An investigation of stakeholders’ perceptions of the potential for Iceland to become a transhipment hub by 2070

Lourenço Melo

I’m from São Miguel Island in the Azores, Portugal. After growing up there, I did my BSc on International Trade in Porto and Istanbul and did my MSc on International Operations & Supply Chain Management in Glasgow. Currently, I’m working in Lisbon in a procurement role at a pharmaceutical distributor and seek to develop a career in the field.

Abstract

The combination of the congestion of the Suez and Panama Canal routes with the decline of the Arctic Ocean’s ice cover has generated discussion on the potential for the development of trans-Arctic shipping routes, and consequently, of transhipment hubs along these routes, namely in Iceland, which is located at the confluence of three out of four of these routes. The aim of this research was to investigate stakeholders’ perceptions of the potential for Iceland to become a transhipment hub by 2070, as a result of the potential development of the Transpolar Sea Route (TSR). The participating expert stakeholders presented contrasting perceptions regarding the economic feasibility of TSR operations, mainly due to the lack of commercial interest and of intermediate port, market and Search and Rescue (SAR) infrastructure along the TSR, the conditions of the Arctic Ocean’s ice cover by 2070, the strategic value of Iceland’s geographical location and of Iceland’s commercial relations with the People’s Republic of China (PRC), and the current political will from Icelandic public stakeholders in the development of a transhipment hub in the country. Nonetheless, some of the participants agreed that Iceland’s ample fjords (e.g., Finnafjörður), the island-country’s government’s endeavour into the development of a transhipment hub in a rural region, the nation’s healthy commercial relations with the PRC, and its location in near-Arctic ice-free waters provide Iceland with competitive advantages that might increase its potential to become a transhipment hub by 2070. All things considered, it is concluded that the development of a range of geopolitical, geostrategic, economic and topographic factors might determine the potential for Iceland to become a transhipment hub by 2070.

Keywords

Trans-Arctic Geopolitics, Trans-Arctic Geostrategy, Trans-Arctic Shipping, Iceland, Transhipment Hub

Résumé

La combinaison de la congestion des routes des canaux de Suez et de Panama avec le déclin de la banquise de l’océan Arctique a suscité des discussions sur le potentiel de développement de routes maritimes transarctiques, et par conséquent, des hubs de transbordement le long de ces routes, notamment en Islande, située au débouché de trois de ces quatre routes. L’objectif de cette recherche était d’étudier les perceptions des parties prenantes sur le potentiel de l’Islande à devenir une plaque tournante de transbordement d’ici 2070, en raison du développement potentiel de la route maritime transpolaire (TSR). Les experts participants ont exposé des perceptions contrastées concernant la faisabilité économique des opérations de la TSR, articulant le faible intérêt commercial et des infrastructures portuaires arctiques, des éléments de recherche et sauvetage (SAR) le long de la TSR,  les conditions de glace de l’océan Arctique d’ici 2070, la valeur stratégique de la situation géographique de l’Islande et les relations commerciales de l’Islande avec la République populaire de Chine (RPC), ainsi que la volonté politique actuelle des acteurs publics islandais dans le développement d’un hub de transbordement dans le pays. Néanmoins, certains des participants ont convenu que les vastes fjords de l’Islande (par exemple, Finnafjörður), l’effort du gouvernement du pays insulaire dans le développement d’une plaque tournante de transbordement dans une région rurale, les relations commerciales saines de l’Islande avec la RPC et son emplacement à proximité d’eaux arctiques libres de glace, offrent à l’Islande des avantages concurrentiels qui pourraient augmenter son potentiel de devenir une plaque tournante de transbordement d’ici 2070. Tout bien considéré, il est conclu que le développement d’une série de facteurs géopolitiques, géostratégiques, économiques et topographiques pourrait déterminer le potentiel de l’Islande deviendra une plaque tournante de transbordement d’ici 2070.

Mots-clés

Géopolitique trans-arctique; géostratégie trans-arctique; navigation trans-arctique; Islande; hubs de transbordement.

  1. Introduction

Since the early days of the liberalisation and intensification of international trade, the maritime transportation of goods has been a driver of international trade (Levinson, 2006; Herbert, 2020). Currently, maritime transported goods represent four out of five goods transported worldwide (Tsvetkova, 2020).

When coupling the prominence of maritime transportation throughout the current global shipping routes – such as the Suez and Panama Canal (SPC) routes – with the expected future increase in commercial marine traffic between Asia and Europe, it is seen that the SPC routes might become increasingly congested (Humpert and Raspotnik, 2012).

As a potential solution to “provide additional capacity for a growing transportation volume” in the SPC routes, trans-Arctic routes, such as the Transpolar Sea Route (TSR), have been discussed as seasonal alternatives from mid-century, as the Arctic Ocean’s ice cover is undergoing significant alterations (Humpert and Raspotnik, 2012: 284; Stephenson et al., 2013). Throughout the past decades, the Arctic Ocean’s ice cover has been, and is expected to continue retreating rapidly during the summer period (i.e., between July and October) (Lasserre and Pelletier, 2011; Laliberté et al., 2016; Melia et al., 2016).

The rapid retreat of Arctic sea ice may catalyse the development of trans-Arctic routes, hence presenting as an opportunity for Iceland, which is at the confluence of three trans-Arctic shipping routes between East Asia and Europe (the Northern Sea Route (NSR), the TSR and the Arctic Bridge Route), to potentially become a transhipment hub by 2070 (Humpert and Raspotnik, 2012; Melia et al., 2016; Ingimundarson, 2020).

Figure 1 version 2 Lourenço Melo CQEG

Figure 1. Arctic Shipping Routes

(Edited by the author. Adapted from Humpert and Raspotnik, 2012: 282)

The year 2070 is seen as a conceivable year by which a transhipment port might be developed in Iceland and in the TSR, as Melia et al. (2016: 9724) observe that “by mid-century (2045–2059) (…) The TSR is available for the first time”. Likewise, Stephenson et al. (2013: 895) regard: “(…) the NWP and TPR [Trans-Polar route, a synonym of ‘Transpolar Sea Route’] remain less accessible, especially to weaker vessel types, until the latter half of the century”. It is seen that, from 2050 to 2070, a transhipment port could conceivably be fully developed in Iceland, as Hambantota port in Sri Lanka has a construction timeframe of 15 years (Patrick, 2017).

To note that, within a hub-and-spoke shipping network system, a transhipment hub is a high-traffic intermediate location in the shipment’s route where goods are unloaded from one vessel and loaded into another (Andriamananjara et al., 2004).

Hub-and-spoke shipping network designs allow for a higher level of flexibility to take place, by concentrating shipping flows (Rodrigue, 2020).

Figure 2 version 4 Lourenço Melo CQEG

Figure 2: Comparison between Point-to-Point and Hub-and-Spoke shipping network designs

(Edited by the author. Adapted from Soleymanifar, 2019: 5)

In Figure 2, when considering trans-Arctic shipping options, the Point-to-Point network depicts 32 connections – done on expensive Polar Class 4 (PC4) vessels, to withstand Central Arctic weather conditions – between a number of major ports on eastern North America, Central/Northern Europe and East Asia. However, ‘Hub-and-Spoke Option 1’, by using Finnafjörður Port (Iceland) as a hub, allows for only sixteen connections to take place, hence promoting higher rates of vessel capacity utilization (i.e., “the share of a vessel’s total carrying capacity occupied by paying cargo” (Adland et al., 2008: 191) and an efficient trans-Arctic shipping system (Rodrigue, 2020).

Nevertheless, vessels originating their journeys from Asia would still face uncertain and potentially high levels of ice in the Central Arctic Ocean, and so, PC4 vessels would also be required to make their voyages from Asia to Finnafjörður. In order to reduce the amount of PC4 voyages in the Arctic Ocean, hence diminishing costs and risks, it is seen that ‘Hub-and-Spoke Option 2’ could be a more viable option, as studied by Aker Arctic Technology in 2006.

This option would involve ice-strengthened vessels being used to transport cargo exclusively between “twin transhipment ports in Alaska and Iceland” and would allow for two PC4 vessel voyage to take place across the Central Arctic, with the remaining 16 connections being done by economical open-water, non-ice-strengthened vessels (Arctic Council, 2009: 101). Nonetheless, this alternative, even if navigationally feasible in the future, was considered to have more associated uncertainties and costs when compared to the SPC routes (Arctic Council, 2009; Lasserre and Pelletier, 2011; Humpert and Raspotnik, 2012).

This study, along with the Arctic Council (2009), considered that the development of “unclear, uncertain and difficult to estimate” relevant factors (e.g., transport costs, insurance costs, potential icebreaker fees, feeder link costs, port infrastructure costs, terminal costs, the cost of offloading cargo onto the shuttle PC4 vessel, as well as transferring the cargo back to a non-ice-strengthened vessel after reaching the other transhipment port) will conceivably determine the profitability of trans-Arctic transhipment operations (Aker Arctic Technology, 2006: 29; Arctic Council, 2009). To note that recurring to two transhipment ports to deal with a large amount of intercontinental traffic could potentially result in vessel traffic congestion and delays (Rodrigue, 2020).

2. Research Question

In this research project, the research question is: ‘What are key stakeholders’ insights on the potential for Iceland to become a transhipment hub by 2070?’. Therefore, the objective of this research is to investigate key stakeholders’ perceptions of the potential for Iceland to become a transhipment hub by 2070 as a result of the potential development of the Transpolar Sea Route due to the warming of the Arctic Ocean.

In order for the objective to be achieved, the following interlinked activities will be undertaken:

  1. To examine stakeholders’ views on the potential viability for the Transpolar Sea Route to become commercially navigable by 2070;
  2. To evaluate stakeholders’ perceptions of the potential growth of Iceland as a transhipment hub by 2070;
  3. To investigate stakeholders’ outlooks on the opportunities that may arise to Iceland from its potential establishment as a transhipment hub; and
  4. To identify stakeholders’ views on the challenges that might hinder Iceland’s potential establishment as a transhipment hub.

 

3. Research Methodology

For this research, the Interpretivist research philosophy was adopted. Unlike Positivist researchers, who “believe that there are facts that can be proven” and that “reality is the same for each person”, Interpretivist researchers view that “truth and knowledge are subjective, as well as culturally and historically situated” and is “based on people’s experiences and their understanding of them” (Ryan, 2018: 8).

As this research aims to investigate stakeholders’ varied perceptions of the potential for Iceland to become a transhipment hub by 2070, such an individualised and subjective interpretation of knowledge was useful, since the interviewed/questioned stakeholders’ views on the potential for Iceland to become a transhipment hub by 2070 were based on the stakeholders’ personal “experiences and perceptions” (Thanh and Thanh, 2015: 26).

Through the application of an Interpretivist-oriented research philosophy, research approach (Inductive), research strategy (Single Case Study), data collection techniques (Semi-Structured Interviews (SSI) and a Self-Administered Qualitative Questionnaire (SAQQ)) and data analysis procedure (Template Analysis), the researcher was allowed to comprehend the context and reasoning impacting the participating stakeholders’ perceptions and answers to the six SSIs and single SAQQ conducted in this research (Saunders et al., 2009; Thanh and Thanh, 2015).

Adopting the Interpretivist philosophy and examining those subjective perspectives, views, and meanings allowed the researcher to attain a detailed perspective over stakeholders’ perceptions of Iceland’s potential to become a transhipment hub by 2070 that would not be attainable through solely recurring to statistical analysis (Jansen, 2010). Furthermore, the application of the Interpretivist philosophy adapted to the researcher’s intention to understand the diverse professional contexts of the participating stakeholders (Thanh and Thanh, 2015).

However, the context-sensitivity and subjectivity associated with the application of Interpretivist-oriented research aspects implicated that this research’s findings may not carry optimal levels of both internal and external validity (Saunders et al., 2009; Korstjens and Moser, 2018).

4. Research Findings

4.1. Participating Stakeholders

As participants were selected based on their professions and areas of expertise (trans-Arctic shipping and Icelandic affairs), the Expert Sampling technique was adopted in this research (Etikan et al., 2016).

In order to holistically investigate Iceland’s transhipment hub potential through considering the varied perceptions of diverse key stakeholders that may influence that potential, in this research, the research sample consisted in:

  1. One Icelandic government adviser (IGA);
  2. Two port developers operating in Iceland (PDOI1 and PDOI2);
  3. Two academic experts in Arctic shipping (AEAS1 and AEAS2); and
  4. Two research fellows of Arctic-oriented forums (RFAF1 and RFAF2).

Since the considered sample comprised seven highly knowledgeable stakeholders from four professional categories, it was determined that the considered sample represented the target population to a satisfactory level.

As an in-depth examination of the experts’ insightful perceptions was sought, the SSI and SAQQ data collection techniques were adopted.

In the following subsections (from 4.2 to 4.6), each of the headings represents one of the five questions that were asked to the participating stakeholders.

4.2. Conditions Required for TSR Commercial Navigability by 2070

As the potential for Iceland to become a transhipment hub by 2070 might be influenced by the commercial navigability of the TSR, the researcher sought to discover participants’ views on the conditions that would need to be verified for the TSR to become commercially navigable by 2070. When asked to provide their views on the matter, responses were diverse.

Six out of seven participants pointed to the development of port and Search and Rescue (SAR) infrastructure along the TSR as one such condition. PDOI2 noted: “The problem we have at the moment is definitely in terms of infrastructure”. AEAS1 added: “Before developing the Arctic shipping market, they [shipping companies] must make sure it is going to be profitable, they must make sure it is going to be reliable and safe. And so, that is the importance of having port infrastructure along the route, and SAR infrastructure.”

The Icelandic Government Adviser perceived future difficult SAR activities taking place in the TSR: “We do not have maps, and, because of the vast distances, SAR operations will be difficult. They will have to be flown in all the time. So, that is a major obstacle. How will you tackle that? Especially, while there is ice, and fogs are very common. The summertime is, of course, a lot better. But it would be a major obstacle for running Transpolar shipments year-round. That will be quite expensive, because of the lack of infrastructure, etc.”

Four in seven stakeholders went further by stating that the development of a network of intermediate ports and markets along the TSR would potentially increase the profitability of the TSR and assist in attracting commercial interest from container shipping companies. PDOI2 stated: “And along the TSR, for the beginning at least, I would reckon that there is only point-to-point traffic. So, there is not this added benefit of having feeder containers on board, which [in the Suez Canal route] you collect in the Middle East and drop in an Indian port. That would lower your profitability, I would reckon.” AEAS1 argued: “So, as long as there are no intermediate stops and markets, then the shipping companies must make sure that the amount of carried cargo is enough for a single transit trip to be profitable.”

RFAF1 and RFAF2 revealed a similar position on this issue. RFAF1 noted: “Seeing how container shipping relies on network economics with dozens of large ports along the Suez Canal route, this would be hard to replicate in the Arctic as there are no major ports and no major population hubs. Thus, container shipping would be more small scale and ad hoc with small point-to-point trips.”

Five in seven stakeholders considered that the significant reduction of the Arctic Ocean’s ice cover will be another condition required for the TSR to be commercially navigable by 2070. PDOI1 noted: “The TSR should operate during the whole year. That means, almost no ice during winter.”

In addition, three of seven participants pointed to the development and use of high-grade, ice-strengthened Polar Class (PC) vessels as a condition to navigate in the Arctic Ocean. PDOI1 observed that, to overcome the challenge of the Arctic Ocean’s winter ice cover, PC vessels are a solution: “So, we will have in the year of 2070 ice freezing periods in the Polar area during winter, that is certain (…). So, the result of this discussion is: we have to use PC vessels for the operation.”

However, two of seven participants see a possible lack of profitability resulting from the use of PC vessels. AEAS1 stated: “Ships can navigate year-round along the NSR, provided you build them with the proper ice class. So, one can imagine that it will be the same across the TSR. Then, the question boils down to the economic profitability: is it worth building a Polar Class 5 cargo ship to navigate through the TSR?”

Furthermore, three of seven stakeholders see that one of the required conditions consists of an increase of the commercial interest and demand from shipping companies in the TSR. At last, the IGA mentioned the existence of political will and “a good charting of Arctic waters, which is quite limited today” as a necessary condition.

Thus, it is indicated that port, market and SAR infrastructure investments along the TSR should be made to increase the commercial appeal of the route and of Iceland as a transhipment hub. If these investments do not take place, there is a likelihood of high operating and insurance costs, which would reduce shipping companies’ profitability and interest in the TSR.

In summary, the conditions identified by the seven expert stakeholders for the TSR’s commercial navigability were the development of port and SAR infrastructure along the TSR, the development of a network of intermediate ports and markets throughout the TSR, a significant reduction of the Arctic Ocean’s ice cover, the development and use of high-grade PC vessels, an increase of TSR commercial interest and demand from shipping companies and, at last, an adequate charting of Arctic waters.

4.3. Likelihood of TSR Commercial Navigability by 2070

Afterwards, the researcher sought to comprehend participants’ thoughts on the likelihood of the TSR becoming commercially navigable by 2070. Opinions differed amongst stakeholders as to whether it is likely that such a scenario will take place or not. Two out of seven stakeholders – both PDOIs – observed that there is such a probability. PDOI1 attributed that plausibility to the potential changes of the Arctic Ocean’s ice cover: “Mainly because the ice situation will be totally different, comparing to the situation today”. PDOI2 considered that, besides TSR point-to-point traffic, also local traffic in Russian Arctic settlements “will drive the commercial viability up there.”

Contrastingly, five in seven participants opined otherwise. AEAS1 stated that “a few shipping companies will endeavour to develop it [the TSR]”. The expert pointed that there may be only a niche market, composed of “a dozen shipping companies at most”, associated with the TSR. IGA and RFAF2 argued that the TSR will be commercially navigable only during the summer months. RFAF2 commented: “I, and some others, 100 percent support that it is seasonal, and so, how does that seasonal complex fit in with the global shipping enterprise? And I think they [Iceland] believe it [trans-Arctic shipping] is year-round, and I do not think it is practical nor economical year-round.” RFAF1 observed that the TSR will be both seasonal and operating in a niche market.

RFAF2 pointed to the TSR’s seasonal and operational restrictions: “No for regular transhipment traffic for regular carriage of container ships for lots of reasons: connection to the global shipping enterprise, seasonal, expensive Polar ships”. Additionally, RFAF2 opined that the application of subsidies might make the TSR’s commercial navigability more feasible: “If you use the words ‘economically viable commercial shipping’, it has to be, maybe except for the Russians, economically viable. And I say that for the Russians only in the sense that, it is economically viable for Russia to move its Arctic natural resources out of the Russian Arctic to global markets. For the good of the GNP, for the Russian Federation. But as a shipping enterprise, I think most would say ‘no’. But it is a subsidised operation to help the national economy.”

Four of seven participants appealed to the adequateness of bulk shipping for the TSR in 2070. RFAF2 noted: “I see bulk carriers, I maybe see spot charter bulk carriers going across the centre of the Arctic Ocean in the summertime, maybe”. RFAF1 stated: “For bulk shipping, the feasibility is better from a logistics standpoint as bulk shipping is point-to-point. The question is what would be shipped through the Arctic.”

RFAF1 added: “The TSR, while technically/climatologically feasible in fifty years, the commercial opportunities may be limited as there is limited bulk cargo that goes all the way from Europe to Asia. This does not mean that the TSR could not see a few hundred annual voyages per year by 2070, maybe sooner and maybe even more. But it will not replace the Suez Canal route.”

In essence, participants revealed diverse views regarding the TSR’s commercial navigability by 2070, with five of seven stakeholders attributing seasonal and market size restrictions to the TSR’s year-round use that may hinder its commercial navigability and two of seven participants noting for the feasibility of such a scenario taking place without mentioning any constraints.

4.4. Likelihood of Iceland Becoming a Transhipment Hub by 2070, in the scenario of a Commercially Navigable TSR

When the participating stakeholders were questioned whether they thought if it is likely that Iceland will become a transhipment hub by 2070, five out of seven viewed, with varied levels of certainty (from “yes, I would say so” to “it is more likely than not” to “Iceland is in the mix, I would not eliminate them”), that there may be such a possibility, despite Iceland facing competition from Norway and Russia.

Two of seven stakeholders – both PDOIs – observed that Icelandic fjords like Finnafjörður reveal enough space to accommodate vessels and cargoes that ports such as Murmansk or Kirkenes cannot. Moreover, two in seven stakeholders considered that the Icelandic government’s effort into the development of a transhipment hub, Iceland’s healthy commercial relations with the People’s Republic of China (PRC) and Iceland’s strategic location in ice-free near-Arctic waters provide Iceland with competitive advantages that might increase Iceland’s potential to become a transhipment hub by 2070.

However, AEAS2 noted that, when travelling from Asia, there is more of a benefit in cargo vessels going “straight to Norway”, and not to Iceland. RFAF1 argued that Iceland’s potential transhipment port growth may not be significant: “Iceland will likely see more port activity in the next fifty years simply because there will be more shipping in the Arctic, but it is hard to imagine that it would become a major transhipment hub. This again has less to do with the TSR being navigable – as ice will likely not be a factor in fifty years, during six months each year – but more to do [with the prospect] that commercial opportunities will be limited. A few hundred voyages a year will likely not warrant a major transhipment hub and most voyages will sail direct to central Europe.”

Altogether, the participating stakeholders revealed diverse levels of certainty regarding the probability of Iceland becoming a transhipment hub by 2070 (in the case of a navigable TSR), with five in seven participants noting such a scenario, although conditioned by Norwegian, Russian and Central European competition. If materialised, opportunities might be revealed to Iceland.

4.5. Opportunities to Iceland from Its Potential Establishment as a Transhipment Hub

Subsequently, participants were inquired to express their perceptions of the opportunities that may arise from the potential establishment of Iceland as a transhipment hub. The stakeholders were unanimous in the view that the development of a transhipment hub in the island-nation would stimulate economic development and job creation in the conceivably rural area where the transhipment hub might be located.

PDOI1, familiarised with the Icelandic context, went further by mentioning that a benefit arising from the development of a transhipment hub could be the diminishment of inter-regional economic polarities in the country: “The north-east and north-west of Iceland are suffering. (…) So, the government of Iceland is very much supporting this [transhipment hub] project because, there, they see the opportunity to have another ‘pole’ in Iceland to build up jobs”. In contrast, RFAF1 argued that the positive impact of a transhipment hub in Iceland would not be significant, by arguing: “I do not see too many benefits”. RFAF2 and AEAS1 expressed that, if materialised, Iceland’s transhipment hub may assist the diversification of its economy.

Three out of seven participants observed that Iceland’s potential establishment as a transhipment hub might result in the development of related industries, such as SAR, vessel repairs and maintenance, container handling and repair, and the processing of Arctic raw materials. Besides, PDOI1 and AEAS1 noted that the establishment of Iceland as a transhipment hub could, in light of the Iceland-China Free Trade Agreement, create the possibility of Iceland developing a processing trade industry with PRC investment. Nonetheless, RFAF2 considered that political pressure from the European Union and the United States may hinder Iceland in significantly developing commercial relations with the PRC.

In short, the expert stakeholders identified the benefits that might arise to Iceland if its transhipment hub potential is materialised as: the economic development and job creation in the possibly remote area of the transhipment hub’s location, the reduction of regional economic disparities, the diversification of the Icelandic economy, the development of related industries, the development of a FTA-led processing trade industry and, at last, an improved strategic position in the international shipping industry.

4.6. Challenges Hindering Iceland’s Transhipment Hub Potential

Lastly, the stakeholders were requested to illustrate their perceptions on the challenges hindering the potential for Iceland to become a transhipment hub by 2070. Three in seven participants observed that the current lack of a network of port, market and SAR infrastructure along the TSR may pose as such a challenge. AEAS2 opined that there may be a lack of political will from Icelandic public stakeholders towards the development of a transhipment hub in the nation, as “there is not a political consensus that we [Icelanders] would want to do this”.

Contrastingly, the IGA and PDOI1 shared a different perspective. PDOI1 mentions that “there is no political risk”, as “the government is willing to support this [transhipment hub] project”. AEAS1 observes that insurance costs, if applicable, may be high. The expert considers that insurance companies are clear: “If the ship is not reliable, if the crew is not trained, if the SAR facilities are not adequate, then the insurance premiums are going to be very high, or even they could even not agree to insure you.”

Additionally, the IGA and RFAF2 perceived that the highly variable levels and character of the Arctic Ocean’s ice cover are proving to be challenges to the materialisation of Iceland’s potential to become a transhipment hub by 2070. PDOI2 and RFAF2 regarded Iceland’s geographical position as a challenge to the country’s intercontinental transhipment hub ambitions. PDOI2 stated that Iceland’s isolation from target markets (i.e., East Asia, Central Europe and North America) makes it “a bit off the beaten track”. RFAF2 and AEAS1 argued that a “high cost of the development of the market” and an uncertain future TSR market size may surge as challenges to Iceland’s establishment as a transhipment hub by 2070.

RFAF1 saw it to be unlikely that there may be a future transhipment hub in Iceland: “The main barrier is simply that there are no items for which it would make sense to tranship via Iceland, as limited container shipping within the Arctic would not be in need of a transhipment hub. That does not mean that Iceland will not be receiving or be part of more active shipping corridors, but, for a real transhipment hub, it would require many large container ships. I do not see this happening.”

However, PDOI1 revealed a contrasting perception, by mentioning Iceland’s trade relations with the PRC: “Due to the FTA we have with China, we have had companies from China here [in Iceland], because they are thinking about the following: breakbulk, which is buses, wind turbines, etc., you cannot move those in a container vessel, you have to have a special purposed vessel for those goods. So, if you are bringing those goods from China to Europe, then the intention is to have a fully loaded vessel, not a half-full vessel. So, those companies have been looking into the opportunity to bring goods to Iceland, let’s say, manufactured up to sixty or seventy percent, and do the rest in their own factory in the harbour area, and benefit from this tax-free zone. The idea is to use the harbour as an industrial port to be more flexible on the market and show better services. Kirkenes cannot offer this. They do not have the lowland. They do not have the area to store up those things.”

Nevertheless, RFAF2 acknowledged possible barriers concerning PRC investment in Iceland: “There are some geopolitical issues that could impact what Iceland wants to do here. In terms of accepting investment from China, with whom relations have been growing, it is not easy, due to pressure from the United States and from the EU. I do not see the Icelanders ‘selling out’ to the Chinese.”

In summary, the expert stakeholders identified: the current absence of a network of port, market and SAR infrastructure throughout the TSR, high TSR market development costs, highly variable levels and character of the Arctic Ocean’s ice cover, an uncertain future TSR market size, geographical isolation from the European and North American markets, high TSR insurance costs, a current lack of political will and US/EU pressure regarding PRC investment in Iceland as challenges hindering the potential for Iceland to become a transhipment hub by 2070.

5. Research Discussion

The purpose of this section is to establish a link between the research findings found in Section 4 and some of the key literature cited in this research project.


5.1.
Conditions Required for TSR Commercial Navigability by 2070

Six of seven participating stakeholders pointed to the development of port, market and SAR infrastructure along the TSR as one of the conditions for the commercial navigability of the TSR to take place by 2070. These views corroborate the ideas of Lasserre and Pelletier (2011), Humpert and Raspotnik (2012), Østreng et al. (2013), Lasserre (2014), Brigham (2017), Melia et al. (2017) and Pincus (2020). The authors’ statements suggest that the development of port, market and SAR infrastructure are important factors in the development of trans-Arctic routes such as the TSR. Melia et al. (2017: 16) noted that “additional en route ports and infrastructure” and “SAR coverage/agreements” are necessary for trans-Arctic shipping to be commercially viable.

Three of seven participants observed that the development of a network of intermediate ports and markets throughout the TSR would potentially assist in attracting commercial interest from container shipping companies in the route. These observations are in line with Lasserre and Pelletier (2011), Humpert and Raspotnik (2012) and Melia et al. (2017). Melia et al. (2017: 17) note that “the Arctic would need investment for the development of infrastructure projects and logistical hubs”.

Three of seven participants considered the use of high-grade PC vessels as a condition to commercially navigate the Arctic Ocean by 2070. Melia et al. (2017: 17) follows the same line of thought, by arguing that “investments in ice-class cargo ships like the PC6 (…) would potentially enable safe year-round trans-Arctic shipping”. Further in Section 4.2, five out of seven participants pointed to the significant reduction of the Arctic Ocean’s ice cover as a relevant condition in the TSR’s commercial navigability. This view is shared by the Arctic Council (2009) and Humpert and Raspotnik (2012). Humpert and Raspotnik (2012: 301) see that “favourable climatic conditions across the Arctic Ocean” will impact trans-Arctic routes’ navigability.

5.2. Likelihood of TSR Commercial Navigability by 2070

The insights of five of seven stakeholders regarding the seasonal and operational restrictions of the TSR appear to be consistent with those of Humpert and Raspotnik (2012) and Melia et al. (2017). Melia et al. (2017: 29) state that “for the vast majority of the current global shipping fleet sailing trans-Arctic will remain a seasonal endeavour” and that “it is likely to remain a niche market for specialist operators”.

Moreover, the attribution of bulk shipping adequacy to the TSR by four of seven participants is in accordance with Lasserre and Pelletier (2011), Humpert and Raspotnik (2012) and Melia et al. (2017). Melia et al. (2017: 30) observe: “Bulk shipping can take advantage of the shorter trans-Arctic routes offered, due to more flexible schedules compared to container shipping.”

5.3. Likelihood of Iceland Becoming a Transhipment Hub by 2070, in the scenario of a Commercially Navigable TSR

Five of seven stakeholders pointed to the existing transhipment hub potential of Iceland. Such a view is in agreement with that of Blunden (2012: 128), who sees that Iceland “would be well placed to become a new transhipment hub, and its deep fjords with adjacent available land offer good natural conditions for ports serving large vessels”.

In Section 4.4, two of seven participants observed that the Icelandic government’s effort into the development of a transhipment hub, Iceland’s strategic near-Arctic location within ice-free waters and Iceland’s growing commercial relations with the PRC provide the island-nation with competitive advantages that may increase its potential to become a transhipment hub by 2070. These observations are in line with Humpert and Raspotnik’s (2012: 298) statement: “Iceland is key to China’s strategy of sending large ice-strengthened container ships through the Arctic and utilising ports in Iceland to then shift their cargo to smaller vessels for delivery at their destination ports.”

Further in Section 4.4, RFAF1 noted that Iceland, despite maybe coming across a “few hundred voyages a year” of additional marine traffic in the future as a result of increased shipping in the Arctic, the island-nation might not be expected to become a major transhipment hub. This seems to be consistent with Lasserre and Pelletier (2011: 1469), who argue that, although there may be an increase in Arctic shipping activities, “the relatively small market size for the years to come” might hinder the existence of major trans-Arctic markets and shipping activities by 2070.


5.4. Opportunities to Iceland from Its Potential Establishment as a Transhipment Hub

Both the cited authors in this research and five of seven participating stakeholders regarded varied opportunities that can arise to Iceland in the scenario of the materialisation of the island-nation’s transhipment hub potential. The first opportunity consisted in the socioeconomic development at the potentially rural region in Iceland where the transhipment hub would be developed and operated. PDOI1 went further by referring to the benefit of the potential reduction of regional economic polarities in Iceland. Such is in accord with Hastings’ (2014: 221), who states: “Iceland sees embracing Arctic economic opportunities as having the potential to drive countrywide economic growth (…) and help address regional employment disparities between Reykjavik and the rest of the country.”

The second opportunity, mentioned by two of seven participants, consisted in the potential diversification of the Icelandic economy. Similarly, three of seven participants noted that the development of Iceland’s potential transhipment hub might lead to the development of related industries (e.g., SAR and vessel maintenance). These views corroborate Hastings’ (2014: 216), who suggests that Iceland, besides from its transhipment hub potential, “considers itself ideally situated to be an Arctic search and rescue hub as well as a base from which to service economic activities in Greenland and the far North.”

Two of seven stakeholders opined that, as a result of the Iceland-China FTA, there is a possibility that the potential establishment of Iceland as a transhipment hub could result in Iceland developing a processing trade industry, where PRC products would be processed in Iceland for further transportation to Europe or North America or vice-versa. This opportunity seems to be consistent with Björnsdóttir (2013: 4), who states: “This FTA opens a range of new opportunities for investors from the US, Canada and Europe interested in the fast-growing Chinese market, as well as Chinese investors looking for opportunities to sell their products and services to Europe.”


5.5. Challenges Hindering Iceland’s Transhipment Hub Potential

The IGA and both AEASs noted that the absence of port, market and SAR infrastructure throughout the TSR may reveal to be a challenge to Iceland’s transhipment hub potential. These observations are in line with Lasserre and Pelletier (2011: 1468), who argue: “Along Arctic routes, there are no intermediate market and no port adequately equipped to receive the containers to be onloaded/offloaded at potential rotations, which reduces the commercial interest of these routes.”

AEAS1 and RFAF2 considered that a high TSR market development cost may reveal to be a challenge to Iceland becoming a transhipment hub. The costly development of transhipment terminals is highlighted by Chowdhury and Rosencranz (2021: 1) and Cogan and Mishra (2021), who researched the Indian government’s announcement of the construction of “the New Transshipment Terminal in Andaman and Nicobar Islands (…) to be built in the island of ‘Great Nicobar’ and entails an overall investment of 100 billion Indian Rupees”, which (on 01 Aug. 2021) corresponded to 1,676,861,000 Canadian Dollars or 1,133,131,323 Euro.

Through recurring to the New Transshipment Terminal’s construction cost as a reference for estimating the cost of developing Finnafjörður Port, it is seen that the expenditure on the Icelandic transhipment port might be similar or higher, since construction project costs are assumed to be higher in Iceland than in India, as Iceland ranks fourth on the 2020 Human Development Index, while India ranks 131st (UNDP, 2021). Additionally, both Iceland’s GDP and GNI per capita based on PPP in 2019 were almost nine times higher than India’s (World Bank, 2021). It is seen that such a large investment in Finnafjörður Port might become a barrier to attracting potential investors and political will from Icelandic and international stakeholders.

Despite AEAS2 considering that there is a lack of political will concerning the potential for Iceland to become a transhipment hub, the IGA and PDOI1 argued otherwise. The IGA and PDOI1’s views are commonly supported by Ingimundarson (2015: 95), who states that “the idea of Iceland as a future transhipment hub has remained the single constant economic factor in Arctic governmental discourses since the turn of the century.”

Two of seven participating stakeholders noted that the variable future levels and character of the Arctic Ocean’s ice cover also reveal to be challenges facing Iceland’s potential to become a transhipment hub. This perspective is in agreement with Lasserre and Pelletier (2011) and the Arctic Council (2009: 48), which observes that “the magnitude of sea ice variability creates difficult challenges for Arctic marine transport planning and adequate risk assessment” and may cause delays which can result in damaged credibility associated to the involved party, which, in this case, is Iceland.


Conclusion

As observed in this research, the participating stakeholders presented varied and contrasting views regarding a selection of factors that might potentially influence Iceland’s potential to become a transhipment hub by 2070: the economic feasibility of TSR operations, the Arctic Ocean’s ice conditions by 2070, the strategic value of Iceland’s geographic location and of Iceland’s commercial relations with the PRC and the existent political determination from Icelandic public stakeholders in developing a transhipment hub in the island-nation. Nonetheless, a majority of the participating stakeholders agreed on, not only the potential benefit of economic development in the transhipment hub’s rural region, but the potential diversification of Iceland’s economy as well, via the development of SAR, vessel servicing and processing trade industries in the country.

Although Iceland currently presents competitive advantages when compared to other transhipment hub options (e.g., land availability, strategic trade partnerships and low-cost electricity), there are also potentially hindering factors to the TSR’s development and, thus, to the potential for Iceland to become a transhipment hub by 2070 (e.g., the lack of port, market and SAR infrastructure throughout the TSR, uncertain conditions of the Arctic Ocean’s winter ice cover by 2070 and high TSR operating costs from using PC vessels).

Building on this initial exploratory work which has established a baseline regarding the perceptions of key stakeholders of the potential for Iceland to become a transhipment hub by 2070, it is suggested that future research on this topic includes the participation of, not only shipping company managers conceivably interested in the TSR and in Iceland’s potential transhipment hub, but also of PRC industry-oriented stakeholders with a conceivable interest in Iceland’s transhipment hub development and specifically in the Finnafjörður Port Project. Through establishing contact with those strategic stakeholders, future research might benefit from heightened Arctic shipping industry and from PRC-oriented perspectives, which may potentially contribute towards a holistic comprehension of stakeholders’ perceptions of the potential for Iceland to become a transhipment hub by 2070.

When taking the research material discussed above into consideration, the potential for Iceland to become a transhipment hub by 2070 is not refuted, as it is seen that, under specific conditions, such a potential might be materialised. It is seen that an array of economic, topographic, geopolitical and geostrategic factors within the next fifty years might determine the development of the potential for Iceland to become a transhipment hub by 2070.

In conclusion, it is suggested that, in order to determine the potential for Iceland to become a transhipment hub by 2070 with higher levels of internal validity than those reached in this research, further studies focussing on the impact that the factors mentioned above might have in Iceland’s potential to become a transhipment hub are produced.


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