Supply Chain Woes
About 3 years ago, I volunteered to be the Chair of the Brewers Association Supply Chain Subcommittee. It’s been my first time volunteering for a support role in the BA, and it’s been an incredible experience, and it’s nice to give back a bit to this business that I love. The mission of the Brewers Association Supply Chain Subcommittee is:
- To function as a recognized resource for ingredient and packaging knowledge within the craft brewing industry; and
- To foster communications between craft brewers and their supply chain stakeholder partners that allows for rapid response and long-term strategic planning; and
- To inform supply chain stakeholder group agricultural policy outreach efforts, thereby influencing hop and barley supply chain outcomes to the benefit of the craft brewing industry; and
- To serve as a trusted resource for malt barley and hop growers and suppliers, other ingredient suppliers, packaging material manufacturers and suppliers, and researchers, thereby providing a means for BA to influence supply chain outcomes, to the benefit of the craft brewing industry.
The first two bullet points have been the major focus of the sub-committee since the start of Covid in 2020. Most people involved in the beer business have knowledge or experience with the current supply chain woes, but at times our subcommittee gets some unique and new insight as to what’s driving the issues. We’ve all learned a lot about where brewing supplies are coming from-it’s been very educational to deep dive into this stuff to understand why the situations exist.
Below, I’ll try to summarize what factors are creating the strains we are seeing.
Several years ago, cans started becoming THE package of choice for craft brewers. With the transition from bottles to cans by craft brewers, along with the emergence of the popular energy drinks, seltzers, and ready to drink cocktails, can manufacturers in the United States have been in a situation where they are unable to produce all the cans that are needed to fill demand. And Covid-19 fueled this situation, as people stopped drinking draft beer out in taverns and restaurants and started buying beer for home consumption instead. I know at New Realm, our package forecast jumped from 45-50% cans overnight to 85% at the height of the shutdown, and we haven’t been able to get back to what I’d call normal mix ever since. And I hear the same from other brewers as well.
These circumstances led to a host of other issues, including concerns about can liner material, which was being changed to eliminate bisphenol A (BPA) due to CA state regulations detailed in Prop 65, listing materials used in manufacturing that could potentially cause cancer or reproductive harm. The new liner formulations were not as stable with highly acidic beers (like kettle sours), seltzers or RTD cocktails, or very yeasty beers. Some of the liners would degrade and produce awful sulfur aromas, which resulted in some packaged beer recalls by some very good craft brewers. Compounding the liner issue is that fact that many brewers had to turn turned to international can supplies, where it was very hard to get information on the liner material, if the brewer even knew to ask.
We are working closely with liner suppliers, who have helped provide some great information, but can manufacturers have been less open to discuss how all of this is impacting the craft brewing industry.
Recycling is also becoming a concern because many aluminum recycling facilities are outright rejecting shrink wrapped cans because the sleeve materials clog up the equipment. This is compounding the shortage and impacting the sustainability of aluminum processing.
Shipping difficulties are plaguing businesses and families alike. Container ships are piling up at ports without space to unload them, there aren’t enough containers available to meet shipping demand. This has impacted malt shipments from Europe pretty substantially for the many brewers that use German, English and Belgian malts in their beers. There aren’t drivers available to handle all the truck shipping that is being requested (I heard at one point that right now there is 1 driver for every 15 requested loads). And pricing to ship longer distances are rising uncontrollably, being for us at least, double what we were paying less than 2 years ago. For brewers, that means that ingredient deliveries are being delayed, beer shipments and other loads originating from the brewery are often getting cancelled at the last minute, and everyone is scrambling hard to try and get materials in and out of their breweries, while dealing with rising operating costs.
The 2021 malt crop was highly affected by the extreme heat in June of 2021, and people were calling it the worst harvest ever. Protein levels are higher (causing brewhouse lautering issues and/or stability issues) and because the crop volume of usable barley was so low, prices have gone up significantly. Most craft brewers in the USA use 2 row malt as their base malt, and most of this 2 Row malt is grown in the upper central/midwest states and Canada, all regions severely impacted by the extreme heat. This is resulting in some brewers looking for other sources of malt from other states or countries, which requires some pretty significant trialing to ensure there is no flavor change
We’ve all read about “The Great Resignation” in the wake of Covid and people leaving their jobs to re-evaluate their lives and their goals. Certainly restaurants have been heavily affected, but I am also seeing a lot of really good brewers deciding to leave the industry and do something else. No doubt about it, brewing is very hard work, and the industry is not the fun club that it once was, but I hate to see talented brewers move on to do something else.
Glass supply hasn’t been a huge concern for many brewers, especially since so many brewers have transitioned their focus to cans. But with the can shortage, several brewers are increasing their focus on glass again, which could create some supply problems. We’ve heard that American glass suppliers are not taking any new customers until 2023. The spirits industry flint (clear) glass is where most of the shortages are being seen.
This has been one of the most interesting supply chain issues we’ve been seeing. In my past experiences, CO2 in the brewery was always provided by CO2 recovered from fermentation, or gas that was mined. When the Covid19 lockdown occurred, there was a steep reduction in people driving cars and trucks and flying planes and that created all sorts of issues for the CO2 supply chain. A perfect example of the domino effect.
I didn’t know this, but it turns out that much beverage grade CO2 is actually refined byproduct of the petroleum and ethanol industries. When the lockdown occurred, people didn’t need fuel for vehicles. Refineries then shut down, which resulted in a huge decrease in CO2 production from them. Subsequently, Midwest ethanol producers were full of tanks of ethanol for the fuel industry that had nowhere to ship, so production stopped, and as such so did the production of CO2 from the fermentations. The combination of these two situations led to CO2 suppliers implementing force majeur conditions on many breweries. These shortages continue today in pockets of the country-the Northeast and West Coast are particularly affected.
The end result is that CO2 recovery systems for breweries are now being designed to be much more economical, and brewers are investing in this equipment to reduce their dependence on CO2 from outside sources. Other brewers are increasing their use of nitrogen for purging tanks, lines and packaging operations to keep oxygen out. And other brewers are focusing on CO2 efficiencies in their operations-tracing down leaks, adjusting their tank purging process, and other steps all designed to reduce the consumption of CO2 in the breweries.
The pricing of cardboard and resulting cartons, case trays and other cardboard products used in brewery packaging operations has seen a lot of volatility, and lead times have increased significantly. This seems to be settling down again, but it creates a lot of supply chain stress for breweries
This is one area where the supply chain hasn’t seen any major issues that affect brewers, except for longer shipping times and increased shipping costs. In fact, there are more hops sitting in supplier warehouses than there have been in years, which presents a different problem
Costs of ingredients, packaging material, and stainless steel are going up across the board-mostly due to the issues discussed above. Malt prices are higher than I’ve ever seen them, stainless steel pricing is driving up the costs of brewing equipment and kegs, and shipping cost increases have had a huge negative impact on the bottom line for brewers.
We indeed live in interesting times, and these issues have required a very significant shift in focus by brewers, just in order for their business to survive. Brewers have always been creative and flexible, and some brewers are weathering this situation, which is expected to last well into 2023, better than others.