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.
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.