By Tyler Durden
The Rhine River’s low water levels threaten Germany’s largest industrial players that rely on the 800-mile (1,288-kilometer) waterway from Switzerland to the North Sea for transport. A new estimate cautioned water levels could decline through the weekend, taking it within centimeters of being impassable by barge.
The official depth at Kaub near Frankfurt, Germany, declined to 23.6 inches (60 centimeters) on Tuesday, its lowest for this time of year in at least two decades, according to Germany’s WSV inland waterway agency. The last time water levels were this low was December 2018.
New forecasts indicate the water level at Kaub will continue to decrease to 18.5 inches (47 centimeters) by Saturday, according to the German Federal Waterways and Shipping Administration.
If 47 centimeters is reached, Kaub would be 2.5 inches (7 centimeters) from being impassable by barge.
In response to recent sliding water levels, Riverlake, a vessel broker, said barges hauling goods between Upper Rhine and Rotterdam had reduced weight to about a third of capacity to improve the draft in shallow parts of the waterway. Less shipping capacity is driving up transport costs to near-record highs.
CHART OF THE DAY: Rhine barge costs beyond the chokepoint of Kaub are rising very fast, approaching the record high set during the 2018 drought.
Kaub water gauge stands at 62cm (down from 150cm in early July), and set to drop to 45cm by weekend. Below 40-35cm barge traffic stops pic.twitter.com/IHM5MzSC3q
— Javier Blas (@JavierBlas) August 2, 2022
For some context, barges on inland waterways haul about 5%-10% of German freight, with about 80% of that on the Rhine, including a third of domestic crude oil, natural gas, and coal shipping. The low water level at Kaub could exacerbate the worst energy-supply crunch in decades, stoking even higher inflation that would result in a more aggressive ECB hiking interest rates.
“Water levels are forecast to fall near levels where it’s uneconomical for barges carrying commodities to sail beyond Kaub. On a more macro level, this puts the ECB in an even tougher spot. With waterways drying up, depleted energy resources, price pressures, and the euro-zone manufacturing downturn worsening, would the ECB be able to pile on another 50-bp hike? Money markets are starting to pare rate hike bets as uncertainty dominates,” Bloomberg’s Nour Al Ali wrote.
Josh Folds, a European oil analyst at consultants Facts Global Energy, said Rhine disruptions would force companies to search for alternative transport on land, such as rail and trucking.
There appears to be no relief in sight as “longer-range models suggest drought conditions will probably continue for the next months,” said Andreas Friedrich of the DWD Federal Weather Agency.
All eyes are on Rhine water levels this weekend as Europe’s crucial waterway is on the brink of closing.
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