|Shippers explore options in growing wine market
The outlook for the global wine industry remains bright. According to market research firm ReportLinker, the industry is expected to grow at a 4.7 percent CAGR from 2016 to 2021, reaching a value of $385.2 billion over the five-year period.
The Asia-Pacific and eastern Europe regions are leading that growth, while other regions, including mature markets such as North America and western Europe, are ceding their wine market share to craft brewers and distillers, according to a recent report from the firm.
Yet a growing number of younger consumers, along with economic growth in emerging markets and rising disposable incomes of consumers in those markets, figure well for the global wine industry.
However, wine shipping — and more importantly — proper handling with regard to temperature control and cold chain integrity — remains fragmented, presenting challenges and opportunities for the wine industry and consumers alike.
In general, the premium brand wines are typically shipped in temperature-controlled trailers and containers, while value brands are not, explains Alison Leavitt, managing director of the Wine and Spirits Shippers Association (WSSA).
“It’s still the higher- wines and suppliers who are much more adamant and concerned about the condition of their wine,” she said. On the contrary, “the lower- and mid-range wines rarely use any type of temperature-control equipment, although sometimes insulation is used when shipping in really hot or cold months.”
Incoterms also play a part. For instance, most US wine exporters are selling on an ex works basis, which means once the wine leaves their dock, responsibility is transferred to the buyer.
“Brand owners are not always as concerned as they should be about how their wine is being transported,” she said. “Unfortunately, that changes when they hear about a problem or if their brand suffers.”
Not surprisingly, there is even less concern for proper cold chain applications for lower- and mid-range brands. “When someone s a $6 bottle of wine and it doesn t taste good, they just throw it out,” she said.
Most often, the supplier drives the decision to utilize reefer service.
“The supplier wants to protect their brand and has a deep concern for the quality of their wine. They insist on everything from a reefer pickup to a reefer container,” and that really has not changed much over the years, Leavitt said.
However, there is plenty that has changed, she said, starting with a steady accumulation of information and growing awareness about how wine quality degrades when it is not handled properly.
Numerous industry studies over the years have documented the punishing conditions that wine encounters during a typical ocean voyage. Temperatures in a dry container can easily range from a low of 45°F to a high of 90°F, fueling chemical reactions that prematurely age the wine. Placement of the container, such as below deck or on deck, also affects temperature, as does weather and seasonal changes that occur during long voyages or those that traverse the equator.
Transshipments introduce even more risk to wine shipments, exposing the container to additional shocks, light, and temperature extremes.
Long ocean voyages, transshipments, multimodal transportation, and multiple touch points are inherent to today ’s supply chains — so too are disruptions and diversions — and the result can be devastating for time- and temperature-sensitive shipments such as wine.
The recent closure of Port Houston because of Hurricane Harvey prompted ocean carriers to divert cargo to nate ports. One wholesale distributor of alcoholic beverages had approximately 1,000 containers of wine and spirits impacted by the port closure. Some cargo was diverted to the Bahamas, while other cargo was stranded on trailers and railcars in and around Houston.
Meanwhile, the ongoing consolidation in the ocean carrier industry presents other challenges, Leavitt said, adding that the first quarter of 2017 was particularly chaotic. Constant changes in carriers and services were hard to keep up with and complicated contract negotiations.
The upheaval was also marked by artificial restrictions on space, she said. “Certainly, the Europe to Asia trade lane was insane for three or four months. There was simply no capacity, while rates were tripling and quadrupling.”
Leavitt chalks up most of the upheaval to the new alliances “coming into play.” While the worst has probably passed, there are likely more changes ahead before the dust settles.
Furthermore, “the good thing for carriers is that there is still money to be made in the reefer segment, whereas the rates for other types of containerized cargo are still so low that carriers are continuing to suffer, and that affects service,” she said.
Nonetheless, “there are definitely some carriers that are spot on and quick to react. They get back to us quickly on any issue, whether it’s rate filing, changes, service s, or even helping to solve problems at the port. Without those few key people that we deal with, it would be much more difficult.”
Leavitt said short staffing among carriers is another problem, but she is hopeful that once the consolidation diminishes that service will stabilize.
On a positive note, 40-foot reefer equipment is generally available across major trade lanes, she reports. Although, there is a caveat. “There are a lot of shippers that would like to ship in 20-foot reefers.” However, “that’s the more difficult box to find; it’s just not in big enough supply, and it is an area where we see some restrictions just in obtaining equipment.”
Interestingly, Leavitt also sees an upside to consolidation in the ocean carrier industry.
“We are certainly cutting down on the number of contracts that we have. We average 39 contracts, but that number will come down. For instance, we won’t have a contract with the three Japanese carriers next year; we’ll have one.”
Shipping wine in bulk is not new, but the newest generation of flexitanks makes it more attractive than ever.
There are some interesting trs in this space, Leavitt said. While there is a lot of wine now moving in bulk, there are also shippers that were previously shipping in bulk that have returned to bottles.
“Some of this has to do with currency fluctuations, some with shipping rates, and also some of that had to do with Brexit, like duty and tax issues,” she explained.
Yet, the overall tr toward shipping in bulk is growing, Leavitt said, largely because of improved flexitanks and ongoing innovations related to material and construction.
There are a lot of manufacturers, and many of them are investing heavily in research and development. Today’s flexitanks are designed to prevent wine from becoming oxidized and stabilize the liquid during transit so that it does not slosh around inside the flexitank.
“There is also more variety in terms of using double bags [bladders] in order to ship two types of wine in one container,” she said.
Shippers are exploring the options with shipping wine in bulk to see what works for their immediate needs, she said. In fact, it is not uncommon for larger companies to switch back and forth between shipping in bulk and shipping in bottles.
“They make the switch based on where the juice is, what the costs are, and what makes sense for their particular supply chain,” Leavitt said.
On the software/technology front, Australian firm TBSx3 tested blockchain technology for security and verifying the wine supply chain during a trial in May, partnering with Hamburg Sud, DB Schenker, port operator DP World Australia, and Australian wine producer IUS, which exports seven product lines into the Chinese market.
The TBSx3 tem uses military grade cryptography, based on 44 alphanumeric acters, over the traditional six-digit public cryptography.
Wine was shipped from Australia to China’s Port of Qingdao. KPMG advised TBSx3 on the trial and verified the custodial handoffs for the integrity of the product on the 5,000-plus-mile land and sea journey. In addition, KPMG simulated the customer at the of the trial by receiving, validating the product and checking if the tem could potentially detect duplicates.
Sam Brand, founder and vintner of Australia’s IUS Wines, noted that verification at the retail following constant tracking from production source of the supply chain is critical to brand and product provenance.
Laszlo Peter, technology director at KPMG Australia, added that the trial is “an important step in developing consortia, which can track product or assets, and protect provenance through every part of the supply chain from factory or farm gate, across continents, by land, sea, and air, all the way to the customer.”
The growth in e-commerce and direct-to-consumer shipments is likewise drawing attention to how well — or not the cold chain is maintained for wine shipments during the so-called last mile. It is fair to say this is an area that requires considerable improvement.
“There are some big ings for companies that are getting into the last-mile ballgame,” Leavitt said.
Part of the challenge, though, is the three-tier tem, which requires producers/importers to sell to wholesale distributers, who in turn sell to retailers. Furthermore, the recipient must be at least 21 years old and provide a valid I.D.
However, there are lots of opportunities for companies that can manage these requirements as well as the cold chain aspects, she said.
This summer, UPS expanded its UPS Express shipping services to target the expanding direct-to-consumer wine market. The service now reaches consumers in 24 of the top 35 wine importing countries. Deping on the destination, orders can arrive at the business or consumer’s home within three days, the company said.
One of the countries covered under the UPS Express shipping service is China, which is on track to surpass the United States as the world’s third-largest wine importer by 2020.
According to Rabobank, while wine consumption in China previously centered on business and government entertainment, that has begun to change.
“There is now a shift toward a younger retail consumer who is looking to engage more intently with the wine category, displaying a thirst for foreign wine culture and education. They are also much more willing to purchase wine for their own personal and social consumption, rather than as a gift, as older generations have done,” explained Marc Soccio, Rabobank senior analyst.