The Northern Sea Route vs the Suez Canal Route: An Economic Analysis Incorporating Probabilistic Simulation Optimization of Vessel Speed

Abstract

While previous studies have examined the economics of shipping from Europe to Asia via the Northern Sea Route (NSR) versus the Suez Canal Route (SCR), most have not adequately accounted for the variability in input parameters such as the cost of fuel or the amount of ice encountered on a voyage. Furthermore, no prior study has attempted to utilize speed optimization as part of the analysis. Because the rate fuel consumption for propulsion is intrinsically linked with vessel speed, reducing speed can create the potential for large savings in fuel costs, along with the added benefit of reduced emissions. However, the reduced speed means a longer transit time, meaning increases in other time based costs, such as daily pay for a ship’s crew. The question then becomes what is the optimal speed? This paper examines the use of speed optimization to determine whether it is potentially more profitable for a container shipping company to ship from Rotterdam to Yokohama through the SCR year round (Option A) or to ship through the NSR during the months it is passable while using the SCR for the remainder of the year (Option B). A probabilistic model is presented to determine average per trip profits for both options A and B. This model is used in conjunction with a simulation optimization technique to determine the optimum speeds to maximize average per trip profitability for each option. The results show that probabilistic simulation optimization of vessel speed may better inform shipping companies as to the financial impacts of the speeds that they choose to use for shipping and thus enable better decision making as it pertains to both route choice and ships’ speeds. The analysis indicates that speed optimized container shipping year round through the Suez Canal appears to be the more profitable of the 2 options.