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Arctic Shipping Routes - Costs and Fees

(by Karl Magnus Eger)


The Northern Sea Route

The very first step in arranging for a NSR passage is to obtain official permission. The ship owner must submit an application to the Administration of the NSR in Moscow at least four months in advance. For an additional fee, this time frame may be shortened up to one month. The application must contain a detailed list of information regarding the vessel; technical specifications, registration, the ownership, crew etc. (see section 5.5). Within ten days after receiving the application, the NSR Administration will decide. After preliminary approval has been obtained, a representative of the Marine Operations Headquarters (MOH) must inspect the ship for ice navigation worthiness. The ship owner is expected to bear all costs associated with getting the ship to an agreed port for this inspection. If the ship is found worthy the MOH will then schedule the date, set up the specific route and will provide the necessary icebreaker and pilotage support. Furthermore, if the ship is not in accordance with the requirements, she can still be guided through the NSR for an additional fee.

The fee system is meant to finance several aspects of public services to make the fairways open to traffic and to protect the environment. The main cost elements would include icebreaker support, Hydro meteorological services, satellite communications and pilotage. The philosophy of the Russian government has always been that the tariffs should be set so that the actual traffic finances the cost elements listed above. Moreover, it is difficult to talk about an average fee, as the fee will be dependent on a number of different factors, like: type of ship/cargo, size of ship (larger ships have lower fees per ton), ice class of ship, ice conditions (determines how much icebreaker assistance is needed) competences of captain and crew (inexperienced crew will require more pilotage/ helmsmen) and the actual route.

In the mid 1980s some 6-7 mill tons of cargo were carried along the NSR and the icebreaker fees were around 3USD per ton. In the mid 1990s, the traffic had been reduced to around 2.2-2.4 mill tons, so the fee was increased to 7.50 USD per ton in 1995, and the traffic continued to decline to less than 2 million tons in 2000. The resulting loss of revenue meant that the state had to subsidize the icebreaker operations quite substantially. In 2003 the Ministry of Economical Development and Trade issued a decree called “About Changing Rates for Ice-breaking Fleet Services on the NSR”, which led to a substantial increase in the icebreaker fee to an average of 23USD per ton. However, in 2009, the fee was set to 40 USD per ton of container Cargo. This level of fees seems quite unrealistically high, and it is probably fair to conclude that fees are negotiable. However, in 2009, the Beluga ships paid only €60 000 in icebreaker fees, which clearly show that icebreaker fees are negotiable.

The Northwest Passage

There is no fee system for the NWP. The Canadian government monitors the fairway, but there are examples of ships having navigated the NWP without the knowledge of the authorities. The NWP is a demanding route to navigate, so without a formal system for transit passage, one can only classify a transit here as hazardous. If a ship ends up in a distressed situation, the Joint Rescue Coordination Centres will no doubt response to any SAR incidents. It is highly unclear, however, what the bill for such an operation will amount to. It is unlikely that Canadian government would introduce any icebreaker fees in the future. Currently, it is, very costly to ship cargo on the NWP, and the Canadian government wants to encourage the economic viability for any future transportation.

The Passages in Comparison

The current situation for the NSR is that icebreaker fees are negotiable. Until the NSR is established as a regular transit route, the actual fees one will have to pay will be open to negotiation. If the Russian government wants to attract transit traffic through the NSR, the fee levels must be commercially reasonable.

The NEP is the only one of the passages where fees have formerly been introduced. The main fee is icebreaker fee for the passage through the NSR. The system of fees has changed several times, where the principle has been that the total traffic should cover the total costs. In a period of declining traffic this led to an increase in fees per ton, and figures from 2003 indicate fee levels that will not attract transit traffic. Currently the situation is non-transparent, and one may conclude that fees are subject to negotiations, which seems supported by the reported fees paid by Beluga in 2009. If the Russian government wants to attract transit traffic through the NSR, the fee levels must be commercially reasonable. The NWP has currently no fee system and the Canadian government will most likely not introduce any fees as it will discourage the economic viability for any transportation on the passage.


    Karl Magnus Eger, 2010, Arctic Shipping Routes - Costs and Fees , CHNL.©

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