Increase of Shipping and Input Costs

Shipping and input cost challenges continue to intensify and are – again – the common issues discussed throughout Ciatti’s Global Report this month, as they are a significant impediment to doing business in most markets. The wine industry, like all global industries, has grown via affordable freight and energy, but these can no longer be taken for granted. An outlook by winebroker Angelo Cotrone. 

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Challenging shipping costs (Photo: Federico Rostagno/Adobe Stock)
Challenging shipping costs (Photo: Federico Rostagno/Adobe Stock)

 

  • The extreme rise of procurement costs is the most serious challenge for the wine industry.
  • High costs for energy and fuel hit two ways: They increase costs for production and transport and aggravate consumer ´fuel poverty`, thus reducing demand.
  • The Russia-Ukraine War is further affecting the wine industry, hindering supply chains and not being an import destination any longer.

 

We are seeing shipping – once some way down the list of considerations during transactions when a functioning supply chain could be taken for granted – becoming in some cases the first discussion point. While some bulk wine buyers are casting the net wider for sourcing options that maintain margin, others are ruling out wines located at a certain distance or in a particular location so as to avoid high shipping costs and/or delays.
 

Effects of the Russia-Ukraine War

The Russia-Ukraine conflict is affecting the wine industry directly and indirectly. Indirectly, the turning off of the Russian energy faucet has led to gas and oil shortages and soaring costs on both around the world, further hindering supply chains. More directly, we expect the inventory of Spanish generic whites to be enlarged, as Russia was an important destination for these wines – either straight from Spain or via other EU countries – before the frontier closed. The potential impact to Italian wine exports of the Russia-Ukraine conflict is estimated to be approximately €350-400 million.
 

High Energy Costs and ´Fuel Poverty`

The annual energy bill for UK households increased by an average of £693 (US$904, €756) from this month. Spain and Portugal are temporarily withdrawing from the EU’s internal energy market in order to cut prices for their citizens. Measures are being introduced to ease record fuel prices: the UK has cut fuel duty by £0.05/litre; France has introduced an €0.15/litre rebate. But fuel poverty is likely to increasingly drag back consumer spending as the year progresses.  
 

Building New Relations: The Return of Wine Fairs

The freight and energy challenges are here to stay this year and potentially well into 2023. But a potent weapon in offsetting challenges has returned after a two-year absence: wine fairs are back, and with them a greater ability to build new relationships, enhance existing ones, and mutually establish workarounds to business impediments. April brought Alimentaria in Barcelona (busy, with everyone happy to see each other in person after so long); May brings Fenavin in Ciudad Real and then ProWein in Düsseldorf.

Ciatti will attend Fenavin and will be out in force at ProWein, with a stand – G24 – in Hall 12. The company can draw on its decades of experience to help you navigate the bulk wine and grape markets in a topsy-turvy world – don’t hesitate to get in touch.

 

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