Demystifying the Economic Viability of the Northern Sea Route

By Sumner Levenson and Carsten Kowalczyk for The Fletcher Forum of World Affairs (Levenson is a Fletcher MIB Candidate and Kowalczyk is an Associate Professor of International Economics at Tufts University)

ABSTRACT

This paper challenges the optimistic outlook on a near-term economically viable Northern Sea Route (NSR) by delving into the prospective impacts of utilizing the NSR over the traditional Suez Canal for shipping. The paper uses Chinese exports—of paint, computers, and motor vehicles—from Shanghai, China to Rotterdam, Netherlands as a case study to support this argument. The study examines transportation costs under varying sea ice conditions and incorporates icebreaker fees through a sensitivity analysis. Based on the analysis, the paper posits that the NSR will only be commercially viable for select goods when sea ice extent1 reaches 25 percent or less. While projections suggest an ice- free Arctic by late mid-century, significant investment is needed for the NSR to compete with the Suez Canal. These investments are most justifiable for Russia, which could capitalize on icebreaker services and port fees as the route becomes more accessible. China may benefit from waiting on Russia’s infrastructure development, while icebreaker companies would need to strike competitive rates and shipping liners should adopt a wait-and-see approach.

Read the full article here.

(This post is republished from The Fletcher Forum of World World Affairs, Volume 48:1 – Winter 2024.)