Attalia, Wash.—Sooner or later, everyone in the wine industry hears of a distribution arrangement gone wrong; sometimes they’re even on the receiving end. Short shipments and baked wine are common causes of headaches, insurance claims and lawsuits

The perils of shipment are what made it important for Ste. Michelle Wine Estates Ltd. to select a reliable partner to handle its distribution, something it largely handled in-house until growth prompted it to start contracting out some aspects of distribution.

“We’ve been very, very successful at handling volumes of our finished cases up to this point,” Rob McKinney, vice-president of operations for SMWE, told Wines & Vines this week. However, “we decided that, with our growth plan, we really needed to look at experts to handle the larger volumes.”

SMWE handles a portfolio representing about 3 million cases of wine annually, but McKinney said the company hopes to increase that figure to as much as 5 million cases by 2018. Its brands include Washington state standard-bearers Chateau Ste. Michelle and Columbia Crest as well as California’s Stag’s Leap Wine Cellars and Oregon’s Erath Winery. It is also the exclusive U.S. importer for Italy’s Antinori family, France’s Champagne Nicolas Feuillatte, Chile’s Haras de Pirque and New Zealand’s Villa Maria Estate.

Forming a partnership
SMWE initially contracted Railex LLC in 2007 to carry its Washington state wines east via rail.

During the next three years it increased the volume of wine it was shipping via Railex to the point that the company’s warehouse on Dodd Road at the Port of Walla Walla was bonded for the storage of wines to facilitate handling and distribution on a regular basis.

Recognizing the growing importance of rail shipments, SMWE issued a request for proposals for a new distribution arrangement in 2011 that called for construction of a new warehouse. Railex succeeded in winning the contract and opened a new, 500,000-square-foot warehouse at a cost of $20 million at the beginning of February.

Situated on land acquired from the Port of Walla Walla in the tiny dry-land farming community of Attalia, overlooking the Columbia River, the new facility puts SMWE on track for growth.

“We were hunching that rail was going to be the way of the future for us,” McKinney said, adding: “It started with quality.”

Railex handles logistics for SMWE, leasing cars and track from the railway companies and taking responsibility for the safe and secure delivery of its wines across the country.

“Once the cases are on that rail car, it’s temperature-controlled from coast to coast,” McKinney explained. “It’s basically a land-bridge, and that was very appealing for us. We’ve got assurances on wine quality, and it’s a much greener answer to us in terms of freight.”

The high-speed trains aren’t broken up en route and make it to Railex’s facility in Rotterdam, N.Y., in five days. Wine is unloaded in 24 hours and the cars return, often carrying wines SMWE has imported from Europe for distribution on the West Coast.

Railex, which got its start in 2006, is a small player, but the relationship with SMWE is a linchpin in its ongoing expansion. Currently it handles 8,500 cars per year and will double its capacity when a new distribution facility opens in Florida later this year.

“We built up a trust factor and proved to them that we could supply the exceptional customer service they required,” said Jim Kleist, senior vice president of West Coast operations for Railex.

Shipments are tracked by satellite, and the internal temperature of the cars is regularly monitored so that Railex knows immediately if anything is amiss. The risk is further reduced because there are no intermediate stops for the trains as they wind their way from Walla Walla through Idaho, Wyoming, Nebraska and Iowa to Chicago, where Union Pacific hands off the cars to CSX, its eastern partner.

“The train goes directly from here: It doesn’t stop anywhere, it doesn’t go through any yards it goes around everything,” Kleist said. “The entire train is delivered to our New York facility, and those same cars come back to us.”

Since each rail car replaces the equivalent of four trucks, the overall environmental impact of each shipment is also less. (A press release issued last year to announce the SMWE facility noted that Railex, working with the Environmental Protection Agency, determined that its operations since 2006 had saved 45 million gallons of diesel fuel and forestalled 900,000 metric tons of carbon dioxide emissions relative to transportation of its cargos by truck.)

“It’s a more efficient use of existing assets. It’s probably the greenest form of transportation there is,” Kleist said.

McKinney, for his part, comes back to the benefits for the quality of the delivered product. While insulating blankets remain a common way to protect wine, McKinney says temperature-controlled shipments trump blankets when it comes to conditions across America.

“We’ve done the testing of following our products across with insulated blankets, and we know how the temperature varies,” he said. “We’ve also looked at the temp readings across the states by rail, and they don’t move.”