Suez Canal Route vs. Northern Sea Route: A cost-benefit analysis



Wed, 29 Aug 2018 - 04:14 GMT


Wed, 29 Aug 2018 - 04:14 GMT

Shipping containers belonging to Hamburg Sud and Maersk companies are seen stacked at La Guaira port, in La Guaira, Venezuela, January 27, 2016. REUTERS/Marco Bello

Shipping containers belonging to Hamburg Sud and Maersk companies are seen stacked at La Guaira port, in La Guaira, Venezuela, January 27, 2016. REUTERS/Marco Bello

CAIRO – 29 August 2018: Although Maersk will be sending its Venta Maersk vessel to collect data from the Arctic sea route in the next few days, research has shown that the Suez Canal Route is more cost effective and will remain unaffected.

Maersk has explained in a press release that this is a one-off trial to collect data and try the path in real life. The company has explained that it will continue to sail through the Suez Canal route.

In the next few days Danish Maersk will be sending its Venta Maersk vessel loaded with Fish from Russia and electronic products from South Korea; the Venta Maersk, which will be the first container ship to go through the Arctic sea route, will collect scientific data. “Other types of vessels have already used it, including Maersk’s Chinese rival COSCO, according to the Arctic Institute,” explains Reuters’ Stine Jacobsen. The vessel will go from South Korea to St. Petersburg.

“The Northern Sea Route runs from Murmansk near Russia’s border with Norway to the Bering Strait near Alaska. Ships sailing it require a permit from Russian authorities,” according to Jacobsen.

Russia aims for this path to become the new Suez Canal.

Despite Maersk pointing out that the Arctic route has many challenges, some have excitedly and, to an extent, prematurely started to argue that the days for the Suez Canal are over, explaining that the other route will take less time, meaning more commodities can be sent. Although the time factor may be on the side of the Arctic route and the fact that climate change has played in favour of said route by melting sea ice and enabling ships to pass more easily, full-rounded research suggests that the Suez Canal will continue to be the best route to take and will remain a favourite.

The Venta Maersk, one of the most advanced and largest (3,600 20-foot container capacity) ice-class vessels, making a trip like this is seen as one of the expansion steps that Russia aims to do in the Northern Sea. “A well-respected company like Maersk sending a container ship through the Arctic, definitely signals there’s something there,” explains Malte Humpert, a senior fellow at U.S.-based think-tank Arctic Institute.

An evaluation

The Northern Sea route has one clear advantage over the Suez Canal route: Time. However, time is not the sole factor that shipping companies look at when they are choosing their route.

There are actually three ways to calculate this, according to researcher Tor Wergeland, who concludes that the Suez Canal is a better route: “Calculating the total transportation costs for using each route to obtain a $/ton cost estimate for each route;
calculating the total cost of setting up a regular service based on an assumed yearly quantity to be shipped; focusing on cost differences among the route alternatives.”

According to his research, “The first approach focuses on cost savings for the end user of transport. The second approach takes into consideration that saving time makes it possible to service a given amount of cargo with fewer vessels (trips) and is thus taking into consideration the capital costs of investing in vessels. The third approach is more used in a first commercial feasibility study, i.e. one explores the order of magnitude of cost savings to get a feeling for cost differences and to be able to do simple sensitivity tests.”

Thus, his research suggests that although the time taken could be less, there are more expenses needed in going through the Arctic route, as more ships are needed to get the sea ice out of the way during most of the year.

In line with this view, a Spokeswomen for Maersk said, “Currently, we do not see the Northern Sea Route as an alternative to our usual routes,” continuing, “Today, the passage is only feasible for around three months a year which may change with time.”

Another important factor to look at is the distance in nautical miles. The Suez Canal passes through the Canal and the Indian Ocean and comes up to 12.5 nautical miles; meanwhile, the Northern Sea route is 7.3 nautical miles long. This has led some to argue that the latter will cost less than the former, however, this is not true due to the fact that the former does not have ice caps and does not require extra vessels to clear the way; the latter does.

Understanding that there will be a need for extra vessels to clear the way is important because it decapitates another argument that is used in support of the Northern Sea route: Less money will be spent on the salaries and ships’ charter because of the reduction in travel time. However, this argument proves falls when we consider that vessels will be needed to clear up the way, meaning that there will be a need to hire people for these vessels—research has shown that there will be a need for a vessel in front of and after the main shipping vessel. This means that the amount that will be saved due to the reduction in travel time will be spent on the sister vessels that will ensure the way is suitable.

Moreover, there is a danger of hitting an ice cap or getting stuck between ice caps if there are no sister vessels. This gives us two choices: Either always ensure there are two sister vessels to clear the way; only use the route for three months every year; or, face the danger of getting stuck. The final option could cost shipping companies, as well as insurers, billions.

Perhaps the only positive factor that the Northern Route has is the lack of a queue.

The Northern Sea path comes as part of Russia’s economic development. “This is a matter of national pride ... if Russia wants to maintain strong, economic development, the Northern Sea Route is part of that,” Humpert said.

“Russian natural gas producer Novatek delivered the first ever liquefied natural gas (LNG) cargo to China via the Northern Sea Route in July,” writes Jacobsen.

However, Russia is not the only country that is competing with Egypt for its spot as the owner of the number shipping route in the world. In January, China also announced that it is working on establishing a “Polar Silk Road” by “developing shipping lanes opened up by global warming and encouraging enterprises to build infrastructure in the Arctic,” according to Jacobsen.



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