Rhine open to traffic but knock-on logistics impact could last months

Author: Jonathan Lopez

2021/07/26

LONDON (ICIS)--The River Rhine is now fully open to barge shipping but petrochemicals players in northwest Europe have said the knock-on impact on logistics could last months, as demand for rail or road alternatives is not being met by supply.

The long-running issue of a shortage in truck drivers in Europe has become especially acute in recent months, making road transportation difficult. Rhine barges are especially key for petrochemicals because of the significant tonnages they can transport, compared to trucks or rail tank cars (RTCs).

The country is still reeling with the devastating floods that left nearly 200 deaths, although the official death toll is expected much higher as many remain uncounted for; entire neighbourhoods in villages in southwest Germany were washed up by landslides after small rivers overflowed.

UP TO SEVEN TIMES NORMAL COSTS
While production in the industrial heartlands of west Germany – where petrochemicals majors like BASF, Covestro, LANXESS or Evonik have their flagship facilities – has mostly been unaffected, the extent of the disruption has prevented sending material in or out of those complexes.

It remains unclear whether BASF, very active in the styrene spot market last week, has had an issue in its Ludwigshafen site; the company would not comment on market reports of disruption.

Apart from Evonik, who conceded in a written response to ICIS that it had experienced “minor” logistics problems but “up to now” that had not had a financial impact – all other companies denied having had any trouble.

BASF, Covestro, or LANXESS officially said to ICIS they had had not experienced disruption; but when trouble is so widespread, the story told by several anonymous sources was a different one.

A source at a large petrochemicals producer described how it had had a “lovely opportunity” to send to the US up to 7,000 tonnes of product, but it was unable to, while the company was preparing for a “much higher” spending on logistics in coming weeks.

“Export [of materials out of Europe] is getting tougher; [lead times] used to [be] four-six weeks, now six-eight weeks. We can't find the vessels to send material to the US. It is phenomenally expensive to send material, we were told [by the company] it doesn't matter,” said the source.

“It is six-seven times the normal freight rate. Domestic [specific countries in Europe], the flooding seems to have more an effect than we thought, at least in Germany or Belgium.”

Imports are also affected, the source went on to say, with lead times now two weeks longer and “customers then buy the minimum”.

LACK OF DRIVERS, RAIL REPAIRS
With the UK’s petrochemicals supply chains closely linked to the hubs of Amsterdam-Rotterdam-Antwerp (ARA) and west Germany, sources in the country also expect an impact to be felt in coming weeks.

One UK source active in polyolefins described the situation as “snowballing” and it all was made worse by the shortage of truck drivers, which is being especially acute in that country.

“The key problem [in continental northwest Europe now] is washing away railways and railway bridges. That's going to last four-six months. A lot of movement is multimodal – now it is going to move to trucks, and there aren't enough,” it said.

“It will have a knock-on effect on the UK: the drivers will be less willing to come.”

Germany’s ageing railways had needed updating for years, a long-running demand form the petrochemicals industry, and the country did finally pass some spending to do the necessary upgrades.

But the engineering work, currently ongoing, could cause further trouble, a source active in the German polyethylene terephthalate (PET) market said to ICIS.

“Half of Germany is blocked. Shifting transport around and getting hold of material from these areas is quite a hassle. We are in the north, but it affects the company and processes in the factory. [The affected area] is the engineering heart of Germany. A lot of staff is not arriving in time [to work],” said the PET source.

“There are completely under water in [parts of] the Netherlands, too … The forecast is for heavy rain again today [23 July] in the same areas of Germany, Belgium and the Netherlands.”

FOR SOME, HIGHER SALES
It remains to be seen what the effect of yet again higher logistical costs will be on petrochemicals prices, but a source in the expandable polystyrene (EPS) market based in continental Europe said it could be “tricky” to pass them onto customers.

“Adjustments on price may be tricky because prices are dropping in European contract prices, but going up for transport costs. I believe we will return to normality for trucks in Q4; many companies were delaying their orders because of [the tightness in] previous months – now they peaked with demand,” said the EPS source.

“It’s not easy to handle all these issues with logistics issues on top, but in the end, it is a situation that can become more positive because of higher turnover.”

The heavy rainfall in Germany caused the water levels on the Rhine to reach record highs.

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Front page picture: German Chancellor Angela Merkel visiting flood-affected areas of the river Erft in Bad Muenstereifel, Euskirchen district, on 20 July
Source: Friedemann Vogel/POOL/EPA-EFE/Shutterstock

Focus article by Jonathan Lopez

Additional reporting by Jane Gibson, Ben Lake, Jane Massingham, Caroline Murray, Miguel Rodriguez-Fernandez, and Stephanie Wix