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MARINE | Arctic Shipping In association with MFB Solicitors
Balancing risk and reward
Matthew Montgomery, (left) partner, and Adam Vrahnos,(right) at London-based shipping law firm MFB Solicitors review the complexities, challenges and opportunities surrounding the opening up of the Northern Sea Route The shipping industry remains in the spotlight when it comes to climate change and emissions, with much of the recent focus being on compliance with the IMO 2020 regulations. Less talked about, however, is how melting ice sheets are opening up new transport routes in previously inaccessible Arctic regions. This is being explored by some of the largest maritime operators, and nation states, that are seeking to establish whether these regions are now commercially viable for their operations. As well as China and Russia, that both have a vested interest, this has also been considered in detail by the UK government to identify important future trends, challenges and opportunities for the UK from the sea.
THE NORTHERN SEA ROUTE When it comes to a discussion on Arctic shipping, the Northern Sea Route (NSR) is particularly important and provides a good benchmark of the increasing activity. The NSR is a shipping lane between the Atlantic and the Pacific that tracks along the Russian coast of Siberia and the Far East. Only four vessels sailed the NSR in 2010, but the numbers have increased dramatically in recent years. In 2018 Russia stated that its target was 80 million tons of goods shipped on the NSR in 2024 and, although that it still some way off, 32 million tons of goods were shipped on this route in 2020. China has also invested significantly in infrastructure along Russia’s Arctic Coast, as part of these developments. The Marine Insurer Claims Edition | September 2021
The efforts to develop the NSR are well understood when one considers that the route is around 40% shorter than the equivalent journey via the Suez Canal. That translates into reduced operating costs, including reduced fuel consumption. That has to be balanced, however, against additional insurance premiums as a result of the increased risks to vessels and their cargoes.
THE RISKS Although there is increased interest in the NSR, it is important to note that the route remains blocked by impenetrable ice for most of the year. In fact, there are currently only around three or four months a year during which navigation is possible and, even then, operators will need specialised vessels to pass through the unpredictable Arctic seas. Passage during these periods still comes with heightened risk, of course. According to the Allianz Shipping Review of 2021, there were 58 reported incidents in Arctic Circle waters during 2020, which was 17 more than in 2019. When these incidents do occur, the costs of incident response and salvage are likely to be significantly higher. The 2018 wreck removal of the fishing vessel Northguider, successfully completed by Smit Salvage, is an example of how complex these salvage operations can become. Efforts to remove the wreck were made more challenging by the remoteness of the location, the difficulties involved with mobilising assets, limited operational windows and ice floes. This all translates into increased costs for the insurers that are
