U.S. consumer demand has
been elevated since the summer of 2020. We have so much cargo
coming across the Pacific Ocean unlike anything we've
ever seen before. Estimates of 30% to 40%
increases in freight demand between now and the next
few decades are prevalent. It's really a question of
saving shipping costs, saving time, versus that
lack of predictability. Throughout the last two
years, you've had economies opening and closing and
ports doing the same and factories and all the rest. And all of those little
mismatches, along with some kind of fundamental ones
between different countries, have thrown our supply
chains out of balance. It's just like, bam, bam,
bam. The United States lags
behind the rest of the world when it comes to passenger
trains. But when it comes to the
freight railroad, the U.S. is dominating. The freight
rail network in the U.S. operates over 140,000 miles
of privately-owned track in every state except for
Hawaii. It moves one third of all
U.S. exports and roughly 40% of
long distance freight volume. The North American Freight
Rail Network is considered the most efficient, the
largest, and the most profitable freight rail
network in the world. It competes directly with
the trucking industry to move goods around the
country, shipping everything from coal to cars to
chemicals. And with the rise of
e-commerce companies like Amazon, trains are
increasingly moving consumer goods as well. If you see it on a shelf, we
likely had a hand in moving it. There are seven major
freight railroads that connect to North America. Union Pacific and BNSF
dominate the West. CSX and Norfolk Southern
are the primary East Coast operators, while Kansas
City Southern along with Canadian Pacific and
Canadian National run routes north and south. Amtrak, which is the United
States passenger service, owns only 3% of the
country's rail. In 2019, the top five
railroads in the U.S. had a total operating
revenue of over $71 billion. BNSF, a subsidiary of
Warren Buffett's Berkshire Hathaway, is not publicly
traded, but the remaining four U.S. companies have
seen their stock on a steady climb over the last several
years. The railroads are incredibly
profitable and actually are achieving profits that
they've never seen in their entire history. That,
unfortunately, is not true for passenger railroad. Amtrak continues to lose
money. It's the only major
for-profit railroad in the United States that hauls
passengers, and yet it has never made a profit. The future of freight
demand in this country is strong. Estimates of 30% to
40% increases in freight demand between now and the
next few decades are prevalent. But the freight rail
industry success has not come without its
challenges. The industry has dealt with bankruptcies,
the lack of demand for coal, and the more recent supply
chain bottlenecks and rise in thefts. The seven top
railroads, which own the majority of the tracks in
North America, have also been criticized for
monopolistic power over the rail industry. They tend to be very
oligopoly and have an enormous amount of power in
pricing, and there isn't a lot of competition. CNBC explores how freight
railroads became so profitable and how the
industry plans to evolve to stay on top. The U.S. railroad dates back
to the year 1830 before airplanes or automobiles
were even invented. Passenger rail and freight
were in high demand to move people and things around
the expanding country. It's been an economic
backbone of the United States and in many ways
plays a core and central theme in American history,
and particularly the state of the economy. The railroad has seen many
high and low points. By 1917, 1500 railroads
operated on 254,000 miles of track. The forties and
fifties brought the rise of cars, air travel, and
trucking. Up until that point, there
was basically no competition for passenger or freight
rail besides other railroad companies, and the industry
was subject to federal regulation that set rates
and profit levels. After World War II, the
federal government built this incredible interstate
highway network and really lit trucking on fire, but
didn't relax the regulatory standards on the rail
industry, even though the competition increased
dramatically. It wasn't until 1980, when
the Staggers Act was enacted, that these
regulations were loosened. It allowed railroads to
choose routes, prices, and services and brought
profits back to the railroads. Since then, many
redundant routes and railroad mergers have
consolidated the industry. There is a series of about
five or six different mergers that allow the
Union Pacific to be the 32,000 miles of mainline
track that we see here today. Without MNA, chances
are that rail as a percent of overall freight would be
a much less important part of our domestic freight
network. Kansas City Southern just
recently agreed to merge with Canadian Pacific, and
if the Surface Transportation Board
approves, it will create the only railroad linking
Canada, the U.S. and Mexico. Today, the U.S. has some of the most
profitable freight railroad businesses in the world,
achieving billions in profits. Passenger rail,
however, has not seen a similar comeback. While freight railroads have
invested at least $25 billion a year, year over
year, into their networks over the past several
decades, passenger rail has not had the same level of
benefit. When it comes to Amtrak, the
federal government has traditionally been the
primary funder of Amtrak and the amount of funding pales
in comparison to funding levels that have occurred
in other countries. Experts say geography and
privatization of the rail freight industry is why
some consider it to be the most efficient in the
world. The rest of the world does
things quite a bit differently, and most of
the rest of the world, the rail network is
nationalized. It isn't owned by a particular company. The United States geography
is the primary reason that freight, railroad, and the
freight network in the United States is far
superior to what you see in other countries. A lot of
what railroads depend upon are bulk commodities,
agricultural commodities, and mining that we get out
of the ground. And a lot of those
materials come from the center part of the country. And because these are going
to non-populated areas, rail is really well positioned
and is a far superior mode of traffic than you see
with trucks. These companies compete with
each other but also must work together and
coordinate shipments since there's not one central
owner of the railroad. In order for us to provide
service for a customer, say, from the West Coast all the
way to the East Coast, we have to hand off those
products, those boxes, those carloads to a different
carrier on the east side of the network. Freight
railroads are what I like to call the middle miles. And so when you're looking
at international traffic, for example, on the West
Coast, you have ships bringing in goods and those
are transloaded either directly into train or into
truck. Train takes the long miles,
the middle miles of those trips, and then hands those
off to the truck often at the end of the trip. So we
all work together as one overall network. Through the reduction of
companies and consolidation, railroad market power has
increased. They are occasionally
brought up in front of the regulators for not
servicing but also not charging fair market rates. They're constantly under
the lens and constantly accused of exercising more
monopolistic practices in their pricing. Not so much
on the intermodal traffic, which has to sort of stay
naturally competitive with truck traffic, but more so
on the bulk goods that there isn't really an equivalent
truck competition. The Biden administration
issued an executive order last July that calls for
regulation on the freight industry, targeting a
practice known as reciprocal switching. Reciprocal
switching is intended to foster more competitive
environments for shippers. Because the freight
companies own certain stretches of track, the
regulation would force them to open up the tracks to
other freight companies, giving shippers more
options of who to work with and therefore creating a
more competitive market. The practice is already
common in Canada, and some freight railroads have
switching agreements which came as a result of previous
mergers. When Amtrak was created,
part of the deal was its passenger trains would
still have access to tracks owned by the freight
companies. Amtrak pays host railroads $142 million a
year to use their tracks. It comes at a time when
we're trying to move as much freight as we can
throughout the supply chain. And to do anything that
would knowingly undermine the fluidity of the freight
network is frankly wrongheaded and at odds
with the overarching goal of maximizing freight
movement. The system works. The Surface Transportation
Board is in place to adjudicate rate disputes
and determine whether or not a particular rate might be
reasonable or not. The Surface Transportation
Board, the agency who oversees economic
regulation in the industry, is holding a public hearing
to discuss the matter in March. The railroad
companies rely on the trucking industry, but also
compete with them for customers. Truck is the biggest form of
competition for railroads in North America. Trucks have
an advantage on the smaller shipments that are
associated more commonly with consumer products
rails. We have a big advantage on
what I would call bulk commodities that are heavy
and move in larger quantities. Historically, a big portion
of rail volumes came from moving coal throughout the
country. In 2019, coal shipments
were down 45% from their peak in 2006. Today, the rise of
e-commerce and companies like Amazon have made
intermodal containers its biggest shipment.
Intermodal containers can move seamlessly from a ship
to a train to a truck without having to be
unpacked. We've become a more
intermodal intensive industry, and so things
that we hadn't done in the past, as much as move
smaller packages, we're doing a lot more of that. It gives you more breadth
and more reach in terms of the customers that you can
serve. The freight rail is the
most environmentally friendly way to move goods
over land. We emit about 25% of carbon
emissions that our trucking partners do. One intermodal
freight train carries upwards of 200 containers,
and so that's 200 trucks worth of goods on one
train. And for the railroads
themselves, it's far more profitable. They can charge
a much higher rate on a per-mile-basis by hauling
intermodal traffic than just hauling general
commodities. Los Angeles and Chicago are
the two top areas in the U.S. for intermodal trains. Theft of these boxes have
been on the rise recently. In LA, Union Pacific
containers carrying packages for companies like UPS,
FedEx and Amazon were found open and a trail of empty
boxes lined the tracks. A handful of years ago,
theft out of an intermodal box was a nuisance,
happened every once in a while, wasn't organized. Today, over the course of
about the last year and a half, that theft has become
very well organized. We have a concentrated
issue in the LA Basin. Los Angeles ports are a
crucial part of the global supply chain. The Port of
LA and the Port of Long Beach together take in 40%
of all goods sent to the U.S. by water. Millions of containers and
billions of dollars worth of goods move through the port
every year. Supply chain issues during
the pandemic have led to a backup at the ports with
lots of containers waiting to move into the country. When the supply chain is
facing challenges, freight railroads are facing
challenges. And we've been working hard to do our part
to help alleviate supply chain challenges facing
this country. And that's through
operating 24/7. It's through working with
our maritime and our trucking partners to keep
goods moving, to stand up additional capacity, and
really try to keep the economy going. As the industry looks to the
future, automation and the rise of self-driving truck
companies like Embark and Plus could take more of the
freight industry's market share. If you think about it on a
per-mile-basis, there are estimates that an
autonomous truck would actually reduce the cost of
running a truck by as much as 70%. If that plays out, it's
going to put significant pressure on the railroads
because they simply cannot maintain high pricing and
really participate in that intermodal traffic. We see an awful lot of
emphasis on autonomous trucks, and I'm pretty sure
within our lifetime we'll see driverless trucks on
the road. But we also then need to be
able to automate the railroads to keep up with
that. Union Pacific has invested
in TuSimple, a self-driving truck startup, as a way to
keep up with developments. It also said at the
company's Investor Day in 2021 that ultimately our
answer to autonomous trucks is autonomous trains. There are companies like
Parallel Systems currently working on prototypes of
self-driving trains. Of course, we're looking to
be as competitive as we can, in that in the future. There's a lot of pieces that
go into that, but certainly the technology and kind of
the backbone of that technology, we think exists
and we're pursuing those opportunities. Despite being the dominant
mover of freight in the U.S., the trucking industry
is facing a labor shortage, an issue that only grew
worse during the pandemic. Labor, as a percent of
overall railroads, is far less than what you see with
the trucking industry. So autonomous is going to
benefit the trucking industry far greater than
it would benefit the railroad industry. And so
it's a major threat to the railroads. I would fully
expect that the railroads will fight through their
lobbying efforts to keep autonomous trucks really
boxed in and tightly regulated and will be a big
constituent that pushes back on full autonomous. Trucking makes up 27% of
jobs in the transportation industry compared to rail
transportation, which makes up 3%. The rail industry declined
by 40,000 jobs from November 2018 to December 2020. Railroads also have their
own set of issues as it relates to labor. The unions that are
fighting them on things like precision railroading,
which makes the railroads far more efficient and
makes the railroads far more dependable, but also means
that there's less labor in humans involved in the
transportation networks. Precision scheduled
railroading is an operational innovation that
helped turn the industry around. It adds and mixes
freight cars onto longer trains for fewer trips, and
reduces the number of stops and crew. Unions have not particularly
liked it, but shareholders of the railroads have loved
it, and that's really driven the capital appreciation,
the proper appreciation, and the efficiency of the
railroads for the past couple of decades. There's pressure to protect
jobs. The regulators have to be
very, very careful that we don't end up back in the
1970s, in ten or 20 more years, when the trucking
industry has evolved to being highly innovative and
automated, and rails are back holding to two man
crews, because the federal government has said you
will have a two man crew rule. Despite these criticisms and
the number of employees in both trucking and freight
rail declining, the need to transport goods around the
world will not stop. The projected growth for
freight volume in the U.S. is expected to grow 50% by
2050. And it's important that
people realize that. We're out there, working
out, on the network, outside 24/7. We've done that
throughout the pandemic, we've done that throughout
the supply chain challenges we've seen, and we'll
continue to do that into the future. The Port of Los Angeles, the
busiest port in North America, saw record volume
in 2021. We have so much cargo coming
across the Pacific Ocean unlike anything we've ever
seen before us. Consumer demand has been
elevated since the summer of 2020. Imports, including
furniture, car parts, and apparel, surged to a record
of about 5.5 million to use in 2021, a 13% increase
from the previous high in 2018. But along with that
volume came with it an array of headwinds impacting
everyone from retail stores and large manufacturers to
portside communities. As of February 4th, 2022,
there was a backlog of over 90 container ships
drifting, slow steaming, or waiting outside the port of
Los Angeles. At the same time, there
were almost 69,000 empty containers at the ports
terminal and off dock depots. Throughout the last two
years you've had economies opening and closing and
ports doing the same, and factories and all the rest,
workers getting sick, truckers being out of work. And all of those little
mismatches, along with some kind of fundamental ones
between different countries, have thrown our supply
chains out of balance. From what I've been told,
from both logistics experts as well as the importers,
they tell me at least, at least until the third
quarter of 2022, we are going to see these supply
chains disruptions because of the immense congestion. Port congestion also has
health implications for the surrounding community. The ports are a massive
economic hub. There's no denying it. There's no denying their
global importance. But the impacts on people's
health, the impacts on people's quality of life
and the impacts on how long they live can also not be
denied. And it has worldwide
implications, too. As of November 2021, 11.5%
of global vessel capacity was in effect offline as
ships waited in queues. So what is causing the
bottlenecks at West Coast ports and what steps are
being taken to ease the congestion? The Port of Los Angeles saw
record volume in 2021 as U .S. consumers shifted from
spending on services like entertainment and travel to
household goods and electronics. Container
volume at the port in 2021 reached 10.6 million TEUs,
almost 16% higher than the previous year and almost
13% more than the previous record set in 2018. A TEU, or 20 foot
equivalent unit, is the industry standard to
measure cargo capacity for ships and terminals. One 20 foot container can
hold about 400 flat screen TVs. In the fiscal year ending
June 30, 2021, imports surged to a record 5.7
million TEUs, and operating revenue at the port jumped
as well, up 22% from the previous year to $572
million. But that crush of goods
also brought with it massive bottlenecks as ports
struggled to cope from a surge of imports coming
from Asia. These supply chains were
designed for a kind of a delicate dance of sorts,
with containers moving from one country to the other
and then being brought inland and then being
shipped back out. And when those mismatches
start, well, that whole system breaks down a bit,
and that's precisely what we've seen. One analysis showed the
transit time to ship goods from ports in Asia to when
it is ready to be picked up in North America has more
than doubled since the start of the pandemic. Soaking up our vessel
capacity has tightened the network of the rest of the
world so any small disruption becomes a
massive problem. And that's why the rest of
the world is, so to speak, suffering from the
challenges that are happening in North America. The movement of containers
was also impacted. As of February 4th, 2022,
there were more than 44,000 import containers sitting
on the docks at the Port of LA, including 66% of
containers that have been waiting four days or less,
14.6% that have been waiting between 5 to 8 days, and
almost 20% that have been waiting nine days or more. Prior to the pandemic, on
average, containers for local delivery sat on the
docks for just under four days, while those heading
to trains remained there for less than two days. Surging COVID cases among
port workers impacted the flow of goods, too.
According to media reports, in January 2022, about 800
dock workers, 10% of the workforce at the ports of
Los Angeles and Long Beach, were unavailable for work
due to a COVID-related reason. To help ease congestion, in
the fall of 2021, the Port of Los Angeles committed to
24/7 operations and announced plans to charge
ocean carriers a dwell fee for idle containers. Productivity on the docks is
great, but what we found earlier this summer was
some folks on the import side of the ledger were
ordering just in case, not just in time. In fact, back in October,
we levied a plan of penalty against long-aging
containers on our docks. At that time, more than 40%
of all imports had not moved in nine days or more. Since the threat of the
penalty fee was announced, the Port of Los Angeles and
Long Beach saw a combined decline of 62% in aging
cargo on the docks. The slowdown saw retailers
take action of their own, too, in an effort to avoid
bottlenecks. Home Depot, Walmart,
Amazon, and others began chartering their own ships. Stretching from Honolulu to
New York. There are more than two
dozen U.S. ports that are equipped to
handle containerized cargo. In 2019, 59% of all cargo
transported between the U.S . and Asia came via ship. That same year, 42% of
goods transported between the U.S. and Europe went by
boat. But while shipping is a key
component of U.S. trade, America has some of
the least efficient ports in the world, according to a
recent World Bank and IHS Market study. In a review of 351 global
container ports, the Southern California Ports
of Los Angeles and Long Beach, which handle 40% of
U.S. container imports, didn't
break into the top 300. The Port of Los Angeles
ranked 328th behind Dar es Salaam, Tanzania. The Port of Long Beach came
in 333rd behind Nemrut Bay, Turkey. Ports in Asia and
the Middle East were ranked on top. Asian ports, for
example, are considered up to 50% more productive than
their U.S. Counterparts, due in part to
Asian factories and terminals working 24 hours
a day versus U.S. dockworkers, who generally
don't operate on the weekends. Moving goods in
off peak hours has other benefits too, like reducing
congestion along highways, railroads, and in
warehouses. We work traditionally about
19 hours a day here at the port, and with the surge,
we've been flexing, opening a little early, crossing
over lunch times, as well as for the transition to the
evening gates beginning at 6:00. We've also said that
we would be open 24 hours a day, but we've had very few
takers. The warehouses
traditionally worked during the days. And for truckers,
we've seen 30% of our appointments to pick up
cargo continue to go unused every day. Another problem, according
to analysts, is the lack of automation. A study by
management consulting firm McKinsey found that a
successfully automated port could see productivity rise
by up to 35% and operating expenses fall by over 50%. Compared to comparable ports
in Europe, the U.S. Pprts are, generally
speaking, much less efficient and there's
several explanations to it. Number one is lack of
automation. The unions on both coasts
have been quite vocal in opposing automation in
their contracts and using their really extreme
leverage to ensure that their future contracts
don't have what they call job-killing provisions
allowing for additional automation. In 2021, the International
Longshoremen's Association, a labor union representing
dockworkers on the Atlantic and Gulf Coast, warned
shipping lines and developers of automated
vessels that members would not work ships without crew
aboard. It also negotiated an
agreement to prevent automation at ILA Ports. Around the world, only about
5% of ports are automated today. Here in Southern
California, there are two marine terminals on the Los
Angeles side and one on the Long Beach side that have
some semblance of automation. There's work
together to be done between the Employers Association
and the ILWU to make sure that if this technology
continues to progress, the worker is not left behind. We have to make sure we can
upskill, reskill and make great middle class jobs
here on the waterfront. Even in the advent of
technological advancement. But much of the congestion
we're seeing originates far from the docks. According
to the Pacific Maritime Association, a nonprofit
group that secures labor for West Coast terminal
operators, the group said West Coast port congestion
is largely driven by the cumulative collapse of the
entire logistics supply chain, including a critical
shortage of industrial warehouse space in Los
Angeles, as well as a dearth of shipping containers,
railcars, trucks and chassis. A lack of truck
drivers is another problem. The industry is short by
more than 80,000 drivers nationwide, and the
shortage could surpass 160,000 by 2030. Warehouse workers are also
in short supply. On the warehouse landscape. We're short 400,000
warehouse workers nationwide and about 8,000 to 10000
here in Southern California. The challenge is we're
talking about maybe 20 years of a lack of proper
investment. It's now hitting us and
it's hard to see how that can be reversed in a very
short span of time. And yet another issue
hampering ports, according to one analyst, is the
100-year-old Jones Act, which requires goods
transported on water between U.S. ports to be shipped
aboard vessels that are U .S.-built and owned and
crewed by U.S. citizens. That, in effect,
makes it cheaper to ship goods via highways or rail
than on water. So a lot of countries have a
system where you have a massive container ship goes
into a massive port, that's of course fully automated
and open 24/7, and then these little feeder ships
take the cargo and then go to the smaller ports all
around the country. Well, we don't have that. Instead, we have these
massive ships that show up at one port. And to avoid
the Jones Act, they port hop down to the rest of the
ports with less and less cargo because you can't
pick up new cargo and you're there all the way down. It's a crazy system, but
that's the system we have. For years, California's
portside communities have suffered disproportionately
from high rates of air pollution and
pollution-related illnesses. And while levels of outdoor
air pollutants have fallen in the state over the last
three decades, Los Angeles County remains one of the
most polluted parts of the country. Port slowdowns
have only exacerbated the situation. Chris Chavez
works at the nonprofit Coalition for Clean Air and
lives near the Port of Long Beach. We have seen, particularly
when we were having the congestion at the ports,
the number of ships waiting outside where you had some
points, over 100 ships waiting to enter the ports
of Long Beach in Los Angeles, huge increases in
both smog forming and cancer-causing pollution. Container vessels make up
about half of port related air emissions. With a
logjam of ships idling near the San Pedro ports in
October 2021, pollution increased to roughly the
equivalent of the emissions from 5.8 million passenger
cars. Trucks, trains, and terminal
equipment are another source of pollution. Ships are a very significant
factor when it comes to air pollution here. Another big
factor, again, is the trucks. Trucks are, just by
their sheer amount of trucks in this region. Older
trucks have less strict emission controls on them. Freight transportation is
linked to higher rates of asthma, cancer, and other
illnesses and is the largest contributor to diesel
particulate matter and nitrogen oxide emissions in
California. Global shipping in general
is responsible for about 30% of worldwide NOx emissions
and has been linked to thousands of premature
deaths in coastal areas around the world. But what we need to realize
is that what we do order can have an effect on another
community. If you're buying a TV, if
you're buying a good from the Midwest, there's a very
good chance that it's going to go past my neighborhood. Very good chance it's going
to go down the freeway that many, many other trucks are
carrying goods either to warehouses for national
distribution or beyond. In an effort to reduce
emissions, the ports of Los Angeles and Long Beach in
2006 created a Clean Air Action Plan to reduce the
health risks posed by air pollution. The port says
air pollution is down drastically since 2005. The port has also provided
financial incentives for ships with newer engines
and for ships that reduce speeds to 12 knots when
entering the San Pedro Bay Harbor. When ships slow
down, they burn less fuel, resulting in fewer
emissions. And with the goal of
eliminating emissions from all trucks calling it the
port by 2035, last summer, the port debuted five
hydrogen powered fuel cell electric vehicles, along
with two hydrogen fueling stations. Currently, the
port is testing 107 zero emission units in the areas
of cargo handling and harbor crafts. And financial
investments could help ports too. The Biden
administration's infrastructure package sets
aside $17 billion to fix the nation's ports. And California Governor
Gavin Newsom's 2022-2023 state budget proposal
allocates $2.3 billion for its ports. But despite
those measures, analysts say we are unlikely to see
relief in our supply chain anytime soon. There's nothing that
indicates that this is going the right way. It hasn't
gotten much worse in the last couple of months, but
it is still horrendously poor. At the moment, less
than 10% of all vessels that arrive in the North
American West Coast ports on time. More than 90% of
vessels are more than one day late. And that's
compared to normally we would see 70% to 80% being
on time. Shipping delays have
crippled the economy since the pandemic started. They came to a head when a
ship ran aground in the Suez Canal. And it is blocking ships
both ways in one of the world's busiest waterways. This sparked a conversation. Was there another way we
could ship supplies around the world? Maybe over the
top? Arctic Sea routes are
potentially much more useful for avoiding the kind of
bottlenecks that one would see in either the Panama or
Suez Canal or the Malacca Straits. Melting sea ice in the
Arctic has opened the region up to more human activity
than ever. Companies are trying out the
route between Asia and Europe. Shipping in particular has
increased 25% between 2013 and 2019. It can be extremely,
brutally cold in the Arctic, and then you can have a
beautiful sunny day. By perhaps as early as 2035,
it'll be possible to actually send a ship right
over the North Pole in the summer months. That the region can be
traveled across in a smooth and relatively safe fashion
because there's no ice is very scary. And we don't think that that
is an environmentally responsible thing to do and
we frankly want no part of it. Others argue it could help
emit less carbon by making travel times shorter. China claims using the
Northern Sea Route would save almost 20 days off the
shipping time now spent traveling through the Suez
Canal. It's really a question of
saving shipping costs, saving time versus that
lack of predictability. So should the Arctic be
open for shipping? To try to exactly figure out
where the Arctic begins and ends is very much open to
interpretation. Every country has their own
definition of it. The traditional
understanding is anything above the 60 degree mark. The U.S. is one of eight
Arctic states, five of which are coastal. To travel through the
Arctic, sailors need a specialized ship called an
icebreaker. This summer, the U.S. Coast Guard's largest
icebreaker, the U.S. Healy, traveled through the
Arctic via the Northwest Passage. At the helm was
Captain Kenneth Boda. This is, I think, my seventh
year on icebreakers. So it's kind of kind of
what I do. Icebreaking is amazing. It's one of the neatest
jobs I think there is to do. I think this is only the
third time that Healy has done the Northwest Passage,
and we haven't done it in over 15 years. So the Northwest Passage is
basically the passage between the Pacific Ocean
and the Atlantic Ocean, north of North America. The Northwest Passage is
situated in relatively friendly geopolitical
waters, but very unfriendly topography. Really, the Northwest
Passage consists of a number of passages through here. It's not just one one lane. There's, I think, ten
different passages that you can work in. And it's only
been done by about 300 ships throughout history. The timing is very
difficult. So you only have this
narrow window where there's not a lot of ice to get
through, but you're going to encounter some ice. And when you encounter that
ice, you don't know how long it's going to take you to
get through. We saw some really amazing
things in the Northwest Passage. We saw a mama and
baby polar bear on the ice, which was awesome. We saw the northern lights. We operated in some areas
you can only call iceberg alleys where there's
icebergs all around us. It's very nerve wracking to
do it when you're driving it. It's very nerve
wracking to try and sleep when you know that we're
driving through an iceberg area like that. For a very long time, you
had to have a very specialized vessel in order
to get through there, but year by year it is becoming
much easier to send ships through. Canada has always claimed
that the Northwest Passage lies within Canadian
waters, territorial waters. The U.S. does not accept
that, but we're not going to get into an argument about
it. There are two other
potential ways to cross the Arctic. The Northern Sea
Route is the least treacherous physically, but
you should have good relations with Russia. The Northern Sea Route is,
of course, the passage from the Atlantic to the Pacific
over the Eurasian continent. You can get a little bit of
the way through the Northern Sea Route into the Bering
Sea in open water, and then the rest of the way is
going to be really ice-clogged waters. Now, the third route and the
one which doesn't exist yet but might exist very soon,
is the central Arctic route. That's the one that will
actually take ships right north of the North Pole. The route that goes directly
through the central Arctic Sea is really not under
question right now because the ice is just candidly
not going to be thin enough for ships to allow to go
through. My name is Dalee Sambo
Dorough, and I am the international chair of the
Inuit Circumpolar Council that represents the Inuit
or the real people in English. We occupy, in
terms of our traditional homelands, approximately
50% of the Arctic Sambo Dorough's organization is
recognized as a permanent participant at the Arctic
Council, which is the leading intergovernmental
forum in the region. Over the past year, we've
seen the Biden government pledge to work more closely
with the other Arctic Council members. Now, this
is very interesting because Russia is currently holding
the chair of the Arctic Council. So this has placed
the United States is an interesting position. So it is a potential
problem but also a potential opportunity. I don't think that there is
an easy answer in terms of whether increased shipping
would be good or bad. I think that the necessary
regime for controlling that activity needs to be
put in place and it needs to be recognized. China is also very
interested in developing the Arctic region for shipping,
calling itself a near-Arctic state. It has signaled to
Russia a commitment to building infrastructure on
the Northern Sea Route, pledging to build a, quote,
polar silk road over a five year plan from 2021 to
2025. It also announced plans to
launch a satellite to track shipping routes and monitor
changes in the Arctic Sea ice. I would predict that
probably by 2035 we might be seeing sea free ice summers
throughout the Northern Sea Route, again, probably not
in the Northwest Passage. And that comes down to just
the differences in topographies. Overall,
Arctic Sea ice has diminished over 750,000
square miles from 1999 to 2019. It's highly likely that as
sea ice continues to diminish, that we can see
more projects in Russia as well as in the circumpolar
Arctic. Russia and China are the
major shippers on the route. They've collaborated to
bring liquefied natural gas from Siberia and Russia to
a newly built pipeline to China. The Northern Sea
Route is already being used to transport around 34
million tons of cargo a year. Private shipping
companies like Maersk traversed the Northern Sea
Route in 2018, exploring the possibility of expanding to
the region. However, they decided it
wasn't worth it. MSC decided the same thing. No matter what the economic
costs may be day-to-day, that environmental cost
potentially just outweighs the rewards of taking a
shorter trade route. The Arctic also has little
infrastructure to assist ships in case of emergency,
say, if a sailor gets sick or any other unforeseen
circumstance. Navigation is also
extremely difficult. Although a project is
underway with the help of the U.S. Coast Guard to map
the Arctic seabed by 2030. We don't think the Northern
Sea routes are appropriate for transit of our ships
and commerce in general. You know, you get commercial
traffic up there and they get stuck in the ice and
they get crushed. And if that oil gets into
the Arctic, cleaning it up is going to be a huge
challenge. Trying to separate the oil
from the ice is probably near impossible without a
really, you know, hands on approach. Techniques that you can use
in open water, like skimming the oil off the surface
aren't going to work that well in the Arctic with ice
chunks floating and things like that. The native
communities in the Arctic, the Alaskan natives and the
Canadian First Peoples, they use the resources. Obviously, they fish and
hunt, you know, in the water in in the Arctic Ocean. The idea that by 2035 that
the region can be traveled across in a smooth and
relatively safe fashion because there's no ice is
very scary. Sea ice is crucial. It's integral to our way of
life. And that's why we can
characterize climate change as such a crisis that it is
front and center, a force that has had a
devastating effect on our communities already, and we
haven't seen the end of it. When you say Arctic
shipping, you're not only focusing on sort of
transits between Asia and Europe or something like
that. There are so many different
types of shipping and so many reasons that ships
are actually navigating in the Arctic, that you have
to differentiate between them. And in the Arctic,
destinational transport is the most common one and
that of course coincides with diminishing sea ice. Destinational transport
means to and from the Arctic, not across it. This increase has been seen
for a couple of main reasons: harvesting natural
resources and supporting the people in the Arctic. Shipping from the Arctic
has the implication that we're doing oil, gas,
critical mineral mining. Ore and iron are the two
main minerals that can be harvested in the Arctic. So in the EU's 2021 Arctic
policy, they recently stated they're going to seek a
moratorium on coal, oil, and gas extraction in the
Arctic, but importantly not on critical minerals. Another main resource in
the Arctic: fish. In 2019, for example, over
40% of ships were fishing vessels. This is essential to
maintaining our traditional economic activity, which is
hunting, fishing and gathering. Shipping to the
Arctic also has interesting implications because in
many cases that can be food for some of these remote
communities that are no longer able to access their
traditional food sources. Our coastal communities
across Inuit do not rely upon the barges that
provide goods and services to our communities. Climate change and
increased vessel traffic, you know, they're linked,
but they're compounded by all kinds of other changes. You have climate change,
you have increased vessel traffic, the potential for
pollution, the industrial fishing. It's just like
bam, bam, bam. And our people are bearing
the brunt of it. Shipping could provide an
opportunity for economic growth to help protect the
Arctic way of life. One opportunity certainly
is construct deepwater ports, not only for the
receipt of goods and services, but also the
possible economic benefit of being the managers and
owners of such ports so that you can ensure that your
services for vessels are used and that the community
benefits. We try and work with them to
make sure they understand what we're doing, you know, has a positive impact in
the environment as we leave. So certainly one way of
helping those communities is to have a private sector
company come in and say, we would like to use this area
of your land and in exchange will help you build up
infrastructure. We'll help you move away
from these really dangerous areas. And while that's
certainly a step up from not doing anything, it does
present, I think, interesting questions for
the communities. In the meantime, Russia and
China continue to build up infrastructure along the
Northern Sea Route, including a fleet of
icebreakers. The U.S. only has one other
icebreaker to the Healy, the very old Polar Star, which
is currently in Antarctica. This could mean Russia may
be better prepared to lead the Arctic in economic
growth. Will the people who actually
live in the Arctic benefit from not only container
trade but also tourism, fishing? Will the profits
and will the benefits simply go southward or will they
actually be shared with the region? The other problem
that is really starting to appear, especially over the
past year or so, many countries, including the
United States and Russia, are starting to look at the
Arctic from a more kind of strategic lens. Countries have said, for
example, I could point to Russia, which has started
to greatly build up its military presence along the
coast of Siberia and in its part of the Arctic. And this will lead to
greater security problems between Russia and NATO. And again, we're talking
about Arctic populations that are being caught in
the middle of this and have very little say in what
could be the militarization of the Arctic as it becomes
more well known as an economic zone.
