An Ice Breaker

Climate change looks like a nightmare for many. But, for ocean shippers, it may be a dream come true.

By Jim Ostroff, Associate Editor, The Kiplinger Letter

August 17, 2007

There aren't many silver linings in the global warming story. Stark predictions of more climate-induced floods, droughts, pest infestations, storms and other calamities give people and businesses little reason to cheer. That said, we found a small slice of good news among the bad -- at least for those who depend on global freight.

One benefit will be an easily navigable Northwest Passage, thanks to the rapid thinning of the Arctic ice pack. Within the next decade, ocean cargo ships will be able to travel through this northern trajectory at almost any time of year, with less danger of running aground on an ice shelf or hitting an iceberg. This has been a dream of world traders since the 16th century: a water route that links the Americas, Europe and Asia in close proximity.

Potential savings for shippers are enormous in terms of distance, time and expense. For example, a ship taking the northern route between the U.S. West Coast and Europe would travel 5,000 fewer miles than on the conventional route through the Panama Canal. A New York-to-China run will take 10 fewer days. Of course, this shipping bonanza also assumes that the various ports visited by big ocean freighters aren't completely flooded out by rising sea levels.

The northern traffic is likely to spark big changes in U.S. distribution networks. Companies will relocate warehousing, trucking and rail hubs to account for reduced use of transcontinental land routes. An East Coast business, for example, will have the option of taking a shipment directly from Asia to an East Coast port rather than having it come in on the West Coast and trucking it across the country.

Oil refineries are likely to benefit as well. They won't be as reliant on oil produced domestically in the western states or imported from the Middle East. Oil from Alaska and Western Canada, as well as oil extracted from Canadian tar sands, will be shipped by tanker to the U.S. East Coast.

Politics is a potential hurdle to expanding northern ocean traffic. Canada, the U.S. and Denmark -- via its ownership of Greenland -- each claim a portion of the Northwest Passage as sovereign territory, and they have overlapping claims. It's likely they will be able to come to an amicable agreement over navigation on this route, but not without years of negotiation beforehand.

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