Low river levels are disrupting barge shipments of petroleum products, resulting in higher freight costs and higher product prices for Netherlands, Switzerland, Germany, the Czech Republic and Hungary.
Since July of this year, the ongoing drought across Europe has caused major European rivers to plunge to unusually low levels. European rivers Rhine, Danube, Weser, Main and Elbe are reporting record low levels. The Rhine has hit its historical lowest water levels ever at several points. The Rhine flows north from Switzerland through Germany, France, and the Netherlands into the North Sea, making it a significant petroleum product transport corridor.
The water level in the Elbe and Main rivers has been so low that vessels cannot transport petroleum products between Germany and the Czech Republic. The Danube is the second biggest river in Europe and runs from Germany downriver to Austria, Slovakia, Hungary, Croatia, Serbia, Bulgaria and Romania.
Water levels in Europe alternate with seasonal rainfall, and high and low river levels can cause problems for barges. At high river levels barges are at risk of hitting bridges over the river, and at low river levels risk of stuck and hitting the river floor. Within safety and operational constraints, barges adjust the amount of cargo they carry to balance bridge clearance and low draft restrictions based on water levels. Low river levels determine barges’ loads, raising the freight rate per unit of cargo price. That has sent freight prices skyrocketing; furthermore, some costs are already being felt by consumers, with higher prices at gas stations and for home heating oil.
According to the EIA, the rate for a cargo of distillate fuel (heating oil or diesel) from Rotterdam, Netherlands, to Basel, Switzerland, increased from about $5 per barrel in July to more than $35/b in late October. The EIA stated that rates have also increased for delivery to points closer to the ARA. Delivery to Germany, from $1/b in July, is now a whopping $4/b.
The EIA estimates that the price of distillate for loading on trucks in Germany went from a premium of $0.15 per gallon more than the ARA price in June to a bonus of more than $0.20/gal as barge rates increased in October. Farther upriver in Germany, the same price spread went from about $0.20/gal in June to more than $0.40/gal in October.
BASF, the largest chemical producer in the world, has been forced to reduce production due to a lack of transport. Last Friday the company dropped its annual earnings outlook following a slowdown in the third quarter partially from the extra costs incurred due to the low levels of the Rhine. The German government announced that it authorized the release of strategic petroleum reserves after record low water levels across European rivers that have severely disrupted petroleum shipments in recent weeks.