Tag Archives: toy logistics

Container Shipping Crisis – What Happens Next & How Does It End

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.

How To Manage The Current Logistical & Operational Chaos In The Toy Business

How To Manage The Current Logistical & Operational Chaos In The Toy Business

These are crazy times in so many ways…aside from the ongoing health scare of COVID-19, the logistical situation for those in the toy & games business is as disrupted as it has ever been before. Among the issues we’re trying to manage in our industry, we have container shipping rates which are anywhere up to 1000% of the standard rates in more normal times. We have manufacturing cost increases due to the price of oil going up (increasing the price of plastic), a cardboard shortage increasing packaging costs & costs for games & puzzles, shipping delays out of China – in part due to the container crisis, but also due to COVID-19 outbreaks in and around the port of Yantian, plus we had the closure of the Suez canal which blocked the shipping system even further.

There has been no other time this millennium, and possibly for decades before that which has seen such cost inflationary pressures and such logistical issues with getting stock from the Far East. Even if we can afford to put our inventory on a boat, the reality is that delivery timings are far less predictable than we have become used to.

So now we’ve run through the problems we all know about, what can we do about it? Here’s some suggestions, which although not perfect, may represent the best options available right now:

  1. Commit to stock earlier – a toy & game company without inventory to sell is not in business. Even if there are cost and therefore profitability impacts, we need stock to sell, especially during peak season. What this means is that prudent action would necessitate ordering stock earlier than normal. Obviously, this not ideal, because then you have additional warehousing costs and cashflow requirements, but these are not ideal times! Any toy companies not having ordered all their stock for the back end should probably consider getting those P.O.’s sent out asap.

 

  1. Negotiate price increases – retailers understand what the cost pressures are currently because many of them run their own FOB programs from Asia. Needless to say as always, some retailers will make these unavoidable price increase discussions harder than others, but nevertheless the conversation needs to be had.

 

  1. Review ‘Near shoring’ alternatives – let’s take a step back and consider why we source manufacturing from the far side of the world? The answer is cheaper labour and therefore lower inventory costs. But if we are paying as much as $15-20k per container for shipping, and let’s say we have between 5k to 10k units per container, we are looking at a crazy situation of paying between $1.50 to $4 USD per unit (!). So, if we are in the USA, the cost benefit of sourcing from Asia versus Mexico, or if we are in Europe, the cost benefit of Asia versus Eastern Europe or Turkey is completely eroded. The issue of course, is that there is nowhere near enough capacity ‘Nearshore’ for what our industry demands overall, but that is no excuse for not looking around and seeing what is available. The other advantage of manufacturing closer to home is speed. An Eastern European factory can truck product through to anywhere on the EU mainland in just a couple of days, meaning that resupply can be more closely aligned with demand as we enter the beginning of peak season.

 

  1. Manufacture/Assembly in local warehouse – it is not uncommon for local warehouses to have to fix small manufacturing issues, to apply labels and to repack products on occasion. But there may be more that your local warehouse can do. For instance, maybe your product needs to come from Asia still because your tooling is in the factory, and tooling transfer for a (hopefully) short-term problem is not deemed practical. But maybe the product can be assembled or placed in packaging locally. The more you can control the better in crazy times like these.

 

  1. Embrace the appeal of Scarcity – It’s hard to see how there won’t be some stock shortages this Christmas, and while hot lines normally do sell out, this year seems likely to have more out of stock products than ever before due to the logistical hurdles we are faced with. Should that happen, and you end up with less stock on hand than you wanted, you must do all you can to ensure it all sells out. One of the primary principles of consumer durables marketing is scarcity. By way of example, nothing makes a hot new product like a new iPhone, Xbox or other aspirational product become over subscribed more than a stock shortage. Therefore, if your stock looks short, you need to communicate that to your retail customers and consumers to try to drive scarcity perceptions and sell out what stock you do have.

 

Truth be told, none of these solutions are great – the bottom line is that everyone (aside from shipping companies!) would prefer to see the current issues resolved, but we have to deal with the grim reality which is in front of us. Here’s to hoping that 2022 is an easier year!

 

Do you need help to grow sales for your toy company? We help people from all around the world to sell more toys, both in their home markets and into export markets. For more information on how we do this, check out our services here: www.KidsBrandInsight.com/services

 

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