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Freight tariffs rise exponentially when there is extremely low water.

The period of extremely low water in the Rhine and Moselle which we experienced in November last year resulted in an increase in freight rates for dry cargo that exceeded the compensation through the KWZ (Klein Wasser Zuschlag / Low Water Surcharge) by a factor two to three times.

If you plot all the tariffs from the input into the NaviDry website with regard to, for example, the evolution of level Kaub, the most important indicator of the Rhine water level, you obtain a graphic that leaves little to the imagination.
In the case of level Kaub, the compensation through the low water surcharge (KWZ) takes effect from a value of 1,50 m. This compensation can increase to 70% of the freight rate per tonne in the case of level Kaub, but, for example, for the level Ruhrort it can go up to 120%.
As can be seen on the combined graph ‘NaviDry – level Kaub’, the freight tariffs in the entire shipping area of the Rhine and Moselle (in November 2011) rose exponentially when the level Kaub dropped below 0,70 m. At the lowest point the tariffs reached a factor 3 to 4 times the tariffs of mid-October. Of course there are still differences depending on the exact areas of origin and the types of cargo.
All that can be explained by the occurrence of a lack of capacity. Standard 135 m ships carry then only 35% of their normal capacity, but for a short time they are paid very well for it. Besides, this situation gives rise to a knock-on and inflationary effect on the rates of ships that do not usually use the Rhine or Moselle shipping area.

All this indicates that a freight index such as the NaviDry Index is particularly valuable for estimating the future evolution of freight rates. That way the industry would be able to hedge against rising freight rates and provide more security to sailing entrepreneurs in these shipping areas by signing them up for a longer term at a lower tariff than the ‘peak tariff’, but still higher than the current tariffs.

Filip Verbeke

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