Policy Paper

by Whitney Lackenbauer CDFAI Fellow and  
Adam Lajeunesse St. Jerome’s University
December, 2014

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Table of Contents

• Executive Summary 
• On Uncertain Ice - The Future of Arctic Shipping and the Northwest Passage 
• About the Authors 
• About CDFAI  
• Endnotes  

Executive Summary 

The Arctic sea-ice is in a state of rapid decline. Barriers to navigation that once doomed the likes of Sir John Franklin and closed the shortcut to the Orient now seem to be melting away. The prospect of shorter, transpolar transportation routes linking Asian and Western markets has inspired excitement and fear, and particularly the latter when it comes to Canadian sovereignty. 

This paper confirms recent studies suggesting that, in spite of the general trend towards reduced ice cover in the Arctic Basin, environmental variability, scarce infrastructure and other navigational aids, and uncertain economics make it unlikely that the Northwest Passage will emerge as a viable trans-shipping route in the foreseeable future. Instead, the region is likely to witness a steady increase in resource, resupply, and tourist destinational shipping. Accordingly, concerns that this increased activity will adversely affect Canadian sovereignty are misplaced. Rather than calling into question Canadian control, foreign vessels engaged in local activities are likely to reinforce Canada’s legal position by demonstrating an international acceptance of Canadian laws and regulations. 

Rather than worrying about the “sovereignty” ramifications of Arctic shipping, the Canadian government should focus its short – and medium – term energies on the practical requirements of developing and maintaining safe shipping routes. At the heart of this requirement is ensuring that such activity is beneficial to Inuit, whose traditional “highways” will double as transits routes for resource carriers and cruise liners. If developed with an eye to those most directly affected, Canada’s Arctic waters can become a well-managed route to an increasingly attractive region, making our Arctic a destination rather than mere space through which to pass. 

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On Uncertain Ice: The Future of Arctic Shipping and the Northwest Passage  

In October 2013, the Danish bulk carrier Nordic Orion completed the first successful commercial transit of the Northwest Passage. By avoiding the Panama Canal, the ship saved a week of travel time, tens of thousands in canal fees, and $80,000 in fuel costs.[1] Optimistic commentators hailed the voyage as the beginning of a new era of Arctic commercial activity, and analysts confidently predicted that more ships, following in the Nordic Orion’s wake, would take advantage of the Arctic’s melting ice.[2] In 2014, however, high ice levels have put this dream on hold. Instead, the much-trumpeted discovery of one of John Franklin’s ill-fated ships might remind Canadians about the dangers of Arctic navigation – dangers that technology and modern shipbuilding have yet to overcome completely. 

In spite of the popular concern and enthusiasm surrounding Arctic shipping, our survey of recent Canadian and international studies and data reaffirms that the much-hyped Northwest Passage routes will remain inhospitable to international shipping for the foreseeable future. Fears that cargo ships will carve a new commercial transshipment route through the Canadian archipelago and, in so doing, undermine Ottawa’s internal waters position, are overblown.[3] Nonetheless, the Canadian Arctic has already seen increased destinational shipping, and this trend will continue.[4] These considerations warrant the careful attention of the federal government, which emphasizes the importance of safe shipping in its Northern Strategy and as one of its overarching priorities as chair of the Arctic Council (2013-15). Given variable environmental conditions and uncertainties about ice levels and the economics of northern operations, the Canadian government should continue to dedicate its primary focus and resources to practical matters of environmental protection, charting, and ensuring that the local communities benefit from nascent industry – not succumbing to concerns often raised in the popular press.[5] 

Although the Arctic ice cover has shrunk dramatically over the past decade, confirming a clear trend line towards less and thinner ice across the region as a whole, the process has been anything but reliable or consistent from an operator’s standpoint. Scheduling a transit through specific waters of the Canadian Arctic remains both difficult and dangerous. Winds and currents shift the ice constantly, often clogging channels that had been clear the week, or even day, before. Accordingly, a longer shipping season on paper does not necessarily translate into consecutive weeks of open water in practice.[6] Annual variability is also significant, rendering it impossible to accurately predict shipping conditions for the next season. Optimistic forecasts at the end of 2013, for instance, proved ephemeral as the sea-ice in the 2014 shipping season rebounded to average 6.22 million square kilometers – well above the August 2012 average of 4.71 million square kilometers.[7]  

Source: Canadian Ice Service, Transport Canada.
Charts 1 and 2: Note the variability in two key shipping routes: 
M’Clintock Channel in the east and M’Clure-Barrow Strait in the west.

In the Canadian Arctic context, this year’s increase in ice coverage is concentrated in certain chokepoints. M’Clintock Channel saw more than 100% more old ice in the 2014 season than in 2013, and close to 800% more than in 2011 (see charts 1 and 2).  Unpredictable ice and weather conditions, which prevent a captain from maintaining a consistent high-speed and course, are not conducive to the timetables maintained by an industry governed by just-in-time delivery. As Laval University geographer Frédéric Lasserre and other experts note, these conditions will continue to dissuade shipping companies from risking their tight schedules on uncertain routes.[8] 

Circumpolar maps showing the shrinking polar ice cap using annual averages do not illustrate the considerable dangers that remain in the Arctic. To date, only 12 percent of Canada’s Arctic waters have been charted to modern standards, a deficiency that was dramatically demonstrated by the 2010 groundings of the Nanny, a tanker carrying nine million litres of fuel in the Simpson Strait, and the Clipper Adventure, a cruise ship in Coronation Gulf.[9] 

Source: Transportation Safety Board of Canada, “
Statistical Summary Marine Occurrences 2013,” (Ottawa: 2014)

These dangers likely translate into extremely high insurance premiums for would-be Arctic shippers. The cost of insurance remains speculative since only one voyage has taken place, and the premium paid by the Nordic Orion is not public. Insurance brokers, however, have offered an estimate of $100,000 or more to insure a ship of the class and size of Nordic Orion, with a 30% Arctic operations premium.[10] Recently, Lasserre’s comprehensive study of container ship operations in the Arctic found that insurance premiums in this sector would likely range from 50% to more than 100%, P&I premiums (covering third-party liabilities) would have to be 16.7% to 100% more, while H&M (for damage done to the ship itself) would be 25% to 100% more.[11] Furthermore, given the lack of historical, commercial navigation data to calculate costs and risks, it is difficult for marine insurers to price an insurable risk – or to agree to cover a voyage in the first place.[12] In a widely-cited report, the Marsh Global Marine Practice notes a real short-term fear within the insurance industry of incurring large, high-profile losses while the Arctic shipping market remains in its infancy.[13] 

Uncharted sea-lanes and limited salvage, repair, and emergency response infrastructure also pose significant dangers to regular shipping through the Northwest Passage, thus limiting prospective short to medium-term activity to niche voyages and government-supported operations. Assessments by former Deputy Minister of Transport John Higginbotham and political scientist Andrea Charron, that the Nordic Orion voyage represents “the tip of the proverbial economic iceberg,” are likely mistaken.[14]Lasserre’s analysis shows that shipping models reflect uncertainty about the potential profitability of using the passage, while his own calculations question the route’s utility (with variables like speed, load factors, and delays playing a crucial role in profitability).[15] 

The emergence of the Northern Sea Route as a feasible shortcut from northern Europe to Asia has demonstrated that, in most cases, the Northwest Passage will never constitute the optimal Arctic route for most international shipping. In most scenarios, the Russian route is shorter and, in practical terms, is far better supplied with icebreakers, ports, and navigational support. If the polar ice continues to melt at current rates, a transpolar route may also become a possibility.[16] In that scenario a seasonal deep-water route over the Pole would render the shallow and rocky Northwest Passage an unattractive alternative. Thus, while it is almost universally agreed that the Arctic waters will see more activity in the next two decades,[17] most systematic, empirical studies predict that the Arctic shipping – particularly in Canadian waters – will most likely consist of destinational shipping, comprised of resource carriers, service ships, resupply vessels, and cruise liners.[18] 

This scenario assumes heightened resource development in the region – itself a proposition dependent on many variables, from global resource prices to permitting and support from local populations.  Nevertheless, China Minmetals Group (MMG) is slowly moving through the permitting process for the Izok Corridor, a major zinc, copper, and lead project near Bathurst Inlet in the Kitikmeot region and the most advanced mining projects are already precipitating increased destinational shipping. ArcelorMittal and Baffinland are on the cusp of opening the Mary River iron mine and will soon begin shipping ore through Milne Inlet.[19] Fednav, a Canadian-owned shipping company, moved the first cargo of nickel concentrate from Deception Bay, Quebec to China via the Northwest Passage in September 2014.[20] Oil and gas producers are likewise moving forward. Shell has requested new drilling permits in the Chukchi sea, indicating that it will continue its operations in the area, while Imperial Oil Canada, Exxon Mobil, and BP have jointly filed an application to drill at least one well in the Beaufort Sea. 

The future of Arctic oil and gas remains highly speculative. In recent years, the global production surge from shale oil has lowered prices and called into question the need to drill in the Arctic. Nevertheless, the world’s major oil companies still see potential value in the region. Shell’s search in the Chukchi Sea and Exxon’s in the Kara Sea are focused on discovering the world’s last “elephant” fields – fields so large that they can be produced in even the harshest environment at a reasonable cost. Shale oil, while far more accessible, will never be cheap. Furthermore, because of the geological nature of the wells, their high depletion rates normally render them unproductive after only two years. Accordingly, many shale drillers in the US are not even profitable. [21] As such, while shale oil production in the continental US continues to escalate, profit margins are narrower than they might be with a major Arctic field. This rationale has moved companies to invest billions in the Arctic and, as the best shale reserves are depleted, Arctic oil exploration – and shipping to support it – is likely to increase.

Source: Seadrill, Morgan Stanley Equity Research, International Energy Agency

The potential impact on Canadian sovereignty of increased shipping activity through the Northwest Passage has been the source of considerable academic debate. In 2003, University of Calgary political scientist Rob Huebert predicted that international shipping companies would soon exploit the route to carry goods between Atlantic and Pacific ports in light of global warming (less sea ice) and simple geographical criteria. The Northwest Passage is 3,450 km shorter from Shanghai to Rotterdam than the Suez Canal, and 3,850 km shorter from Shanghai to New York,[22] yielding considerable theoretical savings in time and fuel. Huebert believed that even a single ship moving through Canadian waters, without permission, could establish the Northwest Passage as an international strait used for commercial navigation, thus undermining the legal basis of Canada’s position that the waters within the Arctic Archipelago are internal waters.[23] Political scientist Franklyn Griffiths challenged this hypothesis, downplaying the dangers of random and isolated transits, insisting that Canadian sovereignty was not nearly as fragile as Huebert intimated.[24] 

More recently, commentators point to growing Asian interest in the Arctic and suggest that these states are poised to challenge Canada’s maritime claims to exploit transpolar shipping lanes and the Arctic’s mineral and hydrocarbon reserves. Although China has neither released an official Arctic strategy nor taken a clear position on the legal status of the waters of the Northwest Passage, University of Calgary historian David Wright observes that it is “carefully examining Canada’s claims of historical sovereignty over the Arctic in general and the Northwest Passage in particular.”[25] 

Most other Asian nations continue to reserve their position on the status of the Northwest Passage or have confined themselves to pro forma objections. Singapore, for instance, voiced its concern over Canada’s 2010 decision to make vessel reporting in the Northwest Passage mandatory but did not go so far as to dispute Canadian sovereignty.[26] Japan has not released an official Arctic policy, but a government-funded report by the Japanese Institute of International Affairs recommended that “appropriate application” of UNCLOS III principles on the freedom of navigation should apply to “Arctic shipping routes.”[27] 

While their economic reliance on foreign trade would seem to suggest that Asia’s commercial powers will eventually side with the United States in challenging Canadian sovereignty, none have ever seen a need to provoke a confrontation over the Northwest Passage. Like the European Union, the Asian maritime powers consider Arctic shipping a hypothetical and have been content to allow the US to manage the issue. Equally important, many of these states have, themselves, made liberal use of straight baselines or made jurisdictional claims considered excessive by other states.[28] South Korea and Japan have both drawn straight baselines far longer than what the United States considers legally permissible.[29] China’s longest baseline is 121.7 miles long, only 8 miles shorter than the longest Canadian baseline, which stretches across McClure Strait.[30] 

Contrary to many of the fearful articles populating Canadian media, increased destinational shipping in the Arctic is likely to strengthen Canada’s sovereignty position. Canada requires the acquiescence of foreign users, “particularly those whose interests are primarily affected,” to demonstrate internationally that Arctic waters are internal waters.[31] In the twenty-first century, those non-Canadian interests that are “primarily affected” will be private enterprise, and shipping with resource companies likely to respect Canadian sovereignty out of self-interest. As Canadian icebreakers and shipping infrastructure are needed for safe transit, companies involved in moving goods across the Arctic will need Canadian government support. A refusal to recognize Canadian sovereignty or jurisdiction would simply invite Ottawa to deny vital services, or worse, to impound a vessel. However, it seems unlikely that an offshore service company towing a rig through Canadian waters will fail to comply with the necessary regulations, or to openly demand transit passage. Given that an offshore rig costs its parent company hundreds of thousands of dollars per day (depending on its size and capabilities), risking impound or a revocation of its drilling rights could mean serious financial damage. 

In moving beyond a traditional fixation on potential sovereignty threats, the Canadian government should continue to concentrate on practical questions related to the safe development of Arctic shipping lanes. These include hydrographic surveys, improved navigational charts, marine infrastructure, more comprehensive maritime domain awareness (with data fused and shared between government users), enhanced search and rescue (SAR) capabilities, and a robust plan to measure and mitigate deleterious impacts on Northern communities and ecosystems.[32] Transport Canada is already working on a series of marine corridors as a means of concentrating shipping into areas where the Coast Guard has focused its surveying efforts. Initial studies have shown that 50% of marine traffic already operate within these corridors, with an additional 27% operating close by (within 5nm).[33] This project is the first step in creating safe sea-lanes from which Canadian infrastructure can grow. 

These shipping routes will have to be carefully selected to limit noise and vessel source pollution in particularly sensitive areas. The Arctic Council has begun to identify areas of heightened ecological and cultural significance along with measures to protect these areas from the impacts of shipping. In 2012, three Arctic Council working groups published a report identifying areas of heightened ecological and cultural significance within the Arctic marine environment. The Arctic Biodiversity Assessment (ABA) and the Circumpolar Biodiversity Monitoring Program (CBMP) also support these initiatives, as does the implementation of marine biodiversity monitoring plans. 

The efforts of the International Maritime Organization (IMO) to develop a mandatory international code for the safety of ships operating in polar waters (Polar Code) have obvious applications and benefits for Canada, which has long played a pivotal role in drafting and promoting this instrument.[34] The draft code, approved in principle by the IMO’s Maritime Safety Committee in May 2014, “covers the full range of design, construction, equipment, training, operational, training, search and rescue and environmental protection matters relevant to ships operating in the inhospitable waters surrounding the two poles.”[35] Canada must be vigilant to ensure that the Code is not critically diluted – or “neutered,” as one polar expert suggested about the removal of the requirement for an experienced ice navigator – to secure quick, global ratification to meet expectations for a 1 July 2016 deadline.[36] 

The federal government should continue to invest in integrated, practical measures that address knowledge and capability gaps amongst operators. During his visit to Yukon this August, Prime Minister Harper promised $2.1 million per year for improved ice management, the effective detection and clean-up of oil under ice, and the development of new technologies to reduce the number of vessel accidents.[37] This investment is a step in the right direction, but more remains to be done. The Arctic lacks salvage infrastructure, safe harbours, waste disposal facilities, and sufficient aids to navigation. The costs for this infrastructure will run into the billions of dollars and will have to be rolled out gradually as shipping increases. The lead times required for major Arctic projects, however, require advanced planning and proactive investment if the government wishes to prime the proverbial pump for “sustainable shipping”[38] in the Arctic. 

Improved oil spill response and ship salvage infrastructure stands out as a particular priority, given the practical and symbolic damage of an accident on delicate Arctic ecosystems, Inuit and other Northern peoples who depend upon the lands and waters, and popular support for resource development in general. For local Inuit, the dangers of disturbing the marine environment transcend traditional fears about pollution. As a marine culture, Inuit are mor fundamentally dependent upon the maritime ecosphere for food, material, and cultural survival. These concerns have been voiced in Inuit Circumpolar Council publications[39] and also at the grassroots level. The Nunavut Review Impact Board (NIRB) holds community meetings to discuss proposed resource projects in the territory and, during these sessions, the most frequent and common concern voiced by community members relates to the impact that more shipping and development will have on the environment and their way of life.[40] 

To protect the interests of Northerners, benefit from northern development, and meet the federal government’s explicit Northern Strategic objectives, Canadians must accept the reality that the full spectrum of dangers posed by Arctic shipping must be mitigated – but they cannot be entirely avoided. The desired end state is not to curtail Arctic shipping, which represents the resupply lifeline to Arctic communities. More efficient shipping in the region can reduce the costs of supplies and improve standards of living in remote areas. It is also a necessary precondition to many of the resource development projects that offer the promise of employment to local residents. (In 2014 the unemployment rate in Nunavut is 15.3% – twice the national average.)[41] 

Although Inuit use the term “open for business” to describe their stance on Arctic resource development,[42] they also insist that projects proceed according to Inuit conditions and rules. The Inuit Circumpolar Council’s Circumpolar Declaration on Sovereignty in the Arctic (2009)[43] and the Circumpolar Inuit Declaration on Resource Development detail the rights of Inuit to be involved in all decision-making and governance processes that impact their traditional homelands.[44] On the ground, however, industry and Inuit often perceive the dangers of shipping differently. While companies often see ice as a risk or financial liability, Inuit see it as an important conduit for transportation and access to sustenance.[45] At Chesterfield Inlet, for instance, NIRB meetings to discuss the Meliadine gold mine project heard local resident’s voice serious concerns about the impact shipping would have on local fish and marine mammals.[46] Mine developer Agnico Eagle deemed these dangers “short term“ and “not significant,”[47] but these differing assessments point to different values and processes for assessing threats. 

In the end, studies indicate strong local support for the federal government to control and regulate activities in Arctic waters, improve systems for search and rescue, and enhance preparedness to respond to a maritime spill or accident.[48] Concurrently, shipping and resource companies will continue to turn to Canada to provide the navigation services and supports they need to operate in what Nick Beecroft, the manager of emerging risks & research at Lloyd's Exposure Management, characterizes as a “genuine frontier environment.” Remoteness, extreme weather, ice, poor charts, communication challenges, and “a lack of recoverability should a vessel get into difficulty” remain significant risk factors that constrain Arctic operations.[49]  These challenges are particularly acute in Canada’s Arctic waters and will not disappear in the medium-term. 

Despite the international hype around the prospective benefits of transpolar shipping routes, and although every indicator suggests that Arctic summer sea ice will continue to recede in general, uncertainty will continue to be the key inhibitor to trans-Arctic shipping through Canada’s Arctic waters. As Willy Østreng et al conclude about the Northwest Passage in their recent comparative study on Arctic shipping: 

Although much has been written and said about the impact of climate change and that an ice-free Arctic will likely occur, it is important to note that such ice-free conditions are not likely to occur prior to 2070. Even then, the Arctic will continue to be ice-covered during the winter and large seasonal, annual and year-to-year variations will continue to occur. Ice conditions will continue to impede shipping through a major portion of the year. On the NWP, large quantities of drifting ice will continue despite Arctic warming, and shipping through the Northwest Passage will remain risky.[50]

In this context, rather than worrying about the “sovereignty” ramifications of trans-Arctic shipping, the Canadian government should focus its short- and medium-term energies on the practical requirements of developing and maintaining safe shipping routes for destination and intra-Arctic traffic, largely associated with resource development and community resupply. At the heart of this requirement is ensuring that such activity is beneficial to Inuit, whose traditional “highways” will double as transits routes for resource carriers and cruise ships. If developed with an eye to those most directly affected, Canada’s Arctic waters can offer a well-managed route to an increasingly attractive region, making our Arctic a destination rather than mere space through which to pass. 

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 About the Authors

 P. Whitney Lackenbauer, Ph.D. (Calgary, 2004), is associate professor and chair of the department of history at St. Jerome’s University (University of Waterloo), Ontario, Canada. He is also a fellow with the Laurier Centre for Military Strategic and Disarmament Studies, the Centre for Military and Strategic Studies, the Centre for International Governance Innovation, and the Arctic Institute of North America.  Dr. Lackenbauer specializes in Arctic security and sovereignty issues, modern Canadian military and diplomatic history, and Aboriginal-military relations.   

As a Canadian International Council Research Fellow in 2008-09, Dr. Lackenbauer completed a report entitled From Polar Race to Polar Saga: An Integrated Strategy for Canada and the Circumpolar World (July 2009).  His recent books include Arctic Front: Defending Canada in the Far North (with Ken Coates, Bill Morrison, and Greg Poelzer, 2008) (winner of the 2009 Donner Prize for the best book on Canadian public policy), The Canadian Forces and Arctic Sovereignty: Debating Roles, Interests, and Requirements, 1968-1974 (forthcoming fall 2009), Battle Grounds: The Canadian Military and Aboriginal Lands (2007), and Aboriginal Peoples and the Canadian Military: Historical Perspectives (2007).  

His current research includes studies of the Canadian Rangers, the Distant Early Warning (DEW) Line, high modernism and social science in the Cold War Arctic, Aboriginal-military relations in British settler societies during the Second World War, and a comparative study of Native blockades and occupations. 

Adam Lajeunesse, Ph.D., currently holds a SSHR postdoctoral fellowship at St. Jerome’s University. He is also a research associate at the Centre for Military and Strategic Studies (University of Calgary) and an ArcticNet project member (Emerging Arctic Security Environment). His research focuses on the history of Canadian Arctic maritime policy, northern defence, development, and security. Currently, he is working on books examining government policy development, icebreaker operations, and Canadian military operations in the Far North. 

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About CDFAI

CDFAI is the only think tank focused on Canada’s international engagement in all its forms - diplomacy, the military, aid and trade security. Established in 2001, CDFAI’s vision is for Canada to have a respected, influential voice in the international arena based on a comprehensive foreign policy, which expresses our national interests, political and social values, military capabilities, economic strength and willingness to be engaged with action that is timely and credible. 

CDFAI was created to address the ongoing discrepancy between what Canadians need to know about Canadian international activities and what they do know. Historically, Canadians tend to think of foreign policy – if they think of it at all – as a matter of trade and markets. They are unaware of the importance of Canada engaging diplomatically, militarily, and with international aid in the ongoing struggle to maintain a world that is friendly to the free flow of goods, services, people and ideas across borders and the spread of human rights. They are largely unaware of the connection between a prosperous and free Canada and a world of globalization and liberal internationalism. 

In all its activities CDFAI is a charitable, nonpartisan organization, supported financially by the contributions of foundations, corporations and individuals. Conclusions or opinions expressed in CDFAI publications and programs are those of the authors and speakers and do not necessarily reflect the views of the Institute staff, fellows, directors, advisors, or any individuals or organizations that provide financial support to CDFAI.

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Endnotes