No Longer Sailing South?

The Suez Canal is still the most efficient route to transport large amounts of cargo between Asia and Europe.

However, due to the melting of sea ice in Arctic regions, ships are able to sail faster from East Asia to Western Europe by taking the Northeast Passage. Furthermore, the development of a railway connecting China with Europe enables another way for goods to be transported faster between East and West.

Can these quicker trading routes cause a shift in the transport of cargo among Asia and Europe? And what kind of opportunities can these alternative ways of transportation bring to the Dutch maritime sector?

Over the past decades climate change has led to higher temperatures in the Northern Arctic. As a result, the amount of sea ice has decreased significantly, making the Arctic waters above Russia better navigable. Maritime companies, especially shipping companies, have an interest in the development of a Northeast Passage as it shortens the trade route between East Asia and Western Europe.

When compared to the conventional Suez Canal route, the Northeast Passage has the potential to greatly diminishes the sailing distance. For example, ships departing from Shanghai, Yokohama or Busan to the destination Rotterdam are able to decrease their journey by 2,511 to 4,122 nautical miles, which is about 25-37 per cent.

Significant increase Before the year 2008, the Northeast Passage was rarely used as a maritime route between Europe and Asia. Shipment of dry cargo in the Arctic waters above Russia was mainly domestic.

However, between 2008 and 2016, the amount of ships using the Northeast Passage for international shipping significantly increased. From only a few vessels a year in the early 2000s to an annual average of 41 vessels between the period 2011-2016.

Though this is a significant increase, it is just a fraction in comparison to the approximate 17,000 vessels that annually pass the Suez Canal. Therefore, there have to be other factors besides shipping distance that play a role for shipping companies to choose a trade route.

The Arctic route actually brings a series of challenges that undermines the economies of scale achieved by large containerships. First of all, the coastal route of the Northeast Passage has shallow bathymetry. The Sannikov and Dmitry Laptev Straits have depths of about 13 and 7 metres, which limits the maximum cargo size per ship to approximately 2500-4500 TEU.

Second, the Suez Canal offers greater predictability to shipping companies since it is navigable whole year-round. Vessels which use the Suez Canal do not have to depend on the season and on the assistance of ice breakers.

Third, the limited amount of ports for maintenance and support and the absence of highly populated coastal areas are a disadvantage of the Northeast Passage. Container ships rarely unload all cargo at a single destination, but visit several large ports on their voyage to distribute cargo.

COSCO breaks the ice

On September 10, 2013 the Chinese vessel Yong Sheng arrived in the Port of Rotterdam and became the first container ship to complete a voyage through the Arctic. By using the Northeast Passage, the journey of the Yong Sheng from Shanghai to Rotterdam was approximately 9 days and 2,800 nautical miles shorter in comparison to the traditional Suez Canal route. As a result, China Ocean Shipping (Group) Company, also known as COSCO, is taking the lead among shipping companies to use the Northeast Passage as a new cargo route for Euro-Asia trade.

In a press release article, COSCO advocates that the Northeast Passage brings numerous advantages to shipping companies. First, shipping companies can cut costs by choosing the Arctic route instead of the shipping through the Suez Canal.

“Enormous expenditures on fuel, canal transit, and security can be saved.”

Also shipping companies can promote energy conservation as the Northeast Passage reduces fuel use and emission by about 35 percent. While COSCO sent five vessels through the Arctic Ocean in 2016, it is yet a fraction of COSCO’s fleet which consists of approximately 700 modern merchant vessels.

Economic lure Michiel Nijdam, corporate strategist at Port of Rotterdam, views the Northeast Passage as a niche market for shipping.

“Because of its shallow depths, the Arctic Ocean is economically not interesting for container shipping. However, the Northeast Passage does bring new possibilities for the transport of natural resources. Bulk carriers and tankers are able to easier transport minerals, metals and oil from Northern Russia to China, Japan, Scandinavia, and even the Netherlands.”

Nevertheless, Nijdam does not expect the Northeast Passage to create a significant increase of shipping activity to the port of Rotterdam.

While the potential of the Northeast Passage to compete with the Suez Canal as a major trading route between Asia and Europe is limited, the Arctic Ocean does offer various other business opportunities.

“The Arctic waters create opportunities for Dutch companies in the fields of offshore, ship building and port construction. Take for instance BigRoll, an innovative provider of heavy marine transportation solutions located in Leiden. They have successfully delivered four deck carriers to the Yamal LNG (Liquefied Natural Gas) Project, which is located in the middle of the Northern Arctic Route. BigRoll constructed these carriers specifically to operate in the Arctic Waters, and are therefore equipped with Finnish Swedish 1A Ice Class,” Nijdam said.

New Silk Road

In 2013 the Chinese government announced its policy of ‘One Belt, One Road,’ an initiative of China to enhance international trade by improving its transportation network. As most trade routes were based on China’s historical silk road network, this program was quickly dubbed the ´New Silk Road.’

One of these routes, an overland connection between China and Europe, was however never realized before. Nevertheless, the Chinese government invested heavily in the development of a railway system and within a few years the first trains started running.

Nowadays there are about 2 to 3 trains a week operating from Chengdu – Tilburg – Rotterdam. With a transit time of approximately 14-17 days, the New Silk Way offers a quicker transportation route than by sea, which takes 5-6 weeks. The increase of cargo transport between Asia and Europe by train is the result of manufacturers and transport companies to explore new opportunities.

Within China, ‘the factory of the world’, many manufacturers are shifting their production from coastal areas to inland regions to save costs on labor and land. As a result, the New Silk Road is becoming more accessible to Chinese makers.

On the other hand, European companies are also jumping on the bandwagon. Royal Wagenborg, as one of the founders of New Silk Way Logistics, took an active role in connecting the Netherlands to the rail line between Germany and China.

According to Paul Bakker, Manager Business Development at Royal Wagenborg, the New Silk Road is interesting for return cargo from the West to the East.

“At the moment there is a large trade imbalance between China and Europe. Full containers from China arrive daily in Europe, but filling these containers with return cargo still remains a challenge. Since these containers eventually have to return to China, shipment prices are limited. Taking the cost and transit time of cargo into account, rail transport can be more cost efficient than air freight and sea freight.”

The New Silk Road is thus a beneficial alternative for companies which wish to ship their products between Europe and Asia within a few weeks, but are not willing to pay the expensive air freight charge.

Royal Wagenborg sees also other business possibilities in the New Silk Road besides export. Short sea shipping is mentioned as an example by Bakker.

“Products arriving from Europe in China by train can be shipped further to Japan or South-Korea. Otherwise, cargo arriving in Rotterdam, the end station of the New Silk Road, can be additionally transported to areas which are not connected to the train network. Options are Great Britain, Scandinavia, and even the East Coast of the United States, as container shipment by sea directly from China takes even more time.”

Perspective

At the moment trains on the New Silk Road transport about 85,000 TEU of cargo annually. Based on the current train lines, Port of Rotterdam estimates that within a few years cargo transport on the New Silk Road can grow to a maximum of 400,000 TEU. In contrast, about 45,000,000 TEU of cargo, largely from Asia, arrives annually in the harbors of Europe.

For the time being, Nijdam does not expect a big shift in the transport of cargo between Asia and Europe.

“Shipment by sea is still a lot more economical than by train. A large container vessel can take up to 18,000 to 22,000 TEU, while a train on the New Silk Road carries about 50 TEU per ride.”

On the other hand, the New Silk Road can bring different opportunities which cannot be realized by either the Suez Canal or the Northeast Passage trade routes. Bakker sees the train network as an efficient instrument to approach new markets.

“Eastern Europe, Kazakhstan and the West of China are now easier accessible for Dutch companies.” And as the New Silk Road keeps on developing, Royal Wagenborg expects the amount of train rides to increase and new destinations to be added to the railway network. “Besides a rail connection between Rotterdam and Chengu, the New Silk Way also connects other European hubs, such as Hamburg and Duisburg, with various Chinese provinces.”

All in all, neither the Northeast Passage nor the New Silk Road currently have to potential to replace the Suez Canal as the largest trade route between Europe and Asia. Yet both trading routes are developing rapidly and offer diverse maritime business opportunities. The Northeast Passage enables a shorter seasonal trade route and offers maritime transportation of resources in Russia’s northern waters. While the New Silk Road brings more possibilities for short sea shipping in Western Europe as well as East Asia.

Marnix Viergever

Image Courtesy: Pixels