Commercial Cargo Shipping along the Northern Sea Route to Remain Globally Marginal for a Long Time
Blog: Tuomas Kiiski, Doctoral Candidate, Turku School of Economics
Published January 29th, 2017

Commercial cargo shipping along the Northern Sea Route to remain globally marginal for a long time.  According to the doctoral thesis by M.Sc. (Econ and Bus. Adm.) Tuomas Kiiski commercial cargo shipping along the Northern Sea Route (part of the Northeast Passage) will remain globally marginal for a long time. The thesis entitled "Feasibility of commercial cargo shipping along the Northern Sea Route" is defended on February 3, 2017 at the Turku School of Economics, University of Turku, Finland. The external opponent at the public defence is Dr. Jan Hoffmann from the United Nations Conference on Trade and Development (UNCTAD), Geneva, Switzerland. The thesis is supervised by Professor Lauri Ojala and Dr. Tomi Solakivi.
 
The study shows that feasibility of commercial cargo shipping along the Northern Sea Route (NSR) is particularly dependent upon external factors: climate conditions, political atmosphere and market situation both in shipping and in commodity markets. Currently, none of these factors favor transcontinental liner shipping along the NSR. Unlike destinational traffic to and from some ports in the Russian Arctic, the NSR as a maritime connection between Europe and Asia is unlikely to become economically viable for commercial shipping at least for the next decades, and its impact on global shipping is expected to remain marginal.
 
In Western countries, the NSR is more often associated with the Northeast Passage, in which the Finnish-Swedish explorer, Adolf Erik Nordenskiöld, conquered already in 1878–1879. Subsequently, Finland has maintained connections to the NSR: Finnish seafarers have experience not only in the Baltic winter conditions, which somewhat resemble the ones along the NSR, but also in the route itself. In addition, Finnish shipbuilding and design industry have contributed by building ships that operate along the route.
 

During the past decade, the effects of climate change on shrinking of the Arctic Sea ice have activated global interest in shipping along the Arctic Sea routes. Media and academia, among others, have participated in building up positive images about the economic potential of these routes. Especially, the NSR, a passage through the Russian Arctic waters, has been considered to hold the highest potential in terms of traffic growth. However, the NSR is associated with expectations some of which are unrealistic.
 
THE DISTANCE ADVANTAGE DOES NOT CONVEY THE WHOLE PICTURE ABOUT THE ECONOMIC POTENTIAL OF THE NSR
The NSR could enable shorter distances in transcontinental voyages between Europe and Asia. However, this is just one of the factors that need to be considered when evaluating the economic potential of the NSR. It is careless to generalize that NSR’s shorter distances always lead to equal savings in time and cost relative to, for example, the Suez Canal route. In this respect, unharmonised use of the terminology may have contributed to building up optimistic perceptions. For example, there are considerable differences between ice-free and open-water conditions in the context of shipping economics.

In practice, daily shipping costs in the NSR are usually higher than in open-water routes. Sailing speeds along the NSR have a considerable seasonal variation, while waiting times and costs associated with the route’s insufficient maritime infrastructure (especially icebreaking service) further reduce the conceived savings. Finally, physical constraints of the NSR in terms of narrow and shallow fairways limit the applicable vessel sizes.
 
CONSTRAINS IN SUPPLY AND DEMAND POSE SIGNIFICANT HINDRANCES TO GROWTH
The most significant barrier for NSR traffic is limited demand due to, among others, scarce population, long distances, seasonality and severe conditions. Arctic natural resources constitute practically the only viable cargo base, but their exploitation is subject to commodity prices. The supply of transports, in turn, is being constrained by the limited number of icebreakers and ice-classed vessels. The vessels needed in the NSR are more expensive to operate and build; ordering of such vessels constitutes a significant financial risk to ship owners.


MISMATCHING EXPECTATIONS AND REALITY IN TERMS OF NSR CARGO VOLUMES
Estimations of cargo potential of the NSR vary in scale and methodology. The most optimistic ones have projected that it may challenge the Suez Canal route. However, realized volumes are substantially lagging from the estimates and their level is low. Especially, the ones considered as international transits.
 
In 2015, the total cargo volume was around 5.4 million tonnes of which only less than 1% was transits. Respective numbers for 2016 show a modest increase as reported total volume was around 6.9 million tonnes of which around 3% was transits. In both years, the majority of volumes consisted of Russian internal and destinational traffic with limited international relevance. It seems that a brief glimpse of international interest shown in 2009–2013 period, which resulted in a number of trial voyages, has now faded. Hence, the NSR has re-established its position as a Russian domestic waterway.
 
Globally, traffic volumes of the NSR are marginal by all accounts. In comparison: the highest total cargo volume of the NSR, recorded in 2016, accounts for around 5% of the annual traffic volume of the port of Hamburg in 2015.

A DEBATABLE NEED TO BUILD A RAILWAY CONNECTION FROM FINLAND TO THE ARCTIC SEA
Some of the proposed traffic infrastructure projects in Finland, like a railway connection to the Arctic Sea, are based on the projected growth of traffic along the Northeast Passage/Northern Sea Route. The results of the doctoral thesis as such do not support the rationale behind these projects, especially by dismissing the potential for large-scale container shipping in the near future.

Mr. Tuomas Kiiski is defending his Doctoral thesis entitled "FEASIBILITY OF COMMERCIAL CARGO SHIPPING ALONG THE NORTHERN SEA ROUTE" on February 3rd, 2017 at the Turku School of Economics (TSE), University of Turku, Finland. If interested in participating, please contact Lauri Ojala, lauri.ojala(a)utu.fi
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