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Introduction
The Northern Sea Route (NSR) is a sailing route located in the Russian Arctic that covers more than 2300 nautical miles, from the Barents Sea to the Bering Strait, and includes the routes through the Laptev Sea and the East Siberian Sea (Ostreng et al. 2013, p. 24). The NSR is discussed as the shortest sailing route for trading between Europe and Asia. This route is a cost-efficient alternative in the sphere of the maritime trade involving North-Western Europe and North-Eastern Asia because the sailing distance is reduced in about 40% in comparison with the traditional Suez Canal Route (Weintrit & Neumann 2011, p. 24). The purpose of this report is to analyse viability of trading vessels through the NSR and recommend effective solutions in order to address operational and safety issues associated with covering routes from Sakhalin to Hamburg and from Kaohsiung to Rotterdam.
Background Information
A shipping company operates a fleet of 75,000 dwt gas carriers and 25,000 dwt multi-purpose cargo vessels. The company discusses the opportunity to trade some of the vessels with the help of the NSR. The route can be considered as an effective choice for the company, if the associated operational and safety risks are addressed appropriately. The NSR is discussed as an attractive option to decrease the time spent in the voyage while comparing the covered distance with the information on the Suez Canal Route (Table 1). The distance was reduced in about 40%.
The company is planning to trade the gas carriers from Sakhalin to Hamburg and the cargo ships from Kaohsiung to Rotterdam. The distance between Sakhalin and Hamburg via the Suez Canal Route is about 11,000 nautical miles. The expected distance between Sakhalin and Hamburg via the NSR is about 8,000 nautical miles. The distance between Kaohsiung to Rotterdam via the Suez Canal Route is about 10,000 nautical miles. The expected distance between Kaohsiung to Rotterdam via the NSR is about 7,000 nautical miles (Liu & Kronbak 2010, p. 436).
Operational Risks and Issues
The NSR is attractive for shipping and trading because of the reduced time and costs. Still, there are issues associated with operations and preparing vessels for trading. Planning the route, it is necessary to focus on several categories of operational issues which are navigation risks associated with the necessity to use advanced operational electronic maps, focus on location of ice fields, and plan the vessel positioning; electronic communications challenges; weather and ice challenges associated with the use of icebreakers; and risks associated with ship control operations (Polar Code Hazard Identification Workshop Report 2014, p. 18).
Considerable additional costs associated with the use of the advanced navigation technologies should be taken into consideration while planning operational costs. Trading vessels via the NSR, it is necessary to focus on the geographical isolation of the territories and utilise advanced maps to identify the location of ice fields to avoid accidents. Electronic communications challenges are associated with the impact of magnetic phenomena on the radio signals and the work of GPS technologies (Arctic Opening 2014, p. 42). Weather and ice challenges cause shipping companies use icebreakers and spend additional costs for NSR navigation insurance.
Safety and Security Issues
The main factors influencing safety and security risks are geographic remoteness and presence of ice in the waters. Operations according to the NSR are realised with the focus on the uniform route requirements because of a high threat of accidents associated with the navigation risks. The main causes of accidents in the Arctic area are the inappropriate work of navigation systems and incorrect hydrometeorological information (Arctic Opening 2014, p. 43). The lack of crews’ experience associated with voyages through the NSR is another factor to cause the increase in accident rates in the Arctic region.
Safety and security issues associated with mechanical failures include the high rates of ship-ship collision; technical failures; structural failures; and explosions. The risk of contacting ice fields because of the inappropriate work of navigation systems and incorrect hydrometeorological information is considerably high (Snider 2012, p. 54). Ship-ship collision and accidents as a result of contacting with platforms are characteristic for the Arctic sailing routes (Arctic Opening 2014, p. 45). The other group of safety risks includes challenges associated with the personnel’s health. Safety procedures include limitations on any type of the outside work because of the weather and climate features of the region.
Risk Management
Easy steps that can be realised to mitigate risks include addressing the operational and safety issues with the focus on increasing the costs spent on equipment, insurance, and training. Operational issues can be addressed with the focus on improving the equipment and purchasing advanced navigation systems developed for using in the NSR. To address the safety and security issues, it is necessary to focus on providing insurance and develop the system of mitigating the navigation and safety risks with references to additional training and purchasing advanced navigation technologies (Ostreng et al. 2013, p. 89). In order to understand the areas to address with the help of the risk management strategy, it is necessary to conduct the gap analysis for the company.
Gap Analysis
The first stage of the gap analysis is the review of current risk management practices followed in the company according to the set safety requirements. It is important to analyse the practices regarding their adequacy and suitability, and regarding the completeness of their following in the organisation. The next stage is the development of the plan to address the identified gaps in the operational and safety management (Weintrit & Neumann 2011, p. 89). The range of requirements associated with the safety management for the NSR includes the following ones:
- Suitability of the ship for the NSR.
- Availability of salvage services.
- Developed plan and schedule of the route.
- The crew’s experience in relation to the navigation in the Arctic area.
- Insurance.
- Icebreaker support.
- Accuracy of charts, maps, appropriate work of navigation systems.
In order to achieve the commercial success through the focus on the NSR, the company should guarantee that the voyage is planned and arranged according to the provided safety requirements.
Risk Management Strategies
The process of managing and mitigating identified risks and issues is associated with realising the effective risk management strategy. The first step of this strategy is the implementation of safety and operational standards in the company to address the determined safety requirements for shipping in the Arctic area. Thus, trading via the NSR is realised with the focus on the uniform route and safety requirements adopted internationally. The focus on the ISO 19906 standards is a good strategy to respond to the possible risks while trading in the Arctic region (Polar Code Hazard Identification Workshop Report 2014, p. 20). The second step is the application of advanced navigation and Arctic-specific technologies and devices for the effective ice management and prevention of accidents. These technologies can include ice sensors and marine radars for ice forecasting as well as the improved navigation maps.
The third step is the improvement of the vessels’ design to mitigate risks associated with damages after contacting ice fields. The next step is the provision of the additional training for the crew in order to prepare the personnel for the Arctic voyage. To manage identified risks, it is also necessary to develop the additional infrastructure and guarantee the icebreaker support (Arctic Opening 2014, p. 52). The final step is the focus on the overall maritime insurance to manage costs associated with actual risk events.
The Cost/Benefit Analysis
To conclude about the viability of trading vessels via the Northern Sea Route, it is necessary to compare the forecasted costs and benefits with the costs typical for trading via the Suez Canal Route. The distance between Sakhalin and Hamburg and between Kaohsiung and Rotterdam is taken as approximately the same while trading via the Suez Canal Route (10,000-11,000 nautical miles). The transit time via the Suez Canal Route for 11,000 nautical miles is 20 days, when the transit time via the NSR is 12 days because of the route’s length in 8,000 nautical miles (Table 2). It is possible to assume freight rates, fuel costs, and such additional costs as piracy insurance and NSR navigation insurance depending on the financial reports and transit costs for the two routes in 2012-2013 years (Arctic Opening 2014, p. 38).
The company operates 75,000 dwt gas carriers and 25,000 dwt multi-purpose cargo vessels. For these vessels, the freight costs associated with the Northern Sea Route are lower in comparison with the freight costs for the Suez Canal Route. Fuel costs for the NSR are reduced because of decreases in the route length and reduction of days in the voyage (Table 2). It is possible to note such operational restrictions as the necessity to purchase or rent ice breakers and such commercial and additional restrictions as maritime and navigation insurance for the NSR. However, the additional costs associated with piracy insurance and overall maritime insurance for the Suez Canal Route are also high.
Table 2. Cost and Benefit Comparison, NSR and SCR
Benefits of the Northern Sea Route
Having compared the costs and benefits associated with the NSR and the Suez Canal Route, it is possible to state that the NSR is the more viable alternative because of lower costs and obvious advantages. The shorter distance associated with the NSR increases the cost efficiency of the route in about 40% because of decreasing the time spent in the route and fuel costs (Snider 2012, p. 22). As a result, the overall cost savings can be about $3 millions (Liu & Kronbak 2010, p. 435). The reason is that the fuel costs and additional costs can be reduced significantly with references to high freight rates and low freight costs. In spite of the fact that the costs associated with purchasing the advanced equipment, improving the ships’ design, and training the crew to address the safety requirements are high, these running and additional costs do not play the significant role in influencing the overall costs of using the route. As a result, the NSR is more economically advantageous than the Suez Canal Route.
Conclusion and Recommendations
The Northern Sea Route is discussed as more attractive for the shipping company because of significant time and financial savings. However, there are many risks associated with operations and safety and security issues. Extreme climate conditions make the representatives of the ship industry focus on reviewing their safety standards and improving their security procedures and risk mitigation strategies. Risks include vessels’ damages, problems with navigation, and challenges for the crew. Still, the costs associated with addressing the identified risks are determined as running and additional costs, and they do not exceed the costs associated with trading via the Suez Canal Route.
Selecting the NSR as the alternative to the Suez Canal Route, the shipping company should pay attention to the following recommendations:
- The NSR should be selected as the cost-efficient route because the benefits associated with reducing the time cover the costs connected with operational and safety issues.
- Varying running costs and choosing ice breakers, it is possible to save costs and address the problem of increasing additional costs associated with insurance.
- It is important to address safety and operational requirements completely in order to guarantee safety and profitability, with the focus on purchasing advanced navigation technologies, improving the vessels’ design, training the crew, and renting ice breakers.
References
Arctic Opening 2014. Web.
Liu, M & Kronbak, 2010, ‘The potential economic viability of using the Northern Sea Route (NSR) as an alternative route between Asia and Europe’, Journal of Transport Geography, vol. 18, no. 3, pp. 434-444.
Ostreng, W, Eger, K, Fløistad, B, & Jørgensen-Dahl, 2013, Shipping in Arctic waters: a comparison of the Northeast, Northwest and trans polar passages, Springer, Berlin.
Polar Code Hazard Identification Workshop Report 2014. Web.
Snider, 2012, Polar ship operations, The Nautical Institute, London.
Weintrit, A & Neumann, T 2011, Miscellaneous problems in maritime navigation, transport and shipping, CRC Press/Balkema, Leiden.
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