Over the last couple of years, the Russian government has been upping its efforts to develop the historic Northern Sea Route (NSR) along Russia’s Arctic coastline. The NSR has many advantages over the Suez Canal, which is currently the main nautical artery connecting Europe to Asia. Despite this, the Russian government will need to invest billions of dollars in local infrastructure upgrades and service provision in order to make the NSR a viable alternative.
The NSR shipping route runs east from the Barents Sea along the Russian coast, through the Bering Strait, and then south into the Pacific Ocean. As such, it provides an increasingly attractive shortcut linking Europe to Asia, offering a route between the two continents that is approximately 30% shorter by distance than through the Suez.
The shorter distance translates into substantial cost savings — of 35%-45% — in terms of fuel. Meanwhile, the decreased travel time reduces salary costs per trip. It also boosts overall fleet capacity as individual vessel cycle time is lessened.
Other benefits associated with the NSR include lower carbon emissions and a lack of pirates, which has become a serious problem on southern routes in recent years. Moreover, Russia’s far north region contains a wealth of natural resources, which could also be exported along this route. The US Geological Survey has estimated that 70% of the world’s undiscovered natural gas is located in the Arctic, with the majority of that in Russia.
Historically, the harsh Arctic conditions have prevented greater use of the NSR. However, as global warming melts the Arctic ice, the route is becoming more navigable and potentially profitable. Over the past decade, rising temperatures have created larger swathes of open water on the route for longer periods than ever before.
A key advantage of the Suez is its year-round access. The NSR currently has a limited seasonal window of five months between July and November. In addition, while the Suez has multiple large ports along its route, there are currently no repair or fueling facilities appropriate for modern ocean vessels along the NSR.
Year-round cargo shipping along the NSR will require different and more complex physical infrastructure and support services than the current seasonal operation that is conducted in largely ice-free waters. For example, the NSR must ensure the provision of sufficient icebreaker assistance and other support services necessary to assist vessels in transit and keep the route open during harsh winters.
In addition, the Russian government will need to strengthen the overall administration and management of the NSR. Establishing this infrastructure and services network will take years and be very costly. Given the deleterious impact of lower oil prices on the Kremlin’s finances, this prospect is even more distant.
Nevertheless, the Russian government is taking increasing interest in developing the maritime route. The Kremlin has set up a Northern Sea Route Administration to regulate foreign shipping traffic through Russian Arctic waters and in the last few years has been re-establishing search and rescue posts as well as formulating plans to repair and expand ports along the Arctic coast. However, the challenges — especially the costs — remain immense, particularly against the current backdrop of economic hardship.
Firms that trade goods between Europe and Asia should explore the potential of making use of the NSR. They are advised to look into doing so early enough to reap the associated first-mover advantages — but not before infrastructure along the route is sufficiently developed to ensure economic and operational viability.
Jaspreet Sehmi is a Senior Economist in Dun & Bradstreet’s Macro Market Insight team. Based in the Marlow/United Kingdom, she covers Eastern Europe and Central Asia. She has an MSc in Economics from University College London.