The Shortcut That Will Reshape Global Trade Routes

Constituting 90 percent of world trade, shipping is the lifeline of international imports and exports. China overtook the US last year as the world’s largest exporter, with goods worth USD 3.82 trillion, comprising over 26 percent of the world’s total transshipping trade.

Recently, melting polar icecaps have, for the first time, made the possibility of a shorter route from the Pacific to the Atlantic across the Northeast and Northwest Passages feasible thanks to global warming. The polar routes, juxtaposed between Siberia and Canada’s northern tundra, offer the prospect of a shorter alternative route to the EU and US East coast, which could see considerable reductions in transport time when compared to the traditional Panama Canal and Cape Horn routes. As the number one exporter of tuna to the US market, Asian firms could be in line to be major benefactors of a more cost effective route to access the United States’ East coast.

August 2013 saw state owned COSCO merchant vessel make China’s maiden voyage across the strait, with some 45 commercial vessels using the route last year, according to reports from the China Daily. In the same year, China signed a Free Trade Agreement with Iceland, with Chinese tycoons attempting to purchase large tracts of land in the island nation, alluding to the possibility of an Artic Shipping Port. According to an estimate from the Polar Research Institute, China could carry up to 15 percent of its total trade value through the region.

The northern route would see a reduction in journey distance from Japan to northern Europe nations by 37 percent, from South Korea by 31 percent, China 23 percent and Taiwan by 17 percent. Northern European countries with access to ports in the North Sea and Baltic set to benefit the most from the passage include the likes of Belgium, Denmark, Estonia, Finland, Germany, Ireland, Latvia, the Netherlands, Poland, Sweden, the United Kingdom and Norway.

In April of this year, China’s maritime safety administration published a 356-page guide, which included nautical charts and descriptions of ice conditions for the Northwest Passage. At the time of publication, administration spokesman Liu Pengfei was quoted by the China Daily newspaper remarking: “There will be ships with Chinese flags sailing through this route in the future,” adding “once this route is commonly used, it will directly change global maritime transportation and have a profound influence on international trade, the world economy, capital flows and resources exploitation.”

However, Canada has maintained a firm stance on its territorial claims in the polar region, stipulating that the Northwest route lies within its sovereign waters, which many in the international community, such as the United States, consider to be an international strait. In 2010, just five vessels travelled by the route, rising to 71 in 2013, Russia predicts that by 2020 Artic Shipments could increase thirty-fold, as foreign interests in using the route continue to grow.

Currently no tariffs are needed for ships using the route, Northwest Passage, while Russia requires vessels wishing to use the Northeast Passage to notify Russian authorities and submit an application. Once granted, a mandatory “ice breaker fee” must be paid which varies by season and is dictated by ship size. Russia currently bestows the largest ice-breaker fleet at over 40 vessels and includes six heavies, with its construction of the world’s largest nuclear ice-breaker due for completion in 2017.

Poor infrastructure along the routes and short season times, usually ranging from October and July, have so far impeded efforts to open the route as a real competitor to frequented routes like the Suez canal. Nonetheless, keen to establish the passageway as genuine alternative, Vladimir Putin has requested state owned shipping line Sovcomflot to begin providing year-round Artic shipping across the route. This, in hand with melting icecaps and mounting Chinese interests and investments, could see the region become a major passageway for international transshipping in the very near future.