The Rhine Shipping Crisis
Rhine Facts, Implications on Trade & Outlook
Today I’m back with a short explainer about the rhine waterway crisis in Germany. As this is a shorter piece it’s also freely available for everyone!
If you haven’t already – check out my piece about the Big Drought which I published last week.
Some facts about the Rhine
The Rhine is Europe's most important waterway. About 300 million tonnes of freight are shipped through the river each year. The river passage is vital for the manufacturing industry in the western part of Germany and northern Switzerland. Huge amounts of coal, oil-related products, natgas and chemical products get shipped through the waterway.
What is happening right now?
Starting with some good news, the marker at Kaub, which is the most narrow waypoint of the Rhine, located west of Frankfurt, was at 35 centimeters last Friday. Nevertheless, the water level jumped back to 1,20 meters, on Tuesday morning as rains appeared over the weekend.
It’s important to know that below 40 centimeters water depth, it makes economically no sense to ship for many companies, as ships would need to load off too much weight beforehand. The level is not the actual depth of the water, which can be several feet deeper, but rather a measure of navigability.
The bad news is that the water level will probably retreat again as the weather will be around 30 degrees without much rain during this week. If we take a closer look at the latest forecast by rhineforecast.com, we can see that the recent jump probably will improve the situation, only the passage point in Dusseldorf is looking very grim right now.
Another indication that the recent water-shipping crisis isn't resolved yet, gives us the typical seasonality of the Rhine’s water level. Usually, the river has the lowest amount of water in it during the middle of October.
Implications on trade
The general transportation cost through the river became much pricier in recent months. While it cost 20€ per tonne in June to ship goods through the rhine, it now costs about 110€ at the end of August. These higher costs also intensified the energy crisis in Germany further as huge amounts of natgas, coal and gasoline get shipped through the river. I would argue that the implications on energy prices were even more severe when there wasn't already visible demand destruction at the moment. All this is of course inflationary and makes me worry that peak inflation in Europe but especially Germany may be just another dream.
Generally speaking, companies that have built up inventories beforehand are able to get 3 weeks through it without trade flowing through the river. In this case actually helped the fact that due to slowing economic growth, and demand destruction, companies had to build up inventories again over the recent months. Nevertheless, it seems like most of these inventories especially in the manufacturing industry seem to be used up, as BASF (a large chemical company) and some coal plants warned about the consequences.
Implications for the world
The worst may be already behind us as the last few weeks were pretty tough in terms of rain and drought conditions. But I don’t trust weather forecasts that look in the future more than two weeks. So the situation will stay tricky.
Going forward I think these water level and shipping-related problems will occur more often than some people today expect. The last time we faced a similar problem was in the summer of 2018. I think this will become a regular problem for us in the years ahead.
My Biggest concern is because of the enduring drought in Europe, China and the US is, on the other hand, another one. I think low water levels will lead to less hydropower capacity around the globe which would be bad for our green energy transition ambitions. The other potential threat I can’t stress enough are crop yields. As water becomes scarcer and therefore more valuable farmers will most likely use less water to water the crops and if those drought conditions intensify over the next years this will hit the crop yields in times when the world population is growing faster than ever.
(The Commodity Report is not investment advice)
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