Falling Rhine River Levels Threaten Recovery of German Manufacturing as Drought Drives Up Transportation Costs

Golden Ten Data reported on July 15 that Germany’s manufacturing industry, in Europe’s largest economy, is facing supply chain disruption risks and a cloud over its recovery prospects as drought conditions once again impact transportation on Germany’s most important inland waterway. Fabian Spiess, Deputy General Manager of the German Inland Waterways and Shipping Association (BDB), stated that water levels on the Rhine River have dropped to the point where ships have been forced to reduce their cargo loads, leading to increased transportation costs. This presents challenges for manufacturers who rely on barge shipments for goods such as coal, crude oil, and chemicals. According to data from the Kiel Institute for the World Economy, prolonged low water levels on the Rhine River in 2018 led to a loss of around 0.4% in Germany’s economic output. Deutsche Bank economist Marc Schattenberg noted that this year’s issues are further exacerbated because a crucial rail freight route along the right bank of the Rhine is closed for construction, leaving insufficient alternative railway transport capacity. Another concern is whether low water levels will further drive up inflation. The European Central Bank is considering whether to further tighten monetary policy, and ECB Executive Board member Isabel Schnabel stated earlier this month that Rhine River water levels are a factor that could contribute to persistently high inflation.