For two or three years now the premium alcoholics drinks sector has been struggling with a shortage of both new and used barrels. Initially it looked like a Covid problem, compounded by the war in Ukraine, but it is becoming clear that there are more deep-rooted issues that are causing these supply issues.
At its heart, the problem is growing demand for premium spirits, which typically are aged in oak – US bourbon alone needs around 4 million virgin American oak barrels a year and what has happened in the bourbon sector is that as the big players became aware of looming barrel shortages, they tied up the cooperages with long-term supply contracts to guarantee their production. Unfortunately this has meant that many of the smaller distillers have not been able to source virgin American oak barrels for love nor money. Then there has also been increased demand for ex-bourbon barrels as spirits distillers worldwide have looked to used oak to add a premium touch to their whisky, so this has lead to the large Scottish distillers in particular signing long term contract with the bourbon distillers to corner the market for their used barrels, leaving few barrels left over for everyone else!
Meanwhile in Europe, there is a shortage of oak, initially because Ukraine was a big supplier of European oak, but also because French oak has been bought up on longer term contracts by various players (for example Chinese furniture makers have developed a taste for French oak), but also by the very large cooperages that dominate the sector. Europe is also suffering from a severe shortage of used barrels because of the increase in demand.
This toxic mix of decreasing supply and increasing demand for new and used barrels has left both cooperages and their clients in a frenzy to guarantee supply for 2024 and to leave prices at unprecedented highs. Whereas before it may have been possible to source either staves or new/used barrels with relatively short notice, now the entire sector has to buy long in advance, which also means paying a long way in advance to lock down contracts. Those players that are cash rich and willing to take a risk on sourcing product that they are not sure they will have a market for 12 months down the line have the whip hand. Here at Luso Barrel we have had to take that risk, and have taken on new storage space for all the used barrels that we have felt obliged to buy, not knowing for sure what 2024 will hold for us. However given that demand for used barrels has been insatiable in recent years (particularly for our speciality of used Port barrels and used Madeira barrels), we can feel reasonably secure, but we have not had to take this level of financial risk in the past.
Another interesting aspect of this barrel shortage for us is growing demand for refurbished barrels – we supply refurbished barrels (known as SLR – shave, toast and rechar), which are used wine barrels from which we shave 3-4 millimeters from the inside of the staves to reveal wood that the wine has not penetrated to make the wood almost virgin again. Then we toast and rechar it so that the barrels are ready to refill – they do not have that gleaming look of a brand-new, freshly coopered oak barrel, but they do the job at around half the price of a new barrel (our SLR, 225 litre, French oak barrels cost around €300 each). We have invested in some very clever machinery that shaves the inside of barrels for us, saving a lot of time and allowing us to control the process more closely than doing it manually.
2024 looks set to be a year of further turmoil for our sector, but even whilst cooperages are working overtime to increase the supply of barrels into the market, the appetite for barrels is growing insatiably, so it would be a fool who is prepared to predict where we will be by the end of 2024!
