{"id":25714,"date":"2017-11-15T20:42:08","date_gmt":"2017-11-16T01:42:08","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/arctic-shipping-a-new-way-to-capitalize-on-climate-change\/"},"modified":"2017-11-15T20:42:08","modified_gmt":"2017-11-16T01:42:08","slug":"arctic-shipping-a-new-way-to-capitalize-on-climate-change","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/arctic-shipping-a-new-way-to-capitalize-on-climate-change\/","title":{"rendered":"Arctic shipping: A new way to capitalize on climate change?"},"content":{"rendered":"

Each year,\u00a0~70% of the world’s trade is moved by ship1<\/sup><\/span>. Despite incredible advances in technology, the primary means of\u00a0moving goods\u00a0is little changed\u00a0since the days of Christopher Columbus.\u00a0 However, there may be\u00a0a breakthrough\u00a0on the horizon fueled by an unlikely candidate – climate change. Rising temperatures have wreaked havoc on Arctic sea ice, which has some people dreaming of shorter journeys\u00a0between trading hubs.<\/p>\n

What is the opportunity?<\/strong><\/p>\n

A recent study by the University of Reading found that over the next decade, Arctic sea ice volume\u00a0is likely to shrink\u00a0to ~50%\u00a0of 1985-2000 averages. The result – open channels near polar landmasses and thinner ice across the pole.\u00a0Why does this matter? Artic trade routes could reduce shipping time from Europe and North America to Japan by ~33% (or two weeks), reducing costs and the burden on global supply chains2<\/sup>.<\/p>\n

\"\"<\/a><\/p>\n

Who has skin in the game?<\/strong><\/p>\n

It is difficult to discuss shipping without mentioning Maersk Line. The Danish shipping giant is the largest in the world, operating a fleet of more than 600 vessels representing ~15% of global capacity3<\/sup>.\u00a0In an industry plagued by low margins and intense competition, they have been able to use their scale and resources to maintain an edge on the competition by investing in new ships and new technologies.<\/p>\n

The most recent innovation, tied loosely to climate change, has been a new class of larger and more efficient container ships. The EEE ships (Efficiency, Economies of Scale, and Environment) are\u00a0the largest in the world. They are also amongst the slowest. In order to achieve ~20% reductions in fuel burn and emissions, the ships have been designed to cruise more slowly to reduce wasted energy.4<\/sup>\u00a0Maersk has been able to leverage its scale and infrastructure\u00a0to reduce delays in ports and canals resulting in\u00a0cheaper shipping\u00a0in a competitive timeframe.5<\/sup><\/p>\n

Should Maersk be concerned?<\/strong><\/p>\n

Each EEE class ship costs Maersk ~$200M to build6<\/sup>, and represents a significant bet that slower speeds and fuel related cost savings are the way of the future. But will that bet pay off if competitors begin shifting their operations to the Arctic?<\/p>\n

The two greatest contributors of variable cost to maritime shipping are fuel burn <\/em>(~46%)\u00a0and port & canal fees <\/em>(~21%)7<\/sup>. As discussed above, new routes are expected to reduce journey lengths by ~33%, which should translate to equivalent reductions in fuel burn. <\/em>Those savings\u00a0would outpace\u00a0what\u00a0Maersk has been able to achieve with the EEE class by more than 50%.<\/p>\n

But perhaps the more interesting savings comes in the form of canal fees<\/em>. In 2016, the average fee to transit the Suez Canal was ~$465K8<\/sup>. While large at face value, it is stunning when\u00a0compared to an average\u00a0annual operating cost of ~$15-20M7<\/sup>.\u00a0In a world where the average ship could transit the Suez Canal 10+ times, switching to Arctic routes could save as much as ~33% of total operating costs.<\/p>\n

\"\"<\/a><\/p>\n

How is the market responding?<\/strong><\/p>\n

Arctic shipping reached a peak of 71 voyages in 20139<\/sup>. When compared to the ~17K trips through the Suez Canal10<\/sup> that number seems trivial. There are many potential explanations for the relatively low adoption, ranging from lower fuel prices to higher insurance rates. Most recently, the Copenhagen Business School released a report that proclaims Arctic shipping won’t be economically viable until 20402<\/sup>. Maersk seems to have bought into\u00a0that sentiment, and hasn’t changed its public position since they declared Artic shipping a “long-term” opportunity in 201311<\/sup>.<\/p>\n

But there is also a sense that change may be on the horizon. China, which has been ramping up investment in northern latitude resources, recently made a public push for more of their ships to use Arctic routes12<\/sup>.\u00a0 They are also beginning to increase pressure on Canada to lessen restrictions on the\u00a0Northwest Passage\u00a0(which Canada claims as its territory).13<\/sup><\/p>\n

Russia, the country with the largest Arctic coastline, is also making significant advances. This spring marked the first time that an ice-breaking tanker (owned by OAO Yamal)\u00a0visited a\u00a0Siberian port. The Russian government hailed the journey as a significant milestone, and expressed optimism that Arctic traffic will increase as more\u00a0petroleum production is brought online in the region later this year.14<\/sup><\/p>\n

\"\"<\/a><\/p>\n

What comes next?<\/strong><\/p>\n

As we look ahead, it seems paramount for Maersk to keep an eye on developments in Arctic shipping. Will the economics remain attractive? Will businesses continue\u00a0craving more predictable supply chains?\u00a0Will diplomacy\u00a0keep pace with new trade routes?<\/em><\/p>\n

Russia and China\u00a0are poised to\u00a0lead the charge, but Maersk should aim to retain their position as a leading innovator in the shipping industry. I would be keeping a close eye on OAO Yamal as they enter this new frozen frontier with their new fleet of 15 ice-breaking tankers15<\/sup>.<\/p>\n

[794 words]<\/p>\n

Sources:<\/strong><\/p>\n

    \n
  1. Review of Maritime Transport 2015. United Nations Conference on Trade and Development. http:\/\/unctad.org\/en\/pages\/PublicationWebflyer.aspx?publicationid=1374.<\/li>\n
  2. As Arctic Ice Banishes, New Shipping Routes Open. Jugal K. Patel and Henry Fountain. New York Times. May 3, 2017. https:\/\/www.nytimes.com\/interactive\/2017\/05\/03\/science\/earth\/arctic-shipping.html<\/li>\n
  3. Maersk Line Profile. https:\/\/www.maerskline.com\/about\/profile<\/li>\n
  4. Maersk ‘Triple E’: Introducing the world’s biggest ship. Eoghan Macguire. CNN. June 26, 2013. http:\/\/edition.cnn.com\/2013\/06\/26\/business\/maersk-triple-e-biggest-ship\/index.html<\/li>\n
  5. Innovation. APM Terminals. http:\/\/www.apmterminals.com\/es\/about-us\/innovation<\/li>\n
  6. Maersk’s Triple-E vessels: The world’s largest container ships might change the face of shipping industry. Soumyajit Dasgupta. Marine Insight. December 26, 2016. https:\/\/www.marineinsight.com\/future-shipping\/maersks-triple-e-vessels-the-worlds-largest-container-ships-might-change-the-face-of-shipping-industry\/<\/li>\n
  7. Operating Costs of Panamax and Post-panamax\u00a0Containerships. Dr. Jean-Paul Rodrigue. Hofstra University. https:\/\/people.hofstra.edu\/geotrans\/eng\/ch3en\/conc3en\/containeroperatingcosts.html<\/li>\n
  8. Containerships could save thousands by skipping the Suez Canal. Luke Graham. CNBC. February 26, 2016. https:\/\/www.cnbc.com\/2016\/02\/26\/cargo-ships-could-save-thousands-by-skipping-the-suez-canal.html<\/li>\n
  9. Shipping Plans Grow as Arctic Ice Fades. Ed Struzik. Yale Environment 360. November 17, 2016. https:\/\/e360.yale.edu\/features\/cargo_shipping_in_the_arctic_declining_sea_ice<\/li>\n
  10. Suez Canal Traffic Statistics. Suez Canal Authority. 2016 Report. http:\/\/www.suezcanal.gov.eg\/English\/Downloads\/Documents\/2016.pdf<\/li>\n
  11. Arctic Shipping Routes Still a long-term proposition, says Maersk. Richard Milne. Financial Times. October 6, 2013. https:\/\/www.ft.com\/content\/f44bd53a-2e74-11e3-be22-00144feab7de<\/li>\n
  12. China wants ships to use faster Arctic route opened by global warming. Reuters. April 19, 2016. https:\/\/www.reuters.com\/article\/us-china-arctic\/china-wants-ships-to-use-faster-arctic-route-opened-by-global-warming-idUSKCN0XH08U<\/li>\n
  13. China sent a ship to the Artic for science, then state media announced a new trade route. Adam Taylor. National Post. September 14, 2017. http:\/\/nationalpost.com\/news\/world\/china-sent-a-ship-to-the-arctic-for-science-then-state-media-announced-a-new-trade-route<\/li>\n
  14. Russian tanker forges path for Arctic shipping super-highway. Olesya Astakhova. Reuters. March 30, 2017. https:\/\/www.reuters.com\/article\/us-novatek-lng-putin\/russian-tanker-forges-path-for-arctic-shipping-super-highway-idUSKBN1712K6<\/li>\n
  15. Christophe de Margerie Class Icebreaking LNG Carriers. Ship Technology. http:\/\/www.ship-technology.com\/projects\/christophe-de-margerie-class-icebreaking-lng-carriers\/<\/li>\n<\/ol>\n","protected":false},"excerpt":{"rendered":"

    What will it take for Maersk to navigate the next great frozen frontier?<\/p>\n","protected":false},"author":10257,"featured_media":25715,"comment_status":"open","ping_status":"closed","template":"","categories":[1218],"class_list":["post-25714","hck-submission","type-hck-submission","status-publish","has-post-thumbnail","hentry","category-climate-change","hck-taxonomy-organization-maersk","hck-taxonomy-industry-shipping"],"connected_submission_link":"https:\/\/d3.harvard.edu\/platform-rctom\/assignment\/rc-tom-challenge-2017\/","yoast_head":"\nArctic shipping: A new way to capitalize on climate change? - Technology and Operations Management<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/arctic-shipping-a-new-way-to-capitalize-on-climate-change\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Arctic shipping: A new way to capitalize on climate change? - Technology and Operations Management\" \/>\n<meta property=\"og:description\" content=\"What will it take for Maersk to navigate the next great frozen frontier?\" \/>\n<meta property=\"og:url\" content=\"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/arctic-shipping-a-new-way-to-capitalize-on-climate-change\/\" \/>\n<meta property=\"og:site_name\" content=\"Technology and Operations Management\" \/>\n<meta property=\"og:image\" content=\"https:\/\/d3.harvard.edu\/platform-rctom\/wp-content\/uploads\/sites\/4\/2017\/11\/Artic-shipping-1.jpg\" \/>\n\t<meta property=\"og:image:width\" content=\"1024\" \/>\n\t<meta property=\"og:image:height\" content=\"681\" \/>\n\t<meta property=\"og:image:type\" content=\"image\/jpeg\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:label1\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data1\" content=\"5 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\\\/\\\/schema.org\",\"@graph\":[{\"@type\":\"WebPage\",\"@id\":\"https:\\\/\\\/d3.harvard.edu\\\/platform-rctom\\\/submission\\\/arctic-shipping-a-new-way-to-capitalize-on-climate-change\\\/\",\"url\":\"https:\\\/\\\/d3.harvard.edu\\\/platform-rctom\\\/submission\\\/arctic-shipping-a-new-way-to-capitalize-on-climate-change\\\/\",\"name\":\"Arctic shipping: A new way to capitalize on climate change? - Technology and Operations Management\",\"isPartOf\":{\"@id\":\"https:\\\/\\\/d3.harvard.edu\\\/platform-rctom\\\/#website\"},\"primaryImageOfPage\":{\"@id\":\"https:\\\/\\\/d3.harvard.edu\\\/platform-rctom\\\/submission\\\/arctic-shipping-a-new-way-to-capitalize-on-climate-change\\\/#primaryimage\"},\"image\":{\"@id\":\"https:\\\/\\\/d3.harvard.edu\\\/platform-rctom\\\/submission\\\/arctic-shipping-a-new-way-to-capitalize-on-climate-change\\\/#primaryimage\"},\"thumbnailUrl\":\"https:\\\/\\\/d3.harvard.edu\\\/platform-rctom\\\/wp-content\\\/uploads\\\/sites\\\/4\\\/2017\\\/11\\\/Artic-shipping-1.jpg\",\"datePublished\":\"2017-11-16T01:42:08+00:00\",\"breadcrumb\":{\"@id\":\"https:\\\/\\\/d3.harvard.edu\\\/platform-rctom\\\/submission\\\/arctic-shipping-a-new-way-to-capitalize-on-climate-change\\\/#breadcrumb\"},\"inLanguage\":\"en-US\",\"potentialAction\":[{\"@type\":\"ReadAction\",\"target\":[\"https:\\\/\\\/d3.harvard.edu\\\/platform-rctom\\\/submission\\\/arctic-shipping-a-new-way-to-capitalize-on-climate-change\\\/\"]}]},{\"@type\":\"ImageObject\",\"inLanguage\":\"en-US\",\"@id\":\"https:\\\/\\\/d3.harvard.edu\\\/platform-rctom\\\/submission\\\/arctic-shipping-a-new-way-to-capitalize-on-climate-change\\\/#primaryimage\",\"url\":\"https:\\\/\\\/d3.harvard.edu\\\/platform-rctom\\\/wp-content\\\/uploads\\\/sites\\\/4\\\/2017\\\/11\\\/Artic-shipping-1.jpg\",\"contentUrl\":\"https:\\\/\\\/d3.harvard.edu\\\/platform-rctom\\\/wp-content\\\/uploads\\\/sites\\\/4\\\/2017\\\/11\\\/Artic-shipping-1.jpg\",\"width\":1024,\"height\":681},{\"@type\":\"BreadcrumbList\",\"@id\":\"https:\\\/\\\/d3.harvard.edu\\\/platform-rctom\\\/submission\\\/arctic-shipping-a-new-way-to-capitalize-on-climate-change\\\/#breadcrumb\",\"itemListElement\":[{\"@type\":\"ListItem\",\"position\":1,\"name\":\"Home\",\"item\":\"https:\\\/\\\/d3.harvard.edu\\\/platform-rctom\\\/\"},{\"@type\":\"ListItem\",\"position\":2,\"name\":\"Submissions\",\"item\":\"https:\\\/\\\/d3.harvard.edu\\\/platform-rctom\\\/submission\\\/\"},{\"@type\":\"ListItem\",\"position\":3,\"name\":\"Arctic shipping: A new way to capitalize on climate change?\"}]},{\"@type\":\"WebSite\",\"@id\":\"https:\\\/\\\/d3.harvard.edu\\\/platform-rctom\\\/#website\",\"url\":\"https:\\\/\\\/d3.harvard.edu\\\/platform-rctom\\\/\",\"name\":\"Technology and Operations Management\",\"description\":\"MBA Student Perspectives\",\"potentialAction\":[{\"@type\":\"性视界Action\",\"target\":{\"@type\":\"EntryPoint\",\"urlTemplate\":\"https:\\\/\\\/d3.harvard.edu\\\/platform-rctom\\\/?s={search_term_string}\"},\"query-input\":{\"@type\":\"PropertyValueSpecification\",\"valueRequired\":true,\"valueName\":\"search_term_string\"}}],\"inLanguage\":\"en-US\"}]}<\/script>\n<!-- \/ Yoast SEO plugin. -->","yoast_head_json":{"title":"Arctic shipping: A new way to capitalize on climate change? - Technology and Operations Management","robots":{"index":"index","follow":"follow","max-snippet":"max-snippet:-1","max-image-preview":"max-image-preview:large","max-video-preview":"max-video-preview:-1"},"canonical":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/arctic-shipping-a-new-way-to-capitalize-on-climate-change\/","og_locale":"en_US","og_type":"article","og_title":"Arctic shipping: A new way to capitalize on climate change? - Technology and Operations Management","og_description":"What will it take for Maersk to navigate the next great frozen frontier?","og_url":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/arctic-shipping-a-new-way-to-capitalize-on-climate-change\/","og_site_name":"Technology and Operations Management","og_image":[{"width":1024,"height":681,"url":"https:\/\/d3.harvard.edu\/platform-rctom\/wp-content\/uploads\/sites\/4\/2017\/11\/Artic-shipping-1.jpg","type":"image\/jpeg"}],"twitter_card":"summary_large_image","twitter_misc":{"Est. reading time":"5 minutes"},"schema":{"@context":"https:\/\/schema.org","@graph":[{"@type":"WebPage","@id":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/arctic-shipping-a-new-way-to-capitalize-on-climate-change\/","url":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/arctic-shipping-a-new-way-to-capitalize-on-climate-change\/","name":"Arctic shipping: A new way to capitalize on climate change? - Technology and Operations Management","isPartOf":{"@id":"https:\/\/d3.harvard.edu\/platform-rctom\/#website"},"primaryImageOfPage":{"@id":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/arctic-shipping-a-new-way-to-capitalize-on-climate-change\/#primaryimage"},"image":{"@id":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/arctic-shipping-a-new-way-to-capitalize-on-climate-change\/#primaryimage"},"thumbnailUrl":"https:\/\/d3.harvard.edu\/platform-rctom\/wp-content\/uploads\/sites\/4\/2017\/11\/Artic-shipping-1.jpg","datePublished":"2017-11-16T01:42:08+00:00","breadcrumb":{"@id":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/arctic-shipping-a-new-way-to-capitalize-on-climate-change\/#breadcrumb"},"inLanguage":"en-US","potentialAction":[{"@type":"ReadAction","target":["https:\/\/d3.harvard.edu\/platform-rctom\/submission\/arctic-shipping-a-new-way-to-capitalize-on-climate-change\/"]}]},{"@type":"ImageObject","inLanguage":"en-US","@id":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/arctic-shipping-a-new-way-to-capitalize-on-climate-change\/#primaryimage","url":"https:\/\/d3.harvard.edu\/platform-rctom\/wp-content\/uploads\/sites\/4\/2017\/11\/Artic-shipping-1.jpg","contentUrl":"https:\/\/d3.harvard.edu\/platform-rctom\/wp-content\/uploads\/sites\/4\/2017\/11\/Artic-shipping-1.jpg","width":1024,"height":681},{"@type":"BreadcrumbList","@id":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/arctic-shipping-a-new-way-to-capitalize-on-climate-change\/#breadcrumb","itemListElement":[{"@type":"ListItem","position":1,"name":"Home","item":"https:\/\/d3.harvard.edu\/platform-rctom\/"},{"@type":"ListItem","position":2,"name":"Submissions","item":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/"},{"@type":"ListItem","position":3,"name":"Arctic shipping: A new way to capitalize on climate change?"}]},{"@type":"WebSite","@id":"https:\/\/d3.harvard.edu\/platform-rctom\/#website","url":"https:\/\/d3.harvard.edu\/platform-rctom\/","name":"Technology and Operations Management","description":"MBA Student Perspectives","potentialAction":[{"@type":"性视界Action","target":{"@type":"EntryPoint","urlTemplate":"https:\/\/d3.harvard.edu\/platform-rctom\/?s={search_term_string}"},"query-input":{"@type":"PropertyValueSpecification","valueRequired":true,"valueName":"search_term_string"}}],"inLanguage":"en-US"}]}},"_links":{"self":[{"href":"https:\/\/d3.harvard.edu\/platform-rctom\/wp-json\/wp\/v2\/hck-submission\/25714","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/d3.harvard.edu\/platform-rctom\/wp-json\/wp\/v2\/hck-submission"}],"about":[{"href":"https:\/\/d3.harvard.edu\/platform-rctom\/wp-json\/wp\/v2\/types\/hck-submission"}],"author":[{"embeddable":true,"href":"https:\/\/d3.harvard.edu\/platform-rctom\/wp-json\/wp\/v2\/users\/10257"}],"replies":[{"embeddable":true,"href":"https:\/\/d3.harvard.edu\/platform-rctom\/wp-json\/wp\/v2\/comments?post=25714"}],"version-history":[{"count":0,"href":"https:\/\/d3.harvard.edu\/platform-rctom\/wp-json\/wp\/v2\/hck-submission\/25714\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/d3.harvard.edu\/platform-rctom\/wp-json\/wp\/v2\/media\/25715"}],"wp:attachment":[{"href":"https:\/\/d3.harvard.edu\/platform-rctom\/wp-json\/wp\/v2\/media?parent=25714"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/d3.harvard.edu\/platform-rctom\/wp-json\/wp\/v2\/categories?post=25714"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}