By Brian Dunn

“Trying to predict the future is like trying to drive down a country road at night with no lights while looking out the back window,” the late management consultant and author Peter F. Drucker once quipped. But there are a number of companies that do it for a living. One such company is London-based Polarisk Group, which as its name suggests, specializes in the Polar region.

In a presentation to the 6th Arctic Shipping Summit, held March 18 and 19 in Montreal, Polarisk Managing Partner Mikå Mered valued the Arctic market GDP this year at $620 billion, while he expects it to reach $2.1 trillion in 2035. That market includes Alaska, Iceland, Finland and parts of Denmark, Norway, Sweden, Canada and Russia. There will also be a 42 per cent increase in global energy demand between now and then, and there will be no ice or there will be new technology that will make Polar ice less problematic by 2035. This will open new shipping routes, including St. Petersburg to Beijing and Rotterdam to Busan, South Korea.

“We see an emergence of over 30 Arctic-related hubs, including in France (Le Havre and St-Pierre-et-Miquelon) and China and up to 19 per cent of China’s exports by 2035 will pass through the Arctic which will have very little impact on the Panama or Suez canals,” said Mr. Mered. China has also signed $488 billion worth of contracts since 2010 related to Arctic investment activities, he added.

Russia has spent over $20 billion to develop a northern sea route and supply stations, according to Philippe Cambos, Technical Director, Bureau Veritas, a major marine testing, inspection and certification company. Over 60 transits were made through the route last summer, carrying a million tonnes of cargo, negligible compared to 700 million tonnes that go through the Suez Canal every year, Mr. Cambos pointed out.

While some rules have been developed for shipping in the north by Canada and the U.S., IMO’s Polar Code for ships operating in Polar waters will take effect in 2016 which will provide binding rules for existing cargo and oil tankers in the Arctic, said Mr. Cambos. “There are a total of 15 LNG icebreaking ships being built by Russia, which estimates 45 million tonnes of cargo will transit through the north by 2020.”

The National Research Council of Canada presented its Canadian Arctic Shipping Risk Assessment System (CASRAS), which drew a lot of interest. CASRAS is a risk assessment system in the form of an integrated database that will store, query and visualize all key relevant environmental data with specific application to shipping, icebreaking and navigation in northern Canadian waters and Arctic marine corridors. It can be used in the office or on the bridge of a ship, according to Gary Timco, a retired researcher from NRC and now head of G.W. Timco and Associates. The database will contain historical ice information, including ice conditions (type and concentration), multi-year ice concentrations, information on ice ridging, ice drift speed, regions of high ice pressure and ice information from northern communities. It will also contain information on water currents, wind and wave hindcast, tide stations data and tidal information.

In terms of navigation information, it will include locations of navigational aids, locations of historical vessels damaged, community locations and infrastructure, internet availability, conservation Regions (extent and dates) and experiences from ship captains, among a range of other information related to weather and route planning. The first prototype is expected to be available in March, 2016, and there will be a yet undetermined user fee for the service.

One of the main challenges in Arctic navigation is poorly charted waters and lack of aids to navigation, said Glenn Wright, President of GMATEK Inc., Annapolis, MD, which is conducting research on improving the safety of Polar navigation at the World Maritime University in Malmö, Sweden. He said the best tool to warn of a hazard 500 metres ahead of a vessel, for example, is forward-looking (FL) sonar rather than an echo sounder or depth sounder. “Forward-looking sonar is not mandatory, because it’s relatively new. Places where it would be useful is in uncharted or under-charted waters such as the Arctic.” But there may be some resistance to installing FL sonar as it could be viewed as another onboard display to monitor, among many other displays.

While there is a 65-hour time savings in sailing between Hong Kong and Rotterdam via the northern sea route, that saving must be weighed against the substantial fee Russia charges for an ice-breaking escort through the north, said Frank Boman, Director of Operations, Aerospace and Marine International Corp., San Jose, CA. And average winds in the region in August are 10 knots, rising to 18 knots in November which could impact the time and cost of the voyage. “Currents have a significant impact on fuel burn and travel time and if you have to burn low-sulphur fuel versus high sulphur fuel, the fuel cost savings may change.”

Although there are huge investment opportunities in the Arctic region, there could be potential conflicts over the environment, fishing stocks and oil and gas reserves, according to Halldór Jóhannsson, General Manager of Arctic Portal, a network of information and data sharing based around the Baltic region. Arctic tourism is expected to increase rapidly with tour ships carrying upwards of 5,000 passengers in an unregulated area with no infrastructure in case of an accident.

China has shown a great deal of interest in Canada’s north in recent years, due to four main reasons, Mr. Jóhannsson noted. They are interested in our resources and want to learn more about climate change since 100 million Chinese may have to be relocated if sea levels rise. In addition, half of China’s GDP is related to shipping and 80 per cent of its imports and exports go through the Malacca Strait in Indonesia which China considers a security risk. “Chinese scientists want to establish a research outpost in the Canadian north and are hoping its Xue Long icebreaker can go through the Northwest Passage next year.”

Canada’s two-year Chairmanship of the Arctic Council ended on April 24 when it was handed over to the United States for the next two years. The council has eight permanent members consisting of Canada, the U.S., Denmark, Finland, Iceland, Norway, Sweden and Russia. It also has observer countries, including China and South Korea.

During its tenure, Canada’s focus was on responsible Arctic resource development, safe Arctic shipping and sustainable circumpolar communities, noted Chris Shapardanov, Director of Circumpolar Affairs, Department of Foreign Affairs. The Arctic Economic Council was developed last September to stimulate Arctic business-to- business activities and promote connections between Arctic states. Other council initiatives include developing Arctic marine tourism and an action plan on oil pollution prevention in the region.

In 2013, the U.S. developed a National Strategy for the Arctic Region with an emphasis on port facilities, search and rescue capabilities and other needs in the region. The goals of the strategy are to advance U.S. security interests, pursue responsible Arctic region stewardship and strengthen international cooperation, according to Lonnie Kishiyama, Office of International Affairs, U.S. Department of Transport. His office will also assist with the development of a Polar Code, which specifies mandatory safety standards for passenger ships and other vessels operating in ice covered waters.

With an estimated 13 per cent of the world’s oil reserves and 30 per cent of its gas reserves in the Arctic, the number of ships transiting the region will increase exponentially, according to Joe Cox, President, Chamber of Shipping of America.

By 2025, there could be 950-2,100 ships travelling the northern route a year and it doesn’t take a lot of ice to cause a problem, he added. “The question for P&I Clubs is what will it cost to cover those transits?”

Turning to search and rescue (SAR) realities in the Arctic, it was noted Canada has 14 SAR helicopters, but none of them are based in the Arctic. The closest base is Gander with a 1,000-km flying range, not even far enough to reach Ungava Bay and nowhere near the far north. “There are no primary offshore SAR ships in Canada,” said Capt. Jack Gallagher, National Executive, The Company of Master Mariners of Canada. “There are six offshore patrol vessels, but only two are up to standard. Icebreakers have SAR as a secondary role, but the downside is that they’re getting long in the tooth. The newest replacement is six to seven years away.” A rescue by helicopter in the High Arctic could take between 27-50 hours and up to 10 days by ship. Closer to Gander, it could take up to 14 hours. “But if there’s a mechanical failure, all bets are off,” said Mr. Gallagher.

An international Agreement on Cooperation on Aeronautical and Maritime Search and Rescue in the Arctic was signed in 2011 between Canada, Denmark, Finland, Iceland, Norway, the Russian Federation, Sweden and the U.S. But it didn’t change rescue times or add any resources in the Canadian Arctic, Mr. Gallagher noted.

In terms of insurance issues, if clients want to take the Northwest Passage, it creates a “unique risk matrix” as the Arctic Ocean is the smallest and shallowest of the world’s oceans, said Leanne O’Loughlin, Claims Director, Charles Taylor P&I management (Americas), New York. “The insurance industry is wary, but wants to service its clients and so closely monitors the activities of members. If northern routes become viable over time, someone will have to insure them.” The problem is that the insurance industry doesn’t know how to price these risks, so carriers will have to weigh fuel and time savings against higher insurance risks.

Oil spill prevention in Baltic Sea ice was illustrated by Johanna Ikävalko, ministerial adviser, Ministry of Transport and Communications, Finland. On any given day, there are 4,000 vessels in the area with Russian maritime oil transportation increasing rapidly and the Baltic is 40 per cent covered by sea ice in winter, but no major oil spills to date, she noted.

The general management and safety of the winter navigation system is based on accurate ice conditions information, setting ice restrictions, allocating icebreaking capacity, determining a merchant ship’s ice class and ice-going capacity and controlling traffic.

A Finnish-Swedish winter navigation system has been established to share ice information and assessment of conditions, managing risk and allocating icebreaking resources. Finland is developing a business concept expected to be available in 2017 called ArcMate (Arctic marine testing, training and research centre) available to other countries. It will concentrate on safe and environmentally-friendly winter navigation, SAR activities, tailored Arctic weather forecasting and ice management, oil and chemical spill prevention and spill combating and environmental studies. ArcMate is aimed at insurance companies, the oil and gas sector, shipping and logistics and SAR agencies. “It is intended for those having an interest in the Arctic, but don’t have enough experience to ensure safe missions,” explained Ms. Ikävalko.

When it comes to dealing with oil spills, U.S. and Canadian agencies work closely together, according to Neil Quartaro, Counsel, Watson, Farley & Williams, LLP, New York. “There are very significant and formal agreements in place to deal with Arctic spills. A lot of the cooperation we see in the north stems from agreements covering the Great Lakes. Contingency plans on both sides of the border are very similar.”

Fortunately, the rhetoric of arming the Canadian Coast Guard and talk of the militarization of the Arctic has toned down in recent years, said Peter Pamel, Partner, Borden Ladner Gervais, Montreal.

“The Arctic Council is an excellent stewardship of the region, but now there’s increased politicization of Arctic organizations.” With the establishment of the competing Arctic Circle by President Ólafur Ragnar Grímsson of Iceland in April, 2013, there is pressure for the Arctic Council to remain relevant by granting more observer status to non-Arctic countries, said Mr. Pamel. “Cooperation is under attack. The Council shouldn’t be used for political issues or foreign policy issues.”

One summit attendee was Daniel Desgagnés, Manager of Sales and Marketing, Desgagnés Transarctik, who had mixed reviews of the event and was surprised there weren’t more shipping companies represented. “Some sessions were interesting like The Company of Master Mariners of Canada and Risk Assessment System (CASRAS), but a lot of it was very technical. I’m in sales and marketing, so a lot of the sessions were not relevant, like the ones on insurance and liability. To get the most out of the summit I should have had some of my colleagues there, but you can’t send people from each department as it would be very expensive.”

Chris Keays, Director of Business Development at Groupe Océan was equally surprised by the dearth of shipping companies at the summit. “There was no Fednav, CSL or Algoma which makes me believe there’s still not a lot of interest in the Arctic. But I found the subject matter quite interesting, especially the presentations by Leanne O’Loughlin of the P&I club, Mr. Jóhannsson of Arctic Portal, Niels Clausen of MAN talking about different propulsion systems and Jack Gallagher of Master Mariners of Canada. We work with Baffinland and we may have some of our tugs working up north, so search and rescue is an important topic for us. “The Polarisk presentation was also interesting, but I had a hard time believing all of Mikå Mered’s figures. Only the future will tell if he was right or not. Overall, I learnt a lot, but as a sales and marketing person, I was disappointed there were not a lot of networking opportunities.”

Jody Wright, a policy analyst from the Clear Seas Centre for Responsible Marine Shipping in Vancouver, said the conference was definitely worth attending. “I don’t have a lot of background yet in the area of Arctic shipping and I feel that the conference gave a good overview of various social, economic, and environmental issues associated with Arctic shipping from a variety of stakeholders.” She was particularly impressed with Mr. Mered of Polarisk, Mr. Gallagher, of Master Mariners and Mr. Wright of GMATEK “I felt that these presenters were very dynamic, clear, and provided new perspectives that I hadn’t considered before.”