SUMMARY
- Europe's intensifying drought situation is jeopardizing the continent's river-based trade, with falling water levels threatening the efficient movement of goods.
- Shipping costs are escalating as low water levels in the Rhine reduce vessels' capacities, compelling major shipping companies to impose surcharges on customers.
- The decline in shipping volumes, and the subsequent potential effects on economies that rely heavily on these waterways, indicate the need for resilient, agile supply chains.
Europe's escalating drought, known for igniting wildfires and endangering food security, is now menacing river-based shipments due to plummeting water levels.
The River Rhine, a pivotal trade artery flowing from Germany to Rotterdam via other European cities, is grappling with shallowing water bodies at vital points. Notably, water levels at Kaub, a town roughly 50 miles west of Frankfurt, reached this year's nadir last week.
Reduced water levels inversely proportionate shipping costs. As the water depth decreases, vessels can carry less, leading to a surge in prices. A handful of shipping heavyweights, including Maersk and Hapag-Lloyd, announced last month that customers would bear the brunt of low water levels in the Rhine in the form of surcharges.
"Rhine's shipping volumes maintained consistency for two decades. However, since 2021, they have been witnessing an annual decline. It's a trend that's likely to persist," Tim Beckhoff, a McKinsey procurement and supplier management expert, remarked to CNBC.
Commodities such as oil, chemicals, and grains, transported via the Rhine, faced severe shipping constraints last year as water levels dropped to the extent that vessels could only be filled to a quarter of their capacity. The freight transported on Germany's inland waterways dipped by 11.1% YoY in 2018, as per Deutsche Bank.
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