How Warming Climate Affects Maritime and Barge Transportations

How Warming Climate Affects Maritime and Barge Transportations

Executive Summary

  • A shift in weather patterns, driven by climate change, such as delayed annual rainfalls and rising temperatures have caused water shortages and prolonged droughts at key rivers and waterways around the world used by shipping vessels. 
  • Due to a drop in water level, a series of draft restrictions were issued at the Panama Canal from February to May 2019 which required bulky cargo ships to cut down on freight capacity when transiting the Canal, causing an increase in freight costs, and necessitated shipping lines to find alternative routes. 
  • In 2018, European chemical and steel manufacturers were forced to halt production for a few months when shipping barges were unable to navigate due to a historic drop of water levels in some parts of the Rhine River. The record low water level made it difficult for bulky cargo ships to deliver raw material supplies to manufacturers that rely on the river for transport of goods.  
  • As river levels fluctuate with seasonal rainfall, organizations should expect such risks to continue. Some companies have reportedly started developing contingency plans which include looking into ships that are suitable for shallow waters, while others are looking into different loading points to use as alternative transport routes as well as to reduce loading and unloading times.
  • It is evident that temperatures will continue to rise due to global warming and precipitation may become variable, causing more frequent and intense droughts and floods, and eventually impacting water levels in rivers. Companies can adapt by monitoring regular updates on risks to water-based transportation, identifying alternative routes, and setting up water efficiency measures, among other measures. 


In recent weeks, young environmental activists from around the world have participated in rallies to highlight global warming and its impact on climate change. The shift in weather patterns, exacerbated by global warming resulting in rising sea levels, greater intensity in strengths of tropical storms, and frequent droughts and floods, have affected both individual consumers and business operations.

The World Economic Forum in 2014 listed water crisis and extreme weather events as two of the top 10 global risks, indicating that manufacturers in water-intensive industrial sectors such as chemical, pharmaceutical, metal and mining, and electronics may face challenges in the coming years for competition of fresh water resources amidst frequent droughts and prolonged flooding. Any impact to the availability of such resources will only lead to increase in production costs for manufacturers. 

While the subject of climate change in recent years has been widely used in politics, the manufacturing sector and marine trade have experienced it first-hand due to prolonged severe drought in major waterways around the world. Depending on seasonal rainfall, both high and low water levels in rivers can create problems for shipping barges as they need to adjust to the amount of cargo they carry. This means ships must carry less cargo to navigate safely and simultaneously face an increment of freight rate per unit of cargo, while manufacturers grapple with shipment delays that are needed for production. 

Since 2018, key rivers that are dependent on for agriculture, manufacturing, and transportation have experienced severe droughts driven by the El Nino weather phenomenon that resulted in an alarming drop in water level. The Mekong River in Southeast Asia in May 2019 experienced historic low measure of water levels in more than 100 years due to an usual long drought which led to a decline in the fishing industry in Laos and Cambodia. In Indonesia, Bayan Resources, a coal mining company, declared force majeure on some of its shipments in August 2019 due to low water levels on the Kedang Kepala River in Kalimantan. 15 vessels were delayed as they were unable to transport cargo via barge amid the low tides. In Europe, parts of the Rhine River experienced a historic drop in water level due to a summer heat wave in 2018, prompting many manufacturers to declare force majeure and halt productions for a few months. While in the Americas, a severe drought at the Panama Canal earlier this year led the canal operators to limit the amount of cargo allowed on their ships for safety measures. 

Drought Reduces Water Level at the Panama Canal

In early 2019, the Panama Canal Authority (ACP) decreased the maximum drafts for vessels passing the locks as the recorded rain level in December 2018 was 90 percent below historical average. Restriction on draft requires bulky cargo ships to cut down on freight capacity at low water levels. This in turn increases the freight rate per cargo unit.

Although water levels in the Gatun and Madden Lakes at the Panama Canal are normally lower between April and July due to the dry season, the lakes reached unfavorably lower than normal levels with 1.4 meter in 2019 due to an El Nino weather event which caused warm ocean temperatures in the Pacific. 

The Panama Canal, which stretches about 51 miles, handles about 5 percent of the world’s marine trade and acts as a crucial waterway that links the Atlantic and the Pacific Oceans, thus shortening vessel traveling time and cost. The canal has a lock system at each end of the waterway to lift ships to 85 feet above sea level to the two lakes, allowing ships to transit and to be lowered again at the other end. In June 2016, the canal expanded with a third set of locks, known as the Neopanamax locks, to allow larger cargo ships to carry greater cargo capacity. 

Draft restrictions implemented

The first restriction imposed by the ACP came into effect on February 11, 2019. It applied to vessels with a maximum draft limit of 49 feet (14.94 meters). It was a decrease by 1 foot (30cm) from the previous maximum allowed draft in Gatun Lake which has been in place since June 26, 2018. The restriction does have its flexibility, as vessels with drafts over 49 feet were allowed to pass the Panama Canal depending on the lake’s water level at the time of transit. However, if the water levels were too low, ships with a draft of more than 49 feet were required to cut down on cargo during the passage, resulting in economic losses for the canal operators as well as for the carriers. 

As of this writing, the ACP has issued six drafts with the latest impending restriction of 43 feet (13.11 meters). However, the sixth draft has been postponed “until further notice” as the rainfall in June has helped ease the water flow. Thus, the current maximum draft restriction at the Panama Canal is 44 feet (13.41 meters). 

1st RestrictionFebruary 11 Draft restriction set to 14.94 meters (49 feet) Tropical Fresh Water (TFW) for vessels transiting the Neopanamax locks.
2nd RestrictionFebruary 27 Draft restriction lowered to 14.63 meters (48 feet) due to the low projected level of the Gatun Lake in the following weeks.  
3rd RestrictionMarch 13 Draft restriction dropped to 47 feet (14.33 m).
4th RestrictionMarch 29 Draft restriction dropped further to 46.0 feet (14.02 m). 
5th RestrictionApril 30Draft restriction reduced to 44 feet (13.41 meters). Currently in effect. 
6th RestrictionMay 21 Draft restriction of 43 feet (13.10 m) postponed until further notice. 
Table 1: Timeline of the Draft Restriction Announcements in 2019

Impact on shipping lines

While there is no available data on the type and number of cargo vessels that were impacted by the Panama Canal draft restrictions, international shipping carriers responded differently to the situation. American President Lines (APL) issued an advisory to its clients in April stating the possibility of reduced number of containers per vessel when transiting the canal. Japan’s Ocean Network Express (ONE) acknowledged the impact of global warming on ocean freight transportation with regards to the Panama Canal situation, though it did not publicly provide information on the affected vessels.  

An unspecified shipping line in Panama indicated that the restrictions had caused higher transport costs and cargo delays as the goods had to be shipped overland instead when vessels did not meet the require draft limits. While some shipping lines acknowledged the disruptions faced by the draft restrictions, AP Moller-Maersk said the restrictions had limited impact on 90 percent of the canal’s traffic as most carriers reportedly bypassed the Panama Canal when sailing to the US East Coast and the US Gulf region.  

Although many shipping lines have favored the Panama Canal over the Suez Canal since the former’s expansion, there are some reports suggesting that Panama Canal may lose its preferred status due to the ongoing US-Sino trade war. The tariffs have led some manufacturers to shift some parts of their productions to Southeast Asia from China, thus services to ports in the US East Coast via the Suez Canal are likely to become more competitive. While this trend may continue, the frequency of container ships passing the Panama Canal may not drastically be impacted due to the impending International Maritime Organization’s (IMO) low-sulfur fuel rule that will take effect from January 1, 2020. Under the new rule, ships will have to reduce sulfur emissions by over 80 percent by switching to lower sulfur fuels. The new emission rule may prompt carriers to consider the fastest and cost-saving routes amid rising fuel costs. 

Drought Hits Europe’s Rhine River

Inland waterways in other regions have also experienced low-water levels. The Rhine River in particular, which flows through six European countries into the North Sea, faced a historic drop in water level in July 2018 due to an unusual heat wave and low rainfall. The river serves as a major transport route for the shipment of raw materials and goods including coal, iron ore, chemicals, fertilizers, and auto parts. Chemical companies such as BASF and Bayer also depend on the river for its cooling water at the right temperatures as their plants are located along the stretch of the river.

During this period, the water levels dropped to a critical low about 30cm from Duisburg and Cologne to the critical gauge of Kaub, which is known to be one of the shallowest parts of the river. This made it impossible for large cargo ships with a full load to navigate safely. 

Figure 01: Average Water Levels (in cm) for the Rhine River, 2018 – 2019. Source: Everstream Analytics

Figure 1 shows a comparison of average water levels across 2018 and 2019 for the Rhine River with data collected by Everstream Analytics. As depicted in the graph, the river hit the lowest level on record between August and November 2018, a period that corresponds to when companies had to declare force majeure due to material shortage, subsequently impeding production. While 2019 shows similar downward trend, the monthly average water level has remained above 130cm as of this writing. Nevertheless, shipping carriers imposed the first low-water surcharges on European barge cargo as the river’s level dropped below 130 cm earlier than usual in April 2019. Similarly in July, CMA CGM and Maersk Line also announced low water surcharges on barge shipments as they feared a repeat of last year’s cargo backlog. 

Force majeure & sales controls to address shortages

As shipping barges were unable to navigate with fully loaded cargo amid the low tides, manufacturers faced critical supply shortage at plants in Germany and Belgium. The subsequent force majeure declarations lasted for an average period of three months. The graph shows the list of companies, product names, and plant locations that were impacted by the Rhine River’s low water level, with BASF having been hit the hardest. 

Figure 02: Force majeure period of impacted products in 2018 Source: Everstream Analytics

Not all companies that were impacted declared force majeure: chemical companies like Evonik implemented sales controls on European methyl methacrylate (MMA) as supply of raw material to its production facilities in Worms and Wesseling in Germany became limited due to transport challenges. Lead times and shipping dates also increased to 10 business days. 

Similarly, Celanese, a US chemical company, also implemented sales controls for its polyoxymethylene (POM) products for all grades and specifications in European, Americas, and Asia regions as the firm relies on the Rhine River for transporting key materials to its POM plant in Frankfurt. Cargo owners also faced increased logistics costs as vessel operators imposed surcharges on freight rates. 

Production delays due to force majeure 

Chemical producer Covestro reportedly issued a profit warning for 2018 due to production losses and higher shipping costs while BASF shut down its Toluene diisocyanate facility in Ludwigshafen, Germany over insufficient material supply. ThyssenKrupp’s production fell to 200,000 tons of steel – less than in other years – with reports suggesting that it had to reduce deliveries of car parts to Volkswagen AG. 

Evonik Industries also cut production at all of its six chemical plants in Germany that rely on shipments via the Rhine River and gave early warning to its customers of possible production delays since June 2018 when the water level started to drop. According to the company, alternative use of rail or truck shipments was impossible. However, in the case of German chemical company Lanxess, it was able to maintain much of its production capacity by using rail and road freight.  

Production of chemicals and pharmaceuticals in Germany also fell by 10 percent from September to November 2018.  According to the Central Commission for the Navigation of the Rhine, there was a 27 percent decline in transport performance in the Rhine for the third quarter of 2018 compared with the same period in the previous year. Germany’s gross domestic product also fell 0.2 percent in 2018 as a result of commercial disruptions.  

How Others are Coping With Water Challenges

As river levels fluctuate with seasonal rainfall, organizations should expect such risks to continue. Based on last years’ experiences, ThyssenKrupp and BASF have reportedly started developing contingency plans which include looking into ships that are suitable for shallow waters. 

Other companies are also looking into different loading points to use as alternative transport routes as well as to reduce loading and unloading times. In addition, ThyssenKrupp has reportedly engaged in a long term agreement with a coal-carrying freight train to ensure continuous supply at its Duisburg site in Germany. 

Similarly, companies relying on water resources for production have enacted water-conservation efforts to reduce water consumption. BASF, which was severely impacted from the Rhine’s low water level, is reportedly planning to focus on cooling water supply. The firm has already constructed a “recooling plant”, which allows the reuse of water for cooling purposes several times before it is released back into the Rhine. Through the use of digitalization, the firm is said to control the cooling water flows as well as for stock management.

Efforts to Address Low Water Challenges

Due to private sector demands, the German Transportation Ministry has announced an action plan to improve infrastructure along the Rhine River which includes an early warning system to help companies plan alternative transport options to ship products. Nevertheless, the two case studies are an indicator that water scarcity challenges have a direct impact on maritime transport which subsequently affects water-dependent supply chains. 

According to the United Nations and the National Geographic, two thirds of the global population will face water shortages by 2025. This means companies will have to reassess their own business models as organizations are likely to face the risk of stringent regulations including higher water prices, stricter emission permits, or obligatory water-saving technology. While the subject of drought may not be new to water-stressed locations, companies operating in water-abundant regions may also face water scarcity as supply chains are evermore connected. 

This is exemplified by Chennai, India which has a large presence of automobile factories such as Ashok Leyland, BMW, Daimler India Commercial Vehicles (DICV), Ford, and Renault-Nissan. The city received 16 percent less rainfall than average since January, causing severe water shortages since June 2019. This caused auto makers to set up various water conservation measures, such as rainwater harvesting system, and to build in–house water treatment plants that recycle 100 percent of the used water to ensure production is not affected while minimizing the usage of fresh water. Hyundai, Nissan Motor, and Maruti Suzuki have opted for ‘dry wash’ service for eco-friendly processes while other companies pay 30 percent more to buy water supplies that are sourced from the city’s outskirt. 

According to CDP, an organization that ranks corporations based on their actions on environmental initiatives, French cosmetic manufacturer L’Oreal has topped the ‘A’ list for its efforts in reducing water consumption at its plants and distribution centers by 33 percent in absolute terms while simultaneously increasing production by 31 percent. This highlights that to stay competitive with sufficient fresh water supplies, organizations will have to reevaluate their business models and use sustainable practices to ensure a water-secure future. 

How Supply Chains can Adapt

As water-based transportation remain an important option, it is critical for companies to identify threats at key waterways. The following measures are recommended to reduce business disruptions to marine trade and manufacturing operations:

  • Monitor regular updates on risks to water-based transportation: Organizations are advised to use supply chain risk management tools to get timely information on draft restrictions or water level conditions at major waterways. By receiving regular proactive alerts, manufacturers can reassess the situation by planning ahead either by stocking up inventories or reevaluating production targets in line with the possible cargo loading capacity.   
  • Identify alternative routes: As there is potential for low-water level conditions to surface again, organizations should start identifying alternative transport routes. While factoring in the impending new cost of low-sulfur fuel, organizations can opt for other means such as trucking and rail for shipments. Organizations can also invest in barges that can navigate through shallow waters. 
  • Set up water efficiency measures: For manufacturers in water-intensive industrial sectors, it is important to invest in technology improvements and water-efficiency or restoration projects to restructure water usage as it provides operational efficiencies. For example, pharmaceutical companies that rely on rivers for cooling water can consider enhancing cooling capacity at their plants. This depends on the total square footage, quality and amount of building insulation, directions of windows, and shade of natural cooling elements.
  • Strengthen water resource management: Companies should advocate smart water resource management at sub-tier suppliers and identify those that require high volumes of water usage for production. It is beneficial for companies to understand suppliers that are operating in water-scarce areas to stay ahead in case of a crisis that requires access to water resources. Companies can also identify areas prone to water shortages and rank suppliers accordingly in order to understand areas of exposure. 
  • Stock up on raw materials: Manufacturers relying on raw materials that are shipped via inland waterways should be prepared to face intermittent disruptions at least during seasonal periods due to potential drop in water level. Having reserve supplies as safety stocks may ensure production targets are met in the event of supply shortage or even during spikes in demand. 

Although the topic of climate change has become more political than scientific, the recent global wave of environmental protests by youth activists has pushed the theme to prominence not just at the UN but in private sector discussions as well. It is evident that temperatures will continue to rise due to global warming and precipitation may become variable amid the shift of El Nino weather patterns, causing more frequent and intense droughts and floods, and eventually impacting water levels in rivers. 

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