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This assessment was issued to clients of Dragonfly's Security Intelligence & Analysis Service (SIAS) on 24 August 2022.
Low water levels make shipping operations slower and more expensive. And though the impact on most industries seems limited so far, the region remains under an EU state of drought alert, and EU agencies forecast heat and water stress will intensify across Europe in the coming years. We also anticipate energy operators in southern Germany, Switzerland and central Europe will struggle to build up coal and oil stocks before winter.
Official projections suggest that a recent rise in the Rhine water levels will not last. Data by the German federal agency for waterways and shipping show that the water level at Kaub, a key waypoint for commodities, rose from 35cm (well below average) on 19 August, to over 140cm on 22 August after heavy rainfall. But further downstream, on the Lower Rhine and its tributaries, levels remain very low. The agency also forecasts the levels will fall again. Based on historical data, the Rhine generally reaches its lowest levels in October, suggesting that disruption to shipping will probably recur in the near term.
We do not anticipate that access to the Rhine will close. The German authorities cannot formally do so, as there is not an official minimum water level at which vessels are allowed to navigate. But according to officials cited in the press, when levels are below 40cm, many cargo vessels cannot operate fully-loaded, making it uneconomical for them to sail. This, on a major waterway for key commodities like grain and fuel, is likely to add on existing pressure on global supply chains since the invasion of Ukraine and the Covid-19 pandemic.
Low water levels on the Rhine are likely to result in shipping delays and higher costs. When freight operators cannot navigate at full loads, they generally distribute them among more ships or conduct more journeys on the same route. This reduces the number of available vessels, driving up prices. In addition, according to German officials, navigating at low water levels also raises the risk of accidents, which are likely to aggravate delays.
Alternative cost-effective routes for cargo transport appear to be limited. German road and railway networks are extensive. But using these is slower and more expensive. Experts cited in the press said that one average inland shipping vessel can load the equivalent of between 100 and 150 trucks. And two major logistics companies said early this month that trains and trucks are already operating at full capacity due to staff shortages. Many are also reportedly prioritising the delivery of coal and minerals over other goods.
Industries using raw materials like minerals, food products and chemicals are particularly vulnerable to shipping disruption on the Rhine. But most seem to have taken steps to avoid shortages and production cuts. A major chemicals firm based in Germany said they feel ‘companies are better prepared today than they were in 2018’, during the last drought on the Rhine. But this will probably depend on how long the ongoing drought will go on for, which, according to preliminary results by the European Drought Observatory, is the worst in Europe in 500 years. Beyond freight transport, droughts have hit the agricultural and fishing sectors, and water-intensive industries such as glass and paper.
Disruption on the Rhine will also probably exacerbate energy supply issues this winter. A multinational gas and oil firm reportedly cut production at a German refinery due to low water levels. And Switzerland, which relies on the river to import oil products, has released stock from its strategic reserves. In addition to these countries, landlocked nations in central Europe will also probably struggle to build up their stockpiles, given currently low water levels on the Rhine tributaries and the Danube.
Image: Rhine river near Dusseldorf, Germany, on 8 May 2020 (Photo by INA FASSBENDER/AFP via Getty Images).
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