Just as the Rhine looked like it was going to turn into nothing but a dry riverbed, with even more supply chain impacts to follow, there may be relief in sight.
While the impacts from reduced traffic on one of the world’s most important waterways may be felt for weeks, Bloomberg News reported Thursday that water levels on the Rhine will start to rise this weekend, as Switzerland — the source for the river — has received some badly needed rain.
The depth marker at Kaub, considered an important point on the river west of Frankfurt, will rise to 67 centimeters by Monday. On Thursday, when Bloomberg posted its article, the level at Kaub was 36 centimeters.
But Bloomberg also noted the average level at the Kaub marker has been about 1.7 meters over the last five years, so normalcy remains a long way away.
On a local level, restrictions on shipping on the Rhine are impacting inland deliveries of numerous energy and chemical commodities, including diesel and coal. (It’s also leading to local fish rescues.)
But on a global scale, already tight diesel markets are likely to be further strained as various refineries that use the Rhine to ship their products into European and global markets are cutting back operations.
The latest refinery to reduce operations, according to various media reports, is Shell’s German Rhineland refinery. An email statement sent by the company to media outlets Thursday said Shell had reduced capacity at the plant “due to the low Rhine water level. The situation regarding supply is challenging but carefully managed.”
Among the supply chain impacts reported as a result of the low Rhine levels, Ford Motor Co. said earlier in the week it had slowed deliveries of finished cars shipped out of Cologne by as much as 30%, according to media reports. However, Ford also said it had increased the frequency of shipments.
More shipments of barges with lighter loads, enabling passage from some of the spots on the Rhine with the lowest water levels and most challenging navigability, is a short-term solution to the problem confronting shippers.
The river flows from various sources in Switzerland through Germany and out into the North Sea near the Port of Rotterdam in the Netherlands. It is a vital source for petroleum products, chemicals and, as the news from Ford shows, manufactured products. From Rotterdam, one of the world’s leading ports, those products are shipped to European and world markets.
“There are parts of the river that can hardly be breached,” Hagen Reiners, editor of German fuels for Argus Media, said in an interview with FreightWaves. “[There is] hardly any traffic to Switzerland.”
Media reports indicated Switzerland was planning on tapping its strategic fuel stocks to compensate for lost shipments on the Rhine due to the low water levels.
As a result of the restrictions on the river, Reiners said spot fuel markets are showing enormous differences between fuels in northern and southern Germany. That discrepancy during normal times might see the southern markets trade at a premium of one or two Euros to the northern ports.
But with the southern ports dependent on the Rhine for supplies, and the northern ports able to take in supplies directly on bodies of water such as the North Sea, the northern ports are now as much as 20 to 40 Euros cheaper than their southern counterparts, Reiners said.
Earlier in the week, S&P Global Commodities Insight (SPGCI), the division that houses the former Platts segment, reported rates for 4,000-metric-ton barges traveling almost the full length of the Rhine, between Rotterdam and Basel, Switzerland, had risen to approximately 260 Swiss francs (CHF) per metric ton. A month earlier, they had been at CHF86.50.
The impact on traffic levels was spelled out in a recent podcast by Eklayva Gupte, a longtime editor with SPGCI.
“We’ve seen the cost of transporting these oil products through these key points soar, and it really has changed the supply economics for all different commodities,” Gupte said.
As an example, during normal times a barge of 2,000 metric tons could move through the Rhine “quite comfortably. Now, you can only move a barge of about 400 or 500 tons,” he said. “This shows the scale at which this is affecting sending products both up and down the river.”
Reinerf said some refineries on the Rhine have been unable to obtain certain chemical feedstocks that would normally arrive by barge, and that has forced some to reduce runs.
Citing specific factors for increases in diesel prices can be difficult. But in the past week, with the Friday settlement of $3.7005 per gallon for ultra low sulfur diesel (ULSD) on the CME commodity exchange, the price of ULSD over the course of the last five trading days is up 18.27 cents per gallon.
But just as significantly, the spread of diesel to benchmark crude prices has risen as well, signifying a diesel market that has been stronger than crude. Front-month ULSD prices ended the week at a spread of just under $1.40/g to Brent, an increase of about 22 cents from the prior Friday. Since the first trading day of August, that spread has risen more than 82%.
Europe’s refineries have long been configured to produce as much diesel as possible, given the continent’s heavy consumption. It is also historically a major exporter of diesel to world markets, though European exports of ULSD to the U.S. have dropped dramatically in recent years.