1. ARCTIC TRANSITS – OPPORTUNITY OR CHALLENGE? THE NORTHERN SHIPPING ROUTE AND THE NORTHWEST PASSAGE Presented by Marcus Baker Global Chairman, Marine Practice Written by Stephen J Harris Senior Vice President Marine Practice

2. MARSH Rotterdam Shanghai Singapore Suez Canal Route 19,550 Km Suez Canal Estimated containership transits in 2013: 17,000 Northern Sea Route 15,791 Km Containership transits in 2013: One Danger: ICEBERGS and GROWLERS The economics of the Northern Sea Route The traditional route …..with traditional issues A saving of 3,759 km …translates to REAL savings in TIME and BUNKER costs Sources: Northern Sea Route Information Office, Danish Institute for International Studies March 2009 Map courtesy of SWmaps.com

3. MARSH But, the Northern Sea Route is not always the shortest route Distance in kilometres ROUTENSRVia SuezDifference LondonYokohama13,84121,200-7,359 RotterdamShanghai15,79319,550-3,757 New YorkShanghai19,89322,930-3,037 BUT ….. MarseillesShanghai19,71816,4603,258 RotterdamSingapore19,64115,7503,891 BarcelonaHong Kong20,68614,6935,993 New YorkSingapore23,12118,7704,351 + + + + Sources: Northern Sea Route Information Office, Danish Institute for International Studies March 2009 Map courtesy of SWmaps.com

4. MARSH Panama Canal Route Sources: Map courtesy of SWmaps.com Danish Institute for International Studies March 2009 Northwest Passage Route 12,850 Km The economics of the Northwest Passage Vancouver / Seattle Rotterdam 16,400 Km October 2013 The first commercial transit of the NW Passage. The 75,000 DWT bulkcarrier, NORDIC ORION sailed from Vancouver to Finland, saving a week off the journey time (via Panama) and an extimated $80,000 in fuel costs. The Northwest Passage would reduce the distance from Shanghai to Rotterdam (Via Panama) from 25,588 Km to 17,570 km A saving of 3,550 km ……and remove the Panama Canal fees

5. MARSH Sources: Map courtesy of www.SWmaps.com *Reuters, Northern Sea Route Information Office, National Snow and Ice Data Center, Lloyds List, Wall Street Journal, http://mscconference.wordpress.com/2013/08/29/the-northern-sea-route-is-heating-up/ Hull underwriters don’t like ice! Institute Warranties (1976) and International Navigating Conditions (2003)…. … and the exclusions go much further. Generally (except northern Norway), insurance cover anywhere above 70º N. is excluded. There is not a lot of the NSR that hull underwriters normally cover… ….and none of the Northwest Passage.

6. MARSH 2013 Northern Sea Route statistics Source: Northern Sea Route Information Office (http://www.arctic-lio.com/) Cargo Type Vessels Eastbound Vessels Westbound Total Number of Vessels Liquid (tankers)23831 Bulk314 LNG1 1 General9413 Ballast11415 Repositioning437 Total:413071 DWT Eastbound DWT Westbound Total DWT 588,659323,208 911,867 203,43973,500276,939 66,868 36,84663,377100,223 469,703 38,027 895,812460,0851,863,627 Total transit volumes during summer 2013 7 The average number of casualties each year inside the Arctic Circle* ? 2002 – 2007 45 2009 – 2013 *Source: Allianz Safety & Shipping Review 2014 This was a 58% increase in vessel numbers from 45 (in 2012) to 71 (in 2013). But cargo volumes (1.8m DWT) were only a fraction more than 2012 (1.4m DWT).

7. MARSH Insurance issues - Hull Source: Gard Insight 23 January 2014 The default position for Hull & Machinery cover is that there are no issues! (…. because there is no cover!) Is there more risk? Engine breakdown - grounding/stranding - hull damage - heavy weather – fire. Extreme cold can cause engine problems. Reduced coverage by navigation aids (such as GPS, GALILEO). Inaccurate charts and magnetic compasses are unreliable in such high latitudes. Restricted visibility up to 90% of the time. Inadequate weather reports and violent storms can occur at any time … and ice. Salvage facilities? Icebreakers accompanying commercial vessels through the NSR are not salvage vessels and very few shore-based salvage support services are available for thousands of miles (especially in the eastern part of the NSR). Even if salvage equipment could be employed, performing salvage work in often dark and inhospitable conditions would be a major challenge. Underwater surveys of damage? Pumps and other equipment may not operate in such conditions? Lightering is probably not an option? Temporary repair facilities non-existent? A race against time?

8. MARSH Insurance issues – P&I The default position for P&I cover is that there are no issues! (…. because there is arguably no cover!) Although P&I does not generally impose navigation limits, the Club rules (e.g. Gard’s Rule 7) require the Club to be consulted if a voyage does not fall within a vessel’s normal trading pattern, as the Association must be notified of any circumstance that may alter the risk covered by the club. Is there more risk? Wreck removal - pollution - Salvage (environmental) - crew injury and hospitalization. Wreck removal takes time and equipment. Oil pollution presents huge problems. Cold temperatures and ice affect the behaviour of oil in many ways (e.g. increased persistence). Oil can get trapped under ice, or be held within ice, until ice melts, many months later. Oil booms often don’t work. Burning (DEEPWATER HORIZON style) not likely to work in that environment. Detecting / spotting oil drifts difficult – (Dark for so long). Dispersants (delivery and chemical effects in such low temperatures, unknown). Political and environmental sensitivity. Source: Gard Insight 23 January 2014

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