Unpacking Global Climate Risks To Water Transport

What’s happening to the world’s riverborne transportation systems? Within the past several years, all of the world’s major rivers that are also commercial traffic arteries have suffered either extreme drought, floods or both in quick succession. This year, the Mississippi River is facing its second year of unusually low water, with light-loading and cargo restrictions and millions of dollars in extra dredging to keep channels clear.

The Amazon River and its tributaries—increasingly used by the United States’ grain-exporting competitors to the south to transport their corn and soybeans—are also facing extreme drought this year. The Amazon has fallen to its lowest levels in a century, and news reports feature pictures of stranded towboats and houseboats and towns that once stood on riverbanks staring across acres of dry silt instead.

Last summer and the summer before, it was the turn of China’s Yellow and Yangtze river basins to suffer from a “megadrought,” with Chinese factory production affected as hydropower plants had to shut down. That 2022 megadrought affected the entire northern hemisphere, including the Rhine River, Europe’s most heavily trafficked waterway. The Rhine had previously suffered through traffic-denting droughts in 2018 and 2006.

The Panama Canal is also suffering from a water shortage this year.In a series of announcements dating back to September, the Panama Canal Authority has announced several cuts in transits due to the severe drought.

Ship traffic in the canal has already fallen by 25 percent, and throughput capacity has been cut in half. This drought will only worsen as an intense El Niño winter rolls through, according to geostrategist Peter Zeihan.

Climate change is the first culprit that comes to mind. That’s not wrong, but its effects are complex.

According to Dr. John Sabo, director of Tulane University’s ByWater Institute and professor in Tulane’s Department of River and Coastal Sciences & Engineering, “Climate change is here, right now, in our back yards, and the effects can be measured in terms of flows of some of the world’s largest and most important rivers. What is surprising about these droughts in all three continents is their spatial extent. It is not that it is just really dry in a small portion of the watersheds of these big rivers, but also that there is moderate drought or dry conditions across a large area of them.”

Not Just Drought

Climate change shows up in more than just drought, however, Sabo said. “What we are seeing across the world is intensified extremes—alternation between years of plenty (floods) and years of dearth (droughts).  El Niño—which set up in July in the Southern Hemisphere—is likely making things worse in the Amazon, but not the Yellow River.”

“It remains to be seen how El Niño will affect flows on the Mississippi River, because it only started in September. La Niña and El Niño are natural phenomena that we can see in tree rings in time periods before industrialization. Some scientists think that climate change will intensify El Niño and La Niña conditions, but there is low certainty about this prediction.  However, climate change will likely bring us stronger droughts, stronger storms and frequent alternation between the two.”

While the precise boundary between which climate effects are caused by El Niño and La Niña oscillations and which are caused by broader climate change is blurry, “there has not been enough time for the Amazon River drought to have been caused by El Niño alone,” said Sabo. He said El Niño is not currently affecting river levels in China.

Sabo—who took a trip this spring along the length of the Mississippi River from Venice, La., all the way to Lake Itaska—also said that the “longitude of aridity” in the U.S. landmass is moving eastward.

Reinsurer Warns Of Climate Risk

One reinsurance company, ING, has recently warned in a special report of the risks that extreme weather is posing for waterborne transport. Reinsurers like ING insure other insurance companies, and therefore focus on broad, widespread risks to entire industry sectors.

According to ING, extreme weather is seriously affecting supply chains and hampering the flow of goods on inland waterways—and it expects this trend to gain momentum moving forward. Shippers should be prepared for the risk of this phenomenon returning in 2024 and work on the resilience of their supply chains, the report said.

Last year was the sixth warmest year since global records began in 1880, according to the National Oceanic and Atmospheric Administration’s annual global climate report. The 10 warmest years ever have all been recorded since 2010. 2023 now seems on track to add to this statistic.

Several regions across the world, including parts of the Southwestern and south central U.S., Chile, southern and western Europe and north central China, saw below-average annual precipitation last year, leading to dried-out soil and lower streamflow and groundwater.

In Europe, this led to the Rhine—one of the world’s busiest waterways—having a water level of less than 135 centimeters at the Kaub gauging station in Germany on 154 days in 2022. The 135 centimeters mark is what large container ships need to navigate the river.

In Europe, shipping costs on the Rhine spike each time there are periods of extremely low water, as capacity is instantly reduced. Shipping contracts usually contain low-water clauses that provide a graduated surcharge when levels drop, e.g., below 150 centimeters at the Kaub measuring point along the Rhine. Prices are usually subject to a graduated surcharge; the lower the water level, the higher the surcharge. Dutch inland waterway transport costs for shippers, which cover roughly half of the Rhine bed traffic, rose by 52 percent in the fourth quarter of 2018 compared with the previous year and by 76 percent in the third quarter of 2022. Worryingly, the report said, these costs increase with each low-water period.

The discharge volume of the Rhine depends on glacial meltwater, which is quickly diminishing. Swiss glaciers, the source of the Rhine, lost 10 percent of their ice volume in just two years, according to the Swiss Academy of Sciences. Structurally decreasing snow levels mean that water volumes turn more volatile, and averages are set to trend down moving forward.

The Panama Canal, which handles about 5 percent of total world trade by volume, has been hit by a severe drought over the course of 2023. Since the canal is designed as a lock system, each ship passing through the canal requires about 200 million liters of fresh water, roughly equivalent to the household water use of 4,500 inhabitants in European countries. Low water levels lead to capacity reduction on ships, surcharges, rising transportation costs and delays.

Low water levels inevitably result in delays. In the U.S., extremely low water levels in the Mississippi River—draining about 40 percent of the continental U.S. area—stalled more than 100 towboats in 2022 and led to loading reductions and significant delays for barges. This year, shippers have once again faced delays, threatening the normally busy harvest season.

The Amazon century lows in mid-October damaged the ecosystem and disrupted cargo flows up to the inland port of Manaus.

Economic Effects

From a macroeconomic point of view, the ING report said, the direct effects are still “small overall–but not negligible.” The Panama Canal authorities expect a drop in profits of $200 million due to the restrictions on shipping traffic, corresponding to about 4.5 percent of last year’s revenue. This decline in sales also directly affects the country of Panama, as the Panama Canal contributes 4.5 percent to GDP, which means a reduction in growth of 0.3 percent.

The long-lasting low Rhine water levels seen in 2018 led to a drop in German industrial production of 1.5 percent, causing a decline of about 0.4 percent of economic output in Germany alone, according to a German economic institute. Overall, inland waterway freight transport in Germany fell by 11.1 percent in 2018 compared with the previous year, according to the Federal Statistical Office. It wasn’t the first time that low water had affected Germany’s economy. Volumes in international goods transport dropped an average of 18 percent during the prolonged low levels over August-November 2018. Several sectors like agriculture and construction (building materials) were affected, along with certain manufacturing activities as a result of required supplies and product outflows, such as steel and chemical plants. The BASF plant in Gelsenkirchen had to curb production, and in 2018 other companies like steelmaker Thyssen Krupp also lost production. “This ha[d] knock-on effects down the supply chain” according to ING.

The low water levels in the Mississippi River in the U.S. last year led to a loss of up to a third of overall loading capacity, which caused an estimated $20 billion in economic loss due to resulting slowdown in production.

China’s inland lifeline, the Yangtze River, links densely populated and industrial inland areas with Shanghai, the East China Sea and the world’s busiest inland waterway and faced a similar situation in 2022. Sections of the river reached their lowest level since at least 1865, which significantly dented goods transportation and affected hydropower reservoirs, resulting in power shortages. Manufacturing companies had to pause production, leading to lower output.

No Real Alternatives To River Transport

To mitigate the impact of low water events, shippers are investigating alternatives. But as the ING report admits, “There are very few alternatives to shipping during low-water events,” especially for intermediate goods and raw materials, including bulk goods such as coal and steel. For mineral oil products, chemicals and heavy goods, there is currently no permanently sustainable alternative to ships due to their weight and size.

“Switching to road or rail is only a temporary and emergency solution,” the report states.

The report does note that “conventional [European-style] inland vessels can often still sail when the water level is low,” albeit with light-loading.

For the longer term, “Capital investments may have an impact in the long run. From a shipper’s perspective, low water levels hamper the reliability and predictability of supply already. Strengthening resilience with backups, buffers or at least contingency plans deserves to be higher on the agenda with extreme weather on the rise.”