The lack of rainfall in recent months means cargo ships are now carrying lighter loads, transport costs are soaring and economic and power supply risks are worsening. Last month, Germany’s Federal Institute of Hydrology warned that water flows at the Kaub gauge, located west of Frankfurt, were already at just 45% of average levels for this time of year. The agency said it had created “frequent obstacles” for ships. Now, water levels are expected to drop further before rising “very slightly” in the coming weeks, the Rhine Shipping and Maritime Authority said on Friday. The situation is reminiscent of 2018, when similar problems with the river led to “suspended freight shipping” and reduced Germany’s economic growth by 0.2 percent, according to Deutsche Bank economists.
Higher cost
Although water levels this year have not yet fallen to the same extent, “cargo ships are already having to reduce the amount of loading,” they wrote in a report last week. “Therefore, transportation becomes more expensive.” For example, in the Kaub gauge, water levels below 75 centimeters (29.5 inches) typically mean a large container ship “has to reduce its cargo to about 30 percent,” the economists said. “There is also an increased levy in Germany to pay cargo when the water level drops below a certain level,” UBS insurance analysts warned. The drought could exacerbate an even bigger crisis for Europe’s largest economy, which already faces the risk of recession due to an energy crisis, high inflation and supply chain bottlenecks. Germany recently resorted to firing up its coal-fired power plants to ensure the country maintains access to electricity as Russia cuts gas supplies. But “much of the coal needed is transported from the Dutch ports of Amsterdam, Rotterdam and Antwerp by barge” across the Rhine River, adding pressure to capacity there, Deutsche Bank economists noted. According to Henri Patricot, an oil analyst at UBS, the drop in the river’s water level “causes shipments of energy products, which worsens the commodity supply situation in Europe”. The Rhine is also vital for transporting chemicals and grain. In a report on Wednesday, Capital Economics said that while the Rhine problems were “a small problem for German industry compared to the gas crisis”, it could become a bigger headache later this year. If the drop in water levels “persists into December, it could shave 0.2% off GDP” in the second half of the year “and add a touch to inflation,” wrote chief economist for Europe Andrew Cunningham . Germany’s all-important manufacturing sector could take a bigger hit. Researchers at the Kiel Institute for the World Economy previously found that in a month of low water, the country’s industrial output can drop by around 1%. Currently, the German shipping authority does not impose any traffic restrictions on the Rhine due to low water levels. However, a spokesman for the waterways agency said that in some cases, commercial shipping may not be viable if cargoes had to be greatly reduced. Large areas of Europe have experienced extreme heat waves and drought. The source of London’s iconic River Thames has dried up and moved about five miles downstream. High river water temperatures in France have prevented the operation of some nuclear power plants. And in northern Italy, farmers are facing the worst drought in 70 years, affecting production of crops from soybeans to Parmesan. — Julia Horowitz contributed to this report.
