Rush Hour At The Top Of The World

By some accounts, the decline of Arctic sea ice to a modern low in 2012 put us on the verge of a shipping boom that could make the world’s northernmost sea lanes look like the Santa Monica Freeway at rush hour.

arctic

It did not work out that way. Not this year, at least.

To be sure, there have been some notable shipping stories in the far north recently. Just this week, a freighter with a hull reinforced against ice was due to arrive at a Norwegian port after carrying a load of Canadian metallurgical coal from British Columbia. That ship, the M/V Nordic Orion, became the first bulk carrier to traverse Canada’s Arctic archipelago via the Northwest Passage, a route that was sought for centuries by sailors who dreamt of a shortcut from the Atlantic to the Pacific.

Farther east, the Chinese-owned container vessel Yong Sheng drew worldwide attention as it carried a shipment of steel and machinery from the Chinese port of Dalian to the European shipping hub of Rotterdam. Rather than the usual route via the Suez Canal, Yong Shang transited the Arctic Ocean along Russia’s north coast over the Northern Sea Route. The Arctic route shaved about two weeks off what is typically a 48-day voyage, the ship’s owner said.

Yong Sheng was reportedly the first container ship to traverse the Arctic, although fuel and bulk carriers have sailed Russia’s inshore waters for years. In 1942, the German Navy even undertook an operation called Wunderland to intercept and sink shipping in what was then Soviet Union’s sector of the Arctic.

But despite these accomplishments, it has been a difficult season for Arctic shipping, for the unsurprising reason that there was more ice than last year. Considerably more ice, in fact. The Northwest Passage never truly became ice-free, and there were small stretches along the Northern Sea Route that retained at least some ice cover (albeit scattered and thin) through the summer and into the fall.

Through Sept. 30, only 28 freight-carrying vessels had transited the Northern Sea Route, according to Russian government statistics. Those vessels carried about 1 million metric tons of cargo. A total of 46 freighters made the journey in 2012, carrying around 2 million tons of goods. Moscow-based blogger John Helmer observes that at the peak of Soviet-era Arctic shipping, in 1987, some 7 million tons of freight were carried, though most of that was merely between Russian ports.

Some additional traffic should clear the Northern Sea Route before the season shuts down around the beginning of December. (It sounds strange to hear that ships are still able to cross the Russian Arctic so late in the year, when air temperatures are far below freezing and daylight is almost nonexistent. Navigation remains possible mainly because the freight traffic at that time is assisted by icebreakers and because ocean water, due to its salt content, does not freeze until its temperature drops to around 28 degrees Fahrenheit.) Still, trans-Arctic shipping is minuscule compared to the volume routed via the Suez Canal or around the Horn of Africa.

It is also, for the most part, not economically competitive. The Canadian voyage of the Nordic Orion would not have occurred but for a big Canadian subsidy, in the form of taxpayer-funded icebreaker support. Russia’s Arctic shipping agency extracts steep tolls in exchange for its services, which include a network of service and rescue stations and a new fleet of nuclear-powered icebreakers, both of which are under development and scheduled to be in full service by the end of this decade.

Much of the current activity is aimed at supporting national claims to sovereignty over resource-rich and strategically important Arctic waters. Canada may be willing to provide icebreaker service gratis, but it requires shippers to obtain a Canadian license before transiting its northern archipelago. This is partly to rebut claims, by the United States and others, that shipping lanes through the Canadian islands should be open to all flags under international law.

The Russians, for their part, are eager to claim and exercise sovereignty over a large part of the Arctic basin. This is probably why Russia reacted harshly to a Greenpeace publicity stunt directed at a Russian-owned drilling platform. Russia has brought piracy charges – carrying the potential for 15-year prison sentences – against all 30 people who were aboard the Greenpeace vessel, Arctic Sunrise, that defied Russian orders to stay away from the drilling vessel. The piracy charge is based on a reported attempt by two activists to board the drilling rig, where they have said they planned to hang a protest banner.

Maybe future shrinkage of the Arctic ice mass will produce a rush hour at the top of the world during my lifetime. Maybe it won’t. For the time being, however, it looks like an open road – if you don’t mind the ice.

About Larry M. Elkin 553 Articles

Affiliation: Palisades Hudson Financial Group

Larry M. Elkin, CPA, CFP®, has provided personal financial and tax counseling to a sophisticated client base since 1986. After six years with Arthur Andersen, where he was a senior manager for personal financial planning and family wealth planning, he founded his own firm in Hastings on Hudson, New York in 1992. That firm grew steadily and became the Palisades Hudson organization, which moved to Scarsdale, New York in 2002. The firm expanded to Fort Lauderdale, Florida, in 2005, and to Atlanta, Georgia, in 2008.

Larry received his B.A. in journalism from the University of Montana in 1978, and his M.B.A. in accounting from New York University in 1986. Larry was a reporter and editor for The Associated Press from 1978 to 1986. He covered government, business and legal affairs for the wire service, with assignments in Helena, Montana; Albany, New York; Washington, D.C.; and New York City’s federal courts in Brooklyn and Manhattan.

Larry established the organization’s investment advisory business, which now manages more than $800 million, in 1997. As president of Palisades Hudson, Larry maintains individual professional relationships with many of the firm’s clients, who reside in more than 25 states from Maine to California as well as in several foreign countries. He is the author of Financial Self-Defense for Unmarried Couples (Currency Doubleday, 1995), which was the first comprehensive financial planning guide for unmarried couples. He also is the editor and publisher of Sentinel, a quarterly newsletter on personal financial planning.

Larry has written many Sentinel articles, including several that anticipated future events. In “The Economic Case Against Tobacco Stocks” (February 1995), he forecast that litigation losses would eventually undermine cigarette manufacturers’ financial position. He concluded in “Is This the Beginning Of The End?” (May 1998) that there was a better-than-even chance that estate taxes would be repealed by 2010, three years before Congress enacted legislation to repeal the tax in 2010. In “IRS Takes A Shot At Split-Dollar Life” (June 1996), Larry predicted that the IRS would be able to treat split dollar arrangements as below-market loans, which came to pass with new rules issued by the Service in 2001 and 2002.

More recently, Larry has addressed the causes and consequences of the “Panic of 2008″ in his Sentinel articles. In “Have We Learned Our Lending Lesson At Last” (October 2007) and “Mortgage Lending Lessons Remain Unlearned” (October 2008), Larry questioned whether or not America has learned any lessons from the savings and loan crisis of the 1980s. In addition, he offered some practical changes that should have been made to amend the situation. In “Take Advantage Of The Panic Of 2008” (January 2009), Larry offered ways to capitalize on the wealth of opportunity that the panic presented.

Larry served as president of the Estate Planning Council of New York City, Inc., in 2005-2006. In 2009 the Council presented Larry with its first-ever Lifetime Achievement Award, citing his service to the organization and “his tireless efforts in promoting our industry by word and by personal example as a consummate estate planning professional.” He is regularly interviewed by national and regional publications, and has made nearly 100 radio and television appearances.

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