ARCTIC TRANSITS – OPPORTUNITY OR CHALLENGE?THE NORTHERN SHIPPING ROUTEAND THE NORTHWEST PASSAGE

Presented by

Marcus Baker

Global Chairman,

Marine Practice

Written by

Stephen J HarrisSenior Vice PresidentMarine Practice

MARSH

Rotterdam

Shanghai

Singapore

Suez Canal Route

19,550 Km

Suez Canal

Estimated containership transits in 2013: 17,000

Northern Sea Route

15,791 Km

Containership transits in 2013: One

Danger: ICEBERGS and GROWLERS

The economics of the Northern Sea Route

The traditional route…..with traditional issues

A saving of 3,759 km

…translates to REAL savings in

TIME and BUNKER costs

Sources: Northern Sea Route Information Office, Danish Institute for International Studies March 2009 Map courtesy of SWmaps.com

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But, the Northern Sea Route is not alwaysthe shortest route

    Distance in kilometres

ROUTE NSR Via Suez Difference

London Yokohama 13,841 21,200 -7,359

Rotterdam Shanghai 15,793 19,550 -3,757

New York Shanghai 19,893 22,930 -3,037

BUT …..

Marseilles Shanghai 19,718 16,460 3,258

Rotterdam Singapore 19,641 15,750 3,891

Barcelona Hong Kong 20,686 14,693 5,993

New York Singapore 23,121 18,770 4,351

+

+

+

+

Sources: Northern Sea Route Information Office, Danish Institute for International Studies March 2009 Map courtesy of SWmaps.com

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Panama Canal Route

Sources:Map courtesy of SWmaps.comDanish Institute for International Studies March 2009

NorthwestPassageRoute

12,850 KmThe economics of the Northwest Passage

Vancouver / Seattle

Rotterdam

16,400 Km

October 2013The first commercial transit of the NW Passage. The 75,000 DWT bulkcarrier, NORDIC ORION sailed from Vancouver to Finland, saving a week off the journey time (via Panama) and an extimated $80,000 in fuel costs.

October 2013The first commercial transit of the NW Passage. The 75,000 DWT bulkcarrier, NORDIC ORION sailed from Vancouver to Finland, saving a week off the journey time (via Panama) and an extimated $80,000 in fuel costs.

The Northwest Passage would reduce the distance from Shanghai to Rotterdam (Via Panama) from25,588 Km to 17,570 km

The Northwest Passage would reduce the distance from Shanghai to Rotterdam (Via Panama) from25,588 Km to 17,570 km

A saving of 3,550 km

……and remove the Panama Canal fees……and remove the Panama Canal fees

MARSH

Sources: Map courtesy of www.SWmaps.com*Reuters, Northern Sea Route Information Office, National Snow and Ice Data Center, Lloyds List, Wall Street Journal,http://mscconference.wordpress.com/2013/08/29/the-northern-sea-route-is-heating-up/

Hull underwriters don’t like ice!Institute Warranties (1976)and International NavigatingConditions (2003)….

… and the exclusions go much further.

Generally (except northern Norway), insurance cover anywhere above 70º N. is excluded.

There is not a lot of the NSR that hull underwriters normally cover…

….and none of the Northwest Passage.

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2013 Northern Sea Route statistics

Source: Northern Sea Route Information Office(http://www.arctic-lio.com/)

Cargo TypeVessels

EastboundVessels

Westbound

Total Number of

Vessels

Liquid (tankers) 23 8 31

Bulk 3 1 4

LNG 1 1

General 9 4 13

Ballast 1 14 15

Repositioning 4 3 7

Total: 41 30 71

DWT Eastbound

DWT Westbound

Total DWT

588,659 323,208 911,867

203,439 73,500 276,939

66,868   66,868

36,846 63,377 100,223

    469,703

    38,027

895,812 460,085 1,863,627

Total transit volumes during summer 2013

7

The average number of casualties each year inside the Arctic Circle* ?

2002 –2007 452009 –

2013 *Source: Allianz Safety & Shipping Review 2014

This was a 58% increase in vessel numbers from 45 (in 2012) to 71 (in 2013).

But cargo volumes (1.8m DWT) were only a fraction more than 2012 (1.4m DWT).

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Insurance issues - Hull

Source: Gard Insight 23 January 2014

The default position for Hull & Machinery cover is that there are no issues! (…. because there is no cover!)

Is there more risk?Engine breakdown - grounding/stranding - hull damage - heavy weather – fire.•Extreme cold can cause engine problems.•Reduced coverage by navigation aids (such as GPS, GALILEO).•Inaccurate charts and magnetic compasses are unreliable in such high latitudes.•Restricted visibility up to 90% of the time.•Inadequate weather reports and violent storms can occur at any time … and ice.

Salvage facilities?Icebreakers accompanying commercial vessels through the NSR are not salvage vessels and very few shore-based salvage support services are available for thousands of miles (especially in the eastern part of the NSR).

Even if salvage equipment could be employed, performing salvage work in often dark and inhospitable conditions would be a major challenge.•Underwater surveys of damage?•Pumps and other equipment may not operate in such conditions?•Lightering is probably not an option?•Temporary repair facilities non-existent?•A race against time?

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Insurance issues – P&I The default position for P&I cover is that there are no issues! (…. because there is arguably no cover!)

• Although P&I does not generally impose navigation limits, the Club rules (e.g. Gard’s Rule 7) require the Club to be consulted if a voyage does not fall within a vessel’s normal trading pattern, as the Association must be notified of any circumstance that may alter the risk covered by the club.

Is there more risk?

Wreck removal - pollution - Salvage (environmental) - crew injury and hospitalization.

• Wreck removal takes time and equipment.

Oil pollution presents huge problems.•Cold temperatures and ice affect the behaviour of oil in many ways (e.g. increased persistence).

•Oil can get trapped under ice, or be held within ice, until ice melts, many months later.•Oil booms often don’t work.•Burning (DEEPWATER HORIZON style) not likely to work in that environment.•Detecting / spotting oil drifts difficult – (Dark for so long).•Dispersants (delivery and chemical effects in such low temperatures, unknown).•Political and environmental sensitivity.

Source: Gard Insight 23 January 2014

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