In 1903, Roald Amundsen completed the first nautical expedition through the Northwest Passage—a treacherous channel through Arctic ice which connects the Atlantic and Pacific Oceans to the north of Canada. The voyage (conducted in a small, 70-foot vessel because parts of the passage were only three feet deep) took Amundsen and his team three years. Since then, merchant shipping companies have sought out ways to utilize this route for profit; however, the passage was impassible by large freighters until early in the 21st century.
The Northwest Passage refers to a series of waterways which connect the Atlantic and Pacific Oceans through the Arctic Ocean. For the past hundred years, merchant shipping with deep draft vessels (i.e. container ships) through the Northwest Passage was not feasible due to the presence of Arctic ice along the route: the channel’s width and depth precluded the passage of any large vessel through the passage. As climate change has led to the melting of Arctic ice in the past several decades, the routes through the channel have quickly opened up, leading to the possibility of a new, fairly direct trade route across the world.
Although there are many possible paths through the Northwest Passage, the most direct route from East Asia to Western Europe is approximately 13,600 kilometers (km) in length. By comparison, the quickest route through the Panama Canal is roughly 24,000 km, requiring $80,000 more per journey (in fuel alone) for the average container vessel. The Panama Canal is also impassible by both the largest container ships and smaller ships when fully loaded. Although there are ongoing efforts to deepen the canal, its width will always be a limiting factor in the number of ships that can pass through at any given time. The financial impact of decreased fuel costs, ability to use larger vessels, and shorter transit times are all factors that have shipping companies looking to the Northwest Passage.
There are many companies that are poised to take advantage of these new opportunities, but Northern Bulk Carriers (NBC) is better positioned than most. In 2013, NBC was the first shipping company to transit the Northwest Passage with a deep draft vessel, the Nordic Orion, which transited from Norway to China with a shipment of coal. This historic voyage—although controversial due to the risks that the company undertook to complete it—was a landmark event that served as a proof of concept for shipping through the passage.
Although NBC made history with the Nordic Orion, it cannot afford to rest on its laurels. Other shipping companies are quickly identifying ways to capitalize on the newly-opened route. In addition, the Chinese government is already preparing to send ships through the passage, having recently published a document titled the Arctic Navigation Guide (Northwest Passage) to help its ship captains prepare for the journey.
To maintain a competitive advantage in the waterway, NBC needs to allay concerns that customers have with contracting shipments in the Northwest Passage. Accordingly, it must do the following to remain ahead of the competition:
1) Continue to invest in the ships that are equipped to handle the challenges of arctic shipments. In the last two years, NBC has taken delivery of six new ice-class vessels. As demand increases for more shipments, it must ensure that it can fulfill its orders.
2) Ensure that it maintains a strong safety record. Northern shipping is extremely hazardous, as 99% of Arctic waters are uncharted. Since customers may entrust a merchant company with more than $5,000,000 on a single voyage, the margin for error is low. As additional routes of the Northwest Passage continue to open, NBC should ensure that its routes follow as close as possible to locations with icebreakers and recovery vessels in the event of an emergency.
The Northwest Passage is a new opportunity that still bears considerable risk. If done correctly, though, Nordic Bulk Carriers can take advantage of these challenges while strengthening its position as a leader in arctic shipping.
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