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Arctic shipping lanes won’t be used

O’Rourke ’14 – naval analyst for the Congressional Research Service of the Library of Congress, received a Distinguished Service Award from the Library of Congress (Ronald, “Changes in the Arctic: Background and Issues for Congress”, June 5^th, Congressional Research Service) //J.N.E

Ice is not the sole impediment to Arctic shipping. The region frequently experiences adverse weather, including not only severe storms, but also intense cold, which can impair deck machinery. During the summer months when sea lanes are open, heavy fog is common in the Arctic.

Commercial ships would face higher operating costs on Arctic routes than elsewhere. Ship size is an important factor in reducing freight costs. Many ships currently used in other waters would require two icebreakers to break a path wide enough for them to sail through; ship owners could reduce that cost by using smaller vessels in the Arctic, but this would raise the cost per container or per ton of freight.71 Also, icebreakers or ice-class cargo vessels burn more fuel than ships designed for more temperate waters and would have to sail at slower speeds. The shipping season in the Arctic only lasts for a few weeks, so icebreakers and other special required equipment would sit idle the remainder of the year. None of these impediments by themselves may be enough to discourage Arctic passage but they do raise costs, perhaps enough to negate the savings of a shorter route. Thus, from the perspective of a shipper or a ship owner, shorter via the Arctic does not necessarily mean cheaper and faster.72

No benefit to improving Artic Infrastructure

CBC 6/27/14 – Canadian Broadcasting Corporation (“NO Benefit to developing Artic Shipping: U.S. Report”) http://www.cbc.ca/news/canada/north/no-benefit-to-developing-arctic-shipping-u-s-report-1.2623384)

A new report issued by the U.S. Government Accountability Office suggests there's no benefit to developing shipping infrastructure in the Arctic. The organization serves as a watchdog for federal spending, and says deep-water ports, mapping and other infrastructure improvements will only go so far in attracting more ships. For the container-ship companies, the report says one problem is Arctic routes would be seasonal, while that industry needs steady, year-round schedules. The report also says mainstream cruise lines aren't drawn to the Arctic because the 10-day journey, typically in Alaska, is too long, the scenery unvarying and interesting ports too scarce. Some U.S. policy makers like Alaska Senator Lisa Murkowski disagree with the report. She says Arctic maritime activity is on the rise due to the shrinking sea ice, and says now is the time to start building infrastructure.

XT – Won’t use Arctic shipping

Arctic shipping lanes won’t be used regularly

Brigham, 10 - Distinguished Professor of Geography & Arctic Policy at the University of Alaska Fairbanks (Lawson, “THINK AGAIN: THE ARCTIC” Foreign Policy, SEPT. / OCT. 2010,

http://generalpaperpress.wordpress.com/2012/02/06/313/

But just because ships will soon be able to traverse the Arctic doesn’t mean many actually will. The Northwest Passage and the Northern Sea Route across the top of Russia have indeed been made navigable by climate change, but only for a few days or weeks a year. Although several climate models predict an ice-free Arctic Ocean for a brief period each summer as early as 2030, they also project a mostly ice-clogged ocean in winter, spring, and fall through at least the end of the 21st century. No one predicts an ice-free Arctic Ocean throughout the year.

This means that an Arctic Ocean crossing, while theoretically possible, might be too difficult and costly to be worth the effort. The more ice along an Arctic navigation route, the slower the ship’s speed, a factor that could easily negate the shorter distance gained by sailing across the top of the world. Expensive polar-class ships — ice-breaking cargo carriers — would still be required for most operations. And many other economic details have yet to be filled in. Last year’s definitive Arctic Marine Shipping Assessment found significant challenges and unanswered questions regarding the endeavor: Can it be economically viable as a global trade route if not conducted year-round? What are the risks assumed in Arctic navigation, and how will the marine insurance industry respond to them?

So, while modest volumes of cargo might be carried during the summers ahead, a majority of the Arctic voyages in the coming decades will be destinational: A ship sails north, performs an activity in the Arctic, and goes home. In other words, don’t expect a new Panama or Suez Canal. And even this more limited activity will require adaptation. The real challenge will be the development of rules to protect Arctic people and the environment from the new marine traffic, wherever it’s going.

China Coal Link

Russian coal exports low now due to inefficient infrastructure-icebreakers create shipping routes that open up a flood of coal exports

Lo 12- NRI Digital's in-house feature writers, covering areas including infrastructure projects, design and construction, pharmaceutical development and power generation. As well as conducting interviews and writing features, he edits news and attends industry events. Prior to joining the team he worked as a commissioning editor for a London-based B2B publisher, where he took charge of the editorial content for a range of print and online magazines. (Chris, “Russia’s Nuclear Icebreakers: A New Dawn for Coal Icebreakers?”, Power Technology, http://www.power-technology.com/features/featurerussia-nuclear-icebreakers-new-dawn-coal-exports/)//WK

Russia's icebreakers are playing an important role in mapping the undersea borders of its continental shelf, which is needed to confirm its territorial claims. The LK-60 could certainly prove to be a valuable asset in an episode of bullish territorial diplomacy that has already seen Russia plant its flag in the seabed and a Moscow-based think tank suggest rechristening the Arctic Ocean as the Russian Ocean. Opening up Russia's coal export possibilities As well as potentially reinforcing Russia's territorial ambitions, the LK-60 could carve a path for new developments in Russian coal exports and the wider energy market. As climate change continues to shrink the permanently ice-covered areas of the Northern Sea Route running along Russia's northern coast, this shipping lane is becoming increasingly attractive as a trade route. But more extensive use of this marine gateway to Europe and Asia hinges on the availability of icebreakers, preferably the more powerful nuclear-powered models, to ensure that it is navigable all year round. Could the opening of a more reliable shipping route in the Arctic Ocean give a shot in the arm to Russia's export trade in coal? It should be made clear that there has been no official indication that coal export considerations have played a part in Russia's expanding fleet of icebreakers - the only confirmed fact about the LK-60's work is that it is intended for operation in the western Arctic Ocean and shallower waters such as the Yenisei River and the Gulf of Ob. Nevertheless, the unique circumstances of the country's coal market suggest that it could be an important beneficiary of better trade links through the Northern Sea Route. The Northern Sea Route and Russia's coal exports It's impossible to ignore the fact that Russia is sitting on one of the largest national coal reserves in the world, but faces significant challenges in exporting it. The country's estimated 140 billion tons of coal represents nearly a fifth of the world's total reserves, but around 90% of this coal is located in large basins in Siberia, much of it behind the Ural Mountains, where transporting it can be prohibitively troublesome. A major source of inefficiency in the Russian coal industry is the high cost of transporting coal both to ports for international markets and to western Russia, which represents most of the country's domestic demand. In April 2012, Reuters reported on the sorry state of the country's rail infrastructure for hauling coal freight, with major bottlenecks creating some of the highest costs for getting coal to port in the world, at $90 FOB or more. While Russia's tracks must ultimately undergo a logistical revolution before the country can achieve its coal export potential, in the short-term it is creating a need for new ways to save costs and add value to their products, and an increasingly viable Northern Sea Route could bring down sea freight prices and reduce reliance on rail. It's certainly true that Russia has a long-term plan to increase coal exports, as it expects international demand to grow to 170 million tons a year by 2030. To achieve this, the country's export focus is gradually shifting from the traditional European market, which is experiencing a slowdown in demand, as the EU continues to introduce strict environmental regulations, to east Asia, where expanding economies such as China and South Korea make excellent markets for Siberia's low to medium-grade coal exports. In August 2010, Moscow and Beijing signed an agreement for Russia to supply at least 15 million tons of coal to China every year for the next 25 years. "Establishing of [favourable] conditions for exports to the Asian-Pacific region may become a major strategic project, which would strengthen our economic presence in this dynamically developing region," said Russia's former Energy Minister Sergei Shmatko, signalling the shift from west to east. With Russia's land-based transport proving a major obstacle to coal export growth, the role of convenient shipping lanes like the Northern Sea Route could improve efficiency and provide a better deal to prospective customers, such as nearby Scandinavia and Japan, and particularly the hungry, industrialising nations of the Asia-Pacific. If the LK-60 is destined to play a role in the taming of the Arctic Ocean for Russian shipping, it could potentially help pioneer a path for a resurgent Russian coal export market.

Domestic Steel Turn

Decreased shipping prices wreck US steel

Rubin 8- former Chief Economist with CIBC World Markets and author of Why Your World Is About To Get A Whole Lot Smaller (Jeff, “The New Inflation”, CIBC World Markets, http://research.cibcwm.com/economic_public/download/smay08.pdf)//WK

The cost of shipping a standard 40-foot container from East Asia to the US eastern seaboard has already tripled since 2000 and will double again as oil prices head towards $200 per barrel (see pages 4-7). Unless that container is chock full of diamonds, shipping costs have suddenly inflated the cost of whatever is inside. And those inflated costs get passed onto the Consumer Price Index when you buy that good at your local retailer. As oil prices keep rising, pretty soon those transport costs start cancelling out the East Asian wage advantage. They already have in steel. Soaring transport costs, first on importing iron to China and then exporting finished steel overseas, have already more than eroded the wage advantage and suddenly rendered Chinese-made steel uncompetitive in the US market. That’s great news if you are the United Steelworkers of America. Long lost jobs will soon be coming home. And the more that oil prices and transport costs rise for Chinese steel exporters, the more that US steel wages can grow. But if you’re a steel buyer, your costs are going up regardless of whether you are sourcing it from China or Pittsburgh

Increase in transport costs key to steel

Rubin and Tal 8- former Chief Economist with CIBC World Markets and author of Why Your World Is About To Get A Whole Lot Smaller, Deputy Chief Economist of CIBC World Markets Inc. (Jeff and Benjamin, “Will Soaring Transportation Costs Reverse Globalization?”, CIBC World Markets, http://research.cibcwm.com/economic_public/download/smay08.pdf)//WK

To what extent will astronomical increases in transport costs alter the huge (but shrinking) wage differential between Chinese labor and North American labor remains to be seen. But we are already starting to see some change in capital-intensive manufacturing whose products carry a high ratio of freight costs to final selling prices. Take the steel sector for example. With little over an hour and a half of labor time embodied in the production of a ton of steel, and relatively high freight costs, the global cost curve of the steel sector is changing rapidly. Given that most parts of China (and Asia in general) are short iron ore, getting the raw materials to the steel mill (mainly from Australia and Brazil) adds an additional and growing cost not typically incurred by US steel producers. Add to it the $90 freight cost of shipping a ton of hot-rolled steel sheet from China to the US, and the transport component is large enough to turn the global steel cost curve on its head. Even at today’s oil prices, rising transport costs have already more than offset China’s otherwise slim cost advantage, giving US steel a competitive advantage in its own market for the first time in over a decade (Chart 5). The rapidly changing economics of steel is already reflected in the trade statistics. China’s steel exports to the US are now falling by more than 20% on a year-overyear basis—the worst performance in almost a decade. While many might attribute this decline to the slowdown in the US economy, it is noteworthy that US domestic steel production has risen by almost 10% during the same period (Chart 6).

Invasive Species Turn

Double bind-either the plan doesn’t create regulations and causes invasive species, or regulations stifle and economic benefit for shippers

Conley et al. 13- *director and senior fellow of the Europe Program at CSIS received her B.A. in international studies from West Virginia Wesleyan College and her M.A. in international relations from the Johns Hopkins University Paul H. Nitze School of Advanced International Studies, **senior fellow and co-director of the CSIS Energy and National Security Program, Pumphrey received a bachelor’s degree in economics from Duke University and a master’s degree in economics from George Mason University, ***a fellow at The Arctic Institute - Center for a fellow at The Arctic Institute - Center for Circumpolar Security Studies,**** research associate for the Europe Program at CSIS, where he conducts research and manages program activities on Arctic and Europe an political, security, and economic issues (Heather, David L. Pumphrey, Mihaela David, Terence M. Toland, “Arctic Economics in the 21st Century: The Benefits and Costs of Cold”, CSIS, http://csis.org/files/publication/130710_Conley_ArcticEconomics_WEB.pdf)//WK

With increased shipping in the Arctic, there is higher risk of pollutants, such as aquatic invasive species and pathogens, entering the pristine Arctic waters through ships’ ballast water discharges. In 2004 the IMO adopted the Ballast Water Management Convention, which established ballast water management procedures and standards, to be adopted between 2009 and 2016. There are specific concerns regarding ballast water in the icy Arctic waters, particularly the risk of freezing pipes, and numerous associated construction and management guidelines that ships must adhere to in order to prevent freezing of ballast water. This represents a significant financial cost to ships operating in the Arctic region, in addition to those posed by the Arctic’s lack of maritime infrastructure such as fuel depots or maintenance facilities.

Mexican Manufacturing

Higher transport prices boost Mexican manufacturing-directly trades-off with China

Rubin and Tal 8- former Chief Economist with CIBC World Markets and author of Why Your World Is About To Get A Whole Lot Smaller, Deputy Chief Economist of CIBC World Markets Inc. (Jeff and Benjamin, “Will Soaring Transportation Costs Reverse Globalization?”, CIBC World Markets, http://research.cibcwm.com/economic_public/download/smay08.pdf)//WK

Exactly how much trade, soaring transport costs divert from China (or for that matter anywhere else) depends ultimately on how important those costs are in total costs. Goods that have a high value to freight ratio carry implicitly small transport costs, while goods with low value to freight ratios typically carry significant moving costs. A surprisingly high percentage of Chinese exports to the US fall in the later category. Furniture apparel, footwear, metal manufacturing, and industrial machinery—all typical Chinese exports, incur relatively high transport costs. And there is already evidence that Chinese exports of freight-intensive goods are already beginning to slow under the pressure of rapidly rising transport costs. While there has been a general slowdown in export growth to the US over the past year, it is notable that the slowdown is far more pronounced in goods that carry relatively high freight costs compared to those that do not. On a year-over year basis, this category is now falling for the first time in more than 10 years (Chart 7, left). Freight-sensitive Chinese exports to the US now account for 42% of total exports—down from 52% in 2004. In fact, we estimate that if it were not for the dramatic increase in transport costs, growth in Chinese exports to the US since 2004 would have been 30% stronger than the actual tally (Chart 7, right).How much of Chinese manufacturing production will be coming home remains to be seen. But there is certainly no reason why we should not expect to see at least comparable if not greater trade diversion than we saw during the OPEC oil shocks of the 1970s. While there remains a strong imperative in the world economy to arbitrage wage costs, the arbitrage will increasingly take place within the constraints imposed by soaring transport costs. Instead of finding cheap labor half-way around the world, the key will be to find the cheapest labor force within reasonable shipping distance to your market. In that type of world, look for Mexico’s maquiladora plants to get another chance at bat when it comes to supplying the North American market. In a world where oil will soon cost over $200 per barrel, Mexico’s proximity to the rest of North America gives its costs a huge advantage. Compare, for example, how relative transport costs have recently changed between the Pacific Rim and Mexico. If in 2000 American importers paid 90% more to ship goods from East Asia to the US east coast, today they pay 150% more, and when oil prices reach $200 per barrel, they will pay three times the amount it costs to ship the same container from Mexico (Chart 8). To put things in perspective, today’s extra shipping cost from East Asia is the equivalent of imposing a 9% tariff on East Asian goods entering the US. And at oil prices of $200, the tariff-equivalent rate will rise to 15%. It seems that American importers are starting to do the math and already shifting some business from China to Mexico. While the pace of shipments from China to the US is slowing—mainly among freight-intensive goods, even non-energy Mexican exports to the US are still rising at a healthy annual rate of more than 7%. And interestingly, the goods that have seen the fastest growth are the ones that, on average, are more freight-intensive and directly compete with China, such as furniture, iron and steel, rubber and paper products (Chart 9). In a world of triple-digit oil prices, distance costs money. And while trade liberalization and technology may have flattened the world, rising transport prices will once again make it rounder.