Tero Vauraste, President and CEO of Arctia Ltd talked about strategy planning in a business environment influenced by changing weather patterns and customers as far away as Alaska and Greenland.
Arctia received the world’s first LNG powered icebreaker, Polaris, in December 2016, now on its first tour of duty in the northern Baltic. How do you plan ahead for the icebreaker business?
– Our main winter task is keeping the Finnish fairways clear, safe and secure. Polaris is an exciting project. The open water tests went well and the ship is now working in ice conditions. It’s a great showcase for Finnish technology. It provides a new level of service in the most challenging conditions and its design enables very efficient icebreaking.
– The future agenda has several things. We have fleet renewal to complete by 2030. This depends on the development of Baltic Sea icebreaking; how will the motorways of the seas project progress? Will the railroad between the Arctic Ocean and the Baltic Sea progress and how will the fairways develop in the northern Bay of Bothnia? Also, what will be the developments in the northern Finnish and Swedish mining industry? Then consider the effects of environmental restrictions upon engine power of the vessels operating in the area. New fuel requirements affect the ability of a ship to get through ice because the energy design efficiency index restricts the power available in the vessels which may need more icebreaker assistance. Even with an ice strengthened hull, less engine power means you will not get through the ice.
Weather unpredictability
– We’re expecting an average winter, though forecasts can be open to question. In the last 6 years we have had two rough winters requiring lots of icebreaker operation from the whole fleet and two mild winters. So we must be prepared for winters with operational ship days ranging from 200 to as much as 800.
The Finish Meteorological Institute research on ice conditions in the Baltic up to 2050 suggests that the maximum ice cover will reduce by between 25 and 35% with ice thickness falling by 25 to 35cm. This is based on the assumption that ambient temperatures rise by no more than 2 degrees.
– But there are other factors and even the experts are not unified on local developments. The north pole temperature is currently 15 degrees above average for this time of winter. The polar jet stream is acting weirdly and pushing cold air south. Asian weather patterns have also changed in the past couple of years. This may affect the Gulf Stream. Some experts say it will slow down and some say it has already done so and some are saying there is no effect. If it slows then there will be a colder northern European climate.
If we have milder winters and you have a fleet to keep busy – what are you going to do?
– We have already addressed this and it will be in focus in the coming years as well. Half of Arctia revenues have been coming from international operations. Shell in Alaska has been a major client. We also assisted in Greenland seismic surveys. Now the USA and Canada have banned Arctic offshore oil and gas drilling so whatever happens on this decision, challenged or not, it will be some years before such operations take place again in North American waters. Services will still be needed in Russian waters and most probably to some extent in Greenland waters.
Other opportunities
– We saw the transit of the Crystal Serenity through the North West passage last autumn and this type of operation is expected to increase in the future. We are interested in providing this kind of icebreaker assistance to cruise ships. We fully agree with the concerns about cruise ship safety and for our part we will be doing everything necessary to keep the vessels secure and safe from ice.
– Another new area is collaborating with Arctic research, especially with countries outside the Arctic such as China, Korea and Japan, and even Central European countries. These have very limited or no icebreaking capacity. We can help and to that end we are planning an Arctic 100 expedition for next summer in conjunction with the Ministry of Foreign Affairs and the Ministry of Culture and Education to provide a Finnish icebreaker for international research which also simultaneously celebrates Finland’s chairmanship of the Arctic Council and its 100 years of independence.
USA and Canada icebreaker needs
The USA and Canada need icebreakers and both are actively seeking international collaboration. In the case of the USA, it could be 7 years before the coastguard will have a new vessel. Can Arctia assist?
– The Canadians are much more advanced by having put out a RFI on the opportunity to charter icebreakers to assist in the Arctic waters and Great Lakes areas. Thanks to the CETA Trade agreement we can come up with a proposal for this during the next couple of months.
The North East Passage opportunities
– 2016 was a record year for destinational traffic on the route and full transits stop in winter. However, if Asian ship operators start using the route or if Suez has security issues then there is cause for action. This is the Russian services’ area of operation but we could be a partner or subcontractor if they have capacity issues. In a fleet of 20 vessels they have 5 nuclear powered icebreakers on the northern sea route areas and 2 or 3 of those will leave service in the next couple of years. They are building one replacement and they have a decision about 2 replacements. They are also building new diesel electric powered icebreakers and that programme is ongoing. There is still scope for us to assist. While the sanctions situation does not affect icebreaker services it does slow services that can use icebreaker help.
How do you develop a long term strategy with so many variables to deal with?
– The main focus is securing the Finnish winter navigation, the fleet renewal based on the customer requirements and making it a fleet with all year round use meaning that we don’t need an icebreaker base. We are coming up with new types and areas of services which meet customer needs because we are going through a rapid market change. We’ve achieved quite a good financial result and enough cashflow to fund the new icebreaker so in many ways we have been able to go against the stream of international trade trends. The key is utilization.
Tero is Vice Chair of the Arctic Economic Council. How has this influenced his business thinking?
– I have visited many Arctic communities in Canada and Russia which has taught me that whatever you do in the Arctic you need a holistic approach to business where you must take into account the environmental, societal and cultural issues. Taking a black and white approach to this environment is a blind approach. You have to see the bigger picture of the issues affecting the area where you work.
Key future points
– We must watch how Finnish economic developments affect Baltic maritime operations and monitor how changes in ice conditions affect ship operations in the light of fuel regulation. Baltic nations will collaborate more in the coming years which is good for the region.
– In the case of the Arctic – there is no one Arctic; national interests are at work and we need good collaboration with peaceful dialogue. We must take the opportunities to get non-Arctic countries more involved in the discussions, research and business. The USA energy policy will have a bearing upon the Arctic and Asian use of the northern passage will be in question.
– Finally we must recognize the importance of free trade during current nationalist and protectionist trends. The TTIP has been delayed and luckily the CETA agreement is in place. Free trade is especially important to the Arctic because there is definitely a need to be able to import and export the best available know-how and products from Arctic areas to other areas and link those into the international business value chains because the Arctic is not getting that much of the economics of scale.
Text: Paul Allison
Pictures: Tim Bird & Arctia Ltd.
