Managing risk in the thawing north

Managing risk in the thawing north

As featured in Lloyd’s List's historic last paper edition on Friday 20 December 2013

Leadership is essential to ensure that all participants in Arctic life will be winners.

As the Arctic opens to mining and shipping, we must protect this vital resource.

As the northern shipping routes become a reality how will we balance future risk and opportunity as we look back at the lessons of history?

As the sun was setting on 279 years of Lloyd’s List in paper form, three significant and historic operations took place that highlight the importance of maritime enterprise and how boundaries in the marine world are changing - operations that represent a milestone in world shipping in the era of globalisation. These significant events highlight the critical importance of risk management, both by industry and by government, in order to make marine enterprise safe and worthwhile as these advances are made.

On September 11, 2013 Yong Sheng arrived in Rotterdam following a 35-day voyage from Dalian in China. The conventional route, taking ships via the Indian Ocean, the Suez Canal, and the Mediterranean Sea, takes 48 days to complete. However, 13 days were shaved off the voyage as the ship travelled through the Arctic Circle, transiting the Northern Sea Route, becoming the first Chinese commercial vessel to do so.

On September 17, 2013 Nordic Orion, carrying 74,000 tonnes of coal, left Vancouver and transited the Northwest Passage on her way to the Finish port of Pori, saving travel time by taking advantage of the 1000 km shorter route and avoiding the Panama Canal, allowing the vessel to carry 25% more cargo. It was the first bulk cargo vessel to transit the Northwest Passage.

To put this in context, when the Norwegian, Roald Amundsen, made the first successful complete transit of the Northwest Passage in 1906 it took over three years.

Not only did these transits save in time, but there were fuel savings and, importantly, reduced carbon emissions - a key requirement for the maritime industry as it enters a new phase. The routes chosen also removed almost completely the threat of piracy.

In 2012, Arctic sea ice coverage was at a record low. As the ice continues to melt, some experts have estimated that shipping via the Arctic could account for a quarter of all cargo traffic between Europe and Asia by 2030. As Lloyd’s List embarks on a new era there is no doubt that the maritime world is changing its focus and looking north.

However, just after Yong Sheng arrived in Rotterdam and only one day before Nordic Orion left Vancouver, a third historic, but very different, operation was taking place.

Adjacent to the small and beautiful Island of Giglio in Italy Costa Concordia was being righted and stabilised in a significant phase of the most complex and costly wreck removal in history.

Had modern technology been employed to prevent human error, there would have been no casualty in the first place. It is a timely reminder that, while it is important to recognise opportunity, in order for opportunity to be maximised in a sustainable way, industry must identify and address the risks involved.

The importance of the Arctic is, of course, not just limited to transits of the Northwest Passage and the Northern Sea Route. The Arctic is rich in hydrocarbons and offshore activity is increasing. All seismic, drilling, and production operations in the Arctic will involve a huge increase in marine activity as it is an ocean, but an ocean that has the distinction of vast ice content which varies significantly, requiring very different preparation and management of operations on a case-by-case basis. Additionally, it has seen an increase in cruise line activity. The Costa Concordia casualty, in conjunction with the Deepwater Horizon explosion, have brought cross-jurisdictional laws governing shipping and oil pollution into sharp focus, and raise particular concerns in relation to Arctic operations.

At present there is no International Maritime Organization convention that states what ice class is required to operate in the Arctic. The IMO is, however, working on a draft Polar Code, with a particular focus on ice-class, and it is hoped that the Polar Code will be agreed in 2014. An intercessional meeting of the Polar Code Working Group was held in October 2013 and agreement in principle has been reached on definitions for the different categories of ship to be covered by the Code, which aims to impose requirements on ships entering different ice areas in the Arctic. It has also been agreed that all ships operating in polar waters should have a Polar Ship Certificate and a Polar Water Operation Manual.

However, the IMO Guidelines are merely recommendations. They are non-mandatory and to become legally binding would require either individual states to incorporate the Regulations into their national legislation, or the adoption of the Polar Code as a binding treaty, perhaps in the form of an amendment to the MARPOL or SOLAS convention. There is also a question mark over whether the Guidelines go far enough and whether the approach is too prescriptive.

What is clear it that SOLAS, as it stands, is not fit for purpose. For example, life raft requirements are nowhere near the standard required in the harsh Arctic environment. Additionally, it is clear from worldwide reviews following the Deepwater Horizon oil spill that there is a fundamental disconnect internationally in oil pollution and safety legislation. While some individual countries, such as Norway, have stringent legislation that is fit for purpose, there is no cross-jurisdictional regulatory agreement in relation to Arctic operations.

This was highlighted in Lloyd’s of London’s 2012 report ‘An Arctic Opening; Opportunity and risk in the high North’. Indeed the Convention on Civil Liability for Oil Pollution Damage Resulting from Exploration for and Exploitation of Seabed Mineral Resources, which was aimed at dealing with pollution from drilling operations on a worldwide basis, has been lying on government shelves gathering dust since 1974.

While MARPOL applies to ships it does not apply to oil rigs and there is still a legal question mark as to what can be defined as a ship, for the purposes of MARPOL. A gap persists in international law that does not help with the management of risk in the Arctic.

Moreover, the Nairobi Wreck Removal Convention, which was agreed in 2007, still awaits ratification. It was not of legal effect when the Costa Concordia casualty occurred. It is still not of legal effect and will not be until 12 months after the 10th State has ratified it ‘without reservation as to ratification’. Four States, including Italy, signed the Convention ‘with reservation’, and therefore their ‘ratification’ does not count until 10 other States have ratified it. Moreover the Convention does not apply to the 12 mile territorial limit unless States opt in.

In circumstances where there is a shortage of skill, knowledge, and equipment this all makes a good recipe for disaster in the Arctic.

And history has taught us that it usually takes a disaster to instil urgency in implementing previously suggested regulation. How long will it take for the Polar Code to have legal effect? The SOLAS convention was devised as a result of the sinking of Titanic. In the 1970s SOLAS was amended to take into account the need to rectify inadequacies in oil tanker safety. But the amendments were not ratified until after the loss of 50 people when the Betelgeuse exploded at Whiddy Island in Bantry Bay, South West Ireland in 1979. The ratification in 1980 arrived too late to impose a simple requirement in relation to inert gas systems that would have prevented the disaster.

The challenges presented by the drive to operate heavily in the world’s last frontier are therefore significant. While the evolution of IMO Regulations is very welcome, it is clear that the marine and energy industries cannot afford another disaster. Operating in more extreme environments, together with an increase in the size of vessels presents significant risks that must be addressed by industry and government alike.

The fall out following the Macondo oil spill is a reminder of the consequences of getting it wrong. From an industry perspective risk management is critical to corporate social responsibility and governance. Operations in the Arctic arena need to be done properly or there will be repercussions for companies and their associates far beyond the Arctic.

The dangers associated with this new era in shipping were brought sharply into focus by a fourth incident which also happened during the historic transits. In September Nordvick entered ice waters and punctured her hull while transiting the Northern Sea Route. Fortunately, her cargo of diesel fuel was unaffected. Despite taking on water she was able to affect a ship-to-ship transfer and limp to Murmansk. It was an indication of what might happen if preventative measures are not put in place.

So as we look forward we must learn, as an industry, the lessons of the past. It is important for industry and government to be proactive in increasing safety and reducing risk, but industry must show leadership.

The Arctic Council is currently focussing on a code of practice for the cruise industry which will gather momentum during the Canadian chairmanship. The International Union of Marine Insurers has backed an initiative for industry to show leadership and create its own responsible standards by signing up to the Arctic Marine Best Practice Declaration which is a significant opportunity for industry to create standards that are fit for purpose. This has been encouraged by senior Arctic Ambassadors, Sweden and Canada in particular have demonstrated great leadership.

The marine and energy industries need to demonstrate to the world that they are being responsible. Political legitimacy to operate in such a fragile environment is at a low level following the high profile incidents of recent times. Until that responsible approach is demonstrated, organisations such as Greenpeace will continue with high-profile protests and the perception that these generate amongst the public will be complemented by reality when an irresponsible participant brings the house down for everyone. The enormous investments involved in Arctic operations cannot afford that to happen.

That need not be the case if industry takes control and declares responsible standards that extend beyond IMO requirements in order to foster sustainable long-term development of the Arctic. Such leadership would mean that all participants in Arctic life will be winners. What an opportunity to get it right. It will be interesting to see what has happened in the world’s last frontier in another 279 years – depending on what approach we take, we may not have to wait that long.


This information is intended as a general discussion surrounding the topics covered and is for guidance purposes only. It does not constitute legal advice and should not be regarded as a substitute for taking legal advice. DWF is not responsible for any activity undertaken based on this information.

Michael Kingston


I am a Partner specialising in dispute resolution at DWF. I have considerable experience in international dispute resolution representing clients in various court proceedings and arbitration bodies.