When the massive container ship Ever Given managed to wedge itself sideways in the Suez Canal on March 23, blocking traffic for nearly a week, it provided a fitting symbol for the state of global shipping in the past year. And while dredging, tug boats and the high tide of a full moon freed the ship, the shipping slowdowns continue. For wine lovers, that means some of their favorites may not be on store shelves anytime soon.
Importers breathed a sigh of relief when the Biden Administration paused the tariffs on wines from France, Spain and Germany last month. But they continue to face a major challenge: It has become increasingly difficult to get wines, or any cargo for that matter, to the U.S., and in the short term it's possible the tariff reprieve has made things worse.
It's a panic
While global shipping has become a logistical nightmare for many companies since pandemic shutdowns began, the wine industry's problems started six months earlier, when the Trump administration imposed the tariffs as part of a fight over airplane manufacturing. Importers began delaying orders from Europe to avoid deeper costs. And because the duties applied to wines already en route, companies faced confusion and an unavoidable dilemma: Eat the losses or raise the price of their wines, a particularly difficult situation for importers who had presold wines at agreed prices.
"When it became clear that the U.S. position on punitive tariffs would remain firm, many orders were canceled," R.S. Express president Kevin Hannon told Wine Spectator in an email. As a freight-forwarding company, R.S. Express oversees shipping logistics for wine importers. When the cancellations began, it started losing money.
The scale of the losses was painful. Alison Leavitt, managing director of the Wine and Spirits Shippers Association, indicates that shipments of tariffed wines decreased by 30 to 40 percent in some months in 2020. Importers adjusted their pricing and logistics, but then there was a new snag.
Adding a pandemic to the mix
"Just as we began to normalize from the tariffs, we experienced a new and potentially more devastating blow from COVID," said Peter Monteleone, director of purchasing for French wine importer Martine's Wines. Not only did the pandemic shut down vital customers like restaurants, but it also made shipping far more difficult.
Shutdowns in Asia, followed by Europe and the U.S., initially drove ocean-carrier companies to remove vessels from their routes, limiting options. But as people adjusted to being stuck at home, they began ordering more goods, from TVs to Peloton bikes. Demand for imports soared and ships needed to be put back on the water.
Port and shipping operations were weakened by ill workers and new safety constraints, tying up docks. China—a critical source of shipping equipment—has not effectively supplied containers and reefer ships (refrigerated freighters) for many routes, leading to backlogs of unused containers. According to Freixenet Mionetto USA president and CEO Enore Ceola, much of the world's freight equipment has been reserved for a recent boom of demand in Asian markets, adding to the crunch. Companies have rushed empty containers from Europe and the U.S. back to Asia, leaving goods sitting on the docks.
Altogether, these trends have put worldwide shipping in a state of disarray, creating delays, holding up cargo at ports and dramatically reducing available freight space for several industries. "The pandemic, combined with other challenges, created the biggest shipping challenge in the last 20 years," said Alexi Cashen, CEO of business-to-business logistics company Elenteny Imports.
Shipping times have in some cases nearly doubled, a new blow after the tariffs staggered wine shipments. Monteleone has seen delays of three to four weeks for reefer space, with additional three-to-four week delays at U.S. ports. Another importer notes that even when freight forwarders find ship space for wine cargo, the bookings might end up cancelled due to a lack of empty containers. The result? Lost sales and fewer choices for consumers as less wines make it to store shelves.
"From October of 2019 to March of 2021, Elenteny Imports' freight bookings were down 32 percent, and the firm paid $8.3 million in tariff duties to customs officials," said Cashen. "That's $8.3 million that could have gone straight to the bottom line of these small businesses."
Adapting
"Unpredictable shipping delays have made inventory management quite difficult," said Clifford Robben, VP of finance and operations for Loosen Bros. USA. "We have to order higher volumes, further in advance, which puts greater financial strain on our companies." Robben reports the tariffs cost their USA division more than $2.6 million.
On top of this, several importers report rising shipping and logistics costs. According to Kermit Lynch president Dixon Brooke, shipping companies have increased congestion surcharges to pay for cargo refrigeration as wines wait longer in ports. Leskody reports surcharges of up to $1,000 per container for most European routes. Importers have also been burdened by rising fuel prices as ships wait for dock space. These surcharges may not be eliminated until shipping lines stabilize, if not longer.
The tariff pause has offered some relief. But it also means more traffic as importers try to get wine to the U.S. before the four-month pause expires. Cashen reports that Elenteny's order volume is up 14 percent thanks to the pause and to reopening restaurants.
"The delays were initially a few days up to perhaps a week or more," said Montelleone. "Now with the tariff pause we're seeing those capacity issues exacerbated by a flood of new orders, as importers scramble to get inventory stateside without tariffs." While some companies remain hesitant to increase imports, fearing delayed shipments could arrive after the pause ends, most are ordering now.
"This rush to bring in goods before the four-month tariff repeal window closes is certainly exacerbating issues," said Vintus president and COO Alexander Michas. And importers may encounter even more expenses as they race to deliver inventory to warehouses by any means necessary.
Unfortunately, alternative shipping methods just aren't viable in most cases. Importers may turn to air freight. But that's a lot more expensive, and fewer planes are flying right now.
It's unclear when this shipping chaos will end. Importers expect demand to keep growing, and some businesses won't have the resources to keep up or to compensate for delays. "Smaller importers are going to be squeezed financially and on inventory they can bring in," said Veritas chief sales officer Jay Clark. "If tariffs were to return, some companies would just fold."
So what solution is there? For one, importers have started building the delays into their timelines. On a wider scale, several hope the crisis will spur countries and shippers to improve worldwide shipping infrastructure and ports. One importer even hopes that North and South America will manufacture more freight containers in the future. Above all else, it seems U.S. imports will only start to recover once the pandemic ends, and once the trade war with the European Union is resolved.
"We understand that is easier said than done," said Hannon. "Perhaps, if negotiations began with a glass of wine for each participant, we might find mutually beneficial solutions."
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