Wednesday, August 14, 2013

The opening of the fabled Northeast Passage presents new shipping options

Europe is one of China’s largest trading partners with trade between the two partners valued at about $500bn in 2012. Changing modes of transport have made recent news as transport providers and shippers experiment with rail and trucking alternatives between Europe and Asia. Now, sea freight routes may be in the midst of change.

In 1869, the Suez Canal revolutionized trade between Europe and Asia. Previously, ocean vessels had to travel the length of Africa and back up the continent. Today, another alternative appears to be in the making – the Northeast Passage – thanks to climate changes.

Cosco has recently launched a freighter from Dalian through the Bering Strait en route to Amsterdam. Transit time is anticipated to be about 12-15 days less than if the freighter traveled by way of the Suez Canal.

The drawback of this route is that it is only navigable 2-4 months of the year because of the ice. However, there is quite a bit of interest in this route as 46 ships utilized it in 2012 compared with four in 2010. Russian authorities have reportedly granted 372 permits to ships this year. In fact, it is estimated that up to 15% of Chinese foreign trade could use the arctic route by 2020. Additional benefits of this route include the opening of Russian oil fields to foreign trade as well as fishing in international waters that were not previously accessible.

With over 19,000 ships passing through the Suez Canal each year, industry experts say it will be some time before the Northeast Passage rivals the Suez Canal in terms of traffic. However the recent events in the Middle East as well as concerns of piracy off the coast of Africa, has increased concerns of supply chain security along this route. On the other hand, travel through Russian waters could also present risks due to possible instabilities in the Russian economy and its political environment.

Regardless, the possibility of an additional trade route between Asia and Europe is welcomed news in the shipping community and one that will offer an alternative choice for shippers for this important tradelane.