Ah yes, the fabled North-West passage beloved of freebooters, explorers and pirates of the 16th and 17th centuries. Modern ships can cope with some summer ice floes much better of course, but still the route over North America is really only viable for 6-8 weeks. So will the recent problems in the Straits of Hormuz lead to some Arctic shipping routes being used a bit more in future? Maybe, but what insurer would cover a risk of a tanker being stuck over winter and cargo being ruined, lives at risk, pollution from fractured hulls etc?
Here’s the word;
As the conflict in the Middle East and the blockade of the Strait of Hormuz are disrupting global trade, highlighting the vulnerability of major maritime corridors, Arctic routes are attracting growing interest as potential alternatives. In a new study, Coface shows that, over the next five years, their commercial potential will remain limited despite changes in navigation conditions due to climate change ( Amundsen sailed through in 1903-06 to prove you could make progress during 2 summer months – Ed).
Whilst they do not constitute a credible alternative for container transport, these routes may nevertheless offer significant benefits for certain commodity flows (including crude oil and gas), particularly US and Northern European exports to Asia.
Key figures:
– 80%: the share of maritime transport in global trade in goods
– 3.5%: the share of trade between East Asia and Europe or North America that could use Arctic routes within five years
Shorter routes in a strained global maritime system
Maritime transport accounts for over 80% of global trade, concentrated between three major regions – East Asia, Europe and North America – and structured around a limited number of strategic corridors. This concentration makes global trade particularly vulnerable to geopolitical shocks.
The disruptions observed in recent months in the Red Sea, combined with tensions around the Strait of Hormuz and changes in international trade policy – particularly US policy – highlight this vulnerability. In this context, Arctic routes appear to be a theoretical alternative, significantly reducing distances – by up to 40% between East Asia and Northern Europe, and by around 20% to the east coast of North America. Their increased navigability due to climate change raises the question of their economic viability.
THE HUNT FOR RAW MATERIALS
Raw materials will probably be the biggest driver of any regular cargo expansion in the Northern Hemisphere, as nations try to secure gold, silver, Alaskan oil/gas, timber, iron ore and more for industrial processes.
As Coface notes, Certain sectors could nevertheless benefit. This is particularly the case for industries linked to cereals, energy, metals and timber.
How should thisbe interpreted?
7% of the value of goods exported from North America to East Asia could be transported via Arctic routes. This amounts to $22 billion: $6 billion in dry bulk and $16 billion in liquid bulk.
Bulk exporters based on the US North-East coast or in Northern Europe could thus improve their competitiveness in Asian markets thanks to lower transport costs and reduced transit times. Conversely, certain competitors in South America (Brazil with iron ore, Chile with copper) or Africa (the Democratic Republic of the Congo with certain minerals) could see their relative transport competitiveness decline.
Beyond producers, certain countries heavily reliant on traditional routes could also be left vulnerable. Egypt and Panama, where revenue from their canals accounts for a significant share of GDP, are particularly exposed. Some major port hubs for AsiaEurope trade, such as Singapore or, to a lesser extent, Jebel Ali, could also see their strategic role called into question if part of the trade flows were to shift northwards.
The risk for these port hubs is, however, a longer-term one, as Arctic shipping is not expected to open up to container trade by 2030.
Read the full report here
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