The optimal icebreaking tariffs and the economic performance of tramp shipping on the Northern Sea Route

Abstract

In comparing the costs between the Northern Sea Route (NSR) and the Suez Canal Route (SCR), the NSR icebreaking tariffs are critical. A balance question of pricing rises: to cut the tariffs to attract more ship operators to use the NSR, or to increase the tariffs to cover the cost of the icebreaker fleet? However, currently active NSR icebreaking tariffs are in ceiling level, and the practical icebreaking fee is often negotiated and lacks transparency. This study explores the optimal NSR icebreaking tariff level from the price maker side for the transit tramp shipping on the NSR. The interlock of the exchange rate of Russian ruble per US dollar and the bunker price is also considered. By establishing a framework with four components and applying real data to implement the empirical study, we find that the optimal NSR icebreaking tariff level is 15% higher than the current ceiling level. At the optimal tariff level, the NSR can save 4.5–12.4% of the annual shipping cost from the SCR, whereas in a single voyage can save as high as 49.4%.