Low Rhine water levels causing raw material supply drought [UPDATED]

By Michael Greenfield, Michael Greenfield
Published: Tuesday, 06 November 2018

The low water levels along the River Rhine have meant that the flow of raw materials supplies has diminished and has placed a premium on the sparse supply of cargo barges.

Water levels along the River Rhine are approaching the record low set in 2003, which has put pressure on the logistics sector and left companies assessing alternative ways to transport raw materials because they need more barges than are available.

Low water levels on the river and its associated canal system are an annual problem for the many companies that rely on the Rhine as a trade route, but this year the warmer-than-usual European summer and lack of rainfall have caused water levels to fall more than is normal. This means that barges cannot be fully loaded so more barges are needed for the same volume of cargo.

At 1,200km long, the Rhine is one of the longest rivers in Europe. It opens into the North Sea at The Netherlands, having flowed through Germany, France and Switzerland.

The Rhine and its canals are a major trade network for German companies and also link to the River Main, which connects to Eastern Europe via the River Danube.

According to website Interrijn.com, the water levels at the time of publication were as low as 46cm at Kaub, which lies between Koblenz and Mainz in central Germany. This is often a bottleneck when water levels drop because barges are not able to pass this point in the river.

The Rhine is typically navigable to 1.9-2 meters depth for the largest ships.

The current record lows on the Rhine have not been seen since 2003, and they mean that barges are being loaded with as little as 30% of total capacity so they can still navigate the shallow waterways, according to a Germany-based fluorspar consumer.

The all-time low was 35cm in 2003.

More barges needed

Due to the low capacity utilization of the barges, there is a multiplier on the number of barges needed to transport the same volume of goods. This makes barge availability a problem and places a premium on the logistics service.

"Last week there was almost no traffic on the Rhine. We now have increased freight costs because we cannot take [only] a few thousand tonnes of fluorspar at a time. The last shipment was less than 1,000 tonnes," the fluorspar consumer said.

The company has been forced to stockpile fluorspar at Rotterdam in The Netherlands, and this will be shipped down the Rhine once water levels return to normal.

This year the water has been "particularly low for more than two months, and a lot of companies cannot get their goods shipped in at all," a spokeswoman for Dutch shippers’ organization Evofenedex told Fastmarkets.

"The costs are so high that it is not financially viable. Companies are trying to get some of their goods on rail [transport] and there is a strain on that capacity, as well as on road transport," she added.

Evofenedex, which represents the trade interests of an estimated 70% of all goods trade by Netherlands-based companies, has assessed the total cost of arranging other forms of transport at an additional €380-400 million ($433-456 million) over the past two months.

For low-cost, high-volume commodities such as coal, building materials and animal feed, this means that the additional transport costs are greater than the value of the goods, the spokeswoman said.

Contract problems

Companies have declared force majeure on some product lines as a result of this issue. German speciality chemicals producer Evonik, for example, has issued a warning on performance intermediates – products based on crude oil such as anti-knocking agents.

The company has several sites on the Rhine – one each at Marl, Worms and Rheinfelden and two near Cologne.

Media reports have said that chemicals major Solvay has not received a delivery of raw materials by barge since October 16, and the world’s largest chemical producer, BASF, has declared force majeure on its nylon products.

BASF said in an email to Fastmarkets that there was currently no force majeure regarding nylon products as a result of low water levels in the Rhine. Solvay was contacted for further comment but did respond. 

Barge operators were also affected financially because their clients must pay for a fully crewed ship even when it is not fully laden, raising the cost-per-tonne of every cargo.

"We are losing more than half of our capacity, and this is reflected in the price of a ship. The crew is still earning the same amount of money and therefore the euro-per-tonne rate is going up," Ralf Jina, a sales representative for inland navigation company DDSG Holding, said.

There were surcharges of 60% in addition to the freight rate, which might be typically be €10 ($11) per tonne, he added.

DDSG Holding is headquartered in Vienna, Austria, and is one of the largest inland waterway logistics companies in Europe, operating a fleet of 433 units, according to its website.

The company’s largest barges can carry as much as 20,500 tonnes when fully loaded although others take as little as 3,100 tonnes.

Effects on costs

Several companies that buy raw materials told Fastmarkets that the total effect on costs arising from the restricted waterway movements would not become apparent until their financial results were published.

The Germany-based fluorspar consumer has looked into the possibility of moving raw materials by road although it admitted that this was a precautionary measure and was not immediately necessary.

But because this situation is affecting businesses across Germany and into Eastern Europe, it has also placed a premium on the supply of road and rail transport.

"For one vessel carrying 300 containers [on the water], you need 300 trucks. This leaves no alternative for the steel industry in Duisburg, which will not change from inland vessels to trucks for the simple reason that the cargo is not meant to be transported by truck," a spokesman for the Port of Amsterdam told Fastmarkets.

Some ships were being loaded with as little as 20% of capacity, he added.

In the Netherlands, there is also a shortage of qualified truck drivers, according to the spokeswoman from Evofenedex. "A lot of companies are searching for skilled people to fill job openings," she said.

Another factor to be considered is that transporting material by alternative methods may mean that deliveries do not arrive when they are needed.

Weather to stay dry

According to the BBC Weather service, there is only one day in the next 14 when rain can be expected to fall in Koblenz – one of the principal cities along the Rhine, just north of the Kaub chokepoint.

Website Elwis.de, operated by the German Ministry of Transport & Digital Infrastructure, has predicted that the all-time low water depth of 35cm will be matched by the evening of Friday November 9.

If there is no rainfall in the coming months, the Rhine and its canals will be more susceptible to freezing when the weather turns cold, which could prolong the logistics problems well into the winter.

This article was amended on November 8 to include BASF's comments on its nylon products.

More like this