Arctic Shipping: Navigating the Risks and Opportunities

In October 2013, the bulk carrier Nordic Orion made the first-ever successful commercial transit of the Arctic’s Northwest Passage, delivering a cargo of coal from Vancouver to Finland. The voyage marked a new phase of Arctic navigation, coming just four years after the first international commercial transit of the region’s Northern Sea Route. The Nordic Orion’s journey took around a week less than had it travelled via the Panama Canal, saving the operator both the toll fees and US$80,000 in fuel costs.

Global climate change – specifically the melting of sea ice – presents opportunities for international marine transportation networks in the Arctic, at least during the summer months. Recent discoveries of oil and the potential financial and time savings are making the Arctic routes more appealing to the shipping industry. Potential Arctic sea routes exist that enable ships to move between the Atlantic and Pacific oceans, thus cutting the distance between East Asia and Western Europe.

Some of these routes offer alternatives to the Panama and Suez canals, but they are not without risk. Extreme climate and weather conditions create unique hazards, including floating ice, thick fog, and violent storms. Despite new safety features, vessels remain vulnerable to ice damage, machinery breakdown, and more. The harsh environment also creates challenges for crews, few of which have been trained for or have experience in such conditions. And, should a vessel run into difficulty, help is likely to be a long way away.

Understandably, the international shipping industry is keen to start maximising the opportunities afforded by Arctic navigation. Yet the marine insurance industry – whose collaboration is essential to the commercial viability of Arctic transit – holds a host of safety and navigational concerns, meaning that any negotiations will need to be handled carefully by those who have been engaged in the issues of this region for some time already.