By Kathleen Willcox of SevenFifty Daily, Liquor.com, Wine-Searcher.com

When global markets shut down in March of 2020, it was impossible to know just how long the pause would be and how severe the ramifications would be for all of us.

And while 2020 was an unprecedented year for every industry, wine and spirits were hit particularly hard by the shipping and supply chain chaos caused by the COVID-19 pandemic. That confusion was made worse by the fact that it arrived on the heels of the equally unexpected trade wars that arrived in both 2018 and 2019, upending import, export and distribution plans for much of the wine and spirits industry.

“The tariffs alone have had a profound impact on our industry,” says John Beaudette, president and founder of liquor importer, distributor and service provider, MHW, Ltd. “From a logistics standpoint, it created chaos and ambiguity in beverage alcohol. The USTR [Office of the United States Trade Representative, in charge of setting trade policy] is very powerful. They have the power to change things, and there was a lot of uncertainty. There was a lot of speculation about what was going on. Will it be Germany? Will it be Italy? Which categories of spirits and wine? How large a tariff? There were a lot of questions like whether people should load up on inventory, bring over six months or a year’s worth of product, and store it in warehouses.”

The tariffs on wine and spirits, of course, were an unexpected outgrowth of two trade wars between the E.U. and the U.S. One involved the aircraft industry (Boeing / Airbus) and E.U. aid to Airbus, and the other steel and aluminum, a counter-intuitive but politically canny tactic that drew public attention to what was previously a lower-profile issue, Beaudette explains. Once the U.S. instituted tariffs, the E.U. responded with retaliatory tariffs for U.S.-made wine and spirits.

“What do wine and spirits have to do with aluminum and aircraft?” asks Beaudette. “The answer, of course, should be ‘nothing,’ but unfortunately, we get dragged in as an innocent bystander, and that may simply be because wine and spirits are consumer products everyone can relate to, so it’s an easy way to grab attention for the press and so forth.”

In June, there was a five-year truce called on the tariff war for imported wine alone, affecting all French, German and Spanish non-sparkling wine at or below 14% ABV with a 25% tariff/mark-up. According to reports, these price hikes caused sales of these wines to plummet 53%, the U.S. Wine Trade Alliance estimated. Spirits including single malts from Scotland and Ireland as well as liqueurs and cordials from Ireland, Germany, Italy, Spain, and the U.K. also benefited from the five-year suspension of the burdensome tariffs.

While many in the wine space rejoiced when import tariffs were lifted, U.S. distillers were still operating under the yoke of E.U. tariffs, though they did avoid a steep increase, set to take effect in June of 2021. In May, several weeks before a 50% tariff on American whiskey was due to come down the pike, legislators tabled it, but the 25% retaliatory tariff is still in place. The situation has forced many smaller U.S. craft spirits players to decline from exporting their wares to the E.U. “because they recognized that the pricing structure would make them less attractive on the market,” notes Beaudette.

“That battle still exists on the export side, but there is a lot of optimism that those tariffs will be lifted as well,” Beaudette says. Indeed, representatives from the E.U. and U.S. have said they are committed to resolving their trade issues “before the end of the year.”

DISRUPTION ON TOP OF DISRUPTION

As if the tariff challenges weren’t enough to contend with, the COVID-19 crisis created incredible disruption in shipping, with delays at ports and with customs officials, and for producers who were simply having trouble accessing basic supplies—like bottles, screwcaps, corks, foil closures—that they rely on to manufacture bottles.

“All of these things have caused a lot of challenges for many of our industry players across all tiers,” Beaudette points out. “Suppliers, importers, wholesalers, retailers and ultimately, the consumer.”

After more than a year of examining the pros and cons of different shipping, storage and import/export strategies, MHW found it was able to successfully help their clients find solutions that boost their bottom line.

“We worked with clients to eliminate a lot of the uncertainty” that came in the wake of the tariffs and COVID-19 shutdowns, Beaudette says, explaining that there was no one-size-fits-all solution for brands. For some, storing a year’s worth of industry in a warehouse made sense, but for others, especially during COVID, as Amazon and other companies began exponentially expanding their warehousing capabilities, it wasn’t practical, or even feasible.

MHW’s priority, Beaudette explains, is working with clients of all sizes to grow their brands under a variety of market conditions through programs that will enable full market entry, complete U.S. and E.U. market access, compliance management, and turnkey infrastructure. MHW did just that, and also tackled the root of the problems by working directly with key trade organizations like NABI and DISCUS to convince lawmakers to end the tariffs put in place by the Trump administration in 2018 and 2019.

Even during the past two years of unprecedented challenges, MHW has stayed on track and helped wine and spirits clients seek avenues toward growth through targeted cost-benefit analyses. Prior to tariffs, the federal excise tax and duty on a case of French wine at 12% ABV, with a commercial value of $100, was $3.58, Scott Saul, MHW’s executive vice president, explains. With the ad valorem 25% duty, MHW’s clients had to pay an additional $25 per case; a container of 1,000 cases would now require a payout of $3,580 in excise taxes, then an additional $25,000 in duty. “We worked with clients who had products coming in to place the products ‘in-bond,’ if they didn’t have orders that required immediate fulfillment,” Saul says. “Our expectation was that a change in Administrations from Trump to [President Joe] Biden would result in a ‘ceasefire,’ which came to pass.”

Once the tariff was suspended, their clients got their product out, while saving the 25% ad valorem tariff. One of their clients, with wines well over $100 a case, saved close to $100,000 on just one container. Granted, many of MHW’s clients had orders to fulfill and didn’t have the luxury to wait, shelling out many tens of thousands in the process.

But it hasn’t all been bad news for the industry, Beaudette points out.

“Ironically, at the same time all of this chaos was transpiring, the Trump administration gave the industry a tremendous asset which was the Craft Beverage Modernization Act (CBMA), which created a significant tax decrease program for producers both domestic and foreign. It has represented hundreds of millions of dollars of savings, which could be reinvested into the brand, and effectively creating many new jobs in the U.S.”

It was, Beaudette says, a highly unusual position in which some decisions in Washington were benefiting the industry enormously, while others were damaging it. With both the tariff war and logistical challenges appearing in the rearview, the entire industry has a clearer and more profitable road ahead.

LOOKING AHEAD

“There’s a lot of catch-up work,” Beaudette says. “Brands have lost shelf space. They have lost placements in stores and on restaurant menus because of this. While the situation is not going to resolve overnight, we look forward to re-entering a more level playing field. We’re in a much better place heading into 2022.”

With the pandemic and the logistical challenges of the tariff wars fading, MHW plans to capitalize on the growth all categories of alcohol have seen in the past year, fueled by the pandemic and social media. This time, in lieu of fighting trade headwinds, MHW’s clients will have the Craft Beverage Modernization Act (CBMA), which significantly decreased taxes for producers.

The third and fourth quarters of 2021 are looking good.

“There’s a lot of opportunity for growth out there,” Beaudette says. “We have tremendous tailwinds, and we’re looking forward to helping our clients capitalize on it.”