However, the actual operation of the NSR has its own challenges. The procedures are very complicated and require thorough preparation in advance. Since permission from the Russian government is necessary to operate on the NSR, the Russian government’s operation regulations and infrastructure development policies on the NSR as well as geopolitical variables should be fully reviewed in advance.
The importance of thorough preparation is evidenced by the fact that unlike previous years, there were no foreign carriers sailing on the NSR last year, as Russia’s invasion of Ukraine in February 2022 led to strong sanctions against Russia by Western countries such as the United States and the EU. Meanwhile, China and India – Russia’s friendly countries – continue to import Russian oil at low prices as reflective benefit from EU’s ban on Russian oil imports, which is expected to gradually increase Russia’s resource transportation to the Asian market via the NSR instead of the Suez Canal route. In this article, we will take a closer look at the current situation of the NSR and predict the possibility of South Korea entering the NSR in the near future. Overview of Arctic Shipping Routes Arctic shipping routes can be largely divided into three: Northeast Passage, Northwest Passage and Trans Arctic Route.
Since the Northwest Passage is currently of limited use due to unfavorable operational conditions, the Arctic Route that is widely known usually refers to the Northeast Passage, i.e. the Russian-controlled Northern Sea Route (NSR). The NSR is the shortest sea route from Asia to Europe, connecting the Pacific and Atlantic Oceans via the Arctic Ocean. When transporting cargo via the NSR, the transportation distance between Europe and Asia is reduced by about 30% compared to the Suez Canal route and the transportation period is shortened by more than 10 days.
However, there are differing views on the NSR. Unlike the foreign carriers that want to utilize the NSR as the shortest international shipping route between Europe and Asia, the Russian government views the NSR as a transportation infrastructure to transport hydrocarbon resources such as LNG (liquefied natural gas), oil, and coal produced from resource development in the Russian Arctic region to European and Asian markets.
In addition, due to strong Western sanctions against Russia following Russia’s annexation of Crimea from Ukraine in 2014 and Russia’s invasion of Ukraine in February 2022, geopolitical factors have negatively affected the operation of the NSR contrary to the expectations of Western companies. Current Operation Status of the NSR The NSR is the shortest sea route between Europe and Asia, but its operation season only lasts about five months from July to November. Currently, the Russian government is working on infrastructure improvements such as building icebreakers with the goal of operating the NSR year-round. In the case of Russian Arctic Yamal LNG transportation, icebreaking LNG carriers can operate for up to 10 months, except for March and April.
According to Russia’s NSR Information Office, cargo volumes on the NSR have been declining since 1987 when they reached their peak of 6.58 million tons. However, the cargo volumes have been steadily increasing since 2013, with a recent surge of 9 million tons in 2017, 31.5 million tons in 2019, and 34.85 million tons in 2021. In May 2018, Russian President Vladimir Putin set a specific target for the Russian administration to reach 80 million tons of cargo on the NSR in 2024, but the actual attainable target is expected to be less than 60 million tons. In addition, the Arctic LNG 2 project has been delayed due to a large number of Western companies withdrawing from Russia’s Arctic resource development projects as part of sanctions imposed in response to Russia’s invasion of Ukraine in 2022. Therefore, it may be difficult for the Russian government to achieve the target volume, but the volume of Russian resource transportation will continue to increase in the future.
There are three main patterns of cargo transportation on the NSR. The first is Russia’s cabotage, which is the transportation of supplies for the Russian Arctic region, including fuel, basic necessities, and even military supplies. The second, destinational transportation, is the transportation pattern carrying the largest volume, with examples including LNG from the Yamal LNG plant (21 million tons in 2022) and crude oil from the Novyport field (7.71 million tons in 2020 and 5.08 million tons in 2023). The third transportation pattern is international transit between Europe and Asia via the NSR (1.44 million tons in 2021).
In addition to Sovcomflot, Russia's state-owned shipping company, shipping lines from Northern Europe and Asia with ice-class vessels have been engaged in Arctic shipping. Nordic carriers from Denmark, Germany, and the Netherlands are primarily involved in the transportation of resources from Russia and Canada. Among foreign carriers, Chinese carriers are by far the most active in Arctic shipping. Since 2013, COSCO, China's state-owned shipping company, has carried a variety of cargo, including wind power equipment, pulp, heavy and general cargo, on a total of 56 voyages. Based on its experience in Arctic shipping, COSCO is expected to promote regular shipping services between Asia and Europe via the NSR from a strategic perspective in the future. However, due to Western sanctions against Russia following Russia's invasion of Ukraine in February 2022, even COSCO has not carried out a single operation on the NSR to date. Japan's MOL is also involved in the LNG transportation business through equity participation in projects such as Yamal LNG and Arctic LNG2.
In 2018, the world's largest container ship, the ice-class container vessel Venta Maersk (Arc4, 3,600 TEU) of Danish company Maersk, successfully completed the world's first pilot operation on the NSR. The vessel carried a total cargo volume of 1,550 TEUs, including frozen fish from Kamchatka, transshipment containers from Busan New Port, and Korean batteries and home appliances, and unloaded the cargo at ports in Germany and Russia via the NSR. Although it was a one-time pilot operation, it raised expectations for the possibility of container vessels operating via the NSR in the future.
Examples of Korean companies' Arctic shipping include Hyundai Glovis' experimental naphtha operation in 2013, CJ Logistics' heavy cargo transportation in 2015, Pan Ocean's heavy cargo transportation in 2016, and SLK Kukbo's intermodal transportation of heavy cargo to Kazakhstan via the NSR, but there have been no confirmed cases since 2017.
At the moment, Korean shipping companies are showing much less interest in entering the NSR due to lack of economic viability, but there is always the possibility of participating in NSR operations provided that cargoes are stably secured. Korean shipbuilders, on the other hand, have already been in the Arctic Ocean for a long time. As the volume of cargo on the NSR continues to increase, the demand for new icebreaking and ice-class vessels is high, and Korean shipbuilders are particularly interested in building vessels with high added value. In Korea, Daewoo Shipbuilding & Marine Engineering has ordered 15 icebreaking LNG carriers for the Yamal LNG project in the Russian Arctic, all of which have been delivered to date, and plans to deliver floating storage units (FSUs) to Murmansk and Kamchatka for LNG transshipment at Yamal in the Russian Arctic within 2023. Korean shipbuilders such as Samsung Heavy Industries and Daewoo Shipbuilding & Marine Engineering are also participating in the ongoing Arctic LNG2 project, but the project is facing difficulties as some LNG carrier contracts have been withdrawn in 2022.
According to the Russian government's plan, the volume of cargo on the NSR is expected to increase to 80 million tons by 2024 and 150 million tons by 2030. It's worth noting that this is a rapidly growing trend. In order to safely transport this rapidly growing volume of cargo on the NSR, there must be a corresponding infrastructure development in terms of transportation and port infrastructure on the NSR.
On December 21, 2019, the Russian government approved the "Northern Sea Route Infrastructure Development Plan to 2035". The plan includes 84 detailed actions in 11 areas to develop the resources of the Russian Arctic region by 2035. Key policies in these areas include port and terminal infrastructure, development of the search and rescue fleet, development of the icebreaker fleet, and policies to promote NSR traffic and international transit.
A key recent Russian initiative to revitalize the NSR is the Northern Transit Corridor Project (NTC), which is being implemented by Rusatom Cargo, the logistics subsidiary of Rusatom, the operator of the NSR infrastructure. The Northern Transit Corridor Project has three main components: the construction of container transshipment ports at both ends of the NSR, the construction of an ice-class container fleet, and the development of the NSR infrastructure. Rusatom Cargo plans to build a transshipment port between Murmansk and Vladivostok on both sides of the Russian Arctic Ocean, with the aim of establishing regular container ship service between Asia and Europe via the NSR. The plan is to utilize ice-class container ships on the NSR section and provide feeder services to Asia and Europe by regular ships at the transshipment port, with a trial run in 2025 and full-scale operation starting in 2026. In July 2021, global logistics company DP World signed a $2 billion memorandum of understanding with Rosatom for the project. However, due to the Russia-Ukraine war, the plan is currently expected to be delayed by 1-2 years. Korea’s Response Strategy Since Russia's invasion of Ukraine in February 2022, Western sanctions against Russia, including the EU and the US, have severely impacted shipping on the NSR and resource development projects in the Russian Arctic region. As the war in Ukraine is expected to continue for a while as a war of attrition, Korean companies, except shipbuilders, became less interested in the Arctic shipping lanes than ever before. However, despite these geopolitical risks, the Russian government's policy to develop the NSR is expected to continue, and the volume of cargo on the NSR will increase due to the development of resources in the Russian Arctic region. Despite the instability of the NSR, it is necessary for Korea to continue to study and prepare for the possibility of developing the NSR as an alternative shipping route. There are several ways to summarize Korea's response strategy to the NSR.
First, it is necessary to continuously monitor the progress of the Russian government's NSR development plan and policy trends. Due to the ongoing war in Ukraine, the schedule of the Russian government's NSR Development Plan is expected to be delayed. The Russian government aims to achieve 80 million tons of cargo on the NSR in 2024; however, 1) the construction process of Russian Arctic resource projects is significantly delayed due to a lack of technology and capital caused by the withdrawal of Western companies; 2) the transportation infrastructure on the NSR is severely lacking due to a shortage of ice-class vessels and delays in the construction of nuclear-powered icebreakers; and 3) the development of port infrastructure is delayed due to the suspension of dredging work at ports in Russia's Arctic resource-producing regions and delays in the construction of the Port of Vladivostok.
Given that President Putin proposed to President Xi Jinping to establish a joint working organization for the development of the NSR at the Sino-Russian summit held in March, China's position on the NSR is likely to become more favorable in the future.
Second, it is necessary to monitor the progress and viability of the Russian government's Arctic Shipping Corridor (NTC) project. Continued Western sanctions against Russia are expected to delay the schedule of the NTC project. The Russian government appears to view the twice-yearly cabotage operations of the Rossatom-owned nuclear-powered icebreaker Sevmorput (1,324 TEU) as a preliminary preparation for the NTC project. In 2023, the Sevmorput is expected to begin round-trip Arctic voyages from St. Petersburg to Vladivostok on June 30 and September 30, respectively. If the cargo is well secured, there is a possibility that cargo from Asian countries such as China and India will be shipped. Furthermore, Korean logistics companies and shippers can also take advantage of these transportation opportunities to evaluate the level of Russian cargo transportation services on the NSR.
Third, we should keep track of the Russian government's NTC project and continue to explore the possibility of national flag carriers entering the NSR. ROSATOM Corp. (ROSATOM), the operator of the NSR, plans to conduct a pilot operation of icebreaking container vessels as part of the NTC project in 2025-26, albeit with some delays. Therefore, it is necessary to monitor the progress of the Russian government's NTC project and examine the possibility of participation by national flag carriers or joint cooperation with Russian carriers through the establishment of joint ventures in the future.
Fourth, it is necessary to prepare well in advance for the Russian government's plan to operate container ships on the NSR and how to connect it with Busan Port. If the NTC project is realized, the transshipment port on the east side of the NSR will be Vladivostok, so it will be possible to increase the transshipment volume of Busan Port by participating in the container feeder service between Vladivostok and Busan Port. The Port of Busan needs to continue to promote its strategy of becoming a hub port in the Pacific Rim. In order to maintain its position as the world's second largest transshipment port after Singapore, it should strive to connect Busan to the NSR, connect Busan to the TSR, and expand connections with two major cargo ports in Northeast China in order to increase transshipment volumes in the region.
As long as the war in Ukraine continues, it will be difficult for foreign carriers to operate Arctic routes due to concerns about Western sanctions against Russia. For now, even China's COSCO is being cautious about operating in the Arctic region. For the time being, it will be necessary to wait and see how to enter the NSR from a mid- to long-term perspective. While natural gas and oil-based resource transportation and project cargoes related to resource development in the Russian Arctic region will continue to dominate the cargoes transported on the NSR, general cargo transportation by container vessels may become a sustainable transportation pattern if the NSR is vitalized in the long term. According to expert forecasts, container ship operations on the NSR are expected to begin in earnest around 2035.
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