Feasibility of the Northern Sea Route for a container shipping


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Feasibility of the Northern Sea Route for a container shipping

  1. 1. Viabilidad de la Northern Sea Route para un buque portacontenedores Feasibility of the Northern Sea Route for a container shipping Alumna: María Martínez Tutor: Iñaki Alcedo MÁSTER SOBRE GESTIÓN DE EMPRESAS MARÍTIMO PORTUARIAS Y DERECHO MARÍTIMO Curso 2011 - 2012
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  3. 3. Table of contents1! Abbreviations 4!2! Abstract 5!3! Arctic Routes 6!3.1! Presentation of the different routes 6!External elements to consider in both routes (NSR and RR) 8!3.2! Cargo volumes and breakdown 8!3.3! Port selection 9!3.4! Routes and distances 10!4! Specific elements to consider in the NSR 11!4.1! Ice conditions 11!4.2! Regulation in the Northern Sea Route 12!4.3! Ship 13!5! Specific elements to consider in the Royal Route 15!5.1! Ship 15!6! Cost of the ship in both cases 16!6.1! Capital cost 16!6.2! Voyage costs 16!6.3! Operating costs 18!7! Economic model 21!7.1! Model outline 21!7.2! Static information 21!7.3! Forecasted data 22!7.4! Cost of different travel mixes between NSR and RR 24!7.5! Return on investment 26!7.6! Sensibility study 27!7.7! Other externalities 27!7.8! Adverse factors 29!7.9! Potential global impact 30!8! Discussion 32!9! Bibliography 33!10! Appendix 37!10.1! Illustrations 37!10.2! Tables 41!10.3! Graphs 46! 3
  4. 4. ! !!""#$%&(&)*+" EEZ: Exclusive Economic Zone H&M: Hull and Machinery IACS: International Association of Classification Societies IEA: International Energy Agency IFO: Intermediate Fuel Oil MDO: Marine Diesel Oil MENA: Middle East and North Africa MOH: Marine Operator Headquarter MT: Metric tonne NSR: Northern Sea Route NSRA: Northern Sea Route Administration NWP: Northwest Passage P&I: Protection and Indemnity RR: Royal Route SCNT: Suez Canal Net Tonnage SDR: Special Drawing Rights TEU: Twenty-foot Equivalent Unit UNCTAD: United Nations Conference on Trade Development WCI: World Container Index WEO: World Energy Outlook WSC: World Shipping Council 4
  5. 5. # !"#$%&$" A former work written by Maria Martinez for the Escuela Técnica Superior deNáutica y Máquinas Navales (UPV), focused in a first approach to the viabilityof both Northern Sea Route and Northwest Passage during navigable periods.The study concluded that at present time the economical feasibility of thisapproach is not attractive enough. The aim of this new study is to analyse a possible evolution of this route’sscenario over the next thirty years. It proposes an economic model based on afuture energy cost evolution and Northern Sea Route longer ice-free periodsinstead of just navigable seasons. That could eventually make the passageeconomically feasible compared with the traditional route1. The approach used in this work is: (1) to study the economic return of usingvessels that may combine the use of the Royal Route during winter seasonsand the NSR during ice-free seasons, (2) to determine the break even point forNSR use were oil price and weather conditions would make energy savingshigher than other operating and capital expense increase, (3) establish theassociated cash flows and internal revenue rates, (4) estimate the economicimpact of NSR adoption for shipyards, charterers and passage relatedagencies.1 Traditional route or Royal Route: This passage connects Mediterranean Sea with the IndicOcean by the Suez Canal. 5
  6. 6. $ !"#$%#&()$*+"$%! &()(*+,+-.*"./"+0("1-//((*+".2+()" As the title introduce, the main characteristic of these routes is where theypass through. Nowadays 3 passages are defined in the North Pole area: theNorthern Sea Route (which this study talks about), the Northwest Passage andthe Arctic Bridge. The aim of the Northern Sea Route is to connect the north-west area ofEurope with the north-east area of Asia, passing across the Russian ExclusiveEconomical Zone, among other secondary EEZ. Meanwhile, the Northwest Passage is used to connect the north-west area ofEurope with the north-east area of America with Asia, passing across the NorthPole. Finally, the Arctic Bridge has been defined to cut down distances betweenthe west face and the east face of the earth (as nowadays we recognise theworld maps), sailing in high latitudes, to avoid long distances crossing theAtlantic Ocean.30("4.+0(*"5(,"6.2+(" As the text above explain briefly, the NSR could be an alternative for thosemaritime traffics which involve destinations and departures of goods from highlatitudes along the north of Europe, Russia, Asia and America. The main characteristic of this route is the decrease in distance between theaforementioned areas, in comparison with the popular conventional route,referred as the Royal Route. This latter connects Europe with Asia by the SuezCanal, in Egypt. During the last decade the interest for this route has grown as a result of theArctic ice melting increase. Many companies are investing in studies related tothe possibilities of this new route as a real choice within few years. Governments are also trying to obtain benefits. The clearest example couldbe Russia. This country applies a fee for passing through the NSR, regardlessthe conditions of the ship, weather, number of trips, among other factors. Every year the ice-free period is being longer. For this reason, could bereasonable to think about the possibility to sail in a future across this route mostof the year. However, the origins of the NSR go back hundreds of years, when all thesecurrent interests were not present in the society and the governments, and theglobal warming was not yet an issue under discussion. The first voyage that successfully passed through the NSR was conductedby a Swedish scientist A.E. Nordenskjöld in July 1878 (V.Y. ALEXANDROV, 6
  7. 7. 2007, p.9). After this event, the new route was set, and a new stage in theArctic maritime traffic opened. In the 20th century people started to talk about global warming and its effects.The ice of the Arctic suffered a decrease in square metres and thisphenomenon attracted investors and other interested parties. Nowadays, sailing with minimum hazards is possible 2 months a year. Theice-free water conditions permit vessels with specific ice class2 to go across thisarctic passage. However, sources talking about this topic do not reachagreement about the present and the future of it. Some important companiesdefend the idea of the unfeasibility of the NSR. They claim that some importantcosts could be increased as insurance or toll. Meanwhile, other sources aremore optimistic, and consider more advantages than drawbacks related withthis route.2 Ice class is a classification defined by Classification Societies, which confirm that the shipfulfils specific requirements related with her structure, safety and security characteristics tonavigate through sea ice. 7
  8. 8. !"#$%&()$!"#"$%&!"#$"%&()*#%#+"!,# !"#$%&(!"#!!"#$!!!" According to United Nations Conference on Trade and Development, globalinternational sea cargo amounted for a total 8,800 million tonnes during 2011.Despite global economic recession has temporarily reduced trade volumes,during the last ten years the average increase has still been of 2,000 metrictonnes or a compound growth of 3% a year. In order to accommodate this work to a limited, yet useful scope, tworestrictions have been adopted: a) Of all cargo categories (bulk, traditional cargo, tank, ro-ro and containers), only container trade has been taken into consideration. b) The study focuses on the impact of the alternative using the NSR over the RR from the sea trade between Rotterdam and Shanghai. This route is a very important portion of the total global sea trade, and probably the only one where the NSR alternative would have a more direct impact in a short term. To better understand the impact of such restriction, we should briefly reviewthe world volumes of main cargoes breakdown. According to UNCTADstatistics, container trade and major bulks growth has been uneven during thelast thirty years.$%# 7,8."9.:2;()",*1"<(,=1.>*" As the sources remark, the balance of 2.4 billion tons of dry cargoes is madeup of containerized (56%) and general cargoes. Looking at the specific growthof container cargo, the volume increase of this particular type has grown from628 million tonnes in 2000 up to 1,477 million tonnes in 2011, accounting for ayear increase rate of 10%, three times the total cargo increase rate. Table 2shows how trade breakdown has evolved from 1980 to 2011. Regarding other major dry bulks (iron, ore, coal, grain, bauxite/alumina andphosphate rock). Their volume rose from 1,288 million tons in 2000 up to 2,477in 2011, accounting for a year increase of just a 1%. The composition of majorbulk cargo evolution compared with container’s trade is shown in Graph 1. Thedecreasing share of these bulk cargoes is a consequence of the fast growingdemand for finished products over raw materials used as inputs such as steelmaking and industrial activity in large developing regions such as China orIndia. According to this data, focusing on container trade for an economic modellingfor a 20 to 30 year’s scope is a reasonable good choice, as container tradeseems to be a major player in the future over bulk or oil trade. 8
  9. 9. $%$ &.+")(:(?+-.*" Another important topic is to select which ports could be candidates for NSRadoption. As this route connects Northwest coast of Europe with Russia andNortheast coast of Asia, is reasonable to expect that ports affected will be thosein such areas.@2.A(B"6.++(1,;" According to European Commission 3 the main European ports areRotterdam, Antwerp and Hamburg (Table 3). These ports show double-digit growth rates in terms of handled containers.While top 20 ports listed account for 39% of the total tonnage of goods handledin the countries’ reporting data (EU-27, Croatia and Norway). Rotterdam aloneaccounted for more than 10% of the total tonnage of goods handled inEuropean ports in 2010. This data is also confirmed by UNCTAD’s statistics 4 . According to thissource, Rotterdam is Europe’s largest container port, handling a total of 11million twenty-foot equivalent units (TEUs) in 2010. Based on this data, the study has selected the port of Rotterdam as thewestern departure and arrival port.C)-,B"50,*80,-" For what regards to Asia, sources like World Shipping Council reveal thatShanghai’s port is the main container port of the world. Shanghai’s yearly tradeof 29.07 million TEUs is followed by other important ports like Singapore’s orHong Kong’s. Table 4 shows the world ports raking, based on container tradingvolumes. Here again, Rotterdam appears as the highest European port in theranking. For the development of the study Shanghai port has been chosen as Asia’sdestination and departure of the route.3,1("2*<,:,*?(";(,)2(;(*+",*1"?,8.".??2A,*?D" An important issue to be taken into consideration regarding container trade istrade direction unbalance: Whereas the container shipping traffic increases!Will the traffic of goods between two areas benefit from the same volumes inboth directions? The UNCTAD studies reflect that in the last century the route Europe-Asiahas suffered an important change (Table 5): While in 1995 the growth of theflow between these areas was balanced in both ways, currently the flow ofgoods from Asia to Europe is two times higher than in the opposite way.3 Source: EUROSTAT 20104 Source: UNCTAD. Maritime transport review 2011 9
  10. 10. The outgoing and incoming between the ports selected are very different.According to World Container Index, in 2010 the volume expressed in millionTEUs from Shanghai to Rotterdam was about 8.740, whereas in the otherdirection the trade was of 3.980. This issue is important to be taken into account because it affects directly theexpected percentage of effective load that can be achieved in a full round trip.According to the figures, the maximum average percentage that can be reachedis about 75% of the total available cargo capacity. While this number affects the final return of any sea transportationinvestment between those two ports, it is reasonable to believe it is not going tohave a different impact when comparing the NSR with the RR.$%E 6.2+()",*1"1-)+,*?()" Once Rotterdam and Shanghai ports are selected, 3 different routes can beused for comparative purposes (Illustration 3). The first one is the Royal Route, also known as the Suez Canal route. It goesfrom Rotterdam to Asia by Suez Canal, and takes around 10,409 nauticalmiles5. This route is currently the preferred one between both ports. Another alternative route used very often by important companies likeMaersk or MSC is to take the Cape of Good Hope. This route avoids Somalia’spiracy and Suez Canal toll. The distance is though increased by 13,731 nauticalmiles6. The third option is the NSR. It takes 7,824 nautical miles7. It is the shortestoption. Apparently it seems to be the better option if it is taken into account thedistances, nevertheless, it has a number of serious pitfalls. The Cape of Good Hope route is currently the only alternative choice to betaken into consideration in case of an eventual geo-political interruption of theRR. However, to make economic sense, only very large cargoes would be ableto adopt this route to benefit of maximum economies of scale. For the purpose of this study, the immediate alternatives to compare will bethe RR and a future ice-free passage through the NSR.5 Source: Sea Rates website.6 Source: Sea Rates website.7 Source: The author. 10
  11. 11. E !"#$%&%$#(#)#*+,+-$-*,%.#/%*+0# !"#$"E%! F?("?.*1-+-.*)" The main factor influencing navigation through the NSR is presence of ice.Annual and seasonal variability of ice conditions is typical for all areas of theNSR. Currently, the navigation season for transit passages on NSR startsapproximately at the beginning of July and lasts through to the second half ofNovember8. There are no specific dates for commencement and completion ofnavigation; it all depends on particular ice conditions. In 2011 the navigationseason on the NSR seaways for large vessels constituted 141 days in total, inother words, more than 4.5 months. In recent years quite easy ice conditionshave been observed and that offers more considerable opportunities foroperation at the NSR seaways. All NSR seaways are currently located in thearea of one-year ice. In the arctic conditions one-year ice grows approximatelyup to 1.6 metres. (Illustration 4 shows the area covered with ice in August2011). As Arctic Logistics Information Office explain, in September and October theNSR seaways can be completely free of ice, it means the vessel may have thesame speed as in the open waters. A voyage from Cape Zhelaniya in NovayaZemlya to the Bering Strait can be travelled at the speed of 14 knots within 8days. In November the Laptev Sea and the East Siberian Sea are covered withnew ice up to 30 cm that allows for safe pilotage of a vessel supported by anicebreaker. Therefore, in the current ice conditions vessels can navigate fromJuly until December. In a previous work mentioned above, the study was based on the amount oftime the NSR was open for marine traffic. However, it did not take intoconsideration that a portion of this navigation season takes place in completeice-free conditions. According to an Artic Logistics Information Officerinterviewed9, during 2011 eleven summer season, the NSR enjoyed of almost atwo months ice-free waters.F?(<(8"(:,+(1"0,G,1" Another issue sometimes taken into consideration when studying weatherand navigation conditions in the North Pole is the generalized believe thatdespite the sea would be free of ice most people would expect a large numberof icebergs within the navigation route. Would this be true, and despite ice-free8 Source: Arctic Logistics Information Office.9 According with information provided by Sergey Balmasov, head of the Artic LogisticsInformation Office 11
  12. 12. positive impact on navigation conditions, vessels sailing into such route wouldface iceberg related to hazard. However, this common believe lacks of any kind of real support: Icebergs arenot created from North Pole frozen sea surface, which in most cases (the socalled “one year ice”) is not thicker than 1.5 meters10. Most (if not all) icebergscome from glacier-originated ice, dropped into the north and south highlatitudes. Unlike the Antarctic situation, where a glacier rich geography generates a lotof new icebergs every year, North Sea icebergs are created in the Greenlandand North Canada glaciers. Once in open waters, icebergs follow the Labradorcold current (Illustration 5), which pushes them south into the north AtlanticOcean. This phenomenon makes the Western Passage still very unsafe forcommercial speed navigation, but leave the North East Passage virtually free oficeberg or at least no worse that navigating in any other spot of the northAtlantic.E%# 6(82:,+-.*"-*"+0("4.+0(*"5(,"6.2+(" Major part of territory where the NSR pass through is Russian domain(Illustration 6). However, the route between Rotterdam and Shanghai alsoincludes other EEZ11 for which the vessel will pass across:• Netherlands• Germany• Denmark• Norway• Russia• Japan• China Consequently, a number of interests could change the situation of this routeduring the next years as Arctic ice gradually melts. Russia, in article 1.1 of the Regulations for Navigation on the Seaways of theNorthern Sea Route of 1990, considers the NSR “a national transportation routeof the USSR, which is situated within the inland waters, territorial sea (territorialwaters), or EEZ adjoining the USSR northern coast, and includes seawayssuitable for guiding ships in ice”. Although the United Nations Convention on the Law of the Sea mention inthe article 17 that “ships of all States enjoy the right of innocent passagethrough the territorial sea”, passing through the NSR has a cost. This isbecause the regime for NSR shipping, is based on article 234 of the UnitedNations Convention on the Law of the Sea, under which a coastal state has theright to unilaterally adopt and enforce laws and environmental regulations in its10 Information of ice thickness according to ice ageing, provided by Arctic Logistics InformationOffice11 Exclusive Economic Zone (EEZ): It is a seazone prescribed by the United Nations Conventionon the Law of the Sea over which a state has special. It stretches from the seaward edge of thestates territorial sea out to 200 nautical miles from its coast. 12
  13. 13. EEZ where ice coverage causes exceptional hazards to navigation, and wherethe environment is especially vulnerable. As a result, the Russian regulations set out that all vessels wishing to enterinto NSR (including all areas within Russian 200 nautical miles EEZ) shouldnotify this to the Northern Sea Route Administration beforehand, and alsosubmit an application for icebreaker escort. The application must containinformation on guaranteed payment of NSR fees and documentation ofadequate insurance to cover environmental pollution damage. The vessel mustmeet special ice-class requirements. There is also a range of minor technicalrequirements, including compatibility with the Russian ice-navigation techniqueof close towing, requiring increased strengthening in the bow and the ability tofasten towlines. Russia keeps the right to board any vessel navigating the EEZ when thereare reasons to believe that the vessel may not comply with the standards andrules mandated by Russia, or when it is feared that severe natural conditionsmay endanger the vessel or the marine environment. The Marine OperationHeadquarters can remove ships violating any provisions of the Regulationsfrom the NSR12.E%$ 50-A" For crossing the NSR it is necessary to invest in specific kind of vessel. Itshould has a high ice class like ARC7 or the equivalent Baltic class A1. For thisstudy a new model designed by Aker Arctic Technology Inc has been chosen13. The vessel is a project designed according to the Requirements for thedesign, equipment and supplies of vessels navigating the Northern SeaRoute14. It means that the vessel could sail despite the conditions of the sea orthe weather will be hard. Then, the ship selected for the study is an arctic container vessel with thefollow main characteristics: Capacity (TEU15) 5,000 Length over all (m) 281 Length between pp. (m) 269 Breadth (m) 34.6512 Marine Operation Headquarters (MOH): According to the definition expressed in theRegulations for navigation on the seaways of the Northern Sea Route, MOH are specialnavigation services of the Murmansk and Far East Shipping Companies, directly performing iceoperations on the Northern Sea Route, under the general co-ordination by the Administration.13 It is a company from Helsinki, which offers all kinds of consulting, design and engineeringservices, field expeditions, training and other technology services associated with technologiesand operations in icy or severely cold conditions.14 Requirements developed in accordance with the Statute of the Administration of the NorthernSea Route approved by Resolution No. 683 of 16 September 1971 of the Council of Ministersof the USSR (Collection of Resolution of the Council of Ministers of the USSR. 1971. No. 07 art.124) and the Regulations for Navigation on the Seaways of the Northern Sea Route (rule 1. par.1.5 and rule 4) approved by the Minister of the Merchant Marine on 14 September, 1990.15 TEU: Twenty-food Equivalent Unit is a unit of cargo capacity used to describe the capacity ofcontainer ships and container terminals 13
  14. 14. Draught (m) 13.5 Deadweight at 9 draught 68,000 Cargo capacity (MT16)(12,3 MT per container) 61,500 Fuel (MT) 6,000 Other stores (MT) 500 Speed (knots) 19 The width of the vessel allows carrying 12 containers side by side in holds,and 14 on deck. Height of the deck container stacks is up to 7, which is normalfigure for vessels of this category. Related to the machinery, it is diesel-electric, by four diesel generators, up toabt. 45 MW total power, and two Azipods of maximum size, up to 18 MW powereach, take care of the propulsion. Fuel is heavy fuel oil. Fuel consumption at 35 MW shaft power is about 170metric tonnes per day. The 6,000 tonnes fuel store is adequate for about 35days cruising at 35 MW shaft power.16 MT: Metric Tonne. 14
  15. 15. H !"#$%&%$#(#)#*+,+-$-*,%.#/%*+0# !"#$%&!"()"H%! 50-A" For this study, the container vessel used to sail across de RR has similarcapacity than the ship which pass through the NSR. It can also transport 5,000TEUs. However, the technical aspects are a little bit different becauseconventional vessels do not need, for example, so high displacement. Also theaverage speed will be different. In this case the vessel will not find dangerousice or weather conditions. For this reason, the economic speed assigned for thiskind of ship will be 22 knots, as the service average speed done by the shipMaersk Djibouti17. Capacity (TEU) 5,000 Length over all (m) 294 Length between pp. (m) 283 Breadth (m) 32 Draught (m) 12 Deadweight at 9 draught 68,672.48 Cargo capacity (tonnes)(12,3 tonnes per container) 61500 Fuel (tonnes) 6,672.48 Other stores (tonnes) 500 The fuel oil consumption of main engine is around 160 metric tonnes per dayand the maximum tiers in holds and on hatches are 8 and 6-7 respectively.17 Vessel used as a reference to develop the first study about the comparison of cost, profit andrevenue between the NSR, the NWP and the RR. 15
  16. 16. I !"#$%"&%$(%#)*%)+%,"$%-.#(#" In any ship is possible to find 4 different groups of costs: capital cost, cost ofmaintenance, voyage costs and operating costs. Depending on the age of thevessel, the percentage of each group will be different. In this case, both shipsare considered new ones. It means that during the first years some extra costsshould be taken into account. According to MARTIN STOPFORD (2009), themain cost to be considered for a new ship will be the capital cost, flowed by thevoyage cost and the operating cost. For this reason, with the aim to simplifycalculations, in this study only the 3 main costs are going to be taken intoaccount.I%! 7,A-+,:"?.)+" The price of the new specific arctic container vessel, according to Aker ArcticTechnology’ company, is about 195 million USD, meanwhile the price of aconventional container vessel with the same capacity is considered less than100 million USD. These values mean that the price of the ship with iceclassification is nearly twice than the price for a conventional vessel. It isbecause of the characteristics of the arctic region, the vessels sailing thereneed to be designed following the specifications of polar classifications.I%# J.D,8("?.)+)"K2(:"?.)+" As it is known, during the last century fuel has experienced a high variation ofthe prices depending on the situations. Could be thought that passing throw theNSR may reduce this cost because the distance is shorter. The problem is thatthe heavy weather conditions and the specifications to pass cold latitudesincrease the consumption of the vessel. In both cases, the vessels use IFO38018 and MDO19. The fist one is the mostsignificant part of the voyage costs. In this study, it is assumed that the Arcticmodel vessel consumes 170 metric tonnes per day of IFO380, while theconventional ship consumes 160 metric tonnes per day. The rate of IFO380 isassumed to be 600 USD/ton20 in the static comparative case. In relation to MDO, the cost of it is less significant because, although theprice of the MDO is higher21 than the price of IFO380, the ship uses a smallquantity of it during the voyage, basically during port operations, when it isnecessary to provide the auxiliary power supply of the vessel. In any case, the18 IFO380: Intermediate Fuel Oil. It is a kind of fuel with a maximum viscosity of 380 Centistokes(<3.5% sulphur).19 MDO: Marine diesel oil.20 Source: Bunker Index average.21 Price of MDO during April 2012:1000 USD/ton. Source: Bunker Index average. 16
  17. 17. time on port and the period to charge and discharge will be the same for bothships. Moreover, the consumptions of this oil in both ships are very similar. Forthese reasons in this study fuel cost has been omitted.&.+"?.)+)" Despite port-related charges represent a major component in voyage costs,which include various fees levied against the vessel and/or cargo for the use ofthe facilities and services provided by the port, in this study these costs havenot been taken into account. The reason to leave them out is because in allscenarios the total amount will be similar (both ships have same size andcapacity to load and discharge).7,*,:"12()"" In both voyages this cost has to be considered. However, it will be verydifferent in each case. Whereas the Suez Canal charges can be calculated on-line and are high but acceptable, the NSR tariffs are, although they are alsopublished on line, very confused. There is a table with the quantities but as itcan be seen, the final amounts may be negotiable.52(G"7,*,:"+.::" In the RR is necessary to consider the cost to pass through the Suez Canal.The toll structure of the Suez Canal is complicated since it is based on two little-known units of measurement, the Suez Canal Net Tonnage and the SpecialDrawing Rights 22 . Tariffs are calculated in terms of these. As MARTINSTOPFORD (2009, p. 236) explains in his book, “the Suez Canal net tonnageof a vessel is a measurement based on late nineteenth-century rules that wereintended to represent the revenue-earning capacity of a vessel”. It broadlycorresponds to the cargo-carrying space below deck, though it is not directlycomparable to the more normal measurement of cargo capacity (net tonnage). The SCNT of a vessel is calculated either by the classification society or byan official trade organization, which issues a Suez Canal Special TonnageCertificate. In the study, we do not have this document, but it is possible to know thisvalue adding together the gross and net tonnage, dividing by two and adding10%23. Another important fact is the tariffs will be calculated on the basis of SDRsper Suez net ton.22 The Suez Canal Authorities (SCA) uses the Special Drawing Rights (SDR) in calculating theSuez Canal Tariff to avoid major currency fluctuations. The value of the SDR is based on abasket of key international currencies, namely USD, EUR, JPY and GBP. The U.S. dollar-valueof the SDR is calculated as the sum of specific amounts of the four currencies valued in U.S.dollars, on the basis of exchange rates quoted at noon each day in the London market.23 Source: MARTIN STOPFORD (2009) 17
  18. 18. Based on this information, for vessels with dimensions and capacitymentioned above, the final price of the Suez Canal will be about 367,715.32USD24.4.+0(*"5(,"6.2+("/((" Even though the ship selected to navigate across the NSR has specificclassification for cold water and ice conditions, and the designers consider thatshe could navigate without icebreakers, this fee has been taken intoconsideration. Today the basis for the fee system in NSR is that all cargovessels operating in the area should pay the fairway dues. They justify this costsaying that these dues are used to cover the cost of operating all the icebreakerfleet. Traditionally, governments have funded the costs of icebreakers andicebreaking, and shipowners have been charged only on the actual assistance,when their ships have been in troubles with ice, and icebreaker has been calledfor help. That resulted in situation where ice icebreaker assistance wasexpensive, but use of the fairways was free or cheap. Due many problemsrelated to this fee system, governments have changed it, now an even but quitehigh ‘fairway due’ is paid every time by using the national waters or fairways,irrespective if icebreakers are used or not, and consequently, icebreakerassistance has become ‘free of charge’. Anyway, the costs of icebreakers aremeant to be covered by the fairway dues, being in fact major part of that. How the dues are applied on NSR nowadays, makes the situationproblematic for the study, and for the actual traffic too. Further on, thegovernment is not the operative owner of the Russian icebreaker fleet, but theicebreakers have been handed over to the Murmansk Shipping Company whichis a private company, but has thus a government supported monopoly for theicebreaking assistance in the NSR area. Moreover, this fee system does not give a chance for shipowners who wantto use own icebreakers to secure the continuous transportation independent ofother parties. The fees are categorized in different cargo types. For container cargo it is1048 Russian rubles 25 per ton of nominal gross mass of container, whichconverts to 32.7 USD/ton26. For 12.3 tonnes nominal mass container, fee wouldbe 402.23 USD/TEU. If the vessel is charged with 5,000 TEUs, it means a feeof 2,011,173 USD. It is rather evident that this fee level will not be feasible toany commercial transport.I%$ LA(,+-*8"?.)+)"" As MARTIN STOPFORD (2009) explain in Maritime Economics, this cost isdivided in 5 components: the manning cost, store cost, repair and maintenance24 Source: Suez Canal’s website.25 Source: Arctic Logistics Information Office’s website.26 Conversion done in August 2012. 18
  19. 19. cost, insurance cost and administration cost, but not all of them represent thesame percentage of the total cost. In particular, the insurance cost is the mostimportant one. To simplify the exercise, though below it is possible to readreferences about all the operational costs and how they could affect the finaltotal, for the final calculation only the insurance cost has been considered.M,**-*8"?.)+" Crew costs include all direct and indirect charges incurred by the crewing ofthe vessel, including basic salaries and wages, social insurance, pensions,victuals and repatriation expenses. The level of manning costs for aconventional ship is determined by two factors, the size of the crew and theemployment policies adopted by the owner and the ship’s flag state. However,in this case another factor is important to consider: the specific conditions of theArctic sea and its weather. According to regulation about ships passing throughiced areas27, the crew should complain with some requests related to trainingand experience. It makes the total amount of this section more expensive thanin a usual situation of a vessel sailing in the conventional route.5+.()N":2<-?,*+)N";,-*+(*,*?(",*1"(A,-)" All of these costs represent around the 20% of the total cost. As it is possibleto see, the percentage is not so high. In this study it is assumed that the vesselsare new. It means the total amount assigned to repairs and maintenance will beminimum. In the case of the ice classification vessel, the cost of these elementscould be higher, but not too much. Related to stores and lubricants, the totalamount will be similar in both cases, passing the ship through the NSR or bythe RR.F*)2,*?(" Marine insurance covers three categories: hull and machinery, cargo andmarine liability. As it is said above, this section can represent a high percentageof the total cost. The problem of this cost is that the amounts can not be knowneasily. This is because the insurance companies do not disclose informationabout rates in any case of policy, whether Hull and Machinery, Protection andIndemnity or cargo insurances. In general two-thirds of this cost is to insure the hull and machinery, whichprotects the owner of the vessel against physical loss or damage, and the otherthird is third party insurance, which provides cover against third party liabilities,such as injury or death of crew members, passengers or third parties, pilferageor damage to cargo, collision damage, pollution and other matters that can notbe covered in the open insurance market. Also, an additional insurance may betaken out to cover against war risks, strikes and loss of earnings.27 Source: Requirements for the design, equipment and supplies of vessel navigating theNorthern Sea Route and the Convention on training and licensing of seamen and maintenanceof watches 19
  20. 20. O2::",*1"M,?0-*(D"-*)2,*?(" The H&M insurance in the case of the ice class vessel, in accordance withstudies done by the captain ASHOK PANDEY (2009), could be assumed twicethat the open water for the duration of the arctic voyages. This is because thevessel navigating in the Arctic waters may pass more risk situations than avessel that goes by the RR. However, as in section 7.2 is evolved, in a futurethis cost could be different.&.+(?+-.*",*1"F*1(;*-+D"-*)2,*?(" In the case of this policy, it happens the same as the H&M insurance, thehazards of going through the NSR could be higher than in the conventionalroute. As a result, the premiums for sailing in Arctic area may be more or less43% higher than the conventional P&I policies. However, it is important tomention that both routes could present dangerous situations. Nowadays the RRis having problems related to piracy, which affects directly to the cost of the P&Iinsurance. Again, like for the H&M insurance, this hypothesis has beenchallenged in section 7.2.P(*(,:"?.)+)" This section comprises costs related to registration, management, sundries,etc. For the study this amount has not taken into account because it will besimilar for both ships. 20
  21. 21. Q !"#$#%&"%#()*"Q%! M.1(:".2+:-*(" The proposed model, measures the return on investment on an NSR-habilitated boat to perform a variable combination of NSR and RR trips basedon an estimation of future NSR’s ice-free navigation season conditions and oilprice evolution. The model does not consider the possible evolution of geopolitical factorsthat may affect the cost of both NSR and RR tolls. As the more likely scenario isthat possible conflicts affecting the Suez Canal navigability will benefit themodel, and higher traffic within the NSR would decrease NSR’s toll which wouldalso increase returns of the proposed scenario.Q%# 5+,+-?"-*/.;,+-.*" To develop and try to simplify this model, some information has beenconsidered static. It means that for the results, the variation of these parametersis not taken into account.M-:(,8(" Depending on which source the distances are founded, the total nauticalmiles between Rotterdam port and Shanghai port is different. For this study theNSR has been calculated by the author, meanwhile the mileage between thesame ports but navigating through the RR has been taken from Sea Rateswebsite. After comparing with other sources, the distances selected can beconsidered correct. The differences with the others distances are not relevant.5A((1" It is clear that all ships have their own speed, by which the consumption orthe efficiency is better or worse. However, for the arctic container model thereare no more similar vessels to compare if 19 knots could be a real speed. Theonly information that has been possible to find is the ones published by AkerArctic Technology company. In response to if 19 knots is a valid speed for sailthrough the NSR, nowadays some vessels with specific ice classifications, likethe ones for the Arctic container ship, are navigating in high latitude seas withsimilar speeds in ice-free period. Therefore, 19 knots may be used as a goodreference. 21
  22. 22. 7.*)2;A+-.*" The consumption of a ship depends on a whole of factors. For example, if theweather conditions are bad, the ship will probably consume more fuel to keepthe same speed. Another problem could be the ice, because in the NSR thereare possibilities to find a surface of ice, and it may affect the speed or theconsumption. Nevertheless, how it is assumed that the vessel will sail in the ice-free period, both parameters have been assumed fixed.3.::)" As in the section 6.3 it has been remarked, nowadays the Russian fees arevery expensive. Probably, in a future they will be lower (because the traffic mayincrease or/and the ice period is reduced) but how is impossible to predict, forthe first model, the tariffs for the NSR are considered the same for the nextyears. However, in section 7.7 a sensibility study reflects possible impacts incase of reductions or increases in the amounts. Another issue in Russian fees is that all of them, published by NSRAuthorities, may be reduced for each particular case.F*)2,*?(" In the first comparison study28, the insurance cost for each vessel was verydifferent. However, as the ice surface is reduced the risks decrease. This canbe translated to a reduction in the premiums. Another important point to haveinto account is that the RR could come up against some problems related tosafety and security. The piracy in this area is being more common during thelast years. Currently, ships sailing in waters with high piracy risk should payimportant premiums to ensure that all the risks are covered. Related to the H&Minsurance, an important parameter to have into account is that the ice classcontainer will navigate in ice-free season, it means the risks will decrease everyyear. For all these reasons, may be considered that in a future the premiums forpassing through the NSR or the RR could be very similar.Q%$ K.(?,)+(1"1,+," In this study some parameters are considered not fixed in time. To know thefuture of oil prices or ice situation is very difficult to predict. However, it ispossible to confirm that both dates will undergo changes during the next 30years.F?("/((")(,).*"(9.:2+-.*" The prediction of ice evolution is changing constantly. Some authors suggestsea ice cover will be reduced to an almost ice-free Arctic Ocean in summer by28 MARIA MARTINEZ (2011) 22
  23. 23. the end of this century, and by 2037-2040 in the most extreme predictions(JOHANNESSEN, 2004; MASLOWSKI, 2012). The economic model proposed takes into consideration the last ten yearsevolution of ice-free areas. In order to estimate the future increase of suchperiods, this work uses as a reference the evolution graphics of the squarekilometres of ice in the North Pole seasonal evolution produced by NOAS’sCryosphere Today daily watch. These evolution curves (Graph 2) show a sustained decrease on ice filledsurface in the North Pole year over year. Showing that at a year low, ice surfacehas decreased from a quite stable 5 million square kilometres historical situationto a steady year decrease down to 3 million square kilometres. More important,this seasonal decrease has accelerated especially during the last ten year (from2002 to 2012) accounting for 1.4 million square meters only during this timeline. Also, the amount of free ice has then been compared with satellite picturesand record dates obtained from some research centers 29 . Based on thiscomparison, the NSR ice-free period seems to correspond to a 4 million squarekilometres or below North Pole ice surface. Therefore, the economic model has then been designed based on anincreasing longer ice free period from the current 2 months length up to full 12month ice free navigation to be achieved over the next 20 year. Then, anadditional 10 years period is take into consideration for return on investmentmeasurement.L-:"A-?()" If we have a look to the evolution of oil prices during the last decades, highdifferences between prices can be observed. The value of fuel has suffered alot of changes depending on many factors like wars, meteorologicalphenomenon, etc. Nevertheless, if all prices of different years are studied, someperiodical increment can be appreciated. Graph 4 analyses the fuel pricesbetween 1980 and 2012. It is worth to mention that some sources, such as the International EnergyAgency, have consistently stated during the past years that the increase ofextraction capabilities of fossil energy for the next years and the development ofalternate source would compensate the rise of world’s oil demand. This wouldleave to the impression that oil’s future price is likely to maintain stable. However, just by a retrospective analysis of previous forecast of the IEA inthe annual World Energy Outlook shows that such forecasts have proved to beconsistently wrong. In the last 2011 WEO press release stated that “If between2011 and 2015, investment in the MENA30 region runs one-third lower than the100 billion USD per year required, consumers could face a near-term rise in the29 Satellite images of the National Snow & Ice Data Centre and the National Oceanic andAtmospheric Administration (NOAA)30 The Middle East and North Africa (MENA) is an economically diverse region that includesboth the oil-rich economies in the Gulf and countries that are resource-scarce in relation topopulation, such as Egypt, Morocco, and Yemen. 23
  24. 24. oil price to 150 USD/barrel”. Despite this sentence would at first sight point outto a possible oil price rise, the mention to an “investment one third lower of 100billion USD” would make believe that if such investment is performed, the priceshould not rise at this level. However, the report itself does not state which pricelevel would be instead. For our work we have decided to review the oil price evolution during thepast decade. The good thing about it, is that the period comprised between2002 and 2012 have included almost five years of strong world economicgrowth (2002-2007) plus five additional years of global economic recession.This period also includes a 2008 peak of speculation on oil prices after thefinancial turmoil, which was followed by a price bubble shot. Weekly evolution ofBrent oil prices is shown in Graph 4. According to this price evolution, oil prices raised from 30 euros/barrel in2003 up to 120 euros/barrel in 2012. And this was happening even while theglobal economy suffered a cooling down as show in the world GDP growthpercentage. A correlation of the year oil price at constant growth during the period 2002-2012 gives a 13% compound annual growth (Graph 5). Once stated thepossibility that the ice-free conditions for the NSR could benefit longer periodsover the next decades, the basic issue would be to confirm whether a possibleincrease of energy costs could compensate from higher toll expenses derivedfrom the use of the NSR.Q%E 7.)+"./"1-//((*+"+,9(:";-R()"<(+>((*"456",*1"66" With this information:• All the static parameters defined.• The prices of both tolls.• The oil price.• An annual increase in the oil price of a 13%.• A progressive reduction of the ice surface.• The main characteristics of both vessels (speed and consumption).• Distances between ports. The following data are obtained: ICE FREE NSR SC TOTAL FUEL TOLLS (000 USD) MONTHS TRIPS TRIPS TRIPS (USD) NSR RR 0 0 15 15 57600 0 5.516 1 1 12 13 57970 2.011 4.413 2 3 11 14 59160 6.034 4.045 3 5 10 15 60350 10.056 3.677 4 7 9 16 61540 14.078 3.309 5 8 8 16 59840 16.089 2.942 6 10 7 17 61030 20.112 2.574 7 12 5 17 57630 24.134 1.839 8 14 4 18 58820 28.156 1.471 24
  25. 25. ICE FREE NSR SC TOTAL FUEL TOLLS (000 USD) MONTHS TRIPS TRIPS TRIPS (USD) NSR RR 9 16 3 19 60010 32.179 1.103 10 17 2 19 58310 34.190 735 11 19 1 20 59500 38.212 368 12 21 0 21 60690 42.235 0 Table 1. Comparison of total trips and fuel consumption The first column indicates the alternatives of ice-free periods. The datashows that as ice free months increase, the total number of trips in a year alsoincrease. This is because the NSR is shorter than the RR. However, the fuelcost does not undergo important changes. This situation is done because eventhe number of trips increase, the speeds and consumptions in both routes aredifferent. The two final columns displays how the toll costs rise as ice-freemonths increase.7,)0"/:.>" Table 6, Table 7 and Table 8 show the different cost of 20 years trips usingdifferent combinations of NSR and RR according to possible ice-free conditions.! As oil price reaches 2,037 USD per tonne of IFO380 (year# 11 based on ayear compound oil price increase of 13%) the additional toll cost of the NSR islower than the oils saving due to lower mileage. The resulting combination is limited to the number of trips that can be donethrough the NSR due to navigation conditions. As the additional cost of an ARC7 class vessel over a conventional RR (onlyone of the same size with 5,000 TEU of cargo capacity) is around 95 millionUSD, the cash flows for three alternative investment scenarios have beenconsidered: Scenario #1: Investing in ARC7 class vessels asap (i.e. year #3 assuming atwo year delivery term after order is places). Scenario #2: Ordering an ARC7 vessel to be delivered by year #6. Thisscenario takes into considerations that such kind of vessel has not yet beenmanufactured and some time for prototyping would be required. Scenario #3: Orders are placed for delivering on year #10. According to themodel estimations, at his time the NSR passage ice free season will last sixmonths and IFO380 price will be three times higher than current prices (around1,800 USD per metric ton). YEAR #1 #2 #3 1 2 3 -95.000 4 0 5 0 6 0 -95.000 25
  26. 26. YEAR #1 #2 #3 7 0 0 8 0 0 9 0 0 10 0 0 -95.000 11 0 0 0 12 0 0 0 13 3.779 3.779 3.779 14 7.261 7.261 7.261 15 16.710 16.710 16.710 16 22.300 22.300 22.300 17 34.183 34.183 34.183 18 51.670 51.670 51.670 19 73.508 73.508 73.508 20 87.551 87.551 87.551 21 103.419 103.419 103.419 22 121.350 121.350 121.350 23 141.612 141.612 24 164.508 164.508 25 190.381 190.381 26 219.617 27 252.654 28 289.985 29 332.170 30 379.839 The calculated cash flows take into account the average savings per tripusing the NSR during ice-free seasons and the RR for the winter periods. It isimportant to notice, as it is said above, that under this model the number of tripsusing the NSR is higher than using the conventional Route. This increasedproductivity has not been taken into consideration, as would depend on theprofitability of each particular cargo.Q%H 6(+2*".*"-*9()+;(*+" Base on the above cash flow, the resulting Internal Revenue Rate (IRR)depending on the investment time (based in a 20 year return) and Net PresentValue (NPV) (with a 10% estimated discount rate) would be as follows: SCENARIO NPV (*) IRR (Y3-Y22) 12.653 11% (Y6-Y25) 126.094 17% (Y10-Y29) 410.378 27% * DISCOUNT RATE=10% ,000s USD 26
  27. 27. Q%I 5(*)-<-:-+D")+21D"456"A,)),8("+.::"(12?+-.*" A reduction of 50% on NSR passage tolls31 would move the break even pointearlier to Y9 (2021), this would make an “early bird” investment in Y6 (2018) stillretain a return on investment of 20%: NPV (DISCOUNT RATE=10%) IRR (Y3-Y22) 61.766 14% (Y6-Y25) 201.855 20% (Y10-Y29) 535.513 34%L-:"?21("A-?("-*?(,)(" A higher oil crude price increase from the baseline scenario of 13% to a morepessimistic one of 15% will move the break event point from 2025 to 2024, andthe Y10 (2022) order scenario return on investment will rise from a 27% up to33%, and will also make an early investment at Y6 (2018) sense with a IRR of21%. NPV (DISCOUNT RATE=10%) IRR (Y3-Y22) 72.784 14% (Y6-Y25) 254.730 21% (Y10-Y29) 722.970 33%L-:"A-?("1(?(,)(" Would the oil price increase at a lower rate of 10% instead of the 13%obtained form the previous ten year record, the break even point will delay untilY15 (2027) and a possible order in Y10 (2022) would still have a IRR of 17%down from 27% baseline scenario. NPV (DISCOUNT RATE=10%) IRR (Y3-Y22) -47.348 5% (Y6-Y25) 1.161 10% (Y10-Y29) 120.607 17%Q%Q L+0("(R+(*,:-+-()" The NSR, apart from the possible economic viability explained above, hasother important aspects to take into account. Its strategic location could make ita real alternative in a future.31 See the discussion on FSUE Atomflot impact on higher NSR traffic. 27
  28. 28. 7.;A(+-+-9(",19,*+,8(" As the oil prices and the Arctic ice melt forecast used, the purposed of thiswork establish a profitable situation to start in ten years. Some readers would consider that a “wait and see” attitude would be themost conservative one to take. However, ordering a vessel would still take 2years from order to deliver. On the other hand, some parties involved, wouldeven require early decisions to be taken, as ship design and prototyping maytake up to 5 years, and in case of passage infrastructure building, like gettingready for deploying the amount of traffic expected, would require importantinvestments in ice breakers and a like. Not waiting for all those conditions be aligned together can give a competitiveadvantage for those companies willing to take profit of the analysed returns.While for those late adopters that would wait a more established situation willput them in a very uncompetitive situation compared with earlier adopters. As a summary, only those companies that would be ready to take the risk ofinvesting now would obtain the expected returns. As by the time all shipownerswould adopt the NSR will not have any other benefit than been able to keepcompetitive.P(.A.:-+-?,:"-)="1-9()-/-?,+-.*" Currently, for most western and eastern countries the Suez Canaldependency is a permanent hazard for trade. Middle East lack of stability caneven get worse as oil shortage will cut the main sources of wellness for mostcountries in the region. In addition, China’s westbound trade depends on the Malacca Straitpassage, with EEZ dependences on Indonesia, Malaysia, Thailand andCambodia. An issue that has been often addressed by China’s government inthe so called “Shanghai Club”. Even a possible new “Thailand Canal” hassometimes been proposed as an alternative. The opening of the alternative NSR provides an alternative to this highlytraffic passage. However, the traditional conflict between China and Japan mustalso be taken into consideration.3DA0..*",*1"A-,?D" Nowadays, Suez Canal presents an important problem: the high risk ofpiracy. Gulf of Eden is one of the 10 most affected areas around the world bythese attacks, most of them done by Somali piracy. But not only the entrance tothe Read Sea has hazards related to this topic. The rest of the route, inparticular the ones selected, presents a number of risky focuses on it. Strategiclocations for all trades between Asia and Europe, like the Malacca Straits andthe South China Sea, which registered around 10 attacks last February. Thissituation makes Suez Canal less safety in comparison with NSR, which doesnot have this problem because the conditions of the sea are harder and thecountries around it are in another social, political and cultural situations. 28
  29. 29. Economically, the more risks the vessel and the cargo may suffer, the higherwill be the premiums of insurances. The increases in this cost could put theNSR in an advantage position, because although the premium for passing icewaters is higher, the ice-free period is longer every year, which means a highprobability to reduce the insurance final cost. To this last opinion could beadded the idea that if vessels start navigating in the NSR, little by little theinfrastructure of the area would improve, and the insurance could be possiblyaffected, diminishing their premiums.K,)+("+,*)-+" Another advantage to take into account if a comparison of the routes is done,is the time that the ship expenses before passing through the Suez Canal.Although the Arctic Logistics Information Office explains that “the NSRAdministration accepts applications for consideration within the time period from4 months to 15 days before the beginning of traffic in the water area of theNSR”, overtime this period could be reduced because it is not a problem ofcapacity but it is an administration problem. In this case, if a ship made this route as a regular line, all this documentscould be done before its departure. However, if the same ship goes through theRR, and in the Suez Canal there is congestion (DREWRY, 2011), theresponsible of the ship will not be able to avoid the delay.J())(:")0-A":-;-+,+-.*)" Suez Canal has maximum dimensions capacity. This means that, forexample, the water depth is 24 metres, then ships with high capacities may notpass through the channel. Nowadays, the NSR has no specific dimensions restrictions. This is becausealthough is clear that some ships could not pass across some straits, novessels of high capacities and ice class have been designed yet.Q%S C19()("/,?+.)"J())(:",9,-:,<-:-+D" Nowadays, no vessels with high class ice and high capacity to cargo arebuilt. This is because passed years, to invest in a ship with these characteristicswas not necessary. However, with the global warming, alternatives as the NSRare starting to become more popular. The Aker Arctic Technology is one of the companies that has started toinvestigate in new prototypes that could pass through cold waters (ice watersalso) and at the same time the cargo capacity would be competitive. The problem is that meanwhile shipyards which build conventional containervessels can take around 2 years to deliver an order, the construction of new 29
  30. 30. arctic ships could be longer. This is because no other examples are beendesigned and built before. As a result, the innovative situation above mentioned makes shipownersthink if the investments in new technology will be positive for their businesses ornot.O,1"?.*1-+-.*)" NSR has an important problem, the arctic conditions. Hard weatherconditions mixed with low temperatures can put the ship in troubles morerapidly than in a conventional storm, for example, in the Mediterranean or in theIndic Sea. Also, nowadays daily maritime forecasts for this area are more inaccuratethan in other locations. This is because the arctic weather is very unstable andthe infrastructure in the Arctic to notice vessels is limited.7(>">-+0"(RA(-(*?(" As in the Requirements for the design, equipment and supplies of vesselsnavigating the Northern Sea Route explains in article 9, not only the size of thecrew for navigation in ice must be large but also it should have experience andtraining in navigation in this kind of conditions, in "##$rd"n#% with Part 4 ofRegulations for Navigation and the supplement to Rule 11. Paragraph 2. ofConvention on Training and Licensing of Seamen and Maintenance ofWatches. Currently, training could be found in some officers and masters, howeverexperience is more difficult, because the most common is to navigate in openwaters without ice conditions.Q%T &.+(*+-,:"8:.<,:"-;A,?+"7,8."<2)-*())" According to this model, a single vessel would be able to perform around 8 to9 round trips, accounting to a total cargo of 60,000 TEUs. The total trafficbetween Rotterdam and Shanghai (8.47 + 3.98 million TEUs) would represent212 vessels. Based on the calculated net present value of a vessel to be delivered in 2022of 410.3 million, this volume of new vessels would represent a total value of86.9 billion USD.K5U@"C+.;/:.+" This traffic would represent for Russia a total of 3,392 trips, or 6 billion USDin year passage tolls at current toll prices (about 2 million USD for the chosen 30
  31. 31. vessel and cargo profile). According to an estimate from DOUGLAS MARTINfrom Smit Salvage Americas the required investment from the Russia for arenewed nuclear icebreaker fleet would be around 1 billion USD, which meansthat passage toll prices are likely to decrease as traffic of the NSR increases.50-AD,1" Impact on shipyard business is also remarkable, as the maximum amount ofpossible orders would account for 212, and even if unitary price would reduce toas low as 140 million USD per vessel, the total market size would be of 4.2billion USD. 31
  32. 32. S !"#$%##"&" Using the Northern Sea Route in actual navigation conditions is noteconomic feasible. Its adoption is currently limited to cargos transportingmaterials extracted from the north seashore, mostly minerals and crude. However, according to most sources, the Northern Sea Route will be ice-freewithin the next decades. As ice-free season increases, some companies mayconsider investing in container vessels of about 5,000 TEUs capacity, that coulduse the Northern Sea Route during the ice-free seasons and the standard SuezCanal route in winter conditions. According to manufacturer estimates, the priceof a vessel that could be able to ship in both routes would be 95 million USDmore expensive than a standard container vessel of the same capacity. An economic model based on a crude oil increase of 13% a year (the samecompound price rise recorded for the 2002-2012 period), and a progressiveincrease of ice free season until free ice conditions for pass through the NSR in2030, would show a break-even point at 2025. By this year, price of a metricton of IFO380 would reach 2,600 USD (about four times the current 600 USDprice), and ice-free conditions for the North Sea Route would be of about 7 to 8months. Under those conditions, the extra investment by ordering a single ship to bedelivered in 2022 would generate an annual return on investment of 27% overthe following 20 years period. This figure accounts for a net present value of410 million USD (at a discount rate of 10%) and does not include the revenuegenerated by an extra 6 trips-a-year productivity due to the shorter routeduration. This evaluation does not take into consideration the fact that Northern SeaRout passage toll cost is currently based on very low traffic and relatively highinfrastructure expenses. As the Northern Sea Route traffic increases, thepassage toll is likely to decrease. The sensibility analysis shows that a decreaseof 50% on current passage toll would move the break-even point to 2020, andwill raise the return on investment up to 34% for an order to deliver in 2022 andeven a 20% for a 2018 deliver. The total maximum impact of a possible NSR adoption would affect around212 vessels at present container traffic volumes (container traffic growthestimates have not been considered) with a total net present value of 86.9billion USD. It will also generate shipyard business for 4.2 billion USD.Meanwhile, yearly passage toll revenues of 2 million USD would possibly makea reduction of such fees in order to speed route adoption. 32
  33. 33. T !"#$"%&()*+"ALEXANDROV, V.Y. “History of the Northern Sea Route”. In BORODACHEV,V. Y. Remote Sensing of Sea Ice in the Northern Sea Route – Studies andApplications. United Kingdom: Springer Praxis, 2007, p.9.ANTOV, Yakov M. “The 2011 Navigation Seasons and the Outlook for 2012”.International Conference: Transit Navigation on the Northern Sea Route.Murmansk. February 14, 2012ARCTIC LOGISTICS INFORMATION OFFICE. “Northern Sea Route”. Centrefor High North Logistics and Russian FSUE Rosatomflot. http://arctic-lio.com/images/nsr/nsr_1020x631.jpg (Accessed: June 28, 2012)ARCTIC LOGISTICS INFORMATION OFFICE. “NSR Tariffs”. Centre for HighNorth Logistics and Russian FSUE Rosatomflot. http://www.arctic-lio.com/nsr_tariffsystem (Accessed: July 8, 2012)ARCTIC LOGISTICS INFORMATION OFFICE. “NSR-General AreaDescription”. Centre for High North Logistics and Russian FSUE Rosatomflot.http://www.arctic-lio.com/nsr_generalareadescription (Accessed: July 8, 2012)ARCTIC LOGISTICS INFORMATION OFFICE. “Procedure of grantingpermission for the escorting of ships along the Northern Sea Route”. Centre forHigh North Logistics and Russian FSUE Rosatomflot. http://www.arctic-lio.com/nsr_howtogetpermit (Accessed: July 22, 2012)ARCTIC LOGISTICS INFORMATION OFFICE. “Regulations for icebreaker andpilot guiding of vessels through the Northern Sea Route”. Centre for High NorthLogistics and Russian FSUE Rosatomflot. http://www.arctic-lio.com/docs/nsr/legislation/Regulations_for_Icebreaker_and_Pilot_guiding_of_vessels.pdf (Accessed: June 17, 2012)ARCTIC LOGISTICS INFORMATION OFFICE. “Regulations for Navigation onthe Seaways of the Northern Sea Route. Signed in Russia”. Centre for HighNorth Logistics and Russian FSUE Rosatomflot. http://www.arctic-lio.com/docs/nsr/legislation/Rules_of_navigation_on_the_seaways_of_the_Northern_Sea_Route.pdf (Accessed: June 17, 2012)ARCTIC LOGISTICS INFORMATION OFFICE. “Requirements for the design,equipment and supplies of vessels navigating the Northern Sea Route”. Centrefor High North Logistics and Russian FSUE Rosatomflot. http://www.arctic-lio.com/docs/nsr/legislation/Requirements_to_the_design_equipment_and_supplies.pdf (Accessed: August 3, 2012)ARCTIC PORTAL. “Interactive data map”. Arctic Council. http://portal.inter-map.com/#mapID=26&groupID=&z=1.0&up=2437578.3&left=0.0 (Accessed:June 14, 2012) 33
  34. 34. ARTIC LOGISTICS INFORMATION OFFICE. “Ice concentration”. Centre forHigh North Logistics and Russian FSUE Rosatomflot. http://www.arctic-lio.com/nsr_ice (Accessed: July 8, 2012)ARZEL, Oliver. “Sea ice evolution over the 20th and 21st centuries as simulatedby current AOGCMs”. Ocean Modelling. 2005, Volume 12, pp. 401-415BERGMAN, Annika. Perspectives on security in the Arctic Area. Danish Institutefor International Studies. Denmark: Vesterkopi AS. 2009. Pp. 37-49BUNIK, Ivan. “Northern Sea Route: New legal perspectives”. Internationalconference on shipping and environmental issues in 2011 – What more can bedone?. Halifax, Nova Scotia, Canada. June 7/8, 2011BUNKER INDEX. “Daily port prices: Rotterdam”.http://www.bunkerindex.com/prices/portfreels_xmdo.php?port_id=637(Accessed: August 1, 2012)CHRYOSPERE TODAY. “Northern Hemisphere Sea Ice Area”. University ofIllinois.http://arctic.atmos.uiuc.edu/cryosphere/arctic.sea.ice.interactive.html(Accessed: July 15, 2012)CHRYOSPERE TODAY. “Sea Ice anomaly timeseries”. University of Illinois.http://arctic.atmos.uiuc.edu/cryosphere/IMAGES/sea.ice.anomaly.timeseries.jpgCRYOSPHERE TODAY. “Ice curve”. University of Illinois.http://arctic.atmos.uiuc.edu/cryosphere/arctic.sea.ice.interactive.html(Accessed: July 15, 2012)CTL WESTRANS. Bunker Prices (New York).http://www.ctlwestrans.com/reports/internationalbunker.pdf (Accessed: March30, 2012)DIVE DISCOVER. “Arctic currents”.http://www.divediscover.whoi.edu/arctic/circulation.html (Accessed: June 15,2012)DREWRY. Container forecast. London: Drewry Shipping Consultants Limited.2011.DURHAM UNIVERSITY. “Maritime jurisdiction and boundaries I the Arcticregion”. http://www.dur.ac.uk/ibru/resources/arctic/ (Accessed: June 22, 2012)EUROSTAT. “Marine ports freight and passage statistics”. EuropeanCommission.http://epp.eurostat.ec.europa.eu/statistics_explained/index.php/Maritime_ports_freight_and_passenger_statistics#Further_Eurostat_information (Accessed:January 26, 2012) 34
  35. 35. EUROSTAT. “Maritime ports freight and passenger statistics”. EuropeanCommission.http://epp.eurostat.ec.europa.eu/statistics_explained/index.php/Maritime_ports_freight_and_passenger_statistics#Further_Eurostat_information (Accessed:June 5, 2012)INTERNATIONAL ASSOCIATION OF CLASSIFICATION SOCIETIES.Requirements concerning polar class. United Kingdom: IACS, 2007. Pp. 39INTERNATIONAL ENERGY AGENCY. World Energy Outlook 2011. France:IEA, 2011.Pp. 2-5JOHANNESSEN, O. et al. 2004. “Arctic climate change: observed and modelledtemperature and sea ice”. In: Tellus A. Volume 54. United Kingdom:International meteorological institute in Stockholm, 2004, pp. 330-341.LAULAJAINEN, Risto. “The Arctic Sea Route”. International Journal of Shippingand Transport Logistics. 2009, volume 1, pp. 55-73MARPIAINEN, M. et al. Arctic shuttle container link from Alaska US to Europe.Finland: Aker Artic Technology Inc. 2006MARTINEZ, Maria. El cambio climático y las nuevas rutas marítimas. Subject:Organización y planificación del transporte y la navegación. 2011MASLOWSKI, Wieslaw et al. “The future of Arctic Sea Ice”. Annual Review ofEarth and Planetary Sciences. 2012, volume 40, pp. 625-654.NATIONAL SNOW AND ICE DATA CENTER. “Arctic sea ice news andanalysis” NSIDC. http://nsidc.org/arcticseaicenews/ (Accessed: June 15, 2012)NEW YORK TIMES. “Unlocking Ocean”.http://www.nytimes.com/imagepages/2005/10/09/international/20051010_ARCTIC_GRAPHIC.html (Accessed: January 26, 2012)NOTTEBOOM, T.E. et al. “The effect of high fuel costs on liner serviceconfiguration in container shipping”. Journal of Transport Geography. 2009,volume 17, issue 5, pp. 325-337PNADEY, Ashok. “New Era in Arctic Shipping?”. International Association ofMaritime Economists Annual Conference. Copenhagen. June, 2009RICKMERS MARITIME. “Maersk Djibouti characteristics”. Hanjin Heavyindustries & construction company. http://www.rickmers-maritime.com/fleet/MAERSK%20DJIBOUTI_RM.pdf (Accessed: June 16, 2012)SEA RATES. “Port to port distances”.http://www.searates.com/reference/portdistance/ (Accessed: August 1, 2012) 35
  36. 36. SEA RATES. “Port to port distances”.http://www.searates.com/reference/portdistance/ (Accessed: January 29, 2012)STOPFORD, Martin. ”Maritime Economics”. Thirst edition. Oxford: Routledge,2009.SUEZ CANAL. “Toll calculator”. http://www.suezcanal.gov.eg/calc.aspx(Accessed: August 10, 2012)THE CRYOSPHERE TODAY. “A webspace devoted to the current state of ourcryosphere”. University of Illinois. http://arctic.atmos.uiuc.edu/cryosphere/(Accessed: July 15, 2012)UNCTAD. Review of maritime transport 2011. Geneva: United Nations, UnitedNations Conference on Trade and Development, 2012. Pp. 10-22.VERNY, Jerome. “Container shipping on the Northern Sea Route”. InternationalJournal Production Economics. November 2009, volume 122, pp.107-117WORLD SHIPPING COUNCIL. “Top 50 world container ports”.http://www.worldshipping.org/about-the-industry/global-trade/top-50-world-container-ports (Accessed: June 15, 2012)WORLD SHIPPING COUNCIL. “Top 50 world container ports”. World ShippingCouncil partners in trade. http://www.worldshipping.org/about-the-industry/global-trade/top-50-world-container-ports (Accessed: June 6, 2012) 36
  37. 37. !V !""#$%&"!V%! F::2)+,+-.*)" Illustration 1. Arctic routes. Source: New York Times 37
  38. 38. Illustration 2. The Northern Sea Route. Source: Arctic Logistics Information Office Illustration 3. International commercial routes. Source: VERNY (2009) 38
  39. 39. Illustration 4. Ice condition in August 2011. Source: Arctic Logistics Information Office Illustration 5. Arctic currents. Source: Dive and Discover 39
  40. 40. Illustration 6. Maritime jurisdiction and boundaries in the Arctic region. Source: Durham University 40
  41. 41. !V%# 3,<:()" " Table 2 International seaborne trade, selected years (millions of tons loaded). Source: Review of Maritime Transport 2011, UNCTADTable 3. Top 20 European container ports in 2010 - o the basis of volume of containers handled in (1,000 TEUs) 41
  42. 42. VOLUME 2009 (MILLION- VOLUME 2010 (MILLION- RANK PORT, COUNTRY TEUS) TEUS) 1 Shanghai, China 25.00 29.07 2 Singapore, Singapore 25.86 28.43 3 Hong Kong, China 21.04 23.70 4 Shenzhen, China 18.25 22.51 5 Busan, South Korea 11.98 14.19 6 Ninbo-Zhoushan, China 10.50 13.14 7 Guangzhou Harbor, China 11.20 12.55 8 Qingdao, China 10.26 12.01 9 Dubai, United Arab 11.10 11.60 10 Rotterdam, Netherlands 0.74 11.14 11 Tianjin, China 8.70 10.08 12 Kaohsiung, Taiwan, China 8.58 9.18 13 Port Kelang, Malasyia 7.31 8.87 14 Antwerp, Belgium 7.31 8.47 15 Hamburg, Germany 7.01 7.91Table 4. Top 15 world container ports. Source: The Journal of Commerce, August 23-30, 2010. The Alphaliner Weekly, Issue 14, 2011 Table 5. Estimated cargo flows on major East-West container trade routes, 1995-2009 (TEUs) 42
  43. 43. !"#!$$% 01$ 02$ 03$ 04$ 05$ 06$ 07$ 089$ 088$ 08:$ 081$ 082$ 083$ 084$ 085$ 086$ 087$ 0:9$ 0:8$ 0::$!"#$%&##$ ),&$ ,"$ *(*./$()*+,$ *&!-,$ *&!-,$ *&!-,$ ;<=$544$ 644$ 756$ 8893$ 8:27$ 828:$ 8373$ 869:$ :915$ :19:$ :498$ :717$ 11:8$ 1531$ 2:29$ 257:$ 3283$ 4886$ 4782$ 5681$ 9$ 9$ 83$ 83$ 1>189$ 1>47:$ 2>8:2$ 2>481$ 3>843$ 3>566$ 4>271$ 5>:67$ 6>867$ 7>:94$ 89>132$ 88>431$ 81>8:9$ 82>556$ 84>438$ 86>546$ :8>849$ :1>641$ :4>785$ 19>146$ 8$ 8$ 8:$ 81$ 1>788$ 2>133$ 2>635$ 3>2:2$ 4>942$ 4>567$ 5>495$ 6>31:$ 7>354$ 89>535$ 8:>978$ 81>377$ 83>191$ 85>::6$ 87>291$ :8>648$ :2>417$ :5>556$ 18>1:3$ 13>111$ :$ 1$ 88$ 82$ 1>735$ 2>156$ 2>632$ 3>178$ 3>777$ 4>463$ 5>249$ 6>114$ 7>1:5$ 89>223$ 88>589$ 81>816$ 82>531$ 84>355$ 86>417$ :9>746$ :1>499$ :4>353$ :7>714$ 11>512$ 1$ 3$ 89$ 83$ 1>776$ 2>177$ 2>638$ 3>141$ 3>728$ 4>373$ 5>111$ 6>845$ 7>889$ 89>853$ 88>157$ 8:>517$ 82>:54$ 84>981$ 85>754$ :9>872$ ::>599$ :3>31:$ :6>51:$ 1:>126$ 2$ 5$ 7$ 84$ 2>627$ 3>117$ 3>678$ 4>384$ 5>:::$ 6>987$ 6>7:8$ 7>717$ 88>979$ 8:>179$ 81>649$ 83>3:9$ 85>174$ 87>385$ :8>78:$ :2>4:9$ :5>457$ 18>814$ $ $ 3$ 6$ 6$ 84$ 3>648$ 4>247$ 5>833$ 5>718$ 6>695$ 7>575$ 89>784$ 8:>868$ 81>497$ 83>::2$ 85>927$ 87>889$ :8>229$ :2>95:$ :5>925$ 19>297$ $ $ $ $ 4$ 89$ 5$ 85$ 5>948$ 5>693$ 6>424$ 7>375$ 89>458$ 88>663$ 81>:34$ 82>694$ 84>335$ 86>314$ :9>551$ :1>199$ :4>833$ :7>16:$ $ $ $ $ $ $ 5$ 8:$ 3$ 85$ 6>21:$ 7>119$ 89>122$ 88>279$ 8:>563$ 82>:27$ 83>791$ 85>558$ 87>661$ ::>:47$ :2>744$ :6>981$ $ $ $ $ $ $ $ $ 6$ 82$ 2$ 86$ 89>823$ 88>:27$ 8:>276$ 81>796$ 83>391$ 85>192$ 87>129$ :8>429$ :2>:17$ :5>854$ $ $ $ $ $ $ $ $ $ $ 7$ 84$ 1$ 87$ 8:>:29$ 81>492$ 83>823$ 84>664$ 86>631$ :8>954$ :1>367$ :4>2:5$ $ $ $ $ $ $ $ $ $ $ $ $ 89$ 85$ :$ 87$ 82>63:$ 84>321$ 86>233$ :9>483$ :1>934$ :3>683$ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 88$ 87$ 8$ :9$ 84>862$ 86>915$ :9>818$ ::>276$ :3>85:$ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 8:$ :8$ 9$ :8$ 85>437$ 87>472$ :8>77:$ :2>379$ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $"(,*?*&!-$ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $,"$ 1>189$ 1>47:$ 2>8:2$ 2>481$ 3>843$ 3>566$ 4>271$ 5>:67$ 6>867$ 7>:94$ 89>132$ 88>431$ 81>8:9$ 82>556$ 84>438$ 86>546$ :8>849$ :1>641$ :4>785$ 19>146$ $ $ $!@#A$(-*$ 1>189$ 1>47:$ 2>8:2$ 2>481$ 3>843$ 3>566$ 4>271$ 5>:67$ 6>867$ 7>:94$ 89>823$ 88>:27$ 8:>:29$ 81>492$ 82>63:$ 84>862$ 85>437$ 87>472$ :8>77:$ :2>379$ $ $*&!-,$ 83$ 83$ 83$ 83$ 83$ 83$ 83$ 85$ 85$ 85$ 86$ 86$ 87$ 87$ 87$ :9$ :8$ :8$ :8$ :8$ $ $ $,.B!)C,$-#&$*&!-$ 9$ 9$ 9$ 9$ 9$ 9$ 9$ 9$ 9$ 9$ :89$ 291$ 657$ 8>852$ 8>577$ :>361$ 1>399$ 2>847$ 2>7:3$ 3>557$ $ $*(*./$,.B!)C,$-#&$0#.&$ 9$ 9$ 9$ 9$ 9$ 9$ 9$ 9$ 9$ 9$ 1>557$ 5>:48$ 84>589$ ::>199$ 12>861$ 38>459$ 51>396$ 65>338$ 891>287$ 8:8>139$ $Table 1 - Total cost based on Y2-Y22 oil price increase and number of ice free months 43
  44. 44. !"#!$%& 01$ 02$ 03$ 04$ 056$ 055$ 057$ 058$ 059$ 05:$ 051$ 052$ 053$ 054$ 076$ 075$ 077$ 078$ 079$ 07:$!"#$%&##$ ),&$ ,"$ *(*./$()*+,$ *&!-,$ *&!-,$ *&!-,$ 556:$ 5794$ 5957$ 5:4:$ 5367$ 7682$ 7867$ 7165$ 7484$ 8875$ 82:8$ 9796$ 9247$ :95:$ 1553$ 1459$ 2358$ 3373$ 4421$ 55728$ 6$ 6$ 5:$ 5:$ ;<=$9>158$ :>51:$ :>233$ 1>948$ 2>734$ 3>534$ 4>761$ 56>8:9$ 55>1:8$ 58>576$ 59>223$ 51>1:5$ 53>213$ 75>516$ 78>318$ 71>452$ 86>813$ 89>713$ 83>12:$ 98>1::$ 5$ 5$ 57$ 58$ :>979$ 1>619$ 1>234$ 2>162$ 3>:87$ 4>:21$ 56>2:2$ 57>645$ 58>:44$ 5:>868$ 52>773$ 54>968$ 75>315$ 79>184$ 72>223$ 85>87:$ 8:>888$ 84>317$ 99>424$ :6>217$ 7$ 8$ 55$ 59$ :>845$ :>444$ 1>13:$ 2>916$ 3>881$ 4>872$ 56>99:$ 55>256$ 58>583$ 59>2:8$ 51>:22$ 53>184$ 76>413$ 78>166$ 71>:2:$ 74>481$ 88>289$ 83>671$ 97>321$ 93>8:1$ 8$ :$ 56$ 5:$ :>818$ :>495$ 1>:4:$ 2>888$ 3>512$ 4>556$ 56>52:$ 55>824$ 57>284$ 59>721$ 51>658$ 52>421$ 76>549$ 77>266$ 7:>:87$ 73>287$ 87>893$ 81>98:$ 95>6:7$ 91>726$ 9$ 2$ 4$ 51$ :>884$ :>345$ 1>:51$ 2>777$ 3>654$ 3>475$ 4>484$ 55>646$ 57>846$ 58>316$ 5:>:76$ 52>841$ 54>:52$ 75>457$ 79>176$ 72>124$ 85>581$ 8:>698$ 84>9:2$ 99>99:$ :$ 3$ 3$ 51$ :>315$ 1>914$ 2>5::$ 2>485$ 3>362$ 4>242$ 56>451$ 57>535$ 58>164$ 5:>779$ 52>694$ 54>556$ 75>996$ 79>627$ 72>692$ 86>964$ 89>762$ 83>:66$ 98>8:6$ $ 1$ 56$ 2$ 52$ 2>615$ 2>36:$ 3>191$ 4>:42$ 56>125$ 55>33:$ 58>7:1$ 59>361$ 51>::2$ 53>:81$ 76>228$ 78>866$ 71>5::$ 74>837$ 88>673$ 82>593$ 95>369$ $ $ $ 2$ 57$ :$ 52$ 3>987$ 4>886$ 56>899$ 55>946$ 57>23:$ 59>794$ 5:>468$ 52>225$ 54>338$ 77>714$ 79>411$ 73>658$ 85>9:1$ 8:>891$ 84>298$ $ $ $ $ $ 3$ 59$ 9$ 53$ 56>59:$ 55>794$ 57>943$ 58>463$ 5:>:68$ 52>869$ 54>896$ 75>196$ 79>784$ 72>521$ 86>94:$ 89>79:$ 83>938$ $ $ $ $ $ $ $ 4$ 51$ 8$ 54$ 57>796$ 58>169$ 5:>59:$ 51>331$ 53>3:8$ 75>621$ 78>:34$ 71>972$ 74>18:$ 88>716$ 82>8:1$ $ $ $ $ $ $ $ $ $ 56$ 52$ 7$ 54$ 59>3:7$ 51>:98$ 53>9::$ 76>15:$ 78>6:1$ 7:>35:$ 73>487$ 87>9:9$ 81>989$ $ $ $ $ $ $ $ $ $ $ $ 55$ 54$ 5$ 76$ 51>539$ 53>682$ 76>585$ 77>943$ 7:>527$ 73>548$ 85>163$ 8:>911$ $ $ $ $ $ $ $ $ $ $ $ $ 57$ 75$ 6$ 75$ 52>1:4$ 54>149$ 75>447$ 79>:46$ 72>:7:$ 86>397$ 89>:46$ $ $ $ $ $ $ $ $ $ $ $ $ $"(,*?*&!-$ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $,"$ 9>158$ :>51:$ :>233$ 1>948$ 2>734$ 3>534$ 4>761$ 56>8:9$ 55>1:8$ 58>576$ 59>223$ 51>1:5$ 53>213$ 75>516$ 78>318$ 71>452$ 86>813$ 89>713$ 83>12:$ 98>1::$ $ $ $!@#A$(-*$ 9>158$ :>51:$ :>233$ 1>948$ 2>734$ 3>534$ 4>761$ 56>59:$ 55>794$ 57>796$ 58>169$ 59>3:7$ 51>539$ 52>1:4$ 54>149$ 75>447$ 79>:46$ 72>:7:$ 86>397$ 89>:46$ $ $*&!-,$ 5:$ 5:$ 5:$ 5:$ 52$ 52$ 52$ 53$ 53$ 54$ 54$ 54$ 76$ 75$ 75$ 75$ 75$ 75$ 75$ 75$ $ $ $,.B!)C,$-#&$*&!-$ 6$ 6$ 6$ 6$ 6$ 6$ 6$ 756$ 968$ 324$ 5>529$ 5>244$ 7>:38$ 8>:66$ 9>514$ 9>47:$ :>224$ 1>298$ 2>389$ 4>611$ $ $*(*./$,.B!)C,$-#&$0#.&$ 6$ 6$ 6$ 6$ 6$ 6$ 6$ 8>224$ 2>715$ 51>256$ 77>866$ 89>538$ :5>126$ 28>:63$ 32>::5$ 568>954$ 575>8:6$ 595>157$ 519>:63$ 546>835$ $Table 7 - Total cost based on Y6-Y25 oil price increase and number of ice free months * Proposed price of IFO380 according with the year 44