Over the Top: the Emergence of Arctic Ocean Trade

The north polar view of the world is not a common perspective, most of us may know it from the white on blue flag of the United Nations. However this view of the world may become increasingly common as the effects of climate change on the Arctic Ocean have opened new opportunities for Arctic trade routes. The opening of these trade routes is of particular interest to certain actors and nations and has the potential to change the face of global trade.

The Polar Paths for Shipping (The Globe and Mail)

A dream of the seventeenth century explorer Henry Hudson, the fabled Northwest Passage over Canada was first navigated in 1906 by the Norwegian Roald Engelbregt Gravning Amundsen, who was also the first explorer to reach the South Pole. The other Arctic Sea route is the Northeast Passage over Russia’s northern coast, more commonly called the Northern Sea Route (NSR), it is a Russian-legislated shipping lane

Scientists predict ice-free summers by the end of the decade and navigable winters by the mid 21st century. Regardless of how one may feel about environmental politics, the question of the polar caps melting is not one of “if” but “when.”

Commercial traffic over the Arctic would most affect the Suez route. Suddenly ports along the Suez route would see much less traffic from China destined to Europe. Singapore, a commercial hub and one of the busiest ports along the route signaled its awareness of this threat by applying for permanent observer status in the Arctic Council, a regional governance institution. Singapore isn’t the only observer nation that seems out of place in Arctic Council. China, France, Germany, India, South Korea, Italy, Japan, Netherlands, Poland, and the United Kingdom are also permanent observers. Either as observers or members, nine out of the ten largest economies are in the Arctic Council.

As the Arctic’s pristine environment becomes accessible, commercial shipping is not the only encroaching human activity. Reduced sea ice is making accessible an estimated 30% of the world’s natural gas and 15% of the world’s oil. The combined potentials of Arctic shipping and resource extraction may tilt the scale in favor of developing arctic capabilities and infrastructure over environmental preservation. Professor Lassi Heininen, an expert in Arctic Issues at the University of Lapland, describes this problem as a paradox by which less sea ice means better access, which leads to more human activities which leads to less ice. The loss of sea ice is just one part of the environmental catastrophe unfolding in the Arctic and after speaking with Lassi the question he left for consideration is: “Are we willing to lose the Arctic’s beauty, or do we try to keep it for our grandchildren?”

"Are we willing to lose this?"

“Are we willing to lose the Arctic’s beauty, or do we try to keep it for our grandchildren?”  A baby Polar Bear at Ranua wildlife park in Finland, June 2012 (Photo by the author).

The Russian Federation has already started developing infrastructure to service the Northern Sea Route. Between 2009-2013 maritime traffic has improved from a handful of vessels to several hundred. While most are research vessels several trade voyages have been made. So far Norway and Russia have been the primary navigators, but in the past few years Chinese shipping giant COSCO has turned its eyes northward. This past fall COSCO’s Yong Sheng became the first container-transporting vessel to make a journey from Dailan to Rotterdam via the NSR. Huigen Yang, Director General of the Polar Research Institute of China, announced in 2013 that as much as fifteen percent of China’s maritime trade may travel the route by 2020.

A visual comparison of the Northern Sea Route (Blue) to the Suez Route (Red). The Northern Sea Route is 40%, or 12-15 days shorter than the traditional Suez route. (via wikimedia)

The Arctic region is governed by a combination of international agreements such as the UN Convention on the Law of the Seas (UNCLOS) and multilateral governance institution such as the International Maritime Organization (IMO, a UN Agency) and The Arctic Council (AC). The Arctic Council is made up of the eight nations that intersect the Arctic Circle: The United States, Canada, Russia, Norway, Finland, Iceland, Sweden, and Denmark by virtue of Greenland. In the past few years the AC has passed agreements on search and rescue and the IMO is finalizing a shipping ‘polar code‘ that is expected to be in place by 2016.

Most data estimates suggest that roughly 90% of mercantile trade is shipped. For China, the potential of arctic routes could represent savings of hundreds of billions of dollars. “Once the new passage is opened, it will change the market pattern of the global shipping industry because it will shorten the maritime distance significantly among the Chinese, European and North American markets,” said Qi Shaobin, a professor at Dalian Maritime University according to China Daily. Not to mention China’s traditional route to European ports passes through pirate infested waters that the Arctic Route would avoid.

Infrastructure is still the key obstacle to the expansion of trans-Arctic trade. There are very few ports in the Arctic and they are fairly underdeveloped. Missing also are extensive maritime charts as well as search and rescue capabilities. While the Arctic Council passed a search and rescue agreement for cooperation between Arctic States, investment in capabilities is still low. Icebreakers are expensive and the largest fleets number in the tens. Additionally maritime laws and insurance standards in the draft of the IMO’s Polar Code need to be adhered to and implemented before any substantial shipping would occur.

So far Russia has been the only player to make significant commitments to development by reopening research stations and arctic ports. Canada has done little aside from accepting a legal framework on paper. Notwithstanding, there has been an increase in maritime activity through Canada’s Arctic waters:

Northwest Passage Transits 1903-2013 (Globe and Mail)

At a meeting in Stockholm with USC students in the summer of 2012, Gustaf Lind, the Swedish ambassador to the Arctic Council, accepted the possibility of Arctic Ocean Trade, but noted, “I don’t think we will see much shipping for quite some time.” Mike Keenan, an economist at the Port of Los Angeles, explains “You need long stretches that are regularly free of sea-ice and right now you don’t have that.”

There is an undeniable economic advantage to Arctic Trade Routes to connect not just China to Europe but China to the East Coast of the United States. Currently the typical shipping time from Shanghai to Rotterdam is twenty-five days, from Shanghai to Los Angeles is thirteen days and then seven days by rail to reach New York. Rotterdam to New York is another nine day sail. However a Northern Sea Route to Rotterdam from Shanghai would shorten the journey to ten days, making a sail from Shanghai to New York via Rotterdam last nineteen days. This number could be even shorter without a stopover but it already is faster than the current path from Shanghai to New York taking rail from Los Angeles. This means that without any time lost with stopovers and putting cargo on rails, the current route to New York from Shanghai is twenty days, an Arctic route would be nineteen days at most.

The Port of Los Angeles and the Port of Long Beach are, respectively, the top two busiest ports in North America. As entry points they are currently the fastest way for goods from China to reach consumers in most of the United States. It represents a huge economic asset that handles $260 billion of trade throughout the US. According to Keenan, “3.6 million jobs throughout the U.S. are related to the port’s activities.”

Whether Arctic Sea Routes posed a challenge to the port’s position seems an unlikely prospect for the port to consider in the near future. In addition to the infrastructure problem Keenan noted that “there’s simply too many variables to make any predictions for the port.” In terms of adapting to a changing trade environment “there’s a limit to what [the port] can do if you have a serious time advantage.” Keenan further noted that “the priority should be to focus on climate change and sea level rise” and pointed to the Port’s respectable environmental record and investment in clean technology.

Perhaps it is too early to quantify the effect of Arctic Sea Routes on global shipping but even if there is a long term threat to the Port of Los Angeles the sheer volume of trade between Asia and Los Angeles accounts for over ninety percent of the port’s volume. Mike Keenan asserted “cargo will always come here.”

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