Arctic navigation and insurer considerations
In October 2013, the bulk carrier Nordic Orion made the first-eversuccessful commercial transit of the Arctic’s Northwest Passage,delivering a cargo of coal from Vancouver to Finland. The voyagemarked a new phase of Arctic navigation, coming just four yearsafter the first international commercial transit of the region’sNorthern Sea Route.
The Nordic Orion’s journey took around aweek less than had it travelled via the Panama Canal, saving theoperator both the toll fees and US$80,000 in fuel costs.Global climate change – specifically the melting of sea ice – presentsopportunities for international marine transportation networks in theArctic, at least during the summer months.
Recent discoveries of oil andthe potential financial and time savings are making the Arctic routesmore appealing to the shipping industry. Potential Arctic sea routesexist that enable ships to move between the Atlantic and Pacific oceans,thus cutting the distance between East Asia and Western Europe.Some of these routes offer alternatives to the Panama and Suezcanals, but they are not without risk. Extreme climate and weatherconditions create unique hazards, including floating ice, thick fog,and violent storms. Despite new safety features, vessels remainvulnerable to ice damage, machinery breakdown, and more.
The harshenvironment also creates challenges for crews, few of which havebeen trained for or have experience in such conditions. And, shoulda vessel run into difficulty, help is likely to be a long way away.Understandably, the international shipping industry is keen to startmaximizing the opportunities afforded by Arctic navigation.
Yet the marineinsurance industry – whose collaboration is essential to the commercialviability of Arctic transit – holds a host of safety and navigational concerns,meaning that any negotiations will need to be handled carefully by thosewho have been engaged in the issues of this region for some time already.
A report entitled as ”Arctic Shipping: Navigating the risks and opportunities” and produced by Marsh, firm of experts in insurance broking and risk management, includes an overview of Arctic Navigation so far and insurer considerations regarding the following:
- Hull considerations
- Salvage
- Protection and Indemnity (P&I ) considerations (wreck removal, pollution and crew competency)
- Future considerations
The report concludes that as things currently stand, the majority of ships and theircrews are not ready, the support service facilities are notin place, and the risks involved are not understood at alevel to enable underwriters to price insurance for Arctictransit with either clarity or certainty. Use of the NSR accounts for a comparatively smallpercentage of the total global marine transportactivity, and to date the NWP has only been used bya few vessels. Nevertheless, these levels appear set toincrease significantly over the coming years, especiallywith discoveries of huge mineral resources in the northof Russia, extending out into the Arctic Ocean, Kara,Pechora, Laptev, and East Siberian Seas.Add to this the increasing finds of oil and gas depositsnorth of Alaska, Canada, and around Greenland, and it isperhaps inevitable that hull and P&I insurers will be morefrequently asked to consider allowing vessels to navigatethe northern waters.
However, underwriters’ concernssurrounding remoteness, lack of salvage support services,and other risks means that it is by no means certain thatthey will accommodate such requests. If and when theydo, such negotiations will need to be handled carefully bythose who have been studying and engaged in the issues ofthis region for some time already.
Further information may be found by reading the report
