The exceptionally warm and dry conditions in Europe in recent months have significantly reduced the flow of numerous rivers. The consequences are particularly visible in the Rhine and the Danube, two strategic waterways for transport and economic activity on the continent. In fact, 72% of European transport by inland waterways corresponds to the Rhine (60%) and the Danube (12%). According to economists at Coface, the situation is not likely to reverse in the short term and could affect the growth of vulnerable economies such as Hungary or Romania, as well as industrial powers like Germany.
Although inland water transport represents only a small proportion of freight transport in Europe, its role is key in the sector, as a river vessel can carry nearly 2,000 tonnes of goods, compared to a maximum of 1,500 tonnes for a freight train and barely 25 tonnes for a tanker truck. This gives an idea of the crisis in logistics that could harm supply chains as a result of low water levels.
Coface points out that this situation is already having tangible effects, both on the volumes transported and on transport costs. In early August, some barges navigating the Rhine could only transport about 20% of their usual capacity. In certain stretches of the Danube, operators have also been forced to reduce their loads, in some cases by up to 40% in the Romanian stretch of the river.
During the last major drought episode in 2018, the cost of inland water transport increased 2.5 times for bulk dry goods and up to 4.5 times for bulk liquid products due to load restrictions and surcharges applied by operators.
Drought pressures the energy system of Central Europe and the chemical industry of Germany
The Danube plays a fundamental role in the cooling of certain nuclear power plants. In Hungary and Romania, the low levels of the river have already disrupted operations at the Paks and Cernavodă plants, respectively.
These facilities are the only sources of nuclear power in their countries and account for approximately 40% of Hungary's electricity generation and 20.5% of Romania's. To compensate for the reduction in production, operators must import electricity or turn to gas-fired combined cycle plants, a more expensive option. In Romania, for example, imported electricity costs between 2 and 2.5 times more than that generated in the country.
Additionally, the governments of Hungary and Romania have already taken measures to temporarily reduce electricity consumption from some large industrial consumers in the automotive, chemical, and metallurgical sectors, in order to alleviate pressure on the system.
Among the major European economies, the most affected by the river drought is Germany. Its chemical sector, largely concentrated along the Rhine, has a high dependence on inland water transport. The BASF plant in Ludwigshafen transports approximately 40% of its goods by barge. A further drop in water levels could cause new disruptions in connections with the major ports of Amsterdam, Rotterdam, and Antwerp, which are crucial for its supply chain.
In fact, during the previous major episode of low water levels in 2018, Germany's real GDP growth was reduced by between 0.3 and 0.4 percentage points.
To this setback, the German chemical industry adds a production decline of nearly 20% since 2018.
