Supply Chain Hums Along Amid Uncertainty
May 04, 2020
With wineries, and by extension their suppliers, deemed "essential businesses" throughout shelter-in-place orders, most companies providing critical goods and services to wineries continue to operate with few disruptions—but there are shipping delays and air freight prices have become prohibitively high.
“We’ve been lucky and the whole wine industry has been lucky in that there aren’t that many disruptions,” Precept Wine SVP of winemaking and operations Phil Kazanjian told Wine Business Monthly. “When we started seeing these stay-at-home orders I was worried it was going to start affecting the supply chain but it really hasn’t.”
“Most of our suppliers have been able to sustain production,” Scott Labs president and CEO Zack Scott said. “We’ll be receiving everything well in time for harvest, if not a little bit early. We’re a little bit more intense this year about getting things moving so we’ll actually be ahead of the curve.”
“We have the ability to quickly adjust transportation lanes to mitigate disruptions in supply channels,” G3 vice president of sales Mihailo Panovich said. “Our safety stock of materials and supplies is deep enough to withstand short-term supply disruptions, yet we are increasing safety stocks of critical materials.”
“People are concerned and are planning ahead better,” ATP Group vice president for enological process sales Massimiliano Buiani said.
China was severely affected when the lockdowns started and out-bound cargo traffic slowed, which in turn reduced the number of dry containers arriving in Europe.That then cut the number of dry containers available to ship products from Europe to the U.S. On average, there’s been a two- to three-week or more time lag to ship products from Europe because of the container backup —and there were shipping delays out of Europe even before the COVID-19 crisis.
Scott said air freight prices are “bonkers” at two- to four-times the typical air cargo prices because of a lack of passenger traffic. He said $3 per kilo is not an unusual air freight cost but he’s seeing quotes at $7, $9 and even $12. In addition to the cost issue, air freight bookings have been bumped repeatedly, to the point that shipments from Paris to San Francisco, for example, can take as much as two weeks.
Dustin Mowe, general manager of Portocork, said the container freight snafus have largely been corrected and are not as much of an issue at this point, however. “For us, the biggest issue is getting anything via air freight,” he said.
During a webcast last moth, Janson Capsules vice president of marketing Melanie Thomas said shipments from France have been taking 12 weeks instead of 8 and last-minute shipments via air freight aren’t an option, so wineries need to plan in advance.
G3's range of products includes labels, closures, transportation, warehousing, mobile bottling, and more but Panovich said the only products seeing longer than usual lead times are custom color coatings and some specialty orders affected by air freight delays.
Though there were temporary disruptions in Europe, glass manufacturers continue to operate, functioning as normally as one might expect given the crisis. Among others, Saverglass continued operating on three continents.
“Our U.S. sales teams are working remotely and continue to provide a full service to our customers, and with our facility in México, we have been able to easily facilitate shipping and operating logistics to the American market effectively,” Régis Maillet, group marketing director of Saverglass said.
Global Package founder Erica Harrop said there was already a glass shortage pre-COVID-19 because of tariffs and duties on Chinese goods. Duties went up earlier this year and could increase again later this month, making it difficult, if not impossible, for businesses to commit. That’s put pressure on domestic glass supply.
“We’re getting calls from people that have dealt with suppliers that provide Chinese glass and they are not happy and are not getting the glass they’ve asked for,” Waterloo Container marketing director Bobbi Stebbins said.
TricorBraun WinePak regional vice president and general manager Kathy Brooks said there have been delays out of China, but that China is beginning to better manage the supply chain and that TricorBraun balances supply chains across many sources to ensure continuity of service and supply. “There have been challenges procuring from China but the supply chain is beginning to work its way out and may be back to a more normal level both in China and in the U.S. later this year,” Brooks said.
Although bottling peaks in the summer, much of it occurs earlier. Some smaller wineries were postponing bottling and weren’t emptying tanks, so they delayed buying glass bottles. Harrop said since glass is usually delivered immediately before bottling, making scheduling changes can be challenging.
“We deal with smaller wineries and are noticing that about half of them are putting off their fills right now, Stebbins said. “That’s probably because they don’t know how long they’re going to have to float their business. A lot of our customers realized this week that next week they’re going to need bottles, but we’re seeing a lot of them putting it on pause.”
“We’ve certainly seen a change in what the priorities are right now, with our smaller wineries especially,” Stebbins said. “We’re seeing a big uptick in orders for shippers and boxes.”
Tasting room closures affected purchasing as well, said Brooks, but "Others have continued to be very busy through online and other channels. We are working hard to support all wineries through these challenging times, whether by adjusting supply chains to meet new demands or assisting on credit and terms.”
Panovich of G3 said some wineries postponed purchases or adjusted purchase amounts. However, he said other wineries have pulled purchases forward to fulfill demand for brands doing well off-premise.
He said G3’s supply chain has seen very little impact on lead times but has seen some increases in costs, especially with Airfreight from Europe and Ocean freight from Asia. “We do not anticipate any significant delays in the summer,” he said. “We still have inventory of all products and are able to fulfill orders regularly.”
During the initial weeks of shelter-in-place, clients postponed bottling out of uncertainty and because of safety concerns, Ryan Mobile Bottling co-founder and administrator Mary Ryan McLaughlin said. “Once they saw the protocols and safety measures, people were more comfortable and for the most part continued to bottle as planned.”
McLaughlin said she will have less scheduling flexibility this summer because the lockdown didn’t follow a short harvest. “We were already quite booked,” she said. “We’re expecting there to be challenges and attrition on the schedule as people may have delays with their supplies but what I’ve seen is vendors wanting to do right by their clients and doing their best to get everything to them.”
MA Silva general manager Mike Bartlett said most wineries are not postponing bottling. “They want to make the best wine and that means making space for other wines before harvest, bottling at the right time, and selling at the right time,” he said. “Some wineries may be holding on to wines a little longer to age in barrel, but the majority have a COVID policy in place to maintain business as usual.”
Plenty of Corks
Carlos de Jesus, marketing and communications director for cork supplier Amorim in Portugal, said the company has been able to maintain production capacity across all 14 sites where it operates, and for its California-based distribution units.
“Not only the supply chain is protected, we are actually building up stock in anticipation of the next stages, once the U.S. and other countries around the world start to ease up the confinement rules,” de Jesus said. “There will be obstacles ahead for the wine trade but suppliers like Amorim, with a proprietary, fully-integrated production and distribution network, will be able to support our clients with significant competitive advantages.”
“We do not anticipate any significant delays in the summer,’ MA Silva’s Bartlett said. “We still have inventory of all products and are able to fulfill orders regularly."
“We always appreciate people giving us a little more time on orders anyway,” Greg Hirson, vice president of product at Cork Supply USA added.
Challenges for Coopers
Wineries typically order barrels at this time of year but some have reportedly postponed or lowered orders while some are planning for a second wave of orders.
Besides the shipping lag, some cooperages in France suspended production before shelter-in-place after seeing how severely parts of Italy were hit by the crisis; Some wineries were cautious about putting money into cooperage amid the economic uncertainty. (In 2008, the reduction in barrel sales was dramatic, and the increase in oak alternatives was equally as dramatic, per the 2009 WBM Barrel Survey Report).
During a recent webcast organized by the French American Chamber of Commerce, Louis Zandvliet, general manager of Tonnellerie Radoux said barrel sales were down with big buyers committing to half to three-quarters of their needs while waiting for the remaining 25 percent.
“There’s a lot of prudence and being very careful in the industry right now,” Steve Blais, North American sales manager for Tonnellerie Ermitage, part of Groupe Charlois, said.
Hirson, of Cork Supply, which operates barrel maker Tonnellerie O, said the company brought in extra wood in late February for assembling barrels. “We don’t have any disruptions in the supply chain for barrels because we build them here,” he said.
Tank Sales - Crush Pad Projects Continue
Santa Rosa Stainless continues operations during the lockdown though production manager Nathan Williams said there wasn’t an overabundance of new projects underway prior to the crisis. “I’ve not had one cancellation but there's been a few customers talking not so much about canceling, but about delaying projects,” he said.
“We're in warrior mode,” Williams said. “We've been around for a long time and that helps. Our backlog isn't as long as this would be typically. I still have August availability.”
P&L Specialties, Tom Beard Co. and Revolution Equipment Sales president and CEO Ed Barr said some customers are choosing a pre-owned piece of equipment over a new one. Cost is a factor with some expressing concern that equipment made outside of the USA might not arrive in time for harvest, he said.
“We are following all the suggested safety precautions such as social distancing, remote working, and protective equipment. It has been a drag on productivity but I thank my lucky stars we are open and have work,” said Barr, adding, “Thankfully everyone here at P&L Specialties, Tom Beard Co. and Revolution Equipment sales are well, safe, and employed."
Suppliers saw a substantial pause in activity in the first couple of weeks of the lockdown with companies trying to focus priorities. Then wineries resumed quasi-normal operations. Cash remains a huge issue.
“We continue to reach out and work with our customers on a daily basis to ensure that we have the products they need when they need them and we are in constant communication in regards to payment terms,” Bartlett said. “Some customers are asking for extensions but are also willing to pay a smaller amount upfront as a show of good faith.”
One supplier said he’s concerned about wineries that rely on tasting room traffic for sales being in a position to pay in a timely manner. “We’re selling to people and are taking orders from people when I don’t know how they’re going to pay, including some we have long-standing relationships with,” he said. “Over the past two weeks, we’ve gotten countless emails and phone calls from people saying, ‘hey look, I know you, we’ve had a longstanding relationship, I’m going to pay you, but I can’t pay you now,'” he continued. “That’s my new worry: You can’t go to the winery and say ‘I’m not going to sell to you now unless you prepay when they’ve had an exceptional payment history for 20 years."
“Everybody's doing the best they can to be reasonable, you know, to be somewhat tolerant,” Harrop said.
“One of the hardest parts of the strict social distancing guidelines is not being able to visit our customers,” MA Silva’s Bartlett said. “Our sales team is usually in the field a majority of the time; now they are utilizing video conferencing to stay in communication with customers and trying to maintain that personal touch.”
“We’ve seen people proceed forward with plans but there was a period where people were focused on more important things like protecting their people and making sure they had organized plans as to how they were going to proceed,” Scott, of Scott Labs, said. “We are seeing that customers are being very responsible. It’s not much-to-do-about-nothing but it does seem people are acting pretty resilient.”
“I feel for our customers because they are planning for a timeline that is well out of view," Scott said. "That’s a challenge and I applaud them for the bravery and optimism with which they seem to be approaching it.”