Rhine's low water levels cause problems for German industry

Rhine’s low water levels cause problems for German industry

Buy a bread roll in Germany and there is a good chance it was made with flour from GoodMills, whose grain-processing facilities dot the banks of the river Rhine. Now the group is just days away from limiting production as the baking summer heatwave dries out Europe’s key commercial waterway.

“At some locations our warehouses are up to 90 per cent full,” said Roman Möbus, the company’s head of logistics, adding that sites would close if it was unable to shift its products soon at a reasonable price.

Möbus’s concerns have swelled as water levels on the Rhine have fallen to new lows, after a sweltering summer followed a parched spring and an unusually dry winter. At the measuring point in Kaub, 40 miles west of Frankfurt, the water level dropped to 47cm this week, well below the 80cm required for fully loaded barges to pass through safely.

As a result, container ships are carrying a fraction of their usual cargo to reduce their draught, leading to higher transportation costs and severe delays in deliveries, just as Germany is tackling soaring inflation and supply chain crises.

“Low water levels will further squeeze capacity in the already highly utilized inland waterways,” the BDI business lobby group has warned.

Cargo boats navigate the Rhine near Koblenz, where falling water levels have exposed the foreshore on islands in midstream © Thomas Frey/dpa

Analysts say the water levels could have an even bigger impact than during the last severe drought in 2018, when freight shipping was brought to a standstill, throttling chemical and steel production and wiping billions off the country’s gross domestic product.

“[Four years ago] Shipping was disrupted for about seven weeks from mid-October. . . This time the problems could last much longer as they started in midsummer,” said Deutsche Bank economist Marc Schattenberg, noting that the economic backdrop was also worse this time around.

Möbus highlighted a range of factors, from new surcharges to higher energy costs and a shortage of vessels, which together have left companies with little room for manoeuvre.

Contargo, which contracts barges to transport goods on the Rhine, said it had imposed a surcharge worth €775 per 40-foot container being shipped — roughly tripling normal costs.

“It’s . . . very difficult to explain to someone booking a container from Hong Kong to Frankfurt that there’s low water on the Rhine,” said managing director Marcel Hulsker, who has operated barges on the river for 30 years.

The BASF chemical plant by the Rhine at Ludwigshafen, surrounded by parched fields
The BASF chemical plant by the Rhine at Ludwigshafen, surrounded by parched fields © Alex Kraus/Bloomberg

As well the absence of rain, the bottlenecks had “everything to do with war” in Ukraine, he added. Boats had been redeployed to transport grain via the river Danube amid a blockade of the Black Sea ports that was only now being tentatively lifted. Other vessels were being paid exorbitant amounts to transport coal, as Germany rushed to cut its reliance on Russian energy by ramping up the capacity at coal-fired power plants.

Hulsker said his company normally paid up to €3,500 for a barge with containers. “Now others are paying up to €10,000 to transport coal,” he added.

Energy groups were even paying shipping companies to make empty return trips to the ports of Antwerp, Rotterdam and Ghent, according to two people familiar with the current pricing mechanisms.

Deutsche Transport-Genossenschaft (DTG), which operates 100 or so vessels on the Rhine, “gets requests every day” for coal shipments, according to managing director Roberto Spranzi. He also pointed out that many suitable vessels had been sold off because the German coal industry had been in managed decline before the outbreak of the war.

Germany now had little choice but to import coal via the Rhine, a reliance that Deutsche Bank’s Schattenberg warned “could become an Achilles heel” for Europe’s largest economy.

Utility company Uniper has already warned that it may have to curtail production at its Staudinger plant on the banks of the Main, a tributary of the Rhine, due to limited coal supplies.

However the head of the government agency that oversees supplies insisted that the country’s coal plants had enough stock — for now. “The current problems on the Rhine are temporary,” said Klaus Müller, head of the Federal Network Agency. “They will resolve themselves the closer we get to winter.”

Another problem for industry is that the waters of the Rhine are unusually warm. Moody’s analysts noted this week that the water temperature close to BASF’s Ludwigshafen chemicals plant, south of Frankfurt, was just 2C below the threshold set to limit the discharge of cooling water back into rivers. France has already changed its rules to allow its nuclear plants to deposit hotter water into its waterways.

For now, BASF and steelmaker ThyssenKrupp, the largest industrial groups that rely heavily on Rhine transport, say their production remained unaffected by low water levels, partly due to a heavier reliance on rail freight and investment in modern boats.

The water level at Kaub is still well above the 25cm low recorded in 2018, and some rain is forecast this month. But BASF warning that it “cannot completely outs in production rates at individual plants over the next few weeks.”

Yet with costs fluctuating wildly, shipping experts said it was becoming increasingly hard to predict just how bad this summer’s drought would be for the critical transport route.

“I go home in the evening with a plan and then I come to the office in the morning and make a new one,” the DTG’s Spranzi said.

Additional reporting by Guy Chazan in Berlin

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