Chris Orr comments on… Hurricane Katrina

Chris Orr discovers that it is too easy to over look the impact Hurricane Katrina could have on your business and the drinks industry as a whole.

Do you know, you can’t win with some people. Last week I bumped into the head of communications for the one of the UK’s largest wine companies. “I need to speak with you guys next week if that’s OK,” I said. “Really, Oh god it’s not going to be about logistics, and boring stuff like that is it…” she replied, rolling her eyes upwards. No, no,  no I assured the fluffy little bunny as she hopped off to talk to someone about interesting things, safe in the knowledge that whilst she wasn’t currently interested in “all that boring stuff” she certainly would be when she discovered that Hurricane Katrina has just wiped oodles of per cent off her share options.

You see logistics is boring, but it’s also pretty bloody important. And anyone in the business who’s been following the appalling tragedy that is the aftermath of Hurricane Katrina will realise that it will have a direct impact on all of us. Oil prices in the States peaked at an all time high of US$70.85 a barrel last week, dropping to US$69.47 by the weekend. Over the past year, gasoline prices in the States have risen from US$1.86 to US$2.62 – that’s more than a 40% increase, thanks mainly to pressure on oil supplies the war in Iraq has created. Add Katrina into the mix and oil pundits stateside are predicting US$3.25 prices on American forecourts by the end of this week – showing a 75% rise in petrol prices in just twelve months.

It doesn’t take a genius to work out the impact on the American economy. They don’t make films about truckers in America because they’re quirky. Road is the main way of transporting goods across the country’s 52 states and few businesses will be able to swallow 75% increases in principal haulage costs. And trust me we’re in for some of the same. By the end of this week, they reckon we could be looking at prices of £1 a litre or more. Diesel is likely to rise significantly too, which means hauliers will be hit in the UK – and that’s on top of significant increases over the past year.

UK bulk diesel prices have gone up 12.6p since the same period last year. In the last month alone they have risen by 5.4p and Katrina will no doubt add to the cost.  Richard Turner, chief executive of the Freight Transport Association made it quite clear last week that the only way to combat the impact this would have on business, and the country’s economy, was for the government to step in. “UK industry needs the relief of reduced fuel duty much more than the government needs the benefit of windfall tax income received from higher oil prices,” says Turner, “Everything we consume is delivered on the back of a truck fuelled by diesel and the prospects for the diesel prices presently are very grim. The transport industry needs Government help – without delay.”

The fact is, hauliers are going to have to pass those costs on – which means wine businesses around the country are going to see their fulfilment charges for all the wine they ship rise accordingly. So, boring? Yes undoubtedly. But also bloody critical. What was it they once said about communications and marketing people – you can take them to the edge of reality, but you cannot necessarily make them drink thereof. Or something like that…