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Maritime Operations and Management
Your board of directors has asked you to report on the feasibility of using Arctic shipping routes. Critically analyse the main risk factors involved and explain how you would manage the risk of utilizing new or existing bulk carriers and making them available for employment between north west Europe and China using the Northern Sea Shipping Route.
The last decades, maritime industries charge vessels to complete transits through the Northern Sea Route, trying to transfer cargo from West Europe to China. Many factors affect that voyage so people in charge should consider all these to take correct decisions and secure the profitability of the company. During that process, risk analysis should be done to take into consideration all the possible choices. More specific, the idea of utilizing new or existing bulk carriers and making them available for employment should be considered. To do that successfully it is necessary to understand that cost factor is very essential for that voyage.
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Nowadays, maritime industries use the Arctic Shipping Routes trying to transfer their cargo from Europe to Asia. There are five important routes that connect the Atlantic and the Pacific oceans which are Northeast Passage, Northwest Passage, Transpolar Sea Route, Northern Sea Route and the Arctic Bridge. Although global warming affects the environment negatively, the melting of the ice in the Arctic Ocean’s Sea presents a new challenge for shipping industries. Investigations which happened since 1970 showed that the Arctic Sea has, approximately, lost 3000 km3/decade of ice (Dr Nathanael Melia, 2017).Additionally ,the last ten years are characterized as the years with the less summer sea ice that have ever exist.
To begin with, most of the transits from North West Europe to Asia happen via Suez Canal. However, voyages via Arctic routes are reducing the distances by almost 40 per cent (Dr Nathanael Melia, 2017).For example, the estimated distance between the port of Rotterdam and Japan, is almost 11000 miles. On the other hand, if a vessel uses the Northern Sea Route the distance change to 7600 miles. That means that the vessel can be faster by approximately 10 days (ABS, 2014).The Northern Route has different paths and crosses the Russian Arctic coast from the Kara Sea, along Siberia, ending up to the Bering Strait (ØRTS HANSEN, 2016).The route is within Russia’s Exclusive Economic Zone and it has an extent of about 4800 km, but the voyage length depends on different factors such as the draft of the vessel which passes through the path and the condition of the ice among the most important. The navigation via the North Sea Route can be separated in two significant seasons. At first, there is the summer season starting from July to November. During that season the routes are chosen after taking into consideration the position of the ice meanwhile with its floating and the open water. By estimations, some parts of the route are free of ice for only two months. Secondly, there is winter and spring period of which the characteristic is that the area during them is then covered with ice. Again, the choice of route depends on the kind of ice and it is up to icebreakers to create a good pathway for ships like bulk carriers so they can pass through. Free of ice water depths are between 20 to 200 meters, depending on the season and the path that vessel chooses (ABS, 2014).
Moreover, Northern Sea Route is under Russia’s legislation, while the Northern Sea Route Administration is responsible for the correct operation of the passage. Marine companies should be very careful and take into consideration many factors when they organize a transit through the Route. For that reason, the Administration has developed and provided the regulations and requirements that vessels should comply with in order to use Russia’s coast services. These regulations are based on the Federal Law dated on April 30, 1999 and in compliance with the Transport Ministry of the Russian Federation, approved by the Decision of the Government of the Russian Federation dated July 30, 2004 (NSRA, 2013).The context of regulations include rules for the process of transit of ships in the waters of Northern Sea Route, rules for icebreaker assistance and pilot ice assistance of vessels. In addition, there are forecasts about seafaring hydrographic and meteorological support of the navigation of ships as well as rules for radio functions of the ships during their transits through the specific region. Moreover, there are important orders to ensure safe condition for the Arctic environment, avoiding unwanted pollution. At last, there are strict norms on how should vessels been organized in order to operate though the route (ABS, 2014).The application of rules is very strict because many ships have violated them the late years. For instance, during the year 2017 the Northern Sea Route Administration found 88 violations from ships which was around 15-20% of all voyages happened on summer (High North News, 2017).
Each vessel which is about to use the Northern Sea Route must meet specific requirements which have been developed by the Administration of Northern Sea Route, and the Regulations for Navigation on the Seaways of the route. Design, equipment and supplies of the vessels should be carefully examined by the marine company before starting to operate in Northern Sea Route, especially with ships such as bulk carriers. These requirements take into consideration the existing difficulties and the risky environment of Arctic Ocean, during a voyage. In addition, they are developed to ensure safety of navigation and protect the unstable marine environment.
To begin with, Administration requires all vessels to have at least gross tonnage of 300 t, except specific circumstances and also each vessel is categorized depending on its ice resistance. Moreover, icebreakers have the permission to navigate through the Northern Sea Route under specific ice condition, accordingly to their ice resistance. In continue, ships without propeller can have access to the route if the Administration verifies their request. Inspections also are mandatory during the voyage and all ships should provide the certificate of Seaworthiness, certificate for Classification and other certificates related with the Convention on the Safety of Life at Sea according to SOLAS, Convention on the Prevention of Pollution from Ships according to MARPOL, Convention on Load Line (1966), as well as of IМО Codes on safety, design and equipment for special types of vessels such as bulk carriers.
As about the hull, all ships should have a double bottom floor and the height of the floor should meet specific requirements. Also, for safe transits ships should provide an ice certificate while there are guidelines for safe speeds to help seafarers with navigation. For the machinery of the vessels, the propellers should have four blades and be made from steel or high strength bronze to be able to pass the route.
In continue, ships should have a designed system onboard in order to provide treatment for sewage and avoid pollution of the sea. Also, for the stability and the draft of the vessels, there are specifications in compliance with the MARPOL and SOLAS Conventions which ships should follow because the weather conditions can be very risky during the operations.
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Communication during the voyage is also very important and the Administration requires from the vessels to be equipped with compass, radars depending on the gross tonnage and satellites to be visible and communicate with the authorities in case of emergency. In addition to emergency occasions, there are provisions which demand from vessels to be sufficient on fuels for at least 30 days along their passage from the route. To succeed that, double store for fuels are necessary and should be taken into consideration from the ship owners. At last, equipment for fire situation and warm clothes are mandatory for ships which operate to Northern Sea Route, to secure the safety of the crew.
Last but not least, it is very important for a ship which passes through the route to have a well-trained and experienced crew onboard. The size of the crew should be sufficient to operate without mistakes, while there should always be a master on the bridge with very good knowledge on signals coming from icebreakers as well as on mapping of the route. Seafarers should also be sensitized about the environment and try to protect the nature from pollution (ARCTIS KNOWLEDGE HUB, 2018).
All these provisions are part of what it is called Polar Code. All vessels, should comply with them in order to obtain the Polar Certificate which is mandatory for transits along Northern Shipping Route.
When considering the feasibility of a ship crossing the Northern Shipping Route there are different factors that can affect the process. More important, the economic issues can be separated to voyage, operating and financial costs. All of these costs are the running costs of a vessel.
To begin with, voyage costs include fuel and consumption costs, insurance, tariffs and ports of call. At first, the fuel costs vary, depending on the fuel consumption as well as the fuel price. Fuel consumption differs accordingly to the engine efficiency and the duration of the voyage. Most ships use marine diesel oil (MDO) or intermediate fuel oil (IFO) but to use them in low temperatures water, vessels should have a new design especially for that reason. Otherwise, ships have to use naval distillate fuel (NDF), suitable for cold water operations. Canadian Coast Guard is a great example of NFD use (Natsuhiko Otsuka, 2013). NDF is more expensive than IFO and indicatively the prices are 810 USD/t and 600-725 USD/t respectively (Bunker, 2017). As about insurance cost, it is very difficult to estimate it because it depends on different factors. P&I insurance companies for vessels rely on IACS and IMO, including Polar Code. But apart from that, insurance companies consider factors such as the experience of the crew, icebreakers, distance to port, ice classification and weather conditions before they fix an insurance price for each vessel. For example, a less experienced vessel will have to pay more than an experienced one. Also, risk plays a crucial role in configuration of insurance price. For example, insurance for a transit through Suez Canal between years 2011-2013 was higher than Northern Sea Route respectively, due to the piracy in Africa. Another important cost of voyage is transit tariffs when the vessels operate. This cost varies, depending on which route the ship is going to use. More specific, if a vessel passes Suez Canal the charge is affected by the Suez Canal Net Tonnage and the type of vessel while costs for the certificate, the navigation in ice and limits for speeds should be considered. On the other hand, the tariff for the Northern Sea Route depends on the transit, the gross tonnage and the ice class of ship. On average, bulk carriers have a fee of 5 USD/GT. Tariffs are higher for bigger distances, higher gross tonnage and lower ice classes. NSR law estimates a fee of 336 USD/day for 12h operation and 672 USD/day for 24h navigation through the route. Also there is an extra cost for ice pilot estimated about 1000 USD per day. Therefore, tariff cost is higher for old fashioned bulk carriers which need escort from ice breakers than new fashioned bulk carriers which are ice breakers themselves (Grandinetti, 2017).In general, tariffs are lower for Northern Sea Route than Suez Canal. At last, there are the port dues which consist of port entry fee and line handling fees.
Secondly, dry docking costs after a transit should be taken into consideration because they can be very high. During operations in cold water, vessels might damage the hull, the propeller or other accidents can occur due to collisions. Each vessel needs maintenance and the charge for that can be very high. It is estimated that after crossing the cold waters of Russia a ship needs 25000 USD on average to repair the damages from the ice and collisions. In continue, the training of the crew is necessary for a vessel to navigate through the Northern Sea Route, while the master and the officers need to be trained enough to face the difficulties of such a voyage, especially if the ice concentration is over 10%. A bulk carrier needs about 23-25 seafarers to operate. From estimations, this cost is about 1 million USD per year (Natsuhiko Otsuka, 2013).
Considering all the above, a decision about using existing or new designed vessels, in this occasion bulk carriers, must be taken. New ships with high ice resistance means a higher investment because they need much more hull weight and engine power than the existing one with lower ice resistance. Moreover, new ships should have a larger store to carry waste along their voyage and this requirement based on Polar Code puts old ships in a disadvantaged position because they are not designed with such provisions. Upgrading old vessels to make them meet safety and environmental regulations costs a lot and decreases the profit of a voyage (Tanker Shipping & Trade, 2017). Compared to the new constructed ships, the existing one are able to transfer the same cargo faster, because high ice resistance vessels need to have more power and weight to do the same voyage. That means that existing bulk carriers can be more profitable than new bulk carriers based on the duration of a transit. In continue, based again on time factor, differences between the existing and the new vessels should concerned. Due to the ice conditions on Northern Sea Route the operational season of low ice resistance vessels is smaller because they cannot operate in tough weather conditions without escort from icebreakers. New constructed vessels do not need such facilities and the increase of the operational season makes them more profitable over time (Grandinetti, 2017).
To conclude, Northern Sea Route is the best option for vessels which operate between North West Europe and China. Although the melting of the ice in Arctic Ocean has increased the season in which existing bulk carriers can complete transits through the route, new constructed ships is the future. Ship owners should consider using new high ice resistance bulk carriers which meet all the regulations and provisions for voyages through the Northern Sea Route. A correct management of these vessels reduces the transit costs and makes them more profitable over time.
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