The Northern Sea Transit Corridor As the Future of Russia in Global Logistics

How to reduce the cost of container shipping by 25% and compete with the Suez Canal by developing the domestic Arctic routes.

(abridged version, without graphics and details of modeling)

Felix A.Shamrai


Arctic Center

St.Petersburg State Marine Technical University

The Northern Sea Transit Corridor (NSTC) project was initiated by “Rosatom” State Corporation in 2019 with the aim of creating a new option for global logistics market – the delivery of goods between North-Western Europe and North-East Asia via the Northern Sea Route (NSR).

The idea of ​​attracting foreign cargo to the NSR began to sound actively after the May 2018 decree of Russian President Vladimir Putin. According to the document, by 2024 the cargo turnover of the NSR should increase to 80 million tons. For comparison, in 2018 this figure exceeded 20 million tons, in 2019 – 31.5 million tons.

Attention to the NSR transit potential increased after “Rusatom Cargo” (the logistics operator of the “Rosatom” state corporation) announced its intention to become a leader in the logistics services market by attracting international transit cargo traffic to the Northern Sea Transport Corridor. The basis of transit flow, according to the idea, should be containerized cargo. The NSTC project is aimed at attracting international transit sea cargo transportation, as well as the development of the corresponding infrastructure, including the construction of the necessary transport and logistics hubs and a commercial fleet. The start of NSTC commercial operations is planned for 2027.

To test various options for the NSTC implementation we created its technical and economic mathematical model. Its reliability has been verified in one of the global TOP-3 container shipping companies. We carried out modeling of various configurations of the Project structure taking the Shanghai – Rotterdam line as basic for calculation. In our opinion, the results obtained will allow “Rosatom” group of companies to select the most effective decision on NSTC implementation.

Container transportation lives at the expense of customers, for whom the most important factor is the cost of logistics. The reliability of the container service (its rhythm) is perceived by customers as a matter of course. The cargo base of the container line depends, first of all, on the cost of container delivery – $ / TEU.

Our simulation modeling showed that the delivery of a container from port to port, without intermediate transshipments on the route, is somewhat more profitable by LNG-fueled vessels (~ 8%) via the NSTC than along the Southern route (Suez Canal). But this benefit is not enough to shift from the South to the North the already established ‘habitable’ container flows, in which tens of billions dollars have been invested.

The use of nuclear-powered container ships gives a significantly greater benefit (~ 21%) via the NSTC comparing to the Southern route. But the world’s carriers have invested too much money in this route to abandon it. And, although there are no legal prohibitions on the entry of nuclear-powered ships into European ports, all socio-political “environment protection” resources will be involved to prevent the shift of container cargo base to the NSTC.

We have also considered the possibility of creating a container line (service) with intermediary hubs, when part of the total shipment is done by ordinary container ships with remaining part of the route by ice-class vessels under icebreaker escort: Rotterdam – Murmansk – Petropavlovsk – Kamchatsky – Shanghai (4 hubs) and Rotterdam – Murmansk – Shanghai (3 hubs).

Modeling demonstrated that that the more transshipments (more hubs), the higher the cost of container service, the “smaller” the vessel, the higher the cost of container service.

The analysis showed:

● inapplicability of the transshipment scheme in both Murmansk and Petropavlovsk – Kamchatsky (684 $ / TEU via NSTC > 610 $ / TEU through the Suez Canal);

● inapplicability of container ships with a capacity of 5000 TEU compared to 24000 TEU ($ 849 / TEU5000> $ 684 / TEU24000);

● the possibility of competition between the NSTC (Rotterdam – Murmansk – Shanghai) with the Suez route (582 $ / TEU NSTC (3 hubs) ~ 610 $ / TEU Suez Canal)

To create a cargo base for a new container service (a new container line via the NSTC), it is necessary to ensure a competitive cost of delivery of one TEU. It should be at least 25% lower than through the Suez Canal. A high share of the cost of maintaining a container stock – 37% and a high share of the cost of handling crane operations – 31%. A significant share (17%) goes to the maintenance of the line’s fleet. The three above-mentioned expenses form 85% of the container service prime cost. Passage through the Suez Canal, fuel, crew costs – are not decisive in the formation of the cost.

The cost of maintaining a stock of containers should be reduced. The faster the ships go, the higher the container turnover, the lower the costs for their possession. At the same time, fuel costs will be higher. Considering that fuel has less weight in the overall cost of service, it makes sense to use more fuel at high speeds of container ships. By creating a Russian container line, we propose to create the latest robotic production of containers, thereby reducing their cost by up to 2 times. This will significantly reduce the “container” cost share in the NSTC performance scheme.

Each additional transshipment of containers increases the cost of service by ~ 15%. That is why it is so important that the number of transshipments is as small as possible. When forming the NSTC service, it is necessary to strive to minimize the number of hubs and transshipments.

We understand that Europe is unlikely to allow a nuclear-powered container ships to enter its ports (Rotterdam in particular). However, such a line without “asking” anyone can operate through the Russian hub (in St. Petersburg or Murmansk) via the NSTC to Shanghai.

The next stage of our work was the modeling of a container line between Rotterdam and Shanghai via the NSTC comparing to the Southern route. In the model, we took into account:

● containers from Rotterdam to Murmansk are delivered by 24,000 TEU class LNG-fueled container ships (450 $ / t);

● average load 20,000 TEU / ship;

● in Murmansk, transshipment is carried out on nuclear-powered ships that go to Shanghai.

● current exchange rate – 75 rubles / $;

● the possibility of high speeds of a nuclear-powered container ship in clear waters due to its high fuel efficiency;

● the possibility of high speeds of NSR passage due to the emergence of the LK-60 and LK-120 class icebreaker fleet;

● the possibility of reducing the cost of production of containers;

● the possibility of a high-latitude NSTC route was not taken into account;

● capital expenditures for the development of port infrastructure was not taken into account;

When the cost of delivery of one container reaches 25% less than that of competitors, there will be no forces that could prevent the formation of a container cargo base for the NSTC – this is the target of the entire project. We have shown the possibility of achieving the level of competitiveness of the NSTC in comparison with the Southern route by 25% ($ 575 / TEU < $ 766 / TEU), which will provide a cargo base for container transportation.

We have modelled two options of the NSTC: with the creation of a hub either in St. Petersburg or in Murmansk. The latter option is preferable for transit between the EU and China’s northeastern coast. But the route through St. Petersburg (ports of Bronka or Ust-Luga) creates benefits for Russian importers. Today the Russian client base forms a flow from Asia of about 10,000 TEU / week (0.5 million TEU / year). The cost of intermodal container delivery (40 ft.) stands for 282$./unit (Murmansk – SPb route) and 610$./unit (Rotterdam – SPb route). But if the hub is located in St. Petersburg, then the intermodal ‘tail’ disappears. Accordingly, import delivery in this case is the least expensive $ 957 40ft <$ 1836 40ft

With a comparable (through Murmansk and through St. Petersburg) containers delivery cost via the NSTC, the positioning of the hub in St. Petersburg creates for Russia a turnover worth  $ 1.2 billion / year and a net profit of $ 286 million / year. The option of hub location in Murmansk is beneficial for transit clients, but has low margins for the NSTC project itself.


● Creation of a new global logistics route along the NSTC is possible and economically feasible for all participants: customers of container transportation, container services (container lines), ports;

● The owners of the existing container lines are not interested in NSTC, as they have invested very heavily in the Southern routes;

● It is necessary to create a new global carrier;

● Creation of a large Russian container intermodal operator for NSTC will further increase the competitiveness of the line due to benefits for Russian export-import container traffic;

● Creation of a new container line served by Russian global operator makes it possible to create container production at a price significantly lower than now. This will significantly increase the competitiveness of the line;

● It is necessary to reduce the number of transshipments on the route;

● It is necessary to develop innovative approaches to loading and unloading operations aimed at reducing its time and cost. For example: the ability to transship containers ‘board – board’ bypassing the shore;

● The main challenge for a container ship is the minimum turnaround time on the line, then fewer vessels are required. The higher the speed on the route, the shorter the route, the faster the turnover;

● Nuclear container ship provides the greatest competitiveness for a container line;

● The location of the hub in St. Petersburg ensures the viability of the entire container service via the NSTC;

● According to expert estimates, the location of the hub in St. Petersburg will require minimal investment due to the high level of readiness of Ust-Luga and Bronka seaports;

● The smaller the size of container ships relative to 24,000 TEU-class, the lower their competitiveness. 5000 TEU Arc7 container ship will never become commercially profitable due to its lack of competitiveness in comparison with the Suez route;

● The cost of icebreaker assistance is not a factor that somehow restrains the development of the NSTC.This article did not use any materials from other authors. Diagrams and tables are based on the technical and economic mathematical model built by the author. All these models are the author’s expert assessments, which were discussed with competent experts.

Categories: Без рубрики

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