Profitability of container shipping via the Arctic Northeast Passage: A simulation and regression analysis

Abstract

The progressive retreat of Arctic sea ice in recent years has offered unprecedented opportunities for commercial shipping via Arctic shipping routes. However, actual annual transits via the Arctic Northeast Passage (NEP) are rare which signals that shipping companies are reluctant to use the NEP from a cost-benefit perspective. This paper analyzes the profitability of container shipping via the NEP. Based on observational data the distribution of profit for a single-voyage along the NEP for different ice class ships (Arc4 and Arc7) in different shipping modes (direct mode and transshipment mode) is generated via Monte Carlo simulations. The simulated data are then used in a seemingly unrelated regression analysis and in cross-equation testing to investigate the relative impact of various revenue and cost factors on the profit of container shipping via the NEP for the different shipping modes and ice ship classes. The study finds that the impacts of the various cost factors considered in the analysis indeed differ greatly across different shipping modes and different ice classes of container ships. The direct mode has a greater profit space than the transshipment mode and the Arc4 class ship has higher profitability than the Arc7 class ship under reasonable assumptions. Moreover, when the container freight rate of the NEP increases by 60% on basis of that of the traditional routes, shipping via the NEP will be profitable.