Arctic shipping

Balancing risk and reward

Matthew Montgomery, (left) partner, and Adam Vrahnos,(right) at London-based shipping law firm MFB Solicitors review the complexities, challenges and opportunities surrounding the opening up of the Northern Sea Route

The shipping industry remains in the spotlight when it comes to climate change and emissions, with much of the recent focus being on compliance with the IMO 2020 regulations. Less talked about, however, is how melting ice sheets are opening up new transport routes in previously inaccessible Arctic regions.

This is being explored by some of the largest maritime operators, and nation states, that are seeking to establish whether these regions are now commercially viable for their operations. As well as China and Russia, that both have a vested interest, this has also been considered in detail by the UK government to identify important future trends, challenges and opportunities for the UK from the sea.

THE NORTHERN SEA ROUTE

When it comes to a discussion on Arctic shipping, the Northern Sea Route (NSR) is particularly important and provides a good benchmark of the increasing activity. The NSR is a shipping lane between the Atlantic and the Pacific that tracks along the Russian coast of Siberia and the Far East.

Only four vessels sailed the NSR in 2010, but the numbers have increased dramatically in recent years. In 2018 Russia stated that its target was 80 million tons of goods shipped on the NSR in 2024 and, although that it still some way off, 32 million tons of goods were shipped on this route in 2020. China has also invested significantly in infrastructure along Russia’s Arctic Coast, as part of these developments.

The efforts to develop the NSR are well understood when one considers that the route is around 40% shorter than the equivalent journey via the Suez Canal. That translates into reduced operating costs, including reduced fuel consumption. That has to be balanced, however, against additional insurance premiums as a result of the increased risks to vessels and their cargoes.

THE RISKS

Although there is increased interest in the NSR, it is important to note that the route remains blocked by impenetrable ice for most of the year.

In fact, there are currently only around three or four months a year during which navigation is possible and, even then, operators will need specialised vessels to pass through the unpredictable Arctic seas. Passage during these periods still comes with heightened risk, of course.

According to the Allianz Shipping Review of 2021, there were 58 reported incidents in Arctic Circle waters during 2020, which was 17 more than in 2019. When these incidents do occur, the costs of incident response and salvage are likely to be significantly higher.

The 2018 wreck removal of the fishing vessel Northguider, successfully completed by Smit Salvage, is an example of how complex these salvage operations can become.

Efforts to remove the wreck were made more challenging by the remoteness of the location, the difficulties involved with mobilising assets, limited operational windows and ice floes. This all translates into increased costs for the insurers that are

“When it comes to a discussion on Arctic

shipping, the Northern Sea Route (NSR) is particularly important and provides a good benchmark of the increasing activity. The NSR is a shipping lane between the Atlantic and the Pacific that tracks along the Russian coast of Siberia and the Far East.’’

responsible for covering the losses.

Safe navigation in polar regions is also particularly challenging because of the scarcity of cartographic information. Added to that, limitations to radio and satellite communications can be expected during any voyage. This makes detailed passage planning all the more important, including identification of safe (and no-go) areas, surveyed marine corridors and preparing contingency plans for emergencies, knowing that limited support is likely to be available. Consideration also needs to be given as to what type of ice may be encountered in any voyage. Different types of ice (for example sea water ice or glacial ice) have different risk profiles.

There are also more mundane risks that arise from operating in some of the coldest and most inhospitable regions on earth. These include the effects that the extreme cold will have on the crew’s ability to carry out their daily checks and maintenance.

Ensuring that vessels are properly maintained is particularly important in Arctic conditions, where damage is more common for deck mounted equipment, the rudder, propeller and hull. Vessel owners and operators will need to take all of these risks into account when planning for voyages in these regions.

Aside from the vessel itself, there are also risks to cargoes, including ice and snow entering the holds during loading, which need to be protected against. Another risk that can arise is where condensation causes damage to the cargo when its temperature is lower than the dew point of the air in the holds. Precautions such as ventilation or dehumidifiers may be needed to guard against these risks, thereby avoiding cargo claims.

CHARTERPARTIES

When it comes to charterparties for transit through the Arctic regions, an owner will want to ensure that an ice clause is incorporated to allocate liability for the risks involved. The BIMCO ice clause is the most common wording and includes provisions whereby: a) The vessel shall not be obliged to force ice but, subject to prior approval from owners, may follow ice breakers; b) The vessel shall not be required to enter or remain in any icebound port or area if the Master considers that the vessel will not be able to safely enter and remain at the port (or remain after completion of loading or discharging); c) Any delay or deviation shall be for charterers’ account and the vessel shall remain off hire; and, d) Any additional premiums and/or calls required by the vessel’s underwriters because the vessel enters or remains in any ice bound port or area shall be for the charterers’ account.

Irrespective of the wording, owners and charterers should ensure that the additional risks of trading in Arctic waters are properly dealt with in relevant charterparties. This needs to be done to ensure that all potential liabilities have been addressed and that responsibilities between owners and charterers are properly articulated.

For ships that operate in Arctic regions, a Polar Ship Certificate is mandatory for ships certified under SOLAS Chapter 1 (which covers the vast majority of trading vessels). The Polar Code covers all manner of matters, including navigation in Arctic and Antarctic waters, ship design, vessel equipment, operational and training issues, search and rescue and the protection of the environment. The introduction of the Polar Code has put a more robust regime in place for those vessels operating in Arctic and Antarctic waters.

CAUTION REQUIRED

In view of all of the heightened risks, and particularly the remoteness and limited salvage capabilities, owners and underwriters will need to exercise caution when planning voyages through polar regions. Matters for consideration will include the suitability of the vessel involved, crewing arrangements (including the experience of crew members), the timing of the voyage, ice breaker and escort arrangements and any permissions that may be required.

On the other hand, with a growing incentive to undertake voyages through these regions, the increased traffic will lead to more opportunities but also more (and unique) risks that need to be considered, including the significant challenges for salvage operations for those vessels that find themselves in difficulty.