Rhine Water Level Ring Alarm Bells for German Economy
- August 11, 2022
- Posted by: Quatro Strategies
- Category: Politics
German economy, which has already been under threat from a winter energy shortage and recession, is also facing lowering water levels in the Rhein river, the country’s commercial artery. Weeks of high temperatures and lower than normal rainfall have been decreasing water levels at the Rhine, causing shipping delays and driving freight costs up more than five-fold. The transport ministry acknowledged an “intensification of the low water level” but did not say if or when it might no longer be possible for vessels to use the river.
Passing through Germany’s industrial heartlands, the Rhine is a major route for products ranging from grains to chemicals and coal.
It is estimated that the disruption could cause a drop of half a percentage point in Germany’s overall economic growth this year.
Vessels carrying iron ore can only load 30%-40% of their capacity in order to prevent the risk of running aground.
In some places, there is only 40 centimeters under a ship, where normally there are more than two meters. It is challenging for ships to get past those points without touching the river bed and damaging the ship. Because of lower water levels, the sailing route gets narrower and ships have to travel in a convoy. Some vessels that are unable to cope with shallow waters had to stop sailing completely.
The resulting bottlenecks are another drag on Europe’s largest economy, which is already grappling with high inflation, supply chain disruptions and soaring gas prices after Russia’s invasion of Ukraine.
Freight charges on the Rhine have risen to around €110 per tonne from around €20 in June for a liquid tanker barge. Chemicals group BASF said last week it could not rule out production cuts.
As ships cannot load as much as before, coal power plants, now back in fashion as an alternative to Russian gas supplies, face supply shortages.
Utility company Uniper said production cuts were possbile at two of its plants, which make up 4% of Germany’s coal powered electric capacity. The company is an early casualty of the energy crisis and asked for a bailout from the government in July.
Switzerland has also been affected from the low water levels. It started releasing 245,000 cubic metres of its oil reserves to plug supply constraints.
The situation has prompted comparisons with 2018, when Rhine levels also plunged. But the situation could be more dire this time as supply situation is already tight, and the coal-fired power plants in particular, which are extremely important for generating electricity, are likely to be hit harder.
German economy is expected to go into a recession from the third quarter, which would limit growth to 1.2% by some estimates. But if water levels continue to drop, growth could also drop below 1%.
The water level was calculated at 48 cm on Wednesday compared with the 1.5 meters needed to carry fully loaded vessels.
Some companies have adapted since the 2018 drought. As an example, BASF had implemented an early warning system for low water levels and is also chartering and developing ships suitable for shallower waters.
German coal importers meanwhile hope river levels will rise soon to allow them to meet a demand that, as the war in Ukraine goes on, shows no sign of abating.
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