3. Water levels and their impact on the inland navigation sector and the economy

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• European inland navigation in 2018 was strongly impacted by the extreme and extended low water period in the second half of the year 2018.

• The influence of the extreme drought on transport activity varied according to the regions. The impact of low water was particularly pronounced on the Rhine, on its tributaries, on the Upper and Middle Danube, and on the Upper and Middle Elbe.

• The interruption in the logistics chains caused considerable economic losses. For Germany this materialised in a decrease of its industrial production by 5 billion Euros.

• There have been low water periods over the last 200 years and this will continue to occur in the future. How to strengthen the resilience of inland navigation transport in view of this phenomenon will certainly be an important question to be addressed.

 

 

Impact on freight traffic

 

  • The following figure shows the monthly goods transport on the Rhine between January 2000 and December 2018 together with a 6-month moving average. Low-water periods are shaded in blue and are recognisable as V-shaped reductions of cargo traffic. The major part of the financial crisis (in 2008, 2009 and 2010) is shaded in yellow.

 

MONTHLY GOODS TRANSPORT ON THE TRADITIONAL RHINE (IN MILLION TONNES, 01/2000 – 12/2018), FINANCIAL CRISIS AND LOW-WATER PERIODS

Source: CCNR analysis based on Destatis

 

 

  • The low water period in the second half of 2018 had a stronger effect on goods transport than the previous years. For October and November 2018, the impact of the low-water period on goods transport was even stronger than the impact of the financial crisis. Although the major part of the decrease in the second half of 2018 is due to low water levels, there was also a negative influence from the economic contraction that set in in the second half of the year.

 

Impact on industrial production

 

  • For the second half of 2018, the reduction of cargo traffic had consequences for the entire German economy. Logistical chains, notably for the delivery of raw materials (iron ore, coal) and for the delivery of final products of the chemical and petrochemical industry, were heavily disturbed.
  • According to the Kiel Institute for the World Economy (See: Ademmer, M.; Jannsen, N.; Kooths, S.; Mösle, S. (2019). Niedrigwasser bremst Produktion (Low water slows production level), in: Wirtschaftsdienst 99 (1), 79-80), the disturbances in logistical chains curbed the growth rate of industrial production in Germany in Q3 2018 and in Q4 2018 significantly. For Q3 2018, the Kiel Institute estimates a decrease of the German industrial production by 1.9 billion Euro due to low-water levels on the Rhine.
  • In Q4 2018, the industrial production was impacted by low water periods also with a time lag. This “lag effect” can be explained by the fact that raw materials, such as coal, iron ore, but also petrochemical commodities, are input factors in the entire production process of an economy. The loss of industrial production due to this lag effect amounted to 1 billion Euro in Q4 2018, while the loss due to the low water levels in the fourth quarter of 2018 itself amounted to another 1.9 billion Euro (= 2.9 billion Euro in total for Q4 2018).

 

IMPACT OF THE LOW WATER PERIOD ON THE RHINE IN 2018 ON THE GERMAN INDUSTRIAL PRODUCTION (INDEX 2015 = 100)

Source : Kiel Institute for the World Economy

 

Impact on freight rates

 

Rhine basin

  • In the Rhine basin, freight rates for the transport of different dry cargo segments increased in October and November 2018 to levels that were around 2.5 times higher than normal. The freight rates for coal, iron ore and containers increased more strongly during the low-water period than for sand, stones, gravel and building materials, as well as Agribulk. The following figure shows this freight rate evolution as an index (2015=100), and the underlying transport relations in the Rhine basin (the Netherlands, Belgium, traditional Rhine).

 

PANTEIA FREIGHT RATE INDEX FOR DRY CARGO, METALS AND CONTAINER TRANSPORT (INDEX 2015 = 100)

Source: Panteia

 

  • Spot market prices for the transport of liquid cargo (gasoil) from the ARA region to destinations along the Rhine in France, Germany and Switzerland are analysed via regular surveys amongst tanker barge operators by the Dutch company PJK International. The following figure shows the index evolution for these transport prices, together with the loading degree of vessels at Maxau/Rhine.
  • It was noted that freight rates in October and November 2018 were around 4.5 times higher than normal. This price increase was stronger than the increase in the Panteia Index. It can be explained by the fact that the Panteia index is related to different sailing areas (intra-ARA-trade, ARA-Rhine), while PJK Index covers only ARA-Rhine trade where the low-water phenomenon was much stronger than for intra-ARA-trade.

 

PJK FREIGHT RATE INDEX FOR GASOIL FROM THE ARA REGION TO DESTINATIONS ALONG THE RHINE (INDEX 2015 = 100)*

Source: Calculation CCNR based on PJK International
* Gasoil freight rates including pilotage, harbour and canal dues

 

  • For the liquid cargo transport within the extended ARA region (between Antwerp, Rotterdam, Amsterdam, Ghent, Flushing (Vlissingen), Terneuzen and other ports in the region), a dataset provided by the tanker barge corporation CITBO was analysed. The corporation CITBO was created in 2013 and aims to strengthen the market position of tanker barge operators. The members of CITBO transport all kinds of liquid cargo, and these volumes amounted to around 3 million tonnes in 2018. Within total cargo transport by members, Gasoil and components have a share of 48%, Gasoline and components 33%, Biodiesel 11%, Chemicals 7%, heavy and other products 5%. Before showing the freight rate evolution, the regional scope of operation of the corporation shall be described shortly (These results are based on statistical calculations that were performed by the CCNR on data provided by CITBO (data covering the period from August 2017 until February 2019)).
  • Gasoline & components: Calculations showed that 92% of all gasoline & components volumes were loaded in Antwerp, Amsterdam, Rotterdam or Flushing. 63% were unloaded in the port of Amsterdam (the rest in Antwerp and Rotterdam). This illustrates the important role of Amsterdam as the world’s largest gasoline port, where blending activities are carried out by trading companies and traders of major oil companies.
  • Gasoil & components: 94% of these volumes were loaded either in Antwerp, Rotterdam, Flushing or Amsterdam, but the ports of unloading were regionally more diversified. They were sometimes quite far away from the ARA region (but mostly still in Belgium and the Netherlands, sometimes also in Germany).
  • Biodiesel : The ports of loading were regionally diversified for this segment. But the point of unloading was mainly Antwerp and Rotterdam (each had a share of 35% of all cargo unloaded). Ghent had a relatively high share as well, with more than 12%.
  • A freight rate index was calculated, per product segment (The graph below contains the freight rate index for the types of liquid cargo, for which a sufficiently high number of data were available). The raw data were freight rates in Euro per tonne, which were realised by CITBO member companies for liquid cargo transports between August 2017 and February 2019 (The data collection of CITBO started in July 2017).

 

CITBO FREIGHT RATE INDEX FOR LIQUID CARGO TRANSPORTS IN THE FARAG REGION (FLUSHING-ANTWERP-ROTTERDAM-AMSTERDAM-GHENT)*

Source: calculation CCNR based on data provided by CITBO
* And other ports in the region

 

  • During the period when there were low water levels on the Rhine, a general rise of freight rates was observed also in the FARAG region (see figure above). This can be explained by a kind of economic ‘absorption effect’: strongly rising freight rates on the Rhine signified an incentive for operators from the Netherlands and Belgium (especially those with small vessels, which were able to sail under low water conditions) who shifted their region of operation (temporarily and/or partly) to the Rhine.
  • In consequence, a supply side contraction in the FARAG area set in where, therefore, the freight rate level also increased. This can be clearly seen from the statistical analysis and from the figure shown above.
  • In absolute values, freight rates for Biodiesel transports were the highest during the whole period under study (August 2017 until February 2019), followed by freight rates for chemicals, gasoil and components, and gasoline and components. During the low water period, freight rates for all kinds of liquid cargo went up, but for gasoline and components and gasoil and components the increase was relatively stronger than for chemicals and biodiesel.
  • Regarding the transported volumes by CITBO member companies, the data show no reduction in the second half of 2018 but a strong increase, for all product segments. The regional focus of operation continued to be in the FARAG area. This increase of liquid cargo transport by CITBO member companies in the FARAG region is reflected by figures from the Dutch national statistical office (CBS) for the same period of time (According to the CBS, while international cargo transport in the Netherlands decreased in Q3 and Q4 2018, national cargo transport went up. Liquid cargo grew by 2 % in Q3 2018 compared to Q3 2017, and by 19 % in Q4 2018 compared to Q4 2017).

 

TRANSPORT VOLUME EVOLUTION (INDEX) PER PRODUCT SEGMENT OF THE CITBO MEMBER COMPANIES PER QUARTER (Q3 2017 = 100)

Source: CCNR calculation based on data provided by CITBO

 

  • The overall results (both for freight rates and for transport volumes) of the CITBO analysis show that the presence of low water periods in certain regions (Rhine, Danube) tends to increase also the freight rate level in other regions where water levels remained normal, in a kind of ‘communicating pipes effect’. This effect is explained by economic incentives for barge operators to shift their regional area of operation to regions with a high freight rates level. This reduces the supply side capacity in the region with normal water levels and therefore the price or freight rate level also increases.

 

Danube basin

  • In the Danube basin, low waters had quite a severe impact on vessels’ loading degrees. However, the strength of this impact differed according to different parts of the Danube. The German stretch of the Danube, which is free-flowing in large parts, witnessed a stronger limitation than the Austrian and Hungarian stretches of the Danube. For the lower Danube, hydraulicity data were not made available, but the transport demand figures point to a very limited impact of water levels on transport demand in 2018.
  • According to the Danube Commission, freight rates in the Danube region were pushed upwards by rising bunker costs and by the low water levels in parts of the Danube. Freight rates for upstream transport on the Danube (where iron ore and coal transport are transported) were higher than freight rates for downstream traffic.

 

Low water levels from a historical perspective

  • Looking back over the last 200 years helps to put the low water period of 2018 into perspective. At Kaub, Middle Rhine, data on the number of days with a discharge of less than 783 m3 per second (which corresponds to the equivalent low water level of 78 cm at Kaub) are available for the last 200 years. They show that years of severe low water periods also occurred in the past. At the beginning of the 20th century, and again in the 1940s, a large number of days over many years saw low water levels on the Rhine. The impact on transport volume was certainly not as strong at that time, due to smaller vessels with a lower draught.
  • These historical patterns show that, even without climate change, strong fluctuations of navigation conditions occurred and will occur in the future. They therefore point to the necessity of partly rethinking the logistical concepts (including the size and the design of the vessels), which are in place today, and which tend to make inland navigation very vulnerable towards climate change.

 

NUMBER OF DAYS PER YEAR WITH A DISCHARGE Q < 783 M3/S AT KAUB, MIDDLE RHINE INCLUDING 30-YEARS-MOVING AVERAGE*

Source: Federal German Office of Hydrology.
* Corresponds to a water level of 78 cm (equivalent water level).