Bret Kollmann Baker is still looking for lychee.
Last year, the owner and brewer of Urban Artifact Brewing Company in Cincinnati spent nine months waiting for an order of the tropical superfruit to get filled from a supplier in Vietnam, a major lychee exporter. His shipment never left Southeast Asia, posing big problems for Urban Artifact’s Petroglyph beer, a top seller. But then, Kollmann Baker found a different supplier who already had a container of lychee sitting at the Port of Los Angeles. A lychee lifeline? Not so fast. “Two and a half months later, that [order] never left the port” either, Kollmann Baker tells me in a recent phone interview. “So we just dropped that product line.”
Unless you’ve been living under a container of lychee yourself, you’ve probably heard a lot about the supply chain lately. “Supply chain issues” are top of mind and tip of tongue for an anxious nation staring down another winter of toilet paper shortages and rationed chicken parts. We’re googling the phrase a little bit less than we were last month, but like a bajillion times more than we ever have in the past five years.
The good news is that America is not running out of craft beer any time soon. The bad news is that supply chains —even for a product as nominally “local” as craft beer — are complex, opaque logistical creatures, and understanding them is no easy feat. Even the experts aren’t quite sure what’s going on, or how long it’ll last. ”Increasingly, I think we’re seeing these [problems] aren’t transitory — or if they are, the transitory period is much longer than a lot of people anticipated,” says Bart Watson, the chief economist of the Brewers Association, the craft brewing industry’s largest trade group.
Or as Weston LaBar, the head of strategy at freight marketplace platform Cargomatic puts it, “This doesn’t right itself until people stop buying stuff.”
It sounds bad. But what is “it,” exactly? To find out what “supply chain issues” mean to the United States’ vast, decentralized craft brewing apparatus, I interviewed maltsters, hop farmers, logistics experts, industry economists, and, of course, brewers themselves. Here’s what I’ve learned.
Spiking Demand: The Can Conundrum
I should say up front that this is far from an exhaustive accounting of the craft brewing supply chain. But as I reported this story, some common themes emerged; the same points of friction kept coming up. Watson, at the Brewers Association, describes the thematic categories of craft brewing-related supply chain challenges as the “three buckets.” First on the economist’s list is a spike in demand for materials that craft brewers need to do business, and first on that list is the recent anti-hero of mainstream American supply chain discourse: aluminum cans.
“Cans are a big deal,” Kevin McGee, the president and CEO of northern California’s Anderson Valley Brewing Company (AVBC), says. He should know: His brewery has stocked a warehouse full of cans to hedge against longer, more unpredictable lead times from his suppliers. “Our supply chain management program really comes down to just spending cash and bringing in a ton of extra packaging so that we have a buffer,” he adds, laughing wryly.
It’s no joke, though. Nobody can get enough aluminum cans right now, from macrobrewers and Monster Energy, to America’s craft brewers.
It’s not because there’s not enough aluminum to go around, although shipping it has proven tricky at times. There just isn’t enough can-ufacturing capacity to turn the metal into drinking vessels. “The aluminum beverage can manufacturing industry has seen unprecedented demand for the environmentally friendly container prior to, during the Covid-19 pandemic, and continuing today,” says Robert Budway, president of the Can Manufacturing Institute trade group, in an emailed statement.
Between the ongoing, mostly can-dependent hard seltzer surge, panicked pandemic pantry stocking, and shut-down induced channel-shifting to off-premise retail, can suppliers straight-up can’t make the containers fast enough. But not for lack of trying. “We’re desperate to get as much capacity up and running as quickly as we can,” Crown Holdings CEO Tim Donahue told analysts on the company’s Q2 earnings call in July 2021. (Crown Holdings, one of the country’s largest can manufacturers, declined an interview request.)
CMI’s statistics show a 3.5 percent increase on shipments in 2019, followed by a 6.2 percent uptick in 2020, and the trade group’s members have plans to expand production by renovating four existing plants to the tune of $80 million apiece and building eight new plants for $200 million each. Says Budway, “By 2023, CMI calculates total industry production capabilities will increase more than 40 percent above the 2020 unit volume.”
But what does that mean for craft brewers in the here and now? It depends on the size of the brewer, and whether they’ve got contracts in place. Some, like AVBC and Austin Beerworks (ABW), have leveraged on-site warehousing and available cash to offset the delays that their can suppliers are quoting them. “About a year and a half ago, we just started loading up our warehouse with as much as we could hold,” Mike McGovern, co-founder at Austin Beerworks, tells me. “You’re obviously paying for the cans long before you need them, but it does give you more of a buffer.”
For smaller breweries without storage space or preexisting agreements with suppliers, sourcing cans is more of a scramble, one that involves third-party brokers, alternative labels, and higher costs. “The price of aluminum has absolutely exploded,” says Michael Uhrich, the founder and chief economist at the industry consultancy Seventh Point Analytics, and the former chief economist of the Beer Institute. “Small brewers are competing against each other for packaging. It’s been a really tough time [for smaller brewers] because the packaging suppliers have contracts with the mid-size and larger brewers and they have an incentive to meet those contracts first.”
It’ll get worse for these smaller operators before it gets better. As this story was being edited, Ball Corporation, the continent’s largest can maker, began alerting customers that it would be increasing its order minimums by 500 percent per printed can SKU at the beginning of 2022. The Colorado manufacturer’s message, first reported by Westword, also announced that smaller non-contract customers would no longer be able to rely on Ball to warehouse cans before they take delivery, either. Breweries that can’t handle those quantities can source smaller loads of shrink-labeled cans through one of four partner distributors instead, but they’ll pay a premium.
“Having to go to labeled cans and adding broker fees will drive up prices for small brewers and make their products less cost competitive versus larger brewers, who already have scale advantages,” explains Bob Pease, Brewers Association president and CEO, in an emailed statement.
Via email, Ball spokesman Scott McCarty confirmed the letter’s veracity and pointed to the distributor partnerships, plus the company’s plans to expand capacity and build five additional plants, as measures it’s taking to meet demand.
Bret Kollmann Baker’s long-lost lychee shipment is an example of what happens when breweries have to source ingredients from beyond their immediate vicinity. LaBar, with Cargomatic, has plenty more — 77 more, to be precise. “There were over 77 ships at anchor” outside the Port of Los Angeles, he tells me in a recent phone interview. “If we didn’t have another vessel show up, we would have a month’s worth of ships to unload.”
By the time you read this, those figures will almost certainly have changed. But the point stands: Craft breweries’ shipments are not exempt from the historic logjams that have waylaid many of America’s largest ports. “Everybody’s subject to the same delays,” says LaBar, who has worked in supply chain management for the past eight years. While not every craft brewer needs a crate of lychee, most of them need tap handles, neons, and other merchandise. That type of collateral usually comes from Asia, and for the foreseeable future, it’s tied up in the same shipping sh*tshow as other merchants’ stuff. “This is unlike anything I’ve ever seen,” says LaBar.
This is Watson’s second “bucket”: disruptions in the flow of goods caused by a compounding cascade of pandemic-related problems. Even when craft breweries aren’t contending directly with the vagaries of global trade, procuring “inputs” (as materials, ingredients, etc. are known in manufacturing jargon) has gotten tougher across the board. In their position close to the end of the supply chain, craft breweries have been dealing with whiplash since the pandemic began.
It’s been anything but predictable. “It was really weird because in 2020 we were basically fine,” says Urban Artifact’s Kollmann Baker. “It wasn’t until this year that we’ve been getting hammered with [price] increases across basically everything we buy. It’s everything: It’s paper, it’s labels, it’s glue, it’s cardboard.”
“The biggest one we’ve seen is cardboard,” agrees McGovern, speaking from Austin. “There have been three price increases in the last 12 months. Corrugated cardboard has gone up 30 percent this year for us.” ABW has seen price increases on chipboard, a thinner cardboard often used for 12-packs and larger cases. It’s the result of a broader, multifaceted cardboard conundrum. As e-commerce orders soared during the pandemic, demand for packaging spiked accordingly, while declining collection rates have left systems without enough reusable paper stock to keep recycling systems running. (The situation is so dire that one British packaging firm spoke longingly to the BBC earlier this year about the old cardboard boxes sitting un-recycled in people’s garages.) And on top of that, shipping slowdowns have stymied the flow of paper pulp from China and beyond.
What happens when a craft brewer runs out of something as basic as cardboard? “Things can kind of fall apart, and you can get behind,” says McGee. Earlier in the year, AVBC was in the process of canning a huge run of beer when it discovered that its supplier of case trays wouldn’t be able to fill its order on a normal timeline. So the brewery ran out of trays in the middle of a run. “That resulted in a cascade of issues. … Everything shuts down,” says McGee. (It eventually got back on track after finding another provider in a pinch.)
The cardboard shortage is vexing, but fairly intuitive. And surely you can grasp how craft breweries are affected by an overburdened, underpaid trucking system. But some supply chain problems are more off the wall. Consider CO2. “Early in the pandemic, oil prices dropped really low, so ethanol plants idled, and a lot of our food-grade CO2 in the U.S. comes from recapture when you make ethanol,” the Brewers Association economist explains. Brewers use the gas for can purging and other production procedures, and taprooms need it to pour draft beer. Oil prices have rebounded since spring 2020, and CO2 supplies are more readily available for U.S. brewers. But now companies that move the gas are struggling to find drivers — just like the rest of the trucking industry.
Shortages of the gas vary widely by region, Watson says, so not every brewer is facing CO2 scarcity. (Some of those have swapped over to nitrogen to hold themselves over, he adds.) But unfortunately, the hits are likely to keep on coming, says Watson. “Maybe next week CO2 won’t be a problem but then it’ll be cardboard or it’ll be pallets or it’ll go back to being cans.”
None of this is great. But lest you forget, the world is figuratively and literally burning (in no small part due to global trade, by the way), and unfortunately the resulting climate-related catastrophes are exacerbating your favorite craft breweries’ access to ingredients. To wit: The U.S. and Canadian barley harvests this year were “historically inadequate,” down nearly a third from 2020, thanks to extreme heat and drought in key growing regions across the North American continent. “BARLEY WOES,” proclaimed the November/December 2021 issue of the Brewers Association’s New Brewer magazine.
It’s not pandemic-related, but it is a problem — particularly for brewers without malt contracts in place. “By contracting for the volumes and avoiding the spot market, that makes a huge difference,” says McGee, who tells me AVBC absorbed “single-digit increases” on its multi-year malt contracts. “Anybody that’s doing that is getting pinched, because the prices on the spot market are very high.” (Happily, the hops harvest was pretty solid this year.) But malt should still be available, as long as there are trucks to get it to breweries. Maltsters will blend reserve barley from 2020 crops to offset this year’s low yield and variability, explains Juno Choi, a craft brewing strategist at Brewers Supply Group, an ingredients wholesaling firm. So, though prices may spike on the spot market, all is not lost. “It’s definitely not doom-and-gloom for the malt side,” he says.
On the fruit side, Kollmann Baker’s view is a lot gloomier. Urban Artifact typically uses around 750,000 pounds of fruit per year for its various fruited sours, and it uses raspberry the most. “I had some slight increases on raspberries from $1.20 a pound up to like $1.40, which is still a lot, but we can deal with that,” says Kollmann Baker. “Then the harvest happened.”
Owing to heatwaves and a lack of immigrant laborers, raspberry harvests plummeted this year, leaving fruit rotting on the vine and Kollmann Baker facing staggering price hikes. “They’re pricing at like $3.50 a pound right now,” he says. “And that’s like every fruit. … How do I possibly fit this stuff in my margin when my inputs are going up 3x?” Unlike his undelivered lychee shipment, raspberries and blackberries are key ingredients for a core Urban Artifact beer, The Gadget. Kollmann Baker can’t simply drop that from the portfolio. “We’re raising the price a hair, and we’re just going to basically aim to break even in 2022 on the product because we just can’t afford not to have it,” he says. “We’ve spent too much time building that brand.”
The Road Ahead: Price Hikes and Precarity
So what does all of this mean for the future of craft brewing business?
One thing it almost certainly means is your beers will get more expensive, and soon. Kollmann Baker’s colleagues may not work with as much fruit as Urban Artifact does, but they’re dealing with the same shortages. While suppliers like Yakima Chief and BSG have been able to use their size to secure relatively favorable shipping rates and absorb small increases, they’re not immune to rising prices. Like everything else, those hikes are slowly but surely being sent down the supply chain to brewers. “I can count 21 different price increases from vendors/suppliers across the board,” Rob Lightner, co-founder of East Brother Brewing Co. in Richmond, Calif., tells me. “We’re not talking single-digit increases; in some cases it’s 15, 20 or 30 percent.”
Soon enough, you’ll see increases rising at retail. To some extent, you already are: According to analysis by Good Beer Hunting’s Sightlines editor Bryan Roth, IRI scan data through the end of October 2021 showed a year-to-date $1.06-per-case increase in craft beer retail prices.
Beyond price hikes… man, who knows. There are over 8,000 breweries in the U.S., and they’re all going to experience these supply chain challenges differently. The grim reality is that after making it through the darkest days of 2020’s pandemic shutdowns, some craft brewers will be forced to sell or go bankrupt due to logistics snags across the country and across the world. “These are short-term issues, and they’re going to resolve themselves at some point,” predicts Uhrich. “Now, when will some point be, and how many businesses go under between here and there? Those are not fun topics.”
No indeed. It’s no fun for drinkers to see breweries close, and it’s no fun for owners to accept that forces beyond your control, beyond even the President of the United States’ control, are conspiring to crush your business in bizarre, unpredictable new ways. But such are the perils of operating on the global supply chain; most of the time it brings you the goods you need at the prices you want, but every once in a while, it completely screws you over. There’s plenty of judgment and moralizing and politicking to be done about whether that’s a sustainable, ethical way to run a business — or a society, for that matter — but it’s today’s reality for America’s craft brewers. And there’s no way out but through.
At Urban Artifact, Kollmann Baker and co. are full speed ahead. Sure, the lychee was a failure to launch, and the berry crops were bad. But he’s got a line on a Brazilian fruit broker, and he can still get guava for the brewery’s Waterbird Midwest fruit tart from a supplier in South Africa. And for some reason — who knows, really? — prices are great at the moment. “In this current economic climate, when I can still get guava for 79 cents a pound shipped from South Africa…” Kollmann Baker pauses, as though trying to make sense of a good deal in the middle of a bad ordeal. “I mean, somebody’s gotta be getting f*cked, right?”