rates are likely
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to be costly, ranging from 50-200% higher than usual. Many other additional investments and costs arealso needed, according to literature. These are, among others, patchy search and rescue capabilities,
scarcity of relief ports along the route, ice radar and infrared cameras for ice detection (OCIMF, 2017;
Bekkers, Francois and Roja-Romagosa, 2015).
The trend of sea-ice decline enables the NSR to facilitate higher volumes of commercial traffic. Several
studies have looked at possible economic (and environmental) impacts of Arctic shipping. It is estimatedthat in the hypothetical situation without any navigability constraints in the Arctic, 4.7% of the world’s
future trade will reroute to the NSR (Riahi et al. (2017); O’Neill et al. (2017); Bekkers, Francois and RojasRomagosa (2016)). This includes traffic to and from a variety of origins and destinations, with varying timesavings depending on the proximity of the NSR. The rerouted traffic equals two-thirds of the expectedtraffic otherwise taking the Southern Sea Route through the Suez Canal.
A paper written by Yumashev et al. (2017) is one of the more recent comprehensive assessments ofeconomic and environmental benefits and costs of arctic shipping in scientific literature, with a realistic
shift towards the NSR within their modelling approach. It illustrates most of the physical and financial
challenges discussed in the present paper. Hansen et al. (2016) had already estimated ship owner’sbusiness case of investing in ice resilience to seasonally reroute to the NSR, taking into account the multiple
restrictions, while Bekkers, Francois and Rojas-Romagosa (2016) assess what the traffic volume would be
without any navigability constraints. Yumashev et al. (2017) combine these results, superimposing
business restrictions on the work done by Bekkers, Francois and Rojas-Romagosa (2016), to model the
traffic on the NSR over the next two centuries.

Modelling approach and assumptions
The approach applied by Yumashev et al. (2017) for determining the shift towards the NSR is based oncomparing the cost-effectiveness of year-round operations using ordinary vessels on the SSR versus icestrengthened vessels operating on the NSR whenever possible and on the SSR otherwise (where the icestrengthened vessels sail at a disadvantage). Furthermore, Yumashev et al. (2017) account for a variety ofbarriers, such as few ports and markets on the NSR compared with the SSR, limited navigability windows,
year-on-year variations in season length, volatility of navigability within seasons, limited economies ofscale, and more. Yumashev et al. (2017) also developed a simplified semi-empirical deterministic model
overtime to translate representative concentration pathway (RCP) climate scenarios into navigability
conditions.
Additionally, Yumashev et al. (2017) make important restrictions on fleet capabilities of passing throughthe Sannikov and Dmitry Laptev straits. Larger ships will use the more northern routes with no bathymetry
restrictions but less favourable sea-ice conditions. Container ships are assumed to only sail in the so-called
inner navigability window when uncertainty due to sea ice is reduced.
Table 2. Modelled bathymetry constraints based on shipping size and shipping type
Ship size

Container

Non-container (tankers
and bulkers)

RoutesLow cargo and size

< 2 500 TEU< 50 000 DWTSannikov and Dmitry Laptev
straits

High cargo and size

> 2 500 TEU> 50 000 DWT

North of the islands

Source: adapted from Yumashev et al. (2017).

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Modelling results
Figure 6 describes and interprets the modelling results. The maximum traffic for the ships follow anonlinear pattern as determined by the seasonal behaviour of declining sea ice. This decline is modelled
as a function of time under RCP 8.5 and RCP 4.5 climate scenarios, differentiated by four types of ships. 5
The y-axes refer to the percentage of ships that have invested in ice-strengthening and take the NSR over
the SSR, compared to the total number of ships that would take the NSR under the hypothetical case of
year-round ice-free conditions (the “Full Navigability Assumption”).
Figure 6. Norther Sea Route re-routing of four ship categories under RCP 8.5 and RCP 4.5
RCP 8.5

RCP 4.5

Source: Yumashev et al. (2017).

The following elements are important for the interpretation of this figure:Despite the increasing navigability due to sea ice decline, shipping companies are not going toinvest in large-scale operations until profitability conditions are met. This is represented by thedotted lines versus the continuous lines, where the dotted lines represent the navigability window,
and the continuous lines represent the actual utilisation based on business-case restrictions.



The intersection of the continuous line with the X-axis is the so-called trigger point at which
operations become profitable. This is the year where investments in ice-strengthening will takeoff, taking some 30 years before the fleet has been renewed.

The light blue versus the dark blue and the light grey versus the black lines represent larger shipclasses that cannot pass through the shallow straits. These lines represent the navigability window
for taking a more northern part of the route by-passing narrow straits.

The year at which the lines reach 100% shows when year-round navigability is expected for thatship class.



The analysis applies stylised cases for potential rerouting where, in practice, more differentiation
is introduced by the proximity of the NSR and related distance reduction versus the SSR.

The RCP 8.5 scenario results show that the first route through the straights, where only “small” ships of
50 000 DWT/2500 TEU can operate, becomes profitable around 2035 for non-container ships and 2051
for container ships. This difference is driven by the tight time schedules in the business model of container
ships, which are modelled to only take the NSR when limited assistance is required and navigability
conditions are less uncertain. The second route, which bypasses the New Siberian Islands without tonnage
restrictions, becomes profitable around 2068 for non-containers and closer to 2095 for containers.

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The RCP 4.5 results show that, with less extreme climate change, the NSR will be utilised much later in the
future, never with year-round operations and that the business case for rerouting will not become positivefor > 2500 TEU container ships.

Reflection on the business case for Arctic shipping
Investments in ice-strengthening introduce uncertainty and volatility in business results (depending on thenavigability window) and dependency on the NSR’s availability. Such investments can be classified as sunkcosts, which a company needs in order to make the transit possible (e.g. ice class ship investment, higher
fuel costs, crew training). In addition, fuel efficiency is lower than in vessels that are not ice-strengthened.
This negatively affects the market power of NSR operators, making them prone to tariff regimes imposedon vessels sailing in NSR waters.
Figure 7. Cost-effectiveness of different size bulk carriers carrying ore from Australia to China

Source: Gratsos (2011).

Moreover, in a sector where economies of scale and just-in-time deliveries are vital for profitability, thelimited ship trade volumes due to physical conditions are among the biggest constraints for making Arctic
shipping possible on a large commercial scale. Shipping can be divided into two broad categories: noncontainers (tankers and bulkers) and container shipping. The cost-effectiveness (EUR/TEU or EUR/DWT)
for both types of shipping varies by the size of the ship. Bulk carriers have to compete with the larger
Suezmax ships, which cannot be deployed on the NSR, but offer a substantially lower cost per tonnekilometre (tkm). Figure 7 depicts diminishing costs/tkm related to the size of a bulk ship. For example, adraft limit of 13 meters at the Sannikov Strait for a bulk ship coincides with approximately the Supramax
size (i.e. 50 000 DWT), which has almost a double cost/tkm compared to the Suezmax (up to
200 000 DWT). These differences in economies of scale will further increase, as can be observed in
Figure 8, showing that the number of vessels passing the Suez Canal in the last four decades remains rather
constant (around 17 500), while the net tonnages passing the canal have sharply increased (roughly fivetimes, from 200 000 net tonnes to more than one million net tonnes). This suggests that the smaller ship

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classes that can sail the shallow parts of the NSR will not be able to compete economically on price with
Suezmax-sized traffic, despite shorter travel times.

Figure 8. Annual net tonnages and number of vessels passing the Suez Canal

Source: Suez Canal Information Center (2017).

The same holds for container ship economics, as is demonstrated in the table below. Costs per TEU
decrease significantly with the ship’s capacity. Larger ship capacities require deeper drafts since capacity
is a function of weight and that weight influences buoyancy. Therefore, bathymetry is a constraining factor
in the maximum amount of a ship’s capacity. For instance, Yumashev et al. (2017) restrict ship size in the
Sannikov Strait to a maximum of 2 500 TEU in their business model. This means that taking the NSR canpotentially have higher costs per TEU per day compared to the SSR. In addition, strong uncertainties
regarding the ice-free window can be difficult for container ships, which usually have time-sensitive cargo.

Table 3. Costs per TEU per day at sea for container ships, according to capacity
Total shipping capacity (TEU)

Price per TEU (USD)

12 50012.43

18 000

10.99

22 000

10.04

24 000

9.57

Source: ABB.com (2019).

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Historical traffic on the Northern Sea RouteIn 2011, traffic volumes on the NSR equalled 111 000 tonnes. At the time, the main transported
commodities were hydrocarbon liquids6, oil, fish and some general cargo (Gunnarsson, 2013). In the lasteight years, traffic volumes have increased from 111 000 to around 10.2 million tonnes in 2018. While thetraffic growth has been substantial, the traffic volume transiting through the NSR is still a small fraction ofdomestic destinational shipping in the same area. For instance, in 2018 transit traffic counted for about
500 000 tonnes (the highest number since 2013) of the total 9.7 million tonnes transported on the NSR(Humpert, 2018a), which translates into only 5%. This shows that the NSR is still a trading route for local
niche markets.
Historically, there has been a clear distinctive pattern between east- and westbound services on the NSR.
The majority of vessels sail from east to west and deliver their cargo in the European ports. Only a few arealso travelling back on the NSR, which causes a high rate of ballast journeys (Humpert, 2014). Therefore,in contrast to routes through the Suez and Panama Canal, the NSR has been more of a one-way route.

Main commodities transported over the Northern Sea RouteThe majority of currently transported commodities on the Arctic are oil products, liquefied natural gas(LNG) and general cargo (i.e. containers and project cargo). The main types of vessels active on the NSR
are tankers, bulkers, trawlers or fishing vessels and general cargo vessels. The following commodities arebriefly described and practical examples are given:

general and project cargo

oil products and gases

passenger transport.

General cargo (also called break bulk cargo) is transported by a multi- or single-purpose vessel, which iscapable of carrying containers, crates, boxes or barrels. To ship goods on the NSR, these vessels need asubstantial initial investment of around 20% to 30% higher compared to a benchmark vessel (Yumashev etal. 2017), and will also incur higher operational costs.
Next to COSCO, Maersk, MOL and Teekay are looking into new ways of travelling from east to west. Maersk
is even the first carrier that has sent a container vessel along the route, the Venta Maersk.
Case: Container transport - The Venta Maersk has completed a trial passage on the
Northern Sea RouteOne of the world’s leading container carriers is testing transport on the Northern Sea Route. The Venta
Maersk completed a full transit on the Northern Sea Route on 28 September 2018. The Venta Maersk is
one of the new Baltic feeders in a fleet of seven. They are designed to operate in water temperatures as
low as -25 °C, are capable of carrying around 3 600 TEU and have a capacity of 600 reefer plugs.
On 22 August 2018, the Venta Maersk set sail in Vladivostok. Before heading through the Bering Strait, theroute stopped in Busan and Vostochny Stevedoring Company. The voyage took 37 days to complete.
Maersk used this trial passage to test systems, crew capabilities, and the support setup and to gain
operational experience in the conditions on the NSR.

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According to Palle Laursen, Maersk’s Chief Technical Officer, Maersk does not see the NSR as a competingalternative to other east-west routes. Currently, the passage is only accessible for around three months ayear. However, this could change in time (Chambers, 2018).
Case: Project cargo - Heavy lift shipping on the Northern Sea RouteIn the last couple of years, multiple project cargo shipments have been transported via the Northern Sea
Route. Project cargo shipment is transportation of large, heavy, often high-value equipment, critical to theprojects they are intended for. In 2017, Hansa Heavy Lift transported the first ship-to-shore cranes throughthe NSR, via the port of St. Petersburg to the port of Vostochny (JOC, 2017). In another example, BigLift
arranged transportation of parts for the Pioneering Spirit (the world’s largest construction vessel) from
China to Rotterdam. The vessel using this route, the BigLift Barentz, was specifically designed for thesepolar conditions. (Port of Rotterdam, 2018) Lead-time and on-time delivery are very important
determinants for project cargo. Saving days (up to 40% compared to the Southern Sea Route) could
provide substantial cost benefits. However, sailing through the Arctic also means that travel times are notalways known in advance.
Case: Oil products or gases, Yamal LNG Project

Tankers spend on average 14.7 days on the NSR and carry around 30 000 tonnes of chemicals. The Port ofSabetta handled 17 million tonnes of cargo in 2018 (Staalesen, 2019). In 2030, the export volume isexpected to reach 50 million tonnes. A major part of the Port of Sabetta is the Yamal LNG project (ShipTechnology, 2012).
LNG – to a large extent, the Yamal LNG Project – is an important export commodity (Humpert, 2014). The
Yamal LNG project involves the development of the South-Tambeyskoye field (with a gas reserve of
1.3 million m3) and the construction of a gas liquefaction plant. This project is a joint venture between
Novatek (80%) and Total (20%). Europe is LNG’s main export market. A majority of the voyages goesprimarily to Western Europe (Montoir, France and Rotterdam, Netherlands). A voyage to Western Europe(including loading and unloading) takes around 24 days.
Case: Passenger traffic - Cruises on the Northern Sea RouteA new sea cruise business has emerged on the NSR. In 2018, the MS Bremen sailed westwards from Nome,
Alaska in the United States to Bergen, Norway. In the summer of 2019, The Silver Explorer sailed the entire
Northern Sea Route passage (Portnews, 2019).
Previously, Russian icebreakers and research vessels dominated passenger traffic on the Northern Sea
Route. However, the future of the Arctic seems promising. Over the next four years, around 28 new cruise
ships will be released on the market. This new fleet has a higher ice-class and is capable of offering voyages
deeper into Arctic destinations.
The expected rise in passenger traffic also affects the Arctic regional ports. Ports and countries like
Longyearbyen, Norway; the Russian archipelago of Franz Josef Land, Iceland, Greenland, Canada andAlaska might get a bit more crowded during the summer period. (Nilsen, 2018) Cruising on the Arctic
appears to have become a growth market, though volumes are very modest compared to the traditional
cruise markets.

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Impacts of using the Northern Sea Route
The NSR is expected to compete with alternative routes. Below is a brief description of competing routes
and a discussion of how the NSR might fare with these routes.

Suez Canal
The main shipping route between Asia and Europe is the Suez Canal route, also known as the Royal Route.
In 2017, 17 550 vessels passed through the Suez Canal (a daily average of 48 vessels). They transported a
total of 1 billion net tonnes. The average travel time of sailing from Asia to Europe is roughly equal to
38 days.

Taking the train: Belt and Road Initiative
Two main train routes head from East to West: the northern route (via China and Russia to Europe) andthe southern route (through China, Kazakhstan and Russia to Europe). Both routes travel throughapproximately six different countries. Despite such difficulties as extreme temperatures, security along theroute and different widths of tracks, there are clear advantages to transport by train, like lower CO2
emissions and a lead-time of around 20 days. The reduced lead-time also lowers inventory costs. Since thebeginning of the Belt and Road Initiative (BRI) – formerly known as One Belt One Road – the number ofannual trains has risen to around 6 000 in 2018 from practically zero (EP, 2019).

Comparing the Northern Sea Route with alternative routes
For every network, the cost (related to the distance), travel time, speed, and capacity have to be
determined. When comparing these networks, both the Northern Sea Route and the Trans-Siberian
Railway, for example, provide time savings of 14 and 12 days respectively over the Southern Sea Route(SSR). The choice of network will depend primarily on the following factors.
First, the profitability and attractiveness of the NSR depend largely on the fuel price and consumption.
Depending on the fuel consumption, carriers may opt for “(super) slow steaming” to reduce fuel costs. The
slower speeds would make a shorter route all the more attractive, thus increasing the profitability of the
NSR.
Second, the majority of intercontinental voyages and shipments are liner services. They follow a fixedroute. These services are scheduled well in advance and strive for a just-in-time delivery. Travelling the
NSR might be complicated, as the ice-free conditions are not stable. As such, the uncertain accessibility
and thereby unreliability of the NSR due to unstable weather (i.e. wind, visibility constraints, fog, driftingice) is an important determinant for carrier route choices.
Shippers prefer to establish liner schedules in advance. In addition, they use multiple ports along that set
route. These ports are well connected to the hinterland by inland transport (e.g. rail and road). Comparedto the Arctic region, these markets are more developed.

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Finally, using the SSR offers logistical advantages the NSR cannot, as there is a whole network of terminal,
hinterland transport and logistics services along this sea route that does not exist and can likely not be
replicated along the Northern Sea Route. This applies to containers, not bulk cargoes, which have more
direct connections between origin and destination. Some of the regional development consequences ofthis are further explained below.
While the Northern Sea Route and the Trans-Siberian Railway are alternatives offering long-term potential,
they currently do not threaten the Southern Sea Route significantly in the foreseeable future. That said,
depending on the flux of fuel prices in the future, reliability of the NSR and development of the regional
market, the Arctic route could become a real alternative for certain niche markets.

Environmental and climatic impacts
There are numerous hidden climatic and environmental costs that result from increased emissions in the
Arctic region (Yumashev et al., 2017), despite the potential net economic benefits of Arctic shipping. Grossgains from using the NSR in the RCP 8.5 scenario are USD 6.5 trillion in net present value (NPV). Thesegains are offset by climate losses (from CO2 emissions and short-lived pollutants) that account for
USD 2.15 trillion (Yumashev et al., 2017).
Increased radiative forcing from short-lived climate forcers (SLCF) such as black carbon is a key driver forthe estimated climate losses.7 The shipping industry has traditionally relied on heavy fuel oils (HFOs) thatbelong to some of the most polluting fossil fuels and generate a broad spectrum of emissions. The net
effect is an increase in radiative forcing and thus global warming. Although there is a decreased fuelconsumption, GHG-equivalent savings are offset by a higher environmental impact per unit of emissions
in the Arctic context. Yumashev et al.’s (2017) model run highlights the importance of SLCFs. It shows that
98.3% of the climate losses (USD 2.15 trillion) is due to SLCF shipping emissions. This underlines theimportance of the impact of short-lived pollutants like black carbon and sulphate aerosols into climaticallysensitive areas such as the Arctic.
These numbers will vary depending on the extent of regulation imposed on the sector. While the analysis
includes long-term fuel efficiency trends, emissions per unit of fuel consumption have been assumed tobe constant. For example, climate forcing could change if the IMO2020 regulation and possible further
steps thereafter on cleaner emissions were fully implemented. This is notably the case in RCP 2.6 and
RCP 4.5, where climatic impacts caused by Arctic shipping would be lower.
Gains and losses are distributed unevenly over different regions. Regions that experience economic gains
are not necessarily those that suffer environmental losses. For example, while net economic benefits are
expected for global shipping, the local Arctic environment can be drastically negatively impacted. The
remoteness of the NSR and its delicate ecology mean that the environment might be impacted
disproportionally compared to other ecosystems. Due to its remoteness and infrastructure, environmental
risks like oil spills are difficult to stop and can, therefore, have a significant impact on local ecosystems.
Future shipping operations should consider these risks and should, where possible, mitigate them. For
example, some of the main risks can be substantially reduced by the choice of fuel and the location of
bunker tanks in the ship (OCIMF, 2017).

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Regional development consequences
Another impact of the Northern Sea Route is felt by regional ports and the Arctic market. Aside from beinga new gateway from East to West, multiple analysts and researchers look to the Arctic regions (andneighbouring regions) as potential players in emerging markets.
The Russian ports in the Arctic handled 92.7 million tonnes of cargo in 2018. Around 70% of that cargo isoil products and LNG (Staalesen, 2019). Active seaports in the region are Port Novy, Arkhangelsk andSabetta. The largest port in the region is Murmansk, handling more than 60% of the total volume.
The Port of Murmansk is located in an inlet of the Barents Sea. It lies around 100 km from the border
between Russia and Norway. The port remains accessible throughout the year and is well connected to
the Russian hinterland (especially St. Petersburg) by rail, road and air. From 2004 onwards, the port
invested in a new oil, coal and container terminal. These new facilities should enhance annual throughput,
rising from 28.5 million tonnes in 2010 to an estimated 65 million tonnes by 2035 (Portnews, 2020).
According to Murmansk Governor Grigory Straty, Murmansk should soon be the main Arctic container
port, as it has the best geographical location (Staalesen, 2016). Neighbouring port Arkhangelsk also aims
at being a container port. All in all, transit shipping might very well strengthen the position of these ports
along the Arctic passage.
Scandinavian countries are also seeking business opportunities in the “Polar Silk Route”. Norway and
Finland have played with the idea of an Arctic railway between Kirkenes, Norway and Rovaniemi, Finland.
A new Arctic railway could create a network of connected ports along the sailing route in an important
determinant in a potentially expanding market (Mehta, 2018).
China also sees opportunities in developing the NSR and the role Scandinavian countries might play in it.
In 2017, President Xi Jinping visited Finland and strengthened the collaboration between Finland andChina. Since, Chinese and Finnish actors have been looking for concrete investments and co-operation.
However, at the moment, there are only a couple of co-operated investments.

Conclusions
Shipping is the one biggest method (in tonnes and value) of transporting goods over the world. Globally,
90% of world trade in volume and 80% in value – and the overwhelming majority of trade between nonneighbouring countries – is carried by ship. In 1869, the Suez Canal opened, allowing for direct passage
from the Atlantic to the Indian Ocean, thus reducing shipping distances by 23% compared to passing theCape of South Africa. However, due to the changing temperatures in the pole area, the Northern Sea Route(NSR) becomes more and more accessible.
The expected economic gains that can be made in the Arctic creates pressure and a need to define who
has the right to extract resources. International law allows for nations to claim ownership of up to 370 kmof seabed off their coasts (known as the EEZ). Nations have the right to explore the waters and seabedwithin their EEZs—but not the surface, which is considered international water.

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Russia and China are the most notable presences in the NSR area. Russia as an Arctic nation has been
active in the region for economic and political reasons for decades. In addition, China is preparing toheighten its stakes in the Arctic as it broadens its Belt and Road Initiative for trade to include the Arctic.
Overall, the Arctic is submitted to a diverse range of stakeholders, each with different interests andstrategies to their ambitions in the region. The UN Polar Code imposes strict regulation for users of the
NSR, requiring that they apply proper safety and environmental precautions to the vessels that will be
deployed on the route.
Currently, the NSR is only safely navigable for polar-class vessels during some summer months when theroute is more or less ice-free. However, there is broad agreement that sea ice will continue to break apartand melt throughout this century. This trend implies that the extension of the ice caps will be reduced
considerably in the near future. This reduction will offer a wider window of usage of the Arctic Ocean,
thereby making it possible for the NSR to accommodate higher volumes of commercial traffic.
The transpolar sea route across the Arctic Ocean will reduce the distance for ships travelling between
Europe and the Pacific by 40% compared to the Southern Sea Route (using the Suez canal). The NSR (atleast under ice-free conditions) can potentially save ships significant fuel and crew costs, resulting in overall
cost savings compared to deploying the same ship on the SSR. And, assuming similar speeds, this might,
besides these cost savings, also result in significant time savings of around 14 days compared to the SSR
using the Suez Canal.
It has been estimated that in the long run, without any navigability constraints, up to 4.7% of the world’s
future trade, which is two-thirds of the expected traffic otherwise going through the SSR, might bererouted through the Arctic.
Figure 10. NSR rerouting of four ship categories under RCP 8.5 and RCP 4.5
RCP 8.5

RCP 4.5

Source: Yumashev et al. (2017).

However, maritime route choice does not depend on the nautical distance alone. There are many criteria
used by shipping lines when deciding what type of vessel to deploy and on what route. Generally speaking,the following main criteria come into play: 1) nautical distance; 2) the ship’s construction type (investment
in USD/tonnes DWT depends on the nautical environment in which the vessel has to operate); 3) vessel
size that can be used on a specific nautical route; 4) safety conditions on the route; 5) availability of theroute throughout the year (predictability, reliability); and 6) other costs added to the trip (toll, ice breakers,etc.). The final route choice is made after assessing all the criteria in conjunction.
The first NSR trajectories that will open in the near future also offer the most limited drafts. For the next
four decades, only much smaller (therefore, more expensive in USD/tkm) vessels can use the NSR
compared to the SSR. This will greatly reduce the attractiveness for large volumes, both for container and20© OECD/ITF 2020

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bulk trades. It is only when more polar trajectories become available that the NSR comparison with the
SSR becomes more favourable. However, this might take another 50 to 130 years. In addition, the physicalsafety conditions (for vessels and crews) and reliability are less favourable for the NSR.8
The tariff setting of canals shows that pricing strategies are clearly linked to the alternatives (for SSR, thealternative would be rounding the Cape, actually done by, for example, VLCCs). One can expect, then, that
the Suez Canal tariff on the one side and the tariffs charged by Russian icebreakers and other services on
the other side to be closely balanced, each at optimising their respective market shares, while maintaining
an overall price level lower than the third alternative, i.e. the Cape route.
Based on the above, the NSR is expected to remain a much studied, but much less used, nautical sea routein the next four decades. This said, there will likely be an increasing number of transits and local sea trips
in the NSR area, with relatively small vessels, and aimed at niche markets (local project cargoes). This may
gradually transform into transit shipping, where already ice-strengthened ships provide ad hoc high-value
short delivery time services. This can pave the way for small size bulk shipping, which will likely materialise
sooner than container shipping. Under the most extreme RCP 8.5 climate scenario (quickest warming
scenario), NSR transit operations of < 50 000 DWT ships could start to become profitable after 2035.
However, for several decades these volumes will only marginally eat away some of the much morevoluminous vessels using the SSR. Substantial bulk volumes might only take off around 2070 (in RCP 8.5),
and may even take more than a century in the RCP 4.5 scenario (this scenario is compatible with Paris 2050
objectives). For voluminous container traffic, the commercial chances are even smaller and only achievablemuch later.
The earlier mentioned 4.7% of world trade using the NSR (in the long run, assuming full year-roundnavigability of the NSR) will remain hypothetical within this century, and might only be reached by the year
2200 under the most extreme climate scenario.
The environmental impacts of the increased use of the NSR are not one dimensional:

GHG-equivalent savings are offset by a higher environmental impact per unit of emissions in the
Arctic context, despite a decrease in fuel consumption

the reduced trade distances increase industrial productivity, leading to an increase in absolute
GHG emissions

gains and losses are distributed unevenly over different regions. Regions that experience
economic gains are not necessarily those that suffer from environmental losses.

If expectations on the modest amount of vessels that will use the NSR are going to be realised (due tocurrent usability restrictions and inferior business conditions compared to the SSR alternative), the actual
emission damages in the next few decades might be fairly modest.

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Notes

1 https://www.ipcc.ch/site/assets/uploads/2018/04/Decision_Outline_SR_Oceans.pdf.
2 Source: https://stats.oecd.org/glossary/detail.asp?ID=884.
3 The BRI was launched by President Xi jinping in 2013 and comprises China’s effort to improve connectivity on a trans-continental scale. Source:
https://www.beltroad-initiative.com/arctic-policy/.
4 Lloyds Register is among the classification societies who assess ships specially built for polar operations. For example, see www.lr.org/en/
polar-code/.
5 The Representative Concentration Pathway (RCP) scenarios reflect a range in potential warming in the year 2100, expressed as radiative forcing
values (in W/m2) in the year 2100. Four RCP scenarios have been developed: RCP2.5, RCP4.5, RCP6.0 and RCP8.5. RCP4.5 was applied
included in the analysis by Yumashev et al. (2017) as it was at the time considered to be more or less correspondent to the Paris
Agreement (Salawitch et al., 2017). RCP8.5 was applied as it reflects emissions that will keep on rising based on historical trends.
6 Hydrocarbon liquids is a gas condensate.
7 Radiative forcing is the difference between sunlight absorbed by the earth and energy radiated back to space. Positive radiative forcing meansthat the Earth receives more incoming energy from sunlight than it radiates to space; this net gain of energy will cause warming.
8 Although the piracy risks might be lower.

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© OECD/ITF 202025

Commercial Navigation Along theNorthern Sea RouteThis report assesses the business case for commercial navigation
through Arctic waters along the Northern Sea Route and offers insights
in the possible impacts on global trade flows.

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Published: 11/2020 | Photo credit: Aun Photographer/Shutterstock

All resources from the Roundtable on Future Maritime Trade Flows areavailable at: www.itf-oecd.org/future-maritime-trade-flows-roundtable.