Low water levels on Rhine add to 'tipping point' facing Europe's truck markets

 A barge on the Rhine river ( Photo: Pixabay )

A barge on the Rhine river (Photo: Pixabay)

Lows water levels are seasonal, but this year has been record, impeding low-cost barges and favoring high-cost trucking.

Europe’s supply chains are strained in their peak shipping season due to chokepoints along the one of the continent’s main freight arteries. The upshot has been sharply rising transportation costs for the Europe’s major industries.

The Rhine River, Europe’s answer to the Mississippi, connects the large sea port in the Netherlands to the heartland of Germany, moving bulk commodities and consumer goods to and from Europe’s biggest economy.

But an extended drought brought Rhine water levels down to record lows. Depth at Cologne, Germany’s fifth largest industrial city and a major trans-shipment point for freight, saw water levels just over two feet in October.

 The Rhine stretches from the North Sea to Switzerland (Source: EIA)

The Rhine stretches from the North Sea to Switzerland (Source: EIA)

Cologne’s water levels have since risen to just under three feet. But further up the Rhine, the Kaub passage, a transit point for reaching other industrial cities such as Stuttgart and Mannheim, remains at just one foot depth.

The Rhine’s low depths are having the largest impact on bulk commodities such as coal, petroleum and petrochemicals, which rely on barges shipments.

 Water levels on the Kaub passage, measured in centimeters, over the past year (Source: Interrijn Group)

Water levels on the Kaub passage, measured in centimeters, over the past year (Source: Interrijn Group)

BASF (XETRA: BAS), the largest chemical company in the world, reported a 3% drop in sales during the third quarter from its German plants, one of which declared force majeure on shipments due to the inability of barges to move along the Rhine. Chief executive Martin Brudermuller says earnings at several segments were negatively impacted by Rhine water levels.

Operating earnings were down 24% from a year ago to $1.6 billion as the firm “faced higher transportation costs since we had to switch volumes from barges to other modes of transportation,” Brudermuller said on the company’s last earnings conference call.

Bhavesh Patel, chief executive of LyondellBassell Industries (NYSE: LYB), echoed the view that “low water levels on the Rhine are also causing disruptions for petrochemical transportation and production in Germany.”

Along with bulk freight, the Rhine is also a major route for containerized goods. Knut Sander, a managing director at third-party logistics firm Robert Kukla GmbH, says over one million containers annually move between the Netherlands and Europe’s interior via barges.

Seasonally, Rhine water levels have always hit lows in fall, but this year was a record. The October nadir effectively shut off barge traffic on the upper Rhine completely for periods between three or four days.

“We’ve been using this transport mode successfully for 20 years,” Sander said. “Obviously with this massive low water levels situation, we are affected by this because the river barges cannot take the full weight.”

While barge traffic has been able to return to portions of the river, shippers face low-water surcharges of $25 to $30 per twenty foot equivalent due to the shallow depths.

Third-party logistics firms are turning to rail and truck to deal with the drop in barge movements. Sander says the company is moving containers directly onto trucks in the Netherlands, as well as changing destinations for marine containers to southern European seaports which do not depend on the Rhine.

“We have to trying to be creative and find other solutions,” Sander said.

But intermodal and truck costs can be as much as 30% to 40% higher than barge costs.

Europe, of course, is dealing with its own shortfall of trucking capacity due to a driver shortfall. Logistics consultancy Transporeon said its latest European transportation market monitor that costs could reach record highs in the second half of 2018 due to continent’s own capacity constraints.

“This is a direct result of continuously rising fuel and driver costs while at the same time transport demand increases across all industries,” Transporeon said.

Sander agrees with the view that Europe’s truck markets are dealing with “a massive lack of truck capacity and drivers. It’s really at a tipping point.”