What to Do When the River Doesn’t Flow
By Richard Howells, Stephanie Overby | 11 min read
During the summer of 2022, Europe experienced its worst drought in five centuries, which was fueled by record-breaking heat and record low rainfall.
During the peak of the dry spell, two of Europe’s biggest river arteries, the Danube and the Rhine, were low or impassible in numerous spots. The changing conditions led to dramatic shifts in cargo traffic.
There was a spike in shipping activity on the Rhine in July, says Syeda Shahreen Zaki, a master’s thesis researcher in logistics and supply chain management at the University of Luxembourg, who has studied the data. That spike was followed by a significant decrease in shipping capacity on the rivers in August. Zaki suspects that some companies made a last-minute push to move more goods as the dry spell worsened but didn’t do so soon enough. Had they anticipated the issue sooner, they may have been better prepared for the lack of shipping capacity later in the summer.
“The situation was critical this year. And it’s foreseeable that this sort of situation is likely to happen more frequently in the future,” says Zaki. “Now is the best time to make contingency plans and come up with a better strategy.”
Inland waterways such as the Danube and the Rhine provide critical transport for a range of industries and essential goods, including heating oil, coal, steel, grains, minerals, and chemicals. The continent’s rivers and canals contribute around €78 billion in transportation revenues, according to analysis of Eurostat figures published by the Luxembourg Times. Reverberations echoed throughout the supply chain. Two coal-fired power plants in Germany announced reduced and irregular output due to a lack of coal coming in via the Rhine, Reuters reported.
The situation was critical this year. And it’s foreseeable that this sort of situation is likely to happen more frequently in the future. Now is the best time to make contingency plans and come up with a better strategy.
— Syeda Shahreen Zaki, Supply Chain and Logistics Researcher, University of Luxembourg
By the fall of 2022, a similar story was playing out across the Atlantic. The New York Times noted that drought drained much of the might from the Mississippi River, an essential shipping lane for around 500 million tons of cargo, including agricultural products, chemicals, and food products.
For companies and customers alike, a healthy, flowing river is worth billions. But the reliability of rivers as a year-round option may be diminishing along with this year’s water levels. Companies caught flat-footed in response to the historically severe dry spell in Europe can’t sink back into complacency. Climate change has made drought conditions around 20 times more likely than in the pre-industrial era, according a study by an international team of climate scientists that was published by the World Weather Attribution Service.
“With further global warming we can expect stronger and more frequent summer droughts in the future,” said one of the scientists Dominik Schumacher of ETH Zurich, in a statement.
Key Supply Chain Issues, Explained
Explore fresh thinking about adapting, planning, sourcing, and sustainability.
Riverways becoming unreliable is a knotty problem for supply chain specialists. “This is suddenly becoming a critical issue,” says Benny Mantin, director of the Luxembourg Centre for Logistics and Supply Chain Management and research affiliate with the MIT Global SCALE Network. “If a road is blocked, you can find an alternative; there’s some redundancy in the system. But you can’t just hop on a different river to get to your destination. The problem is far from trivial.”
Of course, drought-inflicted waterway constraints are only the latest logistics disruption companies have encountered and are a prime example of how supply chain leaders need to be thinking and planning in new ways. The challenges – whether natural or caused by human activity – are likely to continue. But the core of the solutions for managing amid low river levels will prove beneficial in mitigating and managing the array of supply chain risks companies should expect.
There are a number of actions companies can take in the near term and into the future to address the increasing possibility of low river levels – and their attendant effects across the entire supply chain.
1. Make contingency plans across the supply chain.
Some companies may decide to reserve capacity on different modes of transport in advance. In the same way that companies engage in dual sourcing (contracting with multiple suppliers or sourcing from multiple locations to reduce their dependency on one), they can set up arrangements for other modes of transport that they can activate when inland waterways are constrained.
“Where companies are single-sourced or the lanes by which they move things are limited, they have problems,” says Tom Linton, senior advisor at McKinsey & Co. and co-author of Flow: How the Best Supply Chains Thrive. With a broader network of logistics providers and connected data – including freight, fleet, and logistics – companies can replan with an updated schedule based on available routes and vehicles when disruptions happen.
For other companies, the backup planning may necessitate a more fundamental rethinking of logistics.
For example, several of the world’s largest steelmakers rely on the Rhine. “If you go down to the waterway, you’ll see giant metal structures being transferred to barges. Those cannot be easily transferred to a truck or even a train,” says Mantin. “That is the only mode of transport available, so moving forward, you have to rethink what you’re producing and how it will be delivered.”
If companies anticipate low river levels occurring regularly during, say, July and August, they may consider shifting both production and shipping to a wetter time of year.
2. Double down on visibility and forecasting.
The summer drought in Europe may have been unprecedented in recent years, but it wasn’t unpredictable. Rivers don’t dry up overnight.
Linton offers solutions to avoid getting gobsmacked by problems that may seem sudden but really aren’t. Multitier visibility – the ability to see what’s going on not just with one’s direct suppliers but with those suppliers deeper in the chain – is critical. “You can use predictive analytics to see what’s happening two tiers away before it hits you,” Linton says.
Linton also advocates for advanced supply chain mapping using specialized software to plan and optimize supply chains based on a variety of factors. “Like a weather forecast, supply chain mapping will tell you what’s coming your way but on the risk mitigation and resiliency spectrum. Companies impacted by [low river levels] probably didn’t have enough visibility into their upstream supply,” he says.
BASF, which operates a chemicals complex along the Rhine at Ludwigshafen, Germany, lacked such intelligence in the past. When the waterway reached an all-time low depth in 2018, the company had to halt production of toluene diisocyanate. Having taken full advantage of pipelines, trucks, and rail as alternatives (which significantly increased logistics costs), it nonetheless did not have the raw materials to make the chemical, which is used in the production of polyurethanes.
Following that logistics failure, BASF increased investments in mitigation measures and new infrastructure, leasing barges that can sail at lower water levels and developing an early-warning system that gives the company six weeks of lead time to make logistics changes and increase inventories. “We’re much better prepared,” BASF chairman Martin Brudermüller said during a second quarter 2022 earnings call. In January 2021, the company contracted with Stolt Tankers to help design and build a new tanker capable of operating at extremely low water levels, according to Offshore Energy. The new tanker is scheduled to make its first passage in spring 2023.
While some companies have invested in advanced technologies for this purpose, there remains “a digital divide,” says Edward Sweeney, a professor and head of operations management and logistics at the Edinburgh Business School. “Many large firms have invested heavily in supply chain innovations of various kinds (including digital), while their [small and medium-sized] peers have not.”
Companies must invest not only in technology and data but in process as well. “A tool is only as good as the structure and organizational model around it,” Linton says. “You need to optimize processes for the tool, or it will sit there like a Ferrari in a garage.”
At its most basic level, a supply chain is “material in motion,” Linton says. “If it’s not, it becomes inventory.”
3. Evaluate trade-offs in advance.
River levels aren’t the only challenge. Human nature is also a significant issue in times of such disruption.
“Changing the supply chain quickly is not for the weak of heart. When you have a qualified way of moving things, it’s hard to change,” says Linton. “We tend to believe things aren’t as bad as they are.”
That’s why it’s critical to consider disruptive scenarios before they occur. The preparation makes it slightly less painful to pull the trigger on alternative solutions when necessary.
With increased visibility and contingency planning, companies are better prepared to make decisions ahead of forecasted issues. That insight, coupled with the development of alternative approaches, can go a long way in overcoming one of the key obstacles to addressing disruption proactively: resistance to change.
“Identifying and resolving trade-offs as early in the planning process as possible is important,” says Sweeney. In some cases, there may be an opportunity to move goods a day or two later but more cheaply, while in others, the premium for moving them more quickly makes more sense.
Where companies are single-sourced or the lanes by which they move things are limited, they have problems.
— Tom Linton, Senior Advisor at McKinsey & Co. and co-author of Flow: How the Best Supply Chains Thrive
Companies that ship their goods via river “can make a forecast for the low water level period and the likely surcharges on base shipping rates to determine their strategy,” says Zaki. They may shift a portion of their cargo to road or rail, depending on available capacity, or move more inventory in advance of the dry spell. The shipping companies can calculate how many and what types of vessels they can operate at low river levels and how best to set their prices, says Mantin, while companies that receive river-transported goods may opt to stockpile inventory ahead of likely logistics issues to hedge against disruption.
The common denominator for everyone involved: do the math early.
4. Optimize loads across different modes of transport.
As companies make new plans (or contingency plans) for logistics – using smaller vessels with lighter loads for river transport or taking advantage of road or rail – it’s important to maximize their usage to contain costs.
Mantin says that multinational companies’ supply chain managers “are able to leverage the massive amounts of data they’ve collected over the years to optimize their modes of transport, but smaller companies may not have had the capacity to do so.”
Even those who have previously optimized aspects of their supply chains and logistics may encounter unexpected issues, such as a shortage of truck drivers or a rail worker strike. Combining real-time data and historical information can help leaders make proactive, data-informed decisions. Companies can implement machine learning to analyze the multiple variables that can impact logistics, such as current and predicted weather conditions and past order volumes. These algorithms can be used to suggest optimal shipment choices, plan effective routes, predict potential disruptions, anticipate freight costs for various scenarios, or better manage a company’s carbon footprint by increasing utilization.
A company can ensure that a truck will be reloaded or reused at or near its point of destination – say, picking up product returns – so that it’s not transporting empty loads. Maximizing vehicle usage and minimizing unnecessary trips increases efficiency, controls costs, and minimizes emissions.
5. Include sustainability in transport option plans.
Supply chains are a huge contributor to carbon emissions and waste – and also offer a significant opportunity for reducing them.
River transport produces lower emissions than road and rail. “Freight transport by inland waterways offers significant potential in this context,” says Sweeney. “Here in the UK, we have little usage of this mode, but there has been some pressure from trade associations for policy changes to facilitate increased use.”
But when waterways are constrained by natural forces, companies shifting transport to higher emissions options will need to explore ways to mitigate the environmental impact. This will be one of the bigger long-term challenges if low river levels become a more frequent issue.
Better planning, alternative sources of fuel, fleets of electric vehicles, and other solutions will be essential to addressing the outsize impact of supply chains on carbon emissions goals during dry spells and beyond. “The need for more environmentally sustainable supply chains is arguably the biggest challenge of all,” Sweeney says.
Evolving from fighting supply chain fires to anticipating them
Linton has lost count of how many times he’s heard leaders complain that they’ve encountered “supply chain problems.” It’s time to admit that the supply chain may be the problem, Linton says. “We have to stop defending ourselves and realize that the supply chain may be suboptimal for the world we live in today.”
Recent disruptions – including droughts in the Northern Hemisphere in 2022 – may be valuable in unsticking some leaders’ thinking. Building supply chains and processes that are not just low-cost and efficient but also flexible enough to bend rather than break when issues arise will take some time.
“It will be a much longer process,” says Mantin, “but COVID-19 disruptions, the war in Ukraine, water levels – these can initiate a massive rethinking.”
The goal is to integrate insight into supply chain design and build in the ability to anticipate and respond to external events. “Control the controllable,” says Sweeney, “and minimize the uncontrollable.”
Meet the Authors
SAP Insights Newsletter
Gain key insights by subscribing to our newsletter.