• Falling water levels on the Rhine may disrupt barge shipping again

    31 July 2019

    Last year’s critically low water levels on the Rhine river had significant impact on business operations in industries from chemicals to cement and steelmaking. As shipping traffic was halted for several weeks on one of Europe’s most important waterways that connects north-western ports with inland locations in Germany, France and Switzerland, companies relying on low-cost barge shipping faced increased transportation costs and a shortage of raw materials.

    From July to November 2018, steelmakers and chemical manufacturers such as ArcelorMittal and Solvay declared force majeure at their plants along the river, some of which lasted for over three months. The low water on the Rhine reportedly cost steel producer ThyssenKrupp more than EUR 100 million (USD 111.2 million), in part because it had to reduce deliveries of car parts to auto maker Volkswagen AG.

    As of this writing on July 29, water levels on the Rhine remained higher compared to the same period last year, although levels at the critical gauge of Kaub, one of the narrowest parts of the Rhine, have been rapidly decreasing over the past week. As a result, shipping companies such as CMA CGM and Maersk Line began announcing low water surcharges on barge shipments from July 24.

    The Rhine: Enabling barge shipping and providing cooling water

    The Rhine’s water levels are crucial for chemical and steel plants located along the river for two particular reasons.

    First, they have a direct impact on the loading capacity of ships that navigate raw materials such as iron ore, coking coal, and salt as well as finished goods to and from industrial clusters between the Netherlands and Switzerland. While barges can be fully loaded at water levels of around 250 cm, their capacity is reduced by 50 percent if levels approach the 135 cm mark. Barge operators then have to deploy more ships to transport the same quantity or reload some cargo onto trains and trucks. However, 150 trucks are needed to replace a single ship with 3,000 tons capacity, thus likely causing capacity shortages and cost increases in the transportation market.

    Second, chemical companies and power plants typically rely on river water to cool their plants. In the event of low water levels, companies are only allowed to extract a limited amount of water from the river to continue cooling their plants. Low river levels can therefore force companies to reduce or even halt production output due to their inability to cool some of the plant units. In 2018, for example, BASF had to limit its production of certain materials at its Ludwigshafen site which is located about 100 km south of Kaub.

    Lessons learnt from the low water levels in 2018

    On July 29, water levels at the Kaub gauge increased to 162 cm after having dropped below the 135 cm mark the previous week, at which barge ships can only load 50 per cent of their usual capacity. For now, levels remain significantly higher compared to the 100 cm that were measured at the end of July 2018; however, last week’s heat wave across Europe contributed to a rapid decrease, with the Rhine temporarily nearing the critically low levels at which companies were forced to declare force majeure on some of their supplies last year. Water levels at Kaub are expected to further increase over the next week, but any prolonged period of warm and dry weather will likely push the levels down below the 135 cm mark again.

    Figure 1: Rhine River water levels in 2018 & 2019 and selected force majeure declarations; Source: Resilience360

    In 2018, once water levels fell below 80 cm at the Kaub gauge at the beginning of August, BASF was the first company to declare force majeure on the supply of plasticizers from the Ludwigshafen site. This was followed by a number of steel makers and other chemical companies that included ThyssenKrupp, Evonik, and Vestolit at the end of October when Rhine levels dropped to a record low of 25 cm, disrupting all shipping traffic between Cologne and Basel for several weeks. Resilience360 force majeure data shows that in 2018, companies on average enforced  force majeure declarations for 72 days due to low water levels, with BASF having faced the longest disruption on some products exceeding 170 days.

    Figure 2: Duration of the force majeure declared in 2018; Source: Resilience360

    Water levels on the Rhine river gradually increased at the beginning of December 2018, but it took some chemical companies until March 2019 before individual force majeure could be lifted, i.e. supply could again be guaranteed to customers. While extreme low water situations on the Rhine are rare, a recent study by the German Institute for Hydrology found that the Rhine river will likely experience prolonged periods of low water levels in the future due to shrinking glaciers and less snowfall as a result of climate change. In light of this study and record low levels in 2018, the German government introduced a plan this year to tackle low water on the Rhine river which includes measures such as increasing the multimodal share of river shipping from 9 to 12 per cent; creating early warning mechanisms for low water; and investing in shipping infrastructure.

    What organizations can do to prepare

    Actively monitor the Rhine’s water levels: Organizations should anticipate low water levels on the Rhine river by keeping up to date with the latest levels at critical points on different river sections, particularly at the Kaub, Duisburg, and Emmerich gauges. These are updated three times per day by the German Institute for Hydrology.

    Set up plans for alternative capacity: In order to ensure the inflow of raw materials at plants along the Rhine, organizations should consider increasing stock capacity on site or secure space on alternative modes of transportation such as trucking and rail. ThyssenKrupp, for instance, has secured a long term lease of a dedicated coal-carrying freight train to ensure supply as additional storage capacity at its Duisburg site is scarce. Similarly, BASF has increased its usage of special barges which can continue to navigate even during periods of very low water.

    Ensure sufficient supply of cooling water: In the event of low water on the Rhine, it is vital to ensure a continuous supply of cooling water to keep production plants running. For instance, BASF has already optimized its cooling plants and set up additional recooling capacity which will allow it to use water several times for cooling purposes before redirecting it into the Rhine. While this may be a longer term undertaking, organizations that rely heavily on the Rhine may want to consider such cooling measures.

    To mitigate risks as efficiently as possible, organizations should adopt a balanced approach using both short and long term measures as outlined above.

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