China and the Arctic: The Awakening Snow Dragon

Chinese Icebreaker Xue Long (Snow Dragon)

China is very dependent on international shipping for its economic development. Any changes to world shipping routes will have a direct impact on China’s economy and potential trade with respect to both imports and exports. The Arctic Ocean is in a state of rapid flux that scientists have not seen in recent times. The Arctic is changing rapidly and this will have a profound effect on global shipping routes. This article is based on the writer’s experience in what a changing Arctic might look like and the possible impact on China’s future. This article is by nature a horizon  scanning prediction based on an understanding of shipping theory and practice. Shipping by its nature is secretive and the open source literature on this subject for commercial reasons is sparse. It is hoped that this article will provide the reader with some perspective and context to deal with these changes in the Arctic.

Over 50 percent of the sea-ice cover in the Arctic Ocean in the last two summers has disappeared. This reality—a melting arctic—is outstripping the predictive climate models. An open Arctic Ocean presents a unique opportunity for China and international trade generally. Commercial shipping is the lifeblood of international trade with over 90 percent of the world’s international trade carried by commercial shipping. With or without a great global recession, shipping will continue to be the thread that keeps the world economy operating—whether the cargoes are bulk commodities, oil or manufactured goods. China is dependent on foreign trade and 46 percent of its GDP is shipping dependent [1]. Any event that affects shipping will have a measurable effect on the Chinese economy, and the changing physical landscape of the Arctic region will certainly have a major impact on China’s economic future.

The search for the Holy Grail of a Northwest Passage through the Arctic from Europe to China for trade drove exploration and the “discovery” of the New World for centuries. This article, the first of a series, will examine the future scenarios for new commercial shipping routes across the top of the world—one of the world’s last frontiers. During the Cold War the Arctic was the center of action for subsurface activity. The use of polar routes revolutionized air travel in the last century and the advent of new shipping routes will do the same for commercial shipping in this century. These new routes, because of significant distance and fuel savings, could produce a seismic shift in world trade patterns and the nature and form of commercial shipping. China is 4000 nautical miles closer to the European Union and the East coast of North America sailing through the Arctic Ocean, and currently there are no vessel size restrictions and other regulations unlike in the Suez or Panama Canal. There are presently no fees for Arctic routes. In addition, the smaller ecological footprint of reduced fuel costs per ton-mile might also be an added incentive for the development of an Arctic route. Arctic shipping could be another aspect of the new green wave that is sweeping the shipping industry, as more attention is being paid to the environmental impact of shipping including fuel efficient and emission reduction of commercial shipping.

Scientists in Copenhagen attending a conference from March 10 to March 12 hosted by the University of Copenhagen in conjunction with a number of other universities warned that the predictive climate models that underlay the 2007 United Nations Intergovernmental Panel on Climate Change (IPCC) climate change report have underestimated the rate of sea change. This conference is a precursor to a Governmental Climate Change scheduled for December in Copenhagen and which will supplement the IPCC Report. Given the effects of global climate change, the scientists are pointing out that these changes are occurring faster and the potential for feedback loops that increase the sea-ice melting process is very real. Feedback loops are natural processes that can increase the rate of warming or sea-ice changes, for example melting permafrost may release methane which has a greater capacity to increase global warming. Methane is essentially CO2 on steroids.  The present concentration of CO2 in the atmosphere is 380 parts per million (PPM), which is the highest in perhaps the last 30 million years. What seems clear is that the sea-ice cover in the Arctic Ocean is going to decrease and thin in the coming years. Many researchers have stated that in the Arctic the climate changes have magnified at least twofold. China has maintained a considerable scientific program in both the Arctic and Antarctic and has been conducting scientific research on climate change with a special focus on how this will affect China in a warming world. It has partnered with other arctic nations in joint scientific programs and was involved in the recent International Polar Year (IPY) program, which was a major coordinated research program on Polar research [2].

The opening up of the Arctic Ocean, as early as 2013, will create new opportunities for shipping. At the same time, the fast melting Greenland ice cap will likely increase the number of calving icebergs, which will continue south into the Great Circle shipping route across the North Atlantic. The International Ice Patrol led by the United States Coast Guard maintains a close watch of icebergs in this well traveled shipping lane in the Atlantic.

To enter the Arctic Ocean from the Indo-Pacific where commercial traffic would enter from China, the only entry point is the Bering Strait, which separates Russia from the United States. It was known as the "Ice Curtain" during the Cold War, and is now being referred to as the Bering Gate. The Strait is a narrow choke point only 52 nautical miles wide with a depth of 30 to 50 meters. There are three possible international shipping routes once a vessel enters the Arctic: 1) The North East Sea Route or Northern Sea Route along the Russian coast (NSR), 2) the Transpolar Route and 3) the North West Passage (NW Passage) through the Canadian Arctic archipelago.

The former and the latter shipping routes transit internal coastal waters of Russia and Canada respectively and are subject to the application of the laws of the coastal state. These two countries as coastal nations will control these routes. The Canadian NW Passage, the shortest route of the three, is, in fact, 5 separate geographical routes through the Canadian Arctic archipelago. Canada has enacted the Arctic Waters Pollution Prevention Act that imposes a variety of restrictions on navigation and requires ice classed vessels and ice navigators. Russia has the same type of restrictions and charges for ice-breaker support along the NSR.

The Transpolar Route would transit the Arctic Ocean and be outside the territorial jurisdiction of any of the Arctic coastal states and would be on the high seas. There is no specific restriction on navigation under the Law of the Sea Convention for high seas navigation and the only laws applicable would be the law of the flag state of the vessel. The Law of the Sea Convention sets out the international legal regime for the Arctic.

In the past, the Transpolar Route was not given much commercial interest because of the barrier posed by multi-year sea-ice in the Arctic Ocean. The lack of salt content as the ice ages hardens the sea-ice. Again, most shipping companies do not disclose their future commercial plans.  In the Arctic Ocean, there historically was very hard multi-year ice, which would raft up and prevent even the largest ice breakers from getting through. The sea-ice is dynamic and is moved by ocean currents and tides and winds that can raft the sea-ice into pressure ridges and extend more then 100 feet below the surface. The multi-year ice even without the pressure ridges is very hard and difficult to penetrate by even the largest icebreakers which are presently operated by the Russian government in a public–private partnership with the Murmansk Shipping Company. MSC manages the powerful Russian nuclear icebreakers on a commercial basis, which are available for charter. These Russian icebreakers are the world’s largest and a number are nuclear powered. The traditional approach to ice breakers has been to have specialized purpose-built vessels usually government owned and operated to provide icebreaking support to commercial cargo vessels. In other words, the icebreakers have very limited cargo capacity. China has one large research icebreaker, the Snow Lion (Xuelong), which is used for research purposes in both the Arctic and Antarctic. This is a former Russian-built icebreaker [3].

The ship design technology presently exists for vessels to operate year round in the Arctic. It simply needs to make economic sense. There is no reason why China can’t come up to speed on this technology as it is readily available in the commercial domain. Finland is arguably the world leader in the development of icebreaking technology. With dropping bunker fuel costs since the global economic slowdown, a 4000 mile distance saving may not make such a great difference as it did a year ago but in the longer term the cost saving would be considerable. According to one recent article, it is estimated that for one containership the cost saving could be in the range of a cost reduction of half a million dollars [4]. Given the recent fluctuations in the shipping world it is difficult to obtain accurate predictions. The cost saving could be considerable but this may be offset by increased crewing or marine insurance costs. Given the predictive nature it is difficult to be more precise given the large number of variables. Shipping costs are a function of supply and demand.  

There are environmental and economic benefits from using few and larger vessels over a shorter geographical distance. With containerships of which China is a major world operator, the ocean freight costs could be greatly reduced as the vessel would not have to enter west coast North American ports and/or pay the canal fees which can be substantial. One can not underestimate the importance of decreased ecological footprints. In a rapidly warming planet this will become more important to the end consumers most of whom purchase the goods from manufacturers in China.

Shipping remains the most energy efficient way to move goods. In a global economy, with no depth restriction on a trans-polar shipping route, very large vessels could be built especially if deep water transshipment ports were developed. The vessels would not have to be restricted to a single type and could include containerships, bulk carriers and oil and LNG tankers.

In an article that appeared in the Financial Times of London in January 2008, Professor Robert Wade of the London School of Economics wrote:

The country has lately displayed special interest in relations with Iceland, the tiny island in the north Atlantic, which with its strategic location is believed to get a key role in future shipping in the region. China wants to start shipping containers in the north, and sees the deep-sea ports of Iceland as potential port bases.

This was the subject of a recent conference hosted in Iceland in 2007. Given the secretive and commercial nature of shipping there is little information in the public domain [5].

A melting Arctic Ocean has a major impact on China and it could become a major Arctic shipping nation. It appears that China has not engaged in the development of ice technology, which tends to be dominated by the Nordic countries and the focus in recent years has been the development of the Russian gas field in the Barents Sea.  Yet this is readily commercially available and technology transfer agreements could be developed between ship design and engineering firms and China. This approach has been used in South Korea shipyards for new vessel construction destined for the icebreaking tankers used in the Russian Arctic gas fields.

China has sought observer status at the Arctic Council, a grouping of the Arctic Nations that looks at various arctic issues including shipping. The Arctic Council was set up in 1996 and is an intergovernmental forum of nations which border the Arctic Ocean. This serves as a forum to deal with arctic issues. One example of the work the Arctic Council is doing is an arctic shipping assessment which is a collaborative effort. The Arctic Council is keenly aware of the challenges presented by arctic shipping [6].

The International Maritime Organization (IMO), which is a highly successful United Nations Organization that sets international maritime standards that are adopted by the world’s flag and coastal states is working to develop a Polar Code with the support of the International Group of Classification Societies which will set uniform construction requirements for commercial vessels and navigation standards for arctic waters. Lloyds Registry of Shipping is one of the oldest of the Classification standards. Underwriters take these issues into account when setting marine insurance premiums in underwriting the risk. Marine Insurance costs presently serve more of a barrier to commercial arctic shipping than vessel icebreaking technology.

China presently is conducting research in both the Arctic and Antarctic with an emphasis on climate change. China has one of the world’s largest non-nuclear icebreakers used in Polar research. Much of the international community is clamoring for a special international regulatory regime to govern commercial activity in the pristine Arctic Ocean Basin including shipping. Traditionally China has kept a low profile on shipping matters but it is starting to take a much more active role in increasing arctic research in both the Arctic and Antarctic.  In the recent past it has maintained an active program of Arctic and Antarctic stations and has partnered with a number of Arctic nations and has set up a research station in Norway. China's arctic research is well coordinated.  While China has remained on the outside of the shipping side, it would take very little commercial effort to come up to speed on the state of the art commercial icebreaking and polar capable vessels. With a melting arctic that may be less of a problem than we think. China's extensive scientific research provides a solid basis for the development of Arctic commercial shipping. In 2008 it established a research station at 87 degrees North. China is a major trading nation that has much to gain with a reliable and low cost shipping route across the top of the world. Yet, there may be little snow or ice in the coming decades for this emerging and awakening of a shipping Snow Dragon. China’s economic future may be intricately linked to a melting Arctic.

Notes

1. This dated shipping data (2003) is taken from a presentation given by Gao Weijie, vice senior executive president of COSCO Group, at the International Maritime Forum and  can be found at www.cosco.com/en/pic/forum/654923323232.pdf.
2. China’s polar research is coordinated by the Chinese Arctic and Antarctic Agency. See www.chinare.cn/en/index.html.
3. A good overview on sea-ice changes, ice classed shipbuilding technology and Chinese Arctic scientific research can be found at the conference proceedings of the  Maritime Security Conference 2008 held in Victoria , British Columbia hosted by the Canadian Department of National Defense and the MarPac Commander. See the Focus on the Arctic Panel which can be viewed online at www.msc2008.blip.tvwww.msc2008.blip.tv. The writer wishes to thank Dr. James Boutilier for asking him to participate as a discussant on this panel.
4. An excellent article was written on the Arctic shipping by Dr. Scott Borgerson in the March 2008 issue of Foreign Affairs ‘Scramble for the Arctic’ which can be found at www.foreignaffairs.com/articles/63222/scott-g-borgerson/arctic-meltdown. In the article the writer makes reference to a 17.5 Million dollar cost saving to 14 Million dollar cost saving with respect to a single containership voyage. Given the number of containerships presently idle, it is presently difficult to accurately assess the potential cost savings in today’s economic climate.
5. The 2007 Conference held in Iceland in entitled Breaking-The-Ice- Prospects of a Transpolar Route can be found at www.mfa.is/media/Utgafa/Breaking_The_Ice_Conference_Report.pdf.
6. The overall work of the Arctic Council work can be found at www.arctic-council.org. The Arctic Shipping Working Group of the Arctic Council can be viewed at arcticportal.org/pame/amsa.