Container Shipping Crisis – What Happens Next & How Does It End
Things are getting ‘interesting’ in terms of logistics and the toy & game business. We’re heading into what could be the most disrupted Q4 peak trading we have seen in living memory. This is not directly due to the pandemic which is still puttering along despite high levels of vaccination in most major markets by now. The issue is shipping.
The vast majority of our toys & games are manufactured in Asia and are therefore mostly reliant on shipping and containers. As we have all seen, there is a real sellers’ market operating right now, which means that shipping costs have soared and container availability is restricted.
We just saw that the major corporate toy companies have reported the shipping issues to the stock market but have largely predicted that their sales and margin will be largely unaffected due to their strength, due to agreed price rises with retailers and a diverse supply chain not completely reliant on chaotically overloaded Chinese ports.
For smaller companies though this could well end up as a very uncomfortable year with real challenges keeping stock on shelves in peak season.
So, what happens next apart from ongoing chaos in the shipping sector? Well, we expect to see very significant backlash on shipping companies and the industry as a whole. Politicians around the world have largely ignored the loud noises coming from toy & game companies, but in the back end of the year, empty shelves will mean lost sales for retailers which means less jobs and lack of ‘stuff’ to buy for Christmas. We predict that the resulting consumer and media backlash will prompt politicians to react aggressively (albeit belatedly).
Competition and monopoly laws are some of the most draconian in major markets. We expect to see shipping companies getting punished and fined for their profit gouging during this time of crisis. That though won’t in itself increase the number of available shipping containers and ships. But it will probably lead to some degree of price capping and increased regulation. Of course, enforcing such assertive actions can be hard on multi-national companies, but nevertheless we expect to se a backlash which should make the issue a lesser problem for 2022.
The other major consideration is when can slack build up again in the shipping demands so that ships and containers can make their way back into the normal way of things? Well, there are two obvious time periods for this to happen: Firstly, the lull in between/after back-end products and spring-summer items should allow some kind of reset. Secondly of course is Chinese New Year where factories in China to all extent and purposes close, often for the best part of a month.
Product development slates for 2022 and 2023 are likely to be impacted. Any toy & game company which is badly affected by the current crisis is likely to curtail product development to a degree to protect cashflow and to focus on fewer bigger things. If this also happens in other industries and sectors than that also should help to bring things back to normality.
Finally, we can reasonably expect that the Covid-19 pandemic is going to be on a downward trajectory overall from hereon. There are quite possibly going to be new waves and mutations which could cause issues, but nearly all of humanity has survived, and vaccines are going to keep on being updated and developed in line with the mutation of the virus. Therefore, it is reasonable to expect a slow road back to previous normality, with Covid being something countries need to manage along with influenza and other medical issues. So, the reality is that the current sellers’ market is not likely to be prolonged, but that doesn’t make it any easier to manage the immediate challenges we are facing.