Feasibility of commercial cargo shipping along the Northern Sea Route

Thesis' permalink: http://urn.fi/URN:ISBN:978-951-29-6691-2

Kiiski, Tuomas
Doctoral thesis (article-based) Department of Marketing and International Business. Operations and Supply Chain Management
Annales Universitatis Turkuensis E 12 2017-02-03

Abstract: At least over the past two centuries, the Northern Sea Route (NSR), a link connecting the Pacific and Atlantic Oceans through Russian Arctic territorial waters, has attracted seafarers willing to test its potential for delivering shorter and faster voyages. Traditionally maritime activity along the NSR has been constrained by a harsh climate, including perennial ice-cover and sub-zero temperatures.

In recent decades, climate change has entailed improving climate conditions for shipping in the form of receding Arctic Sea ice-cover. This has turned the focus towards the Arctic region as a whole, mostly linked to its abundant reserves of natural resources. In many respects, climate change has reactivated interest in the NSR as a route for accessing natural resource riches and transcontinental shipping shortcuts between Europe and Asia.

Despite the significant multi-level attention focused on the NSR, an understanding of its feasibility is far from being conclusive, which has resulted in varying conclusions in the media and extant literature. This research aims to produce a holistic, fact-based and unbiased view on the feasibility of commercial cargo shipping along the NSR from the point-of-view of ship owners. The main research question investigates under what conditions commercial cargo shipping along the NSR could become feasible. It is divided into three separate research sub-questions, which focus on: i) economic viability; ii) infrastructure and related services; and iii) market potential.

The system-like characteristics of the phenomenon in question entail the positioning of the thesis in the categories of critical realism and pragmatism, with the emphasis on the former. The research approach has elements of constructive and system orientations, while the logic of inquiry relies on abductive reasoning with descriptive, normative and pragmatic features.

The thesis consists of five separate articles and the concluding summary, which contains new empirical data. The summary concludes with the findings of the appended papers and provides an overall synthesis with reference to the main research question and the more specific sub-questions.

This research employs quantitative research methods, including trend and capacity analysis as well as cost calculation and system dynamics modeling. Moreover, the widely used PESTEL framework is used in the concluding summary to describe the relevant external factors related to the political, economic, social, technological, environmental and legal preconditions affecting commercial cargo shipping along the NSR.

The subject of thesis is bound to the real world, which entails that the relevant research parameters are directly obtainable on a practical level. Accordingly, theprimary research data comprises fleet and cost information from maritime consultancies, the data are then enhanced through the opinions of practitioners and those who have studied its potential.

The thesis contributes on three levels: managerial, theoretical and policy-making. On the managerial level, it contributes by providing normative tools, i.e. cost calculation and simulation models for ship owners in order to assess feasibility in a holistic manner. These tools provide guidance for the decision-making of ship owners and pertain to ship investment and management. A more pragmatic input is to participate in the general Arctic discussion, which tends to be based on unrealistic perceptions and misconceptions. This is valuable not only for business but also a wider audience.

The thesis also contributes on a theoretical level in terms of providing a typology for the Arctic shipping cost categorization and the generic profiles of the NSR ships. In addition, it provides a substantial contribution to the ongoing Arctic policy-making discussion in terms of the adoption of national strategies.

The conclusion of the thesis is that commercial cargo shipping along the NSR could be feasible under the right circumstances in the short-term, relating to particular shipping sectors in a favorable market and climate conditions. In particular, destinational traffic, i.e. traffic to or from the Russian Arctic along the NSR, most often associated with bulk shipping, may prove economically viable. However, the size of the market potential is limited, especially when taking into account the scant maritime infrastructure and dependency on macroeconomic drivers.

From the ship owner’s decision-making point-of-view, the contemporary shipping economies in bulk shipping may be viewed as seizing market opportunities without a long-term commitment. On the other hand, more prominent involvement in shipping along the NSR would also require a number of fleet design considerations. In the long-term, the development of the NSR involves a high degree of uncertainty as its feasibility depends on a number of external factors relating mainly to climate, political and market issues.