Everyone in the wine business knows about the problem of bottlenecks — and I am not just talking about the kind you see in this photo. Bottlenecks or choke-points are found throughout the wine product chain and any one of them can make life difficult.
Wine’s Many Bottlenecks
Growing grapes can sometimes be a bottleneck since winegrowers get just one crop a year (apart from tropical viticulture, where multiple harvests are possible), so bad weather, smoke exposure, or labor supply problems can really mess things up. Wine production has its bottlenecks, too. Tank capacity is limited in the short run, for example, and after a couple of abundant harvests in a row there can be problems making new wine because there’s no place to put it.
Distribution is another bottleneck of the classic kind you see on the highway. Thousands of wine producers channel their products through a much smaller number of distributors — it’s like losing three lanes on a busy freeway! In my experience every industry tends to organize itself around its most severe bottleneck or inefficiency and here in the US distribution and the three tier system shapes much of the rest of the industry to a certain extent.
Logistical Bottlenecks
These days we are all coping with logistical bottlenecks. The old “just in time” system with hyper-efficient logistics has yielded to a “just in case” system, where we stock up on vital commodities when we can get them because bottleneck delays are so common. It is like the toilet paper situation at Costco on steroids.
I know a couple of wine importers, for example, that received the last of their French Rosé wines only in the last few weeks, just as the summer pink wine season was drawing to a close. The wines were caught in the international shipping bottleneck — not enough containers or port capacity to get product to market as per plan, plus of course higher cost. You know the story. Reports suggest that the ocean shipping problems that are in the news every day will not be resolved soon.
On a trivial personal level, we waited an extra four days for a wine shipment from California that was stuck in the dreaded “Troutdale Triangle” near Portland. Don’t know if the bottleneck was driver availability, trailer space limits, or processing capacity. Maybe all three! At least the wine arrived in good shape. I suspect you have a similar story to tell and perhaps without the happy ending.
Rising Transportation Costs
The cost of shipping a container, when you can book space on a ship, has sky-rocketed. The Drewry World Container Index average cost has increased from less than $2000 per standard container in 2019 to more than $10,000 this summer! The actual cost depends on timing and the specific route desired — it is a supply and demand thing.
The rising ocean shipping costs have an uneven impact on product categories depending on the value of the goods involved. The higher rates have a relatively small impact on the final price of high-value goods such as electronics. But bulky, lower-value products can be hit pretty hard and there are stories circulated about items, such as cheap garden furniture from China, where the new shipping rates are higher than the value of the goods themselves.
Higher shipping rates act like a $8000 per container tax on imported wine, with the proportionate burden falling hardest on less-expensive wines. The higher cost combined with less dependable delivery schedules creates real problems for anyone with business interests in imported wine.
In the past such ocean shipping disruptions have been both smaller and relatively brief. The magnitude of this situation is unprecedented, however, and there are indications that higher costs will not as quickly disappear. Ocean shipping is a boom-bust industry. When ocean rates have been high as they are now, shipping companies have invested heavily in extra capacity that, when it came on-line all at once, pushed rates and profits down. The big shipping firms today intend to be conservative in their orders for new ships to prevent a collapse in rates a few years down the road.
The Big Bottleneck
The bottlenecks within the wine industry directly affect the wine trade, but they are not the only impacts to consider. Micro-bottlenecks within industries like wine aggregate into macro-bottleneck problems and risks that affect national and the global economy.
Come back next week for thoughts about how this big bottleneck issue might affect the economy overall and the implications for wine.
While I respect the impact that the shipping bottleneck has on cost and availability, as a resident of a state (Michigan) at the forefront of the DTC conflict, in-state availability becomes our greatest bottleneck. State law and the whims of the distribution tier prevent us from legally purchasing in the neighborhood of 80% of all wine labels sold in the US, at any price. Bottlenecks caused by slowed or costly shipping pale next to that.
Mike: Our experience shipping wines out of Eastern Washington state shows you are spot on. Containers to Sweden and Japan over the past four months were both delayed over 60 days, with a good part of that being lack of transport from the dock onto the ship! A container to China was only delayed three weeks and left the winery Tuesday.
I noticed in a story just above years this morning that the price of Beaujolais Nouveau could increase 50 percent due to a short crop. That is a price increase based more on supply and demand than actual increase in the cost of grapes, but why not make hay while the sun shines?!
Speaking of glass…flint bottles are not currently available. First time in my 35 years that has occurred, but could be the tip of the iceberg, as flint (clear glass) for rose’ wine would normally be the first to order with the new crop; rose’ is put in bottle very early. We managed to obtain some from another client who cut back just yesterday…probably because grapes in general picked out very light in Washington, unfortunately for the second year in a row.
The very good news: Demand is the best we’ve seen in half a decade, at least. The trick will be to actually have enough wine to sell, be able to put it into bottles, and get it to it’s intended destination in a timely fashion.
Watch for higher prices, and out of stocks for many wines.
In our industry, perhaps more so today than in any of my previous years, we live in interesting times!
Interesting times indeed, Tom! Thanks!
Mike, you are neglecting to point out the human factor. Namely, the contracts “with longshoreman unions that prevent ports from operating 24/7 (as they do in Asia) and send labor costs through the roof.” As Scott Lincicome from the Dispatch reports “union dockworkers on the West Coast make an average of $171,000 a year plus free health care. The unions also fight automation at American ports today, “just as they fought containerized shipping and computers decades before that,” Lincicome writes.” As Dominic Pino writes in National Review (Oct 15th) – “The waiting times for ships at U.S. ports are longer (seven to twelve days at Los Angeles/Long Beach and six to seven days at Savannah, compared to one to three days at Shanghai and Shenzhen), but there are more ships waiting at the Chinese ports, according to the FT. A lot more — 97 are currently waiting in Shenzhen, and 73 are waiting in Shanghai, compared to 53 and 20 at Los Angeles/Long Beach and Savannah, respectively.”….this is a problem decades in the making. As Pino wrote back in a June column for the National Review – “free trade assumes there are lots of boats and functioning ports to receive them. There are tremendous gains from trade to be had, but the public and private sectors need to work together to make our ports more efficient so we can more fully realize them.” I see no reason we can’t point out greedy unions for much of today’s “Bottlenecks” at US ports.
Hey Mike. Loved the way you segregated the bottlenecks faced by wine industries and thanks for elaborating them.