How Drought Can Affect Global Trade

Thanks to the advent of the internet, going global with your business has never been easier, particularly if you’re in an arena like the fast-moving consumer goods sector.

At the click of a button, your products can be purchased from anyone anywhere, which is of course impressive but it does mean that your profit margins may be at risk if something happens along the global supply chain.

One pressing issue for many companies, big and small, at the moment is that of water stress and scarcity, with droughts increasingly wreaking havoc on global trade, which is heavily dependent on water resources.

According to the World Economic Forum (WEF), some 90 per cent of all products make their way around the world via oceans and other waterways, but international trade routes are now being rendered impassable because of severe drought conditions.

In fact, World Meteorological Organisation figures show that the economic damage from droughts rose by 63 per cent in 2021, compared to the 20-year average – and with climate change expected to make extreme weather events like drought more severe and more frequent, it seems reasonable to expect this to continue to climb as time goes on.

Spotlight on: Europe

One of the most essential transport links for Europe is the Rhine River, which starts in Switzerland and snakes its way along 800 miles or so before it reaches the Netherlands and the North Sea, moving more than 300 million tonnes of goods each and every year.

However, in the summer of 2022 the Rhine’s water levels fell so low that severe delays were seen in both shipping arrivals and departures alike. Some ships even found they had to reduce their cargoes to just 25 per cent of capacity to avoid running aground during the worst drought to hit the continent in an impressive 500 years.

The Rhine is a particularly important shipping route for goods like minerals, grains, coal, ores and oil products, with companies experiencing production problems and supply bottlenecks at the time. This in turn led to increased costs for cargo owners, with surcharges imposed on freight rates as compensation for ships not sailing with full loads.

Sea and inland waterway freight shipping is still one of the most sustainable ways to transport cargo around the world, with significantly less CO2 emissions than trucks.

Last year, many companies turned to rail providers as an alternative to river and sea freight because of low water levels, but others had to switch to road freight in order to ensure the delivery of goods.

Spotlight on: the Amazon

The Brazilian state of Amazonas was pushed into drought this year, thanks to insufficient rainfall between July and October. This saw river levels at the port of Manaus drop to their lowest point since 1902, important because Manaus is the main transportation hub for the upper Amazon.

It’s essential for the transportation of products like beef and animal hides, but some barge routes have been forced to reduce larger loads because of low water levels, with the docking of transoceanic ships at the port also affected.

As the WEF explains, costs have also been pushed up for northern shipping routes in the Amazon, while the region’s corn harvest is also at risk of being disrupted.

What’s more, other major tributaries have also seen low water levels as a result of the drought, with Amazon basin communities isolated and struggling to access freshwater supplies, while fish populations have been affected, as have river dolphins.

It seems that the Amazon is now facing pressures from types of drought: an eastern El Nino, a central El Nino and an Atlantic dipole. These conditions cover almost the entire region and it’s predicted that they’ll last until at least the middle of next year, with climate change exacerbating the situation.

Another issue the Amazon faces is that of deforestation. Some 50 per cent of all rainfall in the region comes from the forest, with moisture recycled from the trees to the atmosphere. But in severe drought conditions, forests lose more water to evaporation than they get from rain, so they’re unable to sustain themselves.

A recent study from the Potsdam Institute for Climate Impact Research indicates that for every three trees that die because of drought in the rainforest, a fourth tree will die, even if it’s not directly affected by the drought, Mongabay reports.

Spotlight on: China

Last year, record-breaking drought conditions hit the Yangtze River basin, causing sections of the waterway to dry up and severely affecting shipping routes and hydropower, as well as affecting drinking water supplies. Submerged Buddhist statues were also revealed!

The Yangtze itself is the most important river in China, providing water supplies to over 400 million people and stretching all the way from the Shanghai coast to Sichuan province in the south-west of the country. It transports an impressive annual cargo haul of more than three billion tonnes a year.

However, record-low water levels were seen in the summer of 2022, with rainfall levels approximately 45 per cent lower than normal. This saw August water levels in the drainage area of the waterway fall to 60 per cent below average for the month.

What does the future hold?

Not only is freight shipping at increased risk from drought but also other pressures like tropical storms, rises in sea levels, inland flooding and extreme heat. Given that trade volume is expected to triple by 2050 in line with a hike in demand, this is naturally concerning for both the industry and consumers alike.

It seems that the shipping industry is taking steps to make itself more resilient, with CNBC reporting that freight giant Maersk is now changing its ship design, as well as upgrading weather monitoring systems. Wartsila, meanwhile, is making use of artificial intelligence to better handle potential disruptions.

For businesses, now’s the time to think about how you could build more resilience into your own operations and your own supply chain so that you can continue to operate even if there’s an issue elsewhere. Adopting a more local approach to doing business could be a great place to begin.

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