Popular Whine.

Latin American wines are the toast of the town, but the logistics are enough to drive shippers to drink.

THE WORLD IS STARTING TO DEVELOP A TASTE FOR NEW World wines, but success is giving shippers a logistical hangover.

Wine exports from Argentina, Australia, Chile, South Africa and the United States are posting powerful growth. In 1999, according to consultancy International Wine Associates, wine export revenues grew 12% to US$2.1 billion and volume increased 6% to 961 million liters--the latter capping a six-year climb in export volume of 140%.

While the United States continues to be the largest single exporter of wine, other countries are making serious headway into international markets. Demand for Australian, Argentine and Chilean wines is pushing up prices, too: In 1999, value per liter of U.S. wine exported was lower than the average price for wine exported from those countries.

These gains do not come without pain. Shippers and shipping lines often have to move empty containers to the ports and regions because inbound cargo does not make up for the volume of wine exports. That can be quite expensive because ports charge as much to move an empty container as a full one.

Also, while wine shippers have developed a well-oiled network to move European vintages around the globe, trade with new markets is taxing weak logistical links. The situation is particularly acute for wine exports to the United States, where the palate for imported wine is rising in proportion to the strength of the U.S. dollar.

"U.S. drinkers are starting to experiment more:," says Geoffrey Giovanetti, executive director of the U.S. Wine and Spirits Shipping Association, the biggest group of U.S. wine importers, based in Reston, Virginia. "Southern Hemisphere wines are becoming quite popular." Australian wines are a hit and

Chile and Argentina are coming up fast, he adds.

That's also the opinion of John Polis, senior manager of fine wine for National Distributing, a Washington-based wine importer for U.S.-bound cargo. "South American wines, especially those from Chile, have grown through the '90s," he says. "In 1998 and 1999 we saw a small decline, and then we started to see a strong surge in 2000. Chile had a great vintage in 1999. And we're starting to see the results of that this year." The volume of Chilean wine is up about 5% this year, while the overall revenues are up about 10%, he estimates.

Cargo import volumes in wine and other alcoholic beverages are up across the board by like amounts--at least those being shipped by sea--according to figures of the Port Import Export Reporting Service, or PIERS, a New York-based company that counts the number of containers in U.S. trade lanes.

Part of the reason for the increase in Chilean wine revenues, Polis says, is that U.S. residents are developing more expensive taste. "Higher-priced Chilean wine is selling very well, between $12 and $50. Anything above $20 five years ago was unimaginable."

While the U.S. market remains attractive, Latin American wine producers--as well as those throughout the rest of the Americas and Europe--are eyeing Asian markets with an almost drunken leer. Wine consumption in Japan jumped 83% between 1996 and 1998. And everyone's waiting for China to open up, just because of its large population. Even if a small percentage of its 1.3 billion people drank wine, it could equal the U.S. wine consumption market.

South American producers have another advantage over some of their U.S. counterparts: land price. An acre of land suitable for growing grapes sells for about $500, compared to the $100,000 per acre in California's Napa Valley.

Logistical headaches. While importers always welcome such benefits and popularity they come with logistical headaches. Many Southern Hemisphere countries do not have the best inland roads or rails, nor do they have good connections at ports for exporting product.

For example, the heart of the Chilean wine industry is the Maipo Valley, a 300-mile ravine between the Andes to the east and a coastal range of low mountains to the west. The growers are branching out into other regions in the Central Valley in Lontue, Colchagua, Curicu and Rancagua. While the relative isolation of Chile and its vineyards has shielded the country and its wine from the vine-destroying phylloxera louse, it also has made it even more difficult to develop a logistical network to get the cargo to the port and then out to sea.

Luckily Chile already has a transportation network in place for to handle shipments of its grapes and other agriculture products to the Northern Hemisphere. In other areas of Latin America, such as Mexico, importers are stuck with trying to build a logistics chain for the wine shipments, according to Giovanetti, the wine shipping association chief.

While not one of the importers would knock the success of wine here, the increase in shipments has caused a bit of a space crunch. Cargo is always tight during peak shipping seasons, like the months before holidays, but executives for shippers, ports and shipping lines say space has been limited for more than a year now.

While Federal Express or United Parcel Service can simply add another truck or two on the road during peak seasons, no one has an extra ship or two docked in a garage. It takes years to order, build and get a new vessel and months to figure out where to put the best ones for the trade.

As a result, ocean shipping rates are starting to take a back seat to guaranteed ship spots. While it costs less to ship wine and spirits than, say electronics, the rates are not as cheap as for paper and some other less precious cargoes. And rates are already on the rise because of increased fuel prices and the greater demand for cargo slots.

"I'm not about to say that rates are not important," Giovanetti says. "But right now, we need to make sure our cargo gets on board."

The key to this is preparation. The major wine and spirits importers noticed back in June and July that the demand was higher for their goods and would likely be even more so during the holiday season. So they started to work out deals with the shipping lines to reposition empty containers to key gateways for the cargo. The shippers also started buying extra slots on the ships to guarantee they would have more space.

"We negotiated with the carriers for more fixed allotments," Giovanetti explains. "And we made sure we would have the containers positioned."

Neither strategy is cheap. Buying space on spec is risky and moving around empty containers is one of the biggest financial drags in the shipping industry. But the alternative would be to lose out on the best and busiest season for wine and spirit sales. And importers know that if they fail to get their bottles to the stores, then consumers will be popping open a bottle from one of their competitors.