Over the past two years, Covid-related contractions and Russia’s war in Ukraine created a labyrinth of supply chain issues and an international food crisis. Now, another setback lifetimes in the making is taking hold: Drought along some of Europe’s biggest waterways.
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The dry spell hanging over Europe is among the worst in centuries. It has baked water levels in parts of the Rhine down to mere centimeters. Water levels there remain within a minimum range for shipping, but have slowed traffic along Germany’s main freight venue, driving shipping rates higher.
The issue became more acute on Wednesday, when engine failure stranded a freighter mid-channel along the Rhine, media outlets reported. Reuters reported around 20 ships backed up along the channel as of Wednesday afternoon.
Billions At Risk
Further snarls threaten billions’ worth of trade and supplies, like coal and oil. And they risk cranking prices higher amid the region’s ongoing energy crunch.
“Flows have dwindled to such a level that the river is at risk of being unnavigable, putting an estimated (80 billion euros) of trade at risk,” Steve Clayton, fund manager at Hargreaves Lansdown, said in emailed commentary last week.
“Worse still, much of that trade consists of energy products like coal and oil en route to power stations,” he continued. “The war in Ukraine has already created extraordinary stress in energy markets and now the drought is threatening the ability of Germany to use alternatives to Russian gas.”
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Climate change in the years ahead is likely to upend the world’s supply chains. But analysts offer mixed views on the Rhine’s near-term potential impact on the broader economy and already-existing supply chain issues.
For the rest of the world, they say that at least for now, most major waterways are still deep enough and dredged enough to clear the barges and other vessels passing through. However, those practices risk longer-term environmental damage.
They say enough detours currently exist around drought and dry riverbeds. But as the Covid era has shown, even a single backup can ripple through the world’s shipping lanes.
Code Red Warnings, Supply Chain Issues
The heat wave in Europe has sapped the region’s farmlands. Wildfires in France’s wine regions have forced people from their homes. The U.K.’s national weather service last month forecast temperatures of 40 degrees Celsius for the first time — or around 104 degrees Fahrenheit — and it issued its first-ever “red” warning for “exceptional heat.”
The European Commission says that 47% of the European Union us under drought “warning” conditions. Seventeen percent is under “alert,” defined as stress on vegetation following a lack of soil moisture.
The Rhine flows from Switzerland, through Germany and into the Netherlands, ornamented along the way with centuries-old castles and steep vineyards. The last time the water levels were that bad was in 2018. Water levels at that time reached lows of 25 centimeters, cutting off ship traffic for roughly half the year.
The closures cost Germany’s economy 0.2 percentage points of growth, Deutsche Bank said in a research note this month. The Rhine represents 6% of annual goods transport along rails, roads and inland waterways in the EU and Switzerland, a European Commission official said via email.
‘Exceptionally Low Level’
“The current water levels on the Middle and Lower Rhine are currently at an exceptionally low level for this time of year,” the Rhine Waterways and Shipping Authority said in a statement on Wednesday. “They are the result of the lack of precipitation in recent weeks and months.”
The authority said that water levels would rise “by 50 cm or more” by the end of next week, as rain moves through the area. But it said it expected those levels to ease afterward.
“Overall, the water levels continue to move mostly in the range of an average low water level,” the authority said.
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Water levels on the Rhine near Kaub, a German town along the river some 50 miles outside Frankfurt, were expected to hover at around 35 to 36 centimeters, or a little more than a foot, for the rest of this week, according to government data. Fairway depths, a gauge of the amount of cargo a ship can unload, were deeper.
The authority said that boats shipping cargo would decrease what they carry accordingly, as water levels dropped. That, however, could only add to ongoing supply chain issues.
“Therefore, transport becomes more expensive due to so-called low-water surcharges and because the cargo potentially has to be distributed over more ships,” the Deutsche Bank analysts said.
“This, too, is already challenging in the current situation, as the sanctions against Russia mean that other types of freight are also competing with fossil fuels,” they said. They also said that lower water levels raise the risk of accidents that could block passage of other vessels.
Supply Chain Issues: A ‘Small Problem?’
Elsewhere, there have been reports of ships jammed on the Danube, which winds through much of Eastern Europe from Germany. The Po, which crosses Italy, is so low it can no longer nurture some crops.
Andrew Kenningham, chief Europe economist at Capital Economics, said in a report last week that since Germany’s reunification, in 1990, the Rhine had shut down shipping nine times because the water was too low. As the climate becomes less forgiving, those closures have become more frequent.
But he said the river’s economic impact to Germany would be less harsh than other ongoing supply chain issues.
“The fall in the Rhine’s water level is a small problem for German industry compared to the gas crisis, or indeed the recent shortage of semiconductors,” he said. “But if it persists until December it could subtract 0.2ppts from GDP in Q3 and Q4 and add a touch to inflation.”
He cited a study finding that “‘a month with 30 days of low water levels on the Rhine dampens overall inland water transportation by about 25% and industrial production by about 1%.'”
Carriers in the region could use rail lines or trucks to haul cargo instead. But Kenningham said service could be slower and more expensive. And the Deutsche Bank analysts a single big commodities barge on the Rhine carries roughly the same as 150 heavy trucks.
Asaf Ashar, a professor emeritus at the University of New Orleans who studies ports and supply chain issues, said the impact of Europe’s drought is likelier to land more on commodities. Containerized shipping is much more rare and expensive along inland waterways, he said.
“In terms of freight tonnage, the impact will be so-so,” he said of the Rhine’s broader impact on supply chain issues.
‘Train The River’
Droughts have affected U.S. waterways as well. A decade ago, a three-month drought through the Great Plains forced the Mississippi to close at least three times.
The daily costs from those closures came in at $300 million, the government estimated. The drought overall at that time cost the nation nearly $35 billion in “direct losses,” according to a government paper from 2019.
Ashar also said the Rhine doesn’t have the routine dredging that other rivers have to handle water levels. Environmentalists have resisted installing new locks, Bloomberg noted in 2020.
The Mississippi, he said, has been continuously dredged. So was the Columbia River, which runs through the nation’s Northwest.
“Once you train the river, which means you put locks on them and so on, the river is not a river anymore,” he said. “It’s a series of pools. And you control the water level.”
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