China Is Opening the First Regular Cargo Route Through the Arctic

Note: Usual Northern Sea Route shown for illustrative purposes Source: Sea Legend Daniel Kiss/WSJ

Shipping cargo through an Arctic shortcut never made economic sense—until now.

Climate change and war in the Middle East are flipping the math that previously kept ships plying longer routes from Asia to Europe. A Chinese company on Saturday is starting the first regular cargo service to Europe through Arctic waters, seeking to reap the benefits of quicker travel time and less fuel use.

The shipper Sea Legend will dispatch the Dubai Tower from Ningbo, China, to Felixstowe in the U.K. on what it calls the Arctic Express, following a route along Russia’s north coast. The voyage by the vessel, which is capable of carrying 1,740 20-foot containers, is the biggest commercial step in the Arctic since a Maersk containership first completed the route in 2018.

Global warming is a big factor behind the new route, but it is not the only one. Nearly half the Arctic region’s summer ice—an area four times the size of Texas—has melted over five decades, clearing a fairly reliable path in the summer months. Meanwhile, high oil prices and attacks by Houthi rebels in the Red Sea have made the traditional routes costlier and more dangerous.

Members of China's 16th Arctic Ocean scientific expedition team take selfies on the ice surface. — Members of a Chinese scientific expedition team on surface ice in the Arctic Ocean this week. Wen Jinghua/Xinhua/ZUMA Press

Beyond that, Beijing has ambitions to play a role in the Arctic’s future, lending a geopolitical dimension to the Chinese company’s shipping route.

Last year Sea Legend completed a trial run from Asia to Europe in a record 20 days. That is roughly half the time of a voyage via Africa’s Cape of Good Hope that many carriers now take because of the Red Sea uncertainty.

Fuel accounts for 70% or more of the costs while at sea, said Alan Murphy, a former Maersk analyst who runs research firm Sea-Intelligence.

Saving fuel by shortening the journey doesn’t automatically make a route profitable. Insurance premiums for the Arctic are 40% higher than the Cape of Good Hope route, said Jonathan Steenberg, an economist at credit insurer Coface. Sea Legend’s Arctic vessels are relatively small. And even after warming, an icebreaker is still sometimes needed to help the cargo ship.

But if the ship can go without an icebreaker, Coface said the Arctic route is now cheaper than a Cape of Good Hope voyage in some circumstances. It estimated that at current oil prices of around $90, the cost of shipping liquid bulk such as liquefied natural gas could drop roughly 33% compared with the Cape of Good Hope route, while dry bulk goods such as cereals would cost about 8% less.

The container ship Istanbul Bridge being unloaded by large blue and red cranes at the port of Gdansk. — A containership operated by Sea Legend in the port of Gdansk, Poland. jackowski/epa/Shutterstock

The route is only passable in the summer and fall. Sea Legend plans eight voyages between August and late October, before conditions get too icy.

“It’s not the Suez Canal but it’s a significant number for the Arctic. It shows there is potential,” said Malte Humpert, founder of the U.S.-based Arctic Institute and author of a book on Chinese shipping in the Arctic.

Even in summer, ships have to navigate around dangerous ice floes and deal with rapidly changing weather. By the end of the shipping season in October, the sky is dark most of the time.

A Russian tanker suffered serious damage to its hull while sailing along the Arctic route despite being assisted by an icebreaker, its insurer, AlfaStrakhovanie, said Thursday, adding that it paid out roughly $650,000.

Coface estimates 3.5% of trade among East Asia, Europe and North America will be able to use Arctic routes within the next five years, representing $64 billion in goods.

Last summer, a record 23 cargo ships transited the Northern Sea Route, which hugs Russia’s north coast. That is tiny compared with the Suez Canal, where more than 30 ships transited daily.

Western companies that want to follow in Sea Legend’s path have to navigate treacherous politics. Russia claims sovereignty over the entire Northern Sea Route and permits for ship traffic are issued by its state-controlled nuclear operator, Rosatom.

Aerial view of a port with many cargo ships, red cranes, and rows of stacked shipping containers. — The Dubai Tower’s route will begin in the Chinese port of Ningbo. Huang Zongzhi/ZUMA Press

“Western companies are in a tricky position,” said Humpert of the Arctic Institute. “At what point do they jump back in the water? When does it become economically necessary, and how do you weigh that against environmental risks and the political dimension?”

An alternative Arctic route, the Northwest Passage that connects the Atlantic and Pacific oceans via the Canadian Arctic, is less passable because it is dominated by narrow waterways where ice gets bunched up. The highest number of cargo ships completing the passage in a year was 13, in 2023.

China has declared itself a near-Arctic state despite not having access to Arctic waters. It depends on Russia’s goodwill to use the Northern Sea Route.

“Beijing is concerned that if they don’t establish a significant strategic presence in the Arctic now, it’s going to be more difficult in the future,” said Marc Lanteigne, expert in polar geopolitics at the Arctic University of Norway in Tromsø. However, he said, “China needs to be careful not to give the impression that they are trying to challenge the strategic order in the Arctic.”

Sea Legend didn’t respond to requests for comment.

Any polar venture contributes to China’s quest to master Arctic travel. The country also has three icebreakers and a support vessel currently on a monthslong scientific expedition north of Greenland. Scientific and commercial voyages can yield data about natural resources awaiting below melting ice caps and information for positioning nuclear-armed submarines.

Central banks may be accidentally subsidizing government borrowing through their efforts to prevent a repeat of past market blowups, and policymakers are starting to worry that anticrisis lending facilities could even be interfering with their own monetary policy.

The source of the problem is the switch from central banks being the lender of last resort to, in 2008 and 2020, also being market makers of last resort, ensuring corporate—and government—debt markets keep functioning. During a crisis, support is often essential to prevent a downward spiral that destroys the financial system.

But backstopping markets removes a key risk and encourages more borrowing—especially for the hedge funds that now own trillions of dollars of U.S. Treasurys.

“Ironically, vulnerability is created by mechanisms that were introduced to reduce vulnerability,” said Huw Pill, the Bank of England’s chief economist, one of those growing concerned, in an interview. “So, it’s a bit like a whack-a-mole kind of story.”

Offering either an explicit or implied guarantee that government-funding markets will remain open and liquid means hedge funds have less risk of being unable to finance highly leveraged trades. This is particularly true for the overnight repurchase, or repo, market, where borrowers pledge bonds for cash. The result has been a huge expansion of two popular government bond trades, arbitraging Treasurys or British gilts against bond futures or swaps.

The scale is extraordinary: The Dallas Fed estimates hedge funds ended last year with $2.4 trillion of Treasurys, up from $600 billion a decade earlier. Because the profits on each trade are tiny, hedge funds have to leverage as much as 100 times to get worthwhile returns, creating new risks.

This might sound abstruse. But in 2020, it was the Treasury basis trade blowing up that forced the Fed to intervene. In 2025, signs of trouble in the swap trade pushed President Trump to retreat from his tariff plan.

Pill worries that the reassurance central-bank policy provides bleeds into monetary policy by boosting borrowing. This, in turn, keeps government-debt yields lower than they otherwise would be.

“There’s lots of gilts to be bought,” he says. “How do you support that buying of gilts? You make it attractive. How do you make it attractive? Well, there are some imperfections in the market. So those imperfections create profit opportunities, but they’re not very big. So how do you make them more meaningful? You allow leverage to build up.”

“That’s good for the government because it gets to sell the gilts at a lower [yield] than it otherwise would. It’s good for the financial sector because they’re able to extract these rents effectively. And it’s good for the central bank because the market seems to be liquid and functioning. But all of those things are true until they’re not true.”

When it goes wrong, the more leverage, the worse the problem. And the worse the problem, the more likely it becomes that central banks have to create yet more special tools to address it. That then spurs the next buildup of leverage.

Pill thinks more effort is needed to come up with a modern version of the Bagehot Doctrine. Walter Bagehot, the 19th-century editor of the Economist magazine, summed up the role of the central bank as being to lend to banks freely, against good collateral, at a penalty rate. Access to instant cash helps banks withstand runs. The fact the central bank is offering a backstop should make the run less likely, and shareholders are penalized, through the penalty rate, if it is used.

English economist and journalist Walter Bagehot. Hulton Archive/Getty Images

Tools for saving markets from drying up are more haphazard. In 2020 the Fed, BOE and others just bought lots of government debt to inject liquidity into markets. That worked because, even though quantitative easing is also a monetary policy tool, they also wanted easier money.

Unfortunately, that created what Pill described as a tinderbox, ignited by the energy crisis after Russia invaded Ukraine. The excess money creation from left over from emergency QE then fanned the flames of inflation. This made it much harder to calibrate monetary policy when central banks decided to tighten (although policymakers were also, in my view, far too slow to recognize inflation).

Pill points to the “temporary, targeted” BOE buying of gilts amid the forced selling by leveraged pension funds after Britain’s botched tax-cut plan in September 2022 as a successful model. At a time when the BOE was trying to tighten monetary policy, it intervened in a way that stopped the pension fund selling spiral and stabilized gilts. Yet the central bank maintained tight monetary policy.

Bagehot would recognize the goal: Reduce the encouragement to take risk, known as moral hazard, that offering guarantees in advance creates, but retain the ability to mount a rescue in a crisis.

Unfortunately, much of central banking is going backward on this. Moral hazard is increasing, even for banks. In the 2023 bank bailout, the Fed accepted less-than-full collateral, recognizing Treasury bonds at face value rather than their (much lower) market value.

The emergency rescue facility then became a funding facility that even healthy banks chose to tap—in effect easing monetary policy by the back door and prompting the Fed to tighten the terms before it ended. Something similar could be under way with Japan’s plans to use an emergency Fed loan facility to raise cash to prop up the yen without having to sell its hoard of Treasurys.

I don’t know how to break the cycle of crises needing rescues that lead to more leverage and new crises. And I’m concerned we’re firmly into the added-leverage phase of the latest cycle.

At least central bankers are still thinking about it, even if they don’t, so far, have good answers.

China Is Opening the First Regular Cargo Route Through the Arctic

China is launching the first regular Arctic cargo route to Europe, offering faster journeys and lower fuel costs as melting ice and Red Sea risks reshape global shipping.