STUDY ON ECONOMIC EVALUATION OF NORTHERN SEA ROUTE: TAKING 1

VOYAGE OF YONG SHENG AS AN EXAMPLE 2

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Hui Zhao 6

Department of Transportation, Shipping and Logistics 7

School of Naval Architecture, Ocean and Civil Engineering 8

Shanghai Jiao Tong University 9

800 Dongchuan Road, Shanghai, P.R. China 10

Tel: 86-13162577736 Fax: 8621-62933163; Email: zhaohuimtfy@163.com 11

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Hao Hu, Corresponding Author 14

Professor and Head of the Department of Transportation, Shipping and Logistics 15

School of Naval Architecture, Ocean and Civil Engineering 16

Shanghai Jiao Tong University 17

800 Dongchuan Road, Shanghai, P.R. China 18

Tel: 8621-62933091 Fax: 8621-62933163; Email: hhu@sjtu.edu.cn 19

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Word count: 5,454 words text + 8 tables/figures x 250 words (each) = 7,454 words 21

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Submitted to the Transportation Research Board 95rd Annual Meeting for Presentation and 27

Publication 28

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Submission date: November 15, 2015 30

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Zhao, Hu 2

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ABSTRACT 2

Global warming and retreat of ice cover in the Arctic region have made it possible to navigate via 3

Northern Sea Route (NSR) which will be a new passage in international shipping network and 4

bring changes to the maritime industry. However, the number of vessels choosing the NSR remains 5

extremely limited due to the variability of ice conditions and uncertainty of the economic 6

feasibility of the route. In order to evaluate the potential and feasibility of NSR, this paper presents 7

the real voyage of YONG SHENG which passed through the NSR in 2013. The navigation 8

conditions, administration and icebreaker escorting service of the route are firstly analyzed. The 9

voyage of YONG SHENG is then evaluated and compared with the conventional Suez Canal Route 10

(SCR) in terms of cost and environmental benefit. It is concluded that the total cost of a voyage is 11

saved and the carbon emission is also reduced by using NSR. Although the limited navigable time 12

and uncertain conditions may undermine the advantage of NSR, it is reasonable to consider NSR 13

as an alternative route to save time and cost, which makes the new route important to the 14

competitiveness shipping companies. The primary conclusion of this paper can assist ship owners 15

or operators to make strategies on NSR service. 16

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Keywords: Northern Sea Route, Economic Evaluation, YONG SHENG, Ice Conditions, 21

Icebreaker Escorting 22

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Zhao, Hu 3

1． INTRODUCTION 1

The Arctic Sea Route (ASR) is a route across the Arctic Ocean which connects the main trading 2

markets of Asia, Europe and North America. This route consists of two paths: the Northern Sea 3

Route (NSR) and the Northwest Passage (NWP). Compared to Panama Cannal, Suez Canal 4

Route (SCR) or Cape of Good Hope, shipping through the Arctic Sea could obviously reduce 5

distance and avoid some piracy-prone areas, e.g., Somalia and Gulf of Aden. For ports at high or 6

medium latitude, the advantage of saving distance is significant. For example, the voyage from 7

Shanghai to Rotterdam via NSR is approximately 7869 nautical miles in comparison with the 8

SCR at 10450 nautical miles (FIGURE 1). These advantages of NSR contribute to a safer and 9

more flexible maritime network (1). 10

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FIGURE 1 Suez Canal Route and Northern Sea Route. 14

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Since 1990s the increasing ice-free season and the development of ice-strengthened ships 16

and Arctic seaports has promoted the NSR transit transport. NSR may become the new lane in 17

international shipping network with the highest commercial potential in the near future (2). Some 18

studies have looked into the ASR from perspective of economic evaluation and feasibility. As 19

Lasserre summarized in his study in 2014, there were about 26 articles studied on the economic 20

simulation of ASR from 1991 to 2013, most of which were about container shipping and transit 21

transport (3). Verny and Grigentin firstly created a ship schedule for liner shipping via NSR and 22

compared unit cost of the container transportation links between China and Europe. They 23

concluded that the golden route through Suez Canal was still by far the least expensive option 24

and Northern Sea Route was one of the second-tier alternatives. Instead of comparing cost, Liu 25

and Kronbak evaluated the profit of shipping through ASR and conducted sensitivity analysis on 26

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the fuel cost, ice-free season and ice-breaking fee (4). Unlike the studies that did not specify any 1

shipping mode (liner shipping or voyage charter), Xu et al. assumed container liner shipping via 2

Northern Sea Route with fixed ship number and indicated that the cost a conventional container 3

ship can save on Asia-Europe service via NSR (5). Schøyen and Bråthen studied about bulk 4

cargo transportation instead of container shipping and firstly discussed how the ASR makes 5

supply chain more efficient (1). Furuichi and Otsuka established a NSR/SCR-combined route 6

and compared the cost, capacity, transit time and emission of the two routes on a common 7

platform. It was concluded in this study that NSR/SCR-combined shipping may be economically 8

feasible if ice-free season is long (6). Zhao et al. evaluated the economic benefit of NSR in a 9

context of network designing and proposed the optimized combination of ports on NSR liner 10

service (7). Pierre and Olivier studied NSR from the aspect of spot freight rate to fuel ratio and 11

discussed its impact on the decision of shipping route for bulk carriers. It is also found in the 12

study that the internalizing NSR environmental benefits marginally improved the attractiveness 13

of the NSR (8). 14

These literature promoted the study on feasibility of ASR and provided constructive 15

comments on the future of ASR shipping. However, most of the existing studies are about 16

assumed voyages and draw long-term conclusions which may have limited values for shipping 17

companies to make short-term strategies. Besides, almost no literature study on real examples of 18

NSR navigation which is important for operation of maritime ervices via NSR. Instead, this 19

paper evaluates NSR based on a real voyage and provides straight information of navigation on 20

NSR, which is more practical and useful for ship owners and operators to make decisions by 21

looking into a real world example. 22

The paper is organized as follows. The first section introduces background of this paper 23

and summarized the recent conditions on NSR. Then the basic information of a real voyage via 24

NSR is reviewed. Based on the information, the economic and environmental benefits of the 25

voyage is estimated and discussed. Finally, concluding remarks are presented. 26

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2．VOYAGE ON NSR 28

NSR can be entered from west through the Straits Yugorskiy Shar and Karskiye Vorota, or by 29

passing North of Ostrova Novaya Zemlya around Mys Zhelaniya, and from East through the 30

Bering Strait. The NSR extends for about 3000 miles, but the factual length of the route in each 31

particular case depends on ice conditions and on the choice of passage. The key elements for 32

navigation via NSR are briefly summarized. 33

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2.1 Ice conditions 35

The main factor that influences navigation via NSR is presence of ice (9). Annual and seasonal 36

variability of ice conditions is typical for all areas along the NSR. However, in the last two 37

decades, the thaw of sea ice is accelerated by global warming and the changing patterns of wind 38

caused by exceptional air pressure (10). The icecap in September is predicted to be under 1 39

million km2 in 2040 by the Intergovernmental Panel on Climate Change Fourth Assessment 40

Report (IPCC AR4). The melting icecap has provided a navigable route for commercial ships in 41

summer and a feasible route in winter time with escorting from icebreakers. Conventional 42

navigation season for transit passages starts approximately at the beginning of July and lasts 43

through to the second half of November. It can be seen from FIGURE 2 that most zones along 44

the route are ice-free (the blue zones) in late July. 45

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FIGURE 2 Ice Conditions of NSR in late July. (Source: NSRA) 3

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2.2 Administration of NSR 5

Since the ice conditions allow most ice-strenthened vessels navigate via NSR duiring summer 6

time, the route opened for international transit shipping from 1987 under a series of laws and 7

regulations. In 1991, the Regulations for Shipping on the Northern Sea Route, approved by the 8

Department of Navigation and Oceanography of Russia, was adopted and made great 9

contribution to commercial use of NSR. The regulations were amended in 2004 to a new version 10

which added tariffs of icebreaker service and authorized Marine Operations Headquarters 11

(MOHQs) to arrange the transport along NSR. Thus, before passing through NSR, official 12

permission must be obtained by submitting the request information to the Northern Sea Route 13

Administration (NSRA). The administrative procedure of entering NSR is more complex than 14

passing the Suez Canal. Additionally, ships must be inspected for ice worthiness, which is paid 15

by the ship owners. Shipping along NSR is actually controlled and supervised by Russia 16

authorities whose manage scope includes scheduling, route planning, navigational support and 17

pilotage assignment. 18

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2.3 Icebreaker escorting 20

To prevent accidents and pollution, Russian icebreaker escorting in some zones of NSR is 21

mandatory, even for the ice class ships that can independently navigate in ice water. The Federal 22

Service For Tariffs Order signed in 2014 prescribes that the tariff is charged based on 23

characteristics of the ship and navigation plan. This tariff now is at a quite high level in 24

comparison with Suez Canal Toll, but was lower in the golden time of NSR in late 1980s and 25

Zhao, Hu 6

early 1990s, during which time the traffic volume via NSR reached the top of 6.58 million tons a 1

year. In those two decades, the ice-breaking charge was below 4 USD per ton but is quite enough 2

for the expenditure of operating a icebreaker fleet (4). Since 1990s, cargo volume on NSR 3

declined, thus the ice-breaking charge was increased to maintain the icebreaker fleet. Hence, the 4

history of low icebreaker fee implies that the tariff could be reduced again if the revenue of 5

icebreaker is increased by raising traffic volume on NSR or by subsidies from government, 6

which will be a good news for shipping companies. 7

In summary, after the issuing of laws and the establishing of NSRA in 2013, the 8

procedures of entering NSR and icebreaker escorting service is well managed by the Russian 9

government which has contributed to the safety of ships and protection of the Arctic ecosystem. . 10

However, the accessibilibty of NSR is still uncertain due to the variability of ice conditions, 11

unstable political environment and poor marine infrastructure. 12

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3．VOYAGE OF VESSEL YONG SHENG ON NSR 14

YONG SHENG, owned by China Ocean Shipping Company (COSCO), is a multipurpose vessel 15

with deadweight at 19461 tons, length at 155.95m, width at 23.7m, draught at 8.5m and design 16

speed at 14 knots. The vessel was built in 2002 at ice class ARC4 (1A). YONG SHENG 17

conducted her first navigation from Taicang to Rotterdam via NSR during August 15th to 18

September 10th in 2013, which is the first attempt for COSCO to use NSR and provide a good 19

example for NSR navigation. 20

The ship loaded 14541.207 tons of rolled steel (delivered to Anshan Iron and Steel Group 21

Corporation in Rotterdam) on August 9th, 2013, at Dalian Port and added extra 2199.225 tons as 22

well as 155 pieces of large facility in Taicang. As depicted in FIGURE 3, this voyage via NSR 23

passed through Bering Strait, Chukchi Sea, De Long Strait, East Siberian Sea, North New 24

Siberian Islands, Laptevykh Sea, Vilkitskogo Strait, Kara Sea, North Novaya Zemlya and 25

Barents Sea. 26

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FIGURE 3 Voyage of M/V YONG SHENG. 3

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The ice conditions of NSR in August is better than other moths of a year, thus most of the 5

commercial ships entered NSR in August. The ice of most seas along NSR in August is easy for 6

navigation except for the East Siberian Sea with medium ice condition (FIGURE 4). Though 7

easy ice means the zones are navigablet, the water areas allowed for independent navigation is 8

limited. The conventional zones allowed for independent and escorted navigation of ARC4 (1A) 9

ships are shown in TABLE 1, but this scope may be changed according real ice conditions. 10

During the leg in high ice conditions, YONG SHENG was escorted by the icebreaker 50 11

LET POBEDY which is a Russian Arktika-class nuclear-powered icebreaker and also the largest 12

nuclear-powered icebreaker in the world. The icebreaker is designed to break through ice up to 5 13

meters (16.4 feet) thick, which can provide a smooth channel for ships passing through NSR. 14

According to the rules of navigation in the water area of the Northern Sea Route, which is 15

approved by the Ministry of Transport of Russia, YONG SHENG was allowed to conduct 16

independent navigation in water areas except for East Siberian Sea. Thus the icebreaker service 17

started on August 28th before entering East Siberian Sea, crossed the Laptev Sea and ended on 18

September 2nd when the ship arrived at approximately the middle of Kara Sea and headed for 19

Novaya Zemlya (FIGURE 3). In addition to the icebreaker service, ice pilotage of vessels is also 20

provided to ensure safe navigation and prevent accidents at sea, as well as to protect the marine 21

Zhao, Hu 8

environment in the NSR water area. YONG SHENG had two pilots from 50 LET POBEDY to 1

lead her navigation through ice areas when she transited the NSR following 50 LET POBEDY. 2

However, if the captain of a ship has no experience of navigation on ice waters, ice pilotage is 3

compulsive and necessary. 4 5

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FIGURE 4 Ice conditions of NSR in August. (Source: NSRA) 8

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TABLE1 Allowed Navigation Zones of ARC4 Ships in Context of Different Ice Conditions 11

(Source: NSR Information Office) 12

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Zone Independent navigation Navigation with Icebreaker

The Kara Sea, west M,L H,M,L

The Kara Sea, east M,L H,M,L

The Laptev Sea, west L M,L

The Laptev Sea, east L M,L

The East Siberian Sea, west L M,L

The East Siberian Sea, east L M,L

The Chukchi Sea M,L M,L L - Light ice condition. M - Medium ice condition. H - Heavy ice condition 14 15

The speed of ship and the escorting of icebreaker is largely influenced by the ice 16

conditions. When YONG SHENG entered water areas east to Siberian Islands, the ice condition 17

was about 3/10 to 4/10, in which the YONG SHENG ship can maintain a speed at 10 knots to 13 18

knots even without the escorting of icebreaker. But when the ship reached Kara Sea, the ice 19

condition was at 7/10 to 8/10 with about 0.8-1.5 meters thick (some reached 4 meters) and the 20

speed declined to 8 knots. If the ice condition is at 4/10 or 5/10, the ship was requested to 21

maintain a distance about 0.7 nautical miles after the 50 LET POBEDY and navigate in the wake 22

of the icebreaker, while the distance was reduced to 200 meters when the ice condition was up to 23

7/10 because the floating ice will fill the channel if the ship is far from the icebreaker. But there 24

Zhao, Hu 9

is no worry about tailgating because the icebreaker can increase the speed in about 5 seconds and 1

avoid collision when ship reach too close. 2

As described by many literature, meteorological and hydrologic data of NSR is limited, 3

which makes the voyage of YONG SHENG an exploratory and challenging one. According to 4

our interview with senior officers of COSCO, the relevant information for navigation is provided 5

by the State Oceanic Administration of China before the trip and supplemented by the detailed 6

and real-time data from NSRA and the icebreaker, which YONG SHENG referred to estimate the 7

ice and weather conditions. 8

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4．EVALUATION OF THE VOYAGE ALONG NSR 10

4.1 Shipping Cost Estimation Model 11

Much literature has estimated the costs of shipping lines via NSR based on assumed cases, which 12

is prospective and valuable. But the cost of real shipping cases via NSR may be much more 13

complicated than their assumption in terms of ice-breaking tariff, fuel cost and operational cost. 14

This paper utilize a Shipping Cost Estimation Model (SCEM), including estimation of 15

depreciation cost, voyage cost and operational cost, to estimate the cost of YONG SHENG’s 16

voyage. 17

To show the difference between NSR and SCR, we assume a parallel voyage of YONG 18

SHENG through SCR with same port and cargoes, thus the cost of two voyages via two routes 19

can be compared on the same platform. The port-related and cargo-related cost of the two routes 20

are same, e.g. port tariff and handling cost, thus these kinds of costs are excluded from the model 21

and we only calculate the costs that distinguish NSR and SCR including depreciation cost, 22

voyage cost and operational cost. 23

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4.2 Depreciation Cost 25

Straight-line depreciation and declining balance are two methods that are commonly used to 26

calculate depreciation cost of ships. In this paper, we assume to use the straight-line method 27

which is easy and practical without decrease the accuracy of the results. According to COSCO’s 28

regulations of depreciation for fixed assets, the economic lifetime for ship is 24 years with scrap 29

value equal to the price of steel after ship scrapping. The price of steel scrap in 2015 is about 260 30

USD per Light Displacement Ton (LDT) in Chinese ship scraping market (11). As the LDT of 31

YONG SHENG is 25904 ton, the scrap value is estimated to be 6.74 million USD (12). This 32

value may be changed with scraping market but have little influence on the result of 33

comparision. 34

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4.3 Operational Cost 36

Operational costs are ongoing expenses relative to the day-to-day running of the vessel, 37

accounting for about 14% of the total costs (13). The principal components of operating cost are: 38

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=OC M MN I AD (1) 40

where M is manning cost, MN represents routine repair and maintenance, I is insurance and AD 41

is administration. The operating cost on NSR and SCR is quite different because of some special 42

requirements for navigating on NSR e.g. recuiting specially trained crew, unavoidable damage of 43

ship hull from ice and high premium in ice water. According to our interview with some senior 44

officers of COSCO, we estimate the operational cost of YONG SHENG based on a year-round 45

shipping via SCR and a seasonal shipping via NSR respectively (TABLE 2). 46

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TABLE 2 Estimated Operational Cost of YONG SHENG via NSR and SCR 2

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Item NSR SCR Remarks

Crew 0.826 0.751 million USD/Year

Maintenance 0.320 0.267 million USD/Year

Insurance 0.118 0.095 million USD/Year

Management 0.107 0.098 million USD/Year

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4.4 Voyage Cost 6

Voyage cost, which is the variable cost incurred in undertaking a particular voyage, consists of 7

fuel cost, port cost, cargo handling cost and disbursement for canal or other service and accounts 8

for about 40% of the total costs (13). In this paper, only the fuel cost and icebreaker escorting 9

tariff or Suez Canal Toll are estimated, which distinguish the cost saved by NSR. 10

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(1) Fuel Cost 12

Fuel cost occupies large part of voyage cost (13; 14). The fuel consumption per trip is derived 13

from the fuel consumption rate (deduced from fuel consumption rate of unit power of a main 14

engine, the number of engines a ship has and ship speed) and the transit time per trip. Fuel price 15

is assumed at 580 USD per ton based on fuel price of China in the first half of 2015 (15). The 16

power of the main engine of YONG SHENG is 7860kw/10686HP with rotational speed at 17

129rpm. Based on the data of engine, the average fuel consumption for the voyage from Taicang 18

to Rotterdam via SCR and NSR is about 880 tons and 650 tons respectively. 19

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(2) Suez Canal Toll 21

The Suez Canal Toll is charged based on ship’s type, status, draft, beam, Suez Canal Net Tonnage (SCNT) 22

and Suez Canal Gross Tonnage (SCGT). The toll for YONG SHENG in this paper is calculated using the 23

official Toll Calculator published by the Suez Canal Authority (16). 24

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(3) Ice-breaking Fee 26

In accordance with the rules of navigation on NSR, approved by the Ministry of Transport of 27

Russian, tariffs is applied to pay for the ice-breaking service rendered by icebreakers, which 28

depends on the ship’s capacity, ice class, distance of escorting and navigation period. 29

The NSR is divided into 7 zones to calculate the distance of escorting service of 30

icebreaker, which determines the rate of the tariff. The 7 sections of the NSR are south-western 31

part of the Kara Sea (Kara Strait, Novaya Zemlya, meridian 68°35' E in the west and meridian 32

79°00' E in the east), north-eastern part of the Kara Sea (meridian 79°00' E in the west and 33

meridian 105°00' E in the east) , western part of the Laptev Sea (meridian 105°00' E in the west 34

and meridian 125°00' E in the east), eastern part of the Laptev Sea (meridian 125°00' E in the 35

west and meridian 140°00' E in the east), south-western part of the East Siberian Sea (meridian 36

140°00' E in the west and meridian 160°00' E in the east), south-western part of the East Siberian 37

Sea (meridian 160°00' E in the west and meridian 180°00' E in the east) and Chukchi Sea 38

(meridian 180°00' E in the west and meridian 168°58'37’’ W in the east). In addition to zones, 39

two time periods are applied to the tariff rate: summer-autumn period of navigation (1 July to 30 40

November) and winter-spring period of navigation (1 December to 30 June). The main areas and 41

zones and the tariff rate list applied for YONG SHENG (ARC4 with Gross Tonnage at 14357) 42

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are shown in FIGURE 5. A tariff rate at 10.94 USD per Unit of vessel’s gross tonnage was for 1

YONG SHENG which navigated through 5 zones in the summer-autumn period (FIGURE 2). 2

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Number of zones passed 1 zone 2 zones 3 zones 4 zones 5 zones 6 zones 7 zones

Tariffs Rate (USD/Ton) 6.08 7.29 8.51 9.72 10.94 12.15 12.15

* 0.017 USD/RUB exchange rate in July 2014. 6

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FIGURE 5 Division of Zones and Tariffs Rate for ARC 4 Ship (Gross Tonnage from 10001 8

Up To 20000) In Summer-Autumn Navigation Period. (Source: NSRA, Federal Service on 9

Tariffs of Russia) 10

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4.5 Emissions 12

The emissions are estimated according to 2006 Intergovernmental Panel on Climate Change 13

(IPCC) Guidelines for National Greenhouse Gas Inventories, which proposes a method to 14

estimate the emission as a function of fuel type and fuel consumption. Three greenhouse gases 15

namely carbon dioxide, methane and nitrogen monoxide are included in the calculation, the 16

emission factors of which are 77400 kg/TJ, 7 kg/TJ and 2 kg/TJ respectively in accordance with 17

IPCC. The emission of greenhouse gases of NSR and SCR are calculated based on the fuel 18

consumption and the emission factors. 19

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4.6 Results and Discussions 21

The cost of YONG SHENG via NSR and SCR is compared in TABLE 3. It can be seen 22

from TABLE 3 that the advantage of NSR on saving cost and time is obvious. The navigation 23

time of NSR is 26 days which is more than 9 days shorter than that of SCR because the NSR 24

save about 2807 nautical miles of navigation distance. The short voyage time means low fuel 25

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consumption, thus save the fuel cost by 0.236 million USD, which is a significant advantage if 1

fuel price is high. The ice-breaking fee for YONG SHENG is at 0.157 million USD, which is 2

higher than that of Suez Canal Toll at 0.102 million USD, but the gap is small to be covered by 3

other cost saved. For the operational cost, the annual cost of NSR is higher than that of SCR, 4

however, the average cost apportioned to a single voyage on NSR (0.098 million USD) is lower 5

than the cost to voyage via SCR (0.117 million USD). Thus the total cost of NSR voyage is at 6

0.742 million USD and lower than the the cost of SCR at 0.883 million USD, which prove the 7

potential of NSR in a single voyage. In addition to the economic efficiency, the voyage on NSR 8

also contribute to the environmental benefit. The emission of greenhouse gases CO2, CH4 and 9

N2O is decreased because of reduction on fuel consumption, which is beneficial to the 10

sustainable development and mitigation of global warming. Furthermore, there is still appeal of 11

carbon tax from ships, which will occupy a large amount in the shipping cost if come into effect. 12

The decrease of carbon emission will benefit the shipping lines via NSR by saving the tax. 13

This specific case of YONG SHENG is typical for transit transportation of bulk or 14

general cargo via NSR in the past decades since the issue of the latest regulations. The record 15

from NSRA shows that there are 31 transit voyages via NSR in 2014, and 8 of them are general 16

cargo ship while 13 are tankers. 19 of the 22 commercial ships are between 6000 to 30000 Gross 17

Tonnage, similar to YONG SHENG. Some general conclusions may be draw from this specific 18

real case. Firstly, sailing via NSR can save time and distance. However, SCR is still the best 19

choice for ports at low latitude such as HongKong, Algeciras and Singapore which are located 20

near Suez Canal. Secondly, the most important economic advantage of NSR is saving fuel cost, 21

which consists more than half part of voyage cost (TABLE 3). This is caused by short sailing 22

distance and relatively low speed, which is general for nearly all kinds of ships. The emission of 23

carbon will also decrese with the consumption of fuel. Thirdly, the tariff rate of ice-breaking in 24

last decade is higher than Suez Canal Toll in the same time. But the extra charge may be covered 25

by fuel cost saved, especially when the fuel price is high. Furthermore, the difference of the 26

voyages via NSR and SCR is not significant in terms of operational cost and depreciation cost, 27

but there may be an obvious difference of these costs if some charges, e.g.insurance and 28

maitainance, changed significantly, which may be true because the there are uncertain risks for 29

navigation via NSR. 30

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TABLE 3 Estimated Cost and Emissions of YONG SHENG via NSR and SCR 32

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Item NSR SCR Remarks

Navigation Time 26.0 35.4 day

Navigation Distance 7800 10607 nautical mile

CO2 Emission 21130 28734 Ton/Voyage

CH4 Emission 1911 2599 Kg/Voyage

N2O Emission 546 742 Kg/Voyage

Depreciation Cost 0.111 0.151 million USD/Voyage

Fuel Cost 0.377 0.513 million USD/Voyage

Suez Canal Toll --- 0.102 million USD/Voyage

Ice-breaking Fee 0.157 --- million USD/Voyage

Voyage Cost 0.534 0.615 million USD/Voyage

Operational Cost 0.098 0.117 million USD/Voyage

Total Cost 0.742 0.883 million USD/Voyage

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NSR shows a primary advantage of saving cost for a single voyage, but the risks and 1

variability of NSR still exists which may undermine the advantage of saving cost and time. 2

Firstly, the cost may not be saved in winter times during which the icebreaker escorting tariff is 3

high. Furthermore, the Russian regulations applied to NSR shipping is variable, which may make 4

the procedures and charges on NSR uncertain. Secondly, there is also risks brought by 5

uncertainty of navigation conditions, which may cause delay of ships and damage of cargoes. For 6

example, if YONG SHENG was trapped by ice, it may take days for icebreaker to rescue her, 7

which cause extra payment. The variable distribution of sea ice may force the ship to deviate and 8

spend more time on her voyage, thus may cause delay of cargo delivery and related penalty. This 9

kind of deviation may also lead to the increase of fuel consumption and fuel cost. Although these 10

contingent costs may not occur, it is necessary to consider them and makes contingency plan 11

against these uncertainty. Thirdly, the Polar Code will come into effect, which includes 12

requirements for well-trained crew, special equipment, required certification of ships. The new 13

stipulation may cause extra cost and uncertainty of NSR shipping service. Moreover, the draft of 14

some channels and straits along NSR is not enough for large ships, which prevent the shipping 15

company take advantage of economies of scale (17)The variability of NSR has prevented the 16

ship actors take actions to use the new route for regular service, which is one of the reasons for 17

little cargo flow through NSR (18). 18

Thus, it is essential to improve the navigation environment and infrastructure on NSR to 19

make the route accessible to all the shipping companies (19). Firstly, the construction of ports 20

along NSR should be promoted for ship bunkering or cargo distribution. The system for 21

assistance and salvage at sea should also be promoted, thus guarantee the safety of the ships and 22

cargoes. Secondly, it is important to maintain a stable political environment and normalize the 23

procedures of NSR navigation to attract commercial transport. The recent regulations of NSR are 24

issued by the Russian authorities and may include little requirement of international shipping 25

actors about the use of NSR or the ice-breaking service, thus more negotiations and cooperation 26

are needed to make the legislation about NSR an international one by considering the demand 27

and appeal of maritime industry (20). 28

Although the NSR is rarely used by commercial shipping, it will have a large strategic 29

influence on the shipping companie. Recently, NSR is not feasible for year-round commercial 30

shipping due to the short navigable time and high uncertainty, but it is an important alternative 31

line for ships, especially in summer time, to save time and cost, which will benefit the company 32

in the long term. In the future, NSR may be a force that will drive the redistribution of 33

international shipping network and change the layout of hub ports, which is the same as the open 34

of Suez Canal in the history and deserve attention from the shipping industry (21). For the short 35

term, polar classed vessels remains the most important factor for Arctic navigation, thus shipping 36

companies could make the plan of building ice-strengthened ships and training crews for 37

preliminary preparation of NSR navigation. 38

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5. CONCLUDING REMARKS 40

Due to global warming, the accelerating Arctic sea ice retreat has made the shipping on NSR 41

possible. The potential of distance-saving makes NSR a secret force to drive the changes in 42

maritime industry, which has attracted many commercial vessels navigate through NSR. 43

This paper evaluates the economic potential of NSR based on a real voyage of M/V 44

YONG SHENG. Firstly, the details of the ship and her voyage is analyzed to show the navigation 45

and administration condition of NSR. It is concluded from the real navigation data that NSR is 46

navigable for the ACR 4 class (or above) ice strengthened ships in summer period for most of the 47

Zhao, Hu 14

water areas (6 of the 7 zones). Furthermore, if escorted by the icebreaker, ships can reach a speed 1

at more than 12 knots in ice condition of about 3/10 or 4/10 and no less than 8 knots even in 7/10 2

or 8/10 sea ice. There is a normative process of applying icebreaker service and detailed 3

information of ice conditions managed by the Russian authorities, which guarantees the safety 4

and reliability of the voyage. Secondly, the cost and emissions of YONG SHENG’s voyage is 5

estimated and compared with that of the voyage via SCR on the same platform. It is indicated 6

that NSR can save more than 9 days of voyage and approximately 225 tons of bunker oil on the 7

voyage from Taicang to Rotterdam. The operational cost and depreciation cost per voyage are 8

also decreased because of the short sailing time. Although the ice-breaking fee is higher than 9

Suez Canal Toll, the total cost of NSR voyage is lower than that of SCR, which makes NSR a 10

profitable alternative route especially in summer time. The emission of greenhouse gases CO2, 11

CH4 and N2O is also reduced, which bring environmental benefit and may save the carbon tax 12

cost in the future. 13

In spite of the great potential, regular commercial shipping via NSR may be not possible 14

due to the risks incurred by uncertainty of policy, weather, ice conditions and navigable time. But 15

the navigation and political environment of NSR can be improved by promoting the 16

infrastructure as well as enhance international cooperation on the administration of NSR. In this 17

regard, the future of NSR is optimistic and will have a significant influence on the strategies of 18

shipping companies, which indicates that it is time for marine logistics companies to consider 19

building ice-strengthened ships as well as attempting to operate shipping lines via NSR. 20

The M/V YONG SHENG started her second voyage via NSR on 22 July, 2015, from 21

Jiangyin Port. According to the interview with officers of COSCO, the ship will conduct a two-22

way voyage this time to collect more data about navigation in ice waters under the guide of 23

Guidances on Arctic Navigation in The Northeast Route which is issued by Maritime Bureau of 24

China in 2014. 25

26

27

ACKNOWLEDGMENT 28

We wish to acknowledge the help from China Ocean Shipping (Group) Company for providing 29

the necessary data and information in this paper. 30

This paper is supported by Shanghai Natural Science Foundation (14ZR1422400) and 31

Shanghai Jiao Tong University Foundation for Interdiscipline (13JCZ03). 32

33

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