Study: Northern Sea Route to Overpower Suez Canal

Roughly two thirds of the world trade that passes through the Suez Canal, which is 8% of the global total, will be rerouted to the Northern Sea Route, according to a study by the Netherlands Bureau for Economic Policy Analysis (CPB).

In the study “Melting Ice Caps and the Economic Impact of Opening the Northern Sea Route”, the CPB found that a substantial shift in the bilateral trade flows between Asia and Europe can be expected, along with movement of trade within Europe, heavy shipping traffic passing the North Pole and a considerable decline in traffic through the Suez Canal.

NSR to become one of the busiest global trading routes

The commercial use of the Northern Sea Route –if ultimately made possible by further melting of the Arctic icecap– will represent a major development for the international shipping industry, as the NSR represents a reduction of about one third of the average shipping distance and days of transportation with respect to the currently used Southern Sea Route.

These shorter shipping distances are associated with substantial reductions in the transportation and trade costs between two major economic regions: Northeast Asia and Northwestern Europe.

According to the study, these changes in the global trade flows will impact  the real income and prosperity of the countries involved. The anticipated diversion of trade also has important geopolitical implications. It will lead to the reorganisation of the global value chains within Europe and between Europe and Asia. Political interest in and environmental pressure on the North Pole will also increase.

Northern Sea Route to Overpower Suez Canal1

“We estimate that these overall trade costs reductions will increase the trade flows between both regions in average by around 10%, depending on the specific countries involved. This will transform the NSR into one of the busiest global trading routes, which in turn implies heightened economic and geopolitical interests linked to the Arctic and tremendous economic pressure on the countries currently servicing the older SSR (e.g. Egypt and Singapore),” the study said.

In addition, the study shows that NSR will also imply a large volume of trade diversion, that will have a negative economic impact on South and East Europe.

“We also find that there will be –for specific countries and sectors– some significant labour displacement between sectors. Finally, we estimate that the NSR will slightly increase CO2 emissions. Although the much shorter shipping distances will reduce the emissions associated with water transportation, these gains are offset by a combination of higher trade volumes and a shift to emission-intensive production in Northeast Asia,” the study concludes.

CPB said that for the Netherlands, the opening of the NSR is of particular importance, considering the strategic location occupied by the port of Rotterdam. Its trade volumes with countries in Northeast Asia are expected to increase significantly and it could possibly serve as a hub for new, global value chains.

 

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