globalEDGE Blog: gE Blog Series: Global Shipping Industry Part 2 - Polar Ice Thaw Leads to Increase in Arctic Shipping

gE Blog Series: Global Shipping Industry Part 2 - Polar Ice Thaw Leads to Increase in Arctic Shipping

Arctic temperatures are rising at double the rate of anywhere else on the planet, subsequently leading to polar ice caps' permanent coverage to shrink by 10% a decade, a rate which could result in ice free summers in the Arctic by the end of this century. While the Arctic thaw is a major concern from an environmental standpoint, it is also having significant implications on the global transportation industry.

As the polar ice sheet retreats further and longer each year, arctic shipping routes become more accessible and efficient. The Arctic shipping lane most affected by the thaw is the Northern Sea Route, which extends along Russia’s northern border connecting Europe to Asia. The Northwest Passage, located above Canada’s northern coast, is also seeing some increased accessibility due to the thaw, but to a significantly lesser extent.

The Northern Sea Route, which is also referred to as the Northeast Passage, has a relatively short history. According to Malte Humpert of the Arctic Institute, Arctic shipping was virtually impossible due to sea ice as recently as the 1990’s. The short tenure of this shipping lane has seen a relatively narrow scope of use. An Arctic Institute report, which analyzed Northern Sea Route Information, found that about two thirds of cargo-bearing voyages through the route involved shipments of oil products. Of these shipments, a majority traveled from Europe to Asia and a significant number simply traveled from one Russian port two another.

While only a small number of ships voyage through the frigid Northern Sea Route, there is significant potential for growth as the route can cut journey times between Europe and Asia by 30 to 40 percent compared to the more traditional route through the Suez Canal. A 2015 study by the CPN Netherlands Bureau for Economic Policy Analysis estimated that two thirds of the volume of world trade that travels through the Suez Canal could be re-routed through the Northern Sea Route. The report did not reveal a time frame for this projection.

Going forward, the success of the Northern Sea Route will be largely dependent on climate conditions. Current variability in arctic conditions leads to a high level of uncertainty in projecting when the route will freeze over for the winter. This uncertainty makes utilization of the Northern Sea Route impractical for global shippers who require definiteness when booking loads months in advance.

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