THE GLOBAL ECONOMY AT RISK DUE TO CHINA’S NEW COVID LOCKDOWNS & WAR IN UKRAINE
The term ‘turbulent’ is becoming very boring as it is getting repeated so often these days – but what better word is there to describe these times we are living in? This week, China rolled out extensive lockdowns due to a rise in Covid cases topping 5,000 cases. In a country which has a Zero Covid strategy, this was inevitably going to lead to a major response from the authorities.
For the toy business, most critically, Shenzhen and Dongguan are locked down, although some media reports confirm that those factories in Dongguan who don’t have Covid cases can carry on producing under strict conditions designed to minimise any risk of escalating Covid cases. With so many workers living in dormitories in factories, the hope is of course that toy production will not be badly affected.
The timing is bad though, typically toy factories reach peak production from May through to August, but due to the ongoing container shipping crisis, many toy companies have placed POs early and planned to get stock on the water as soon as possible after notification of listing by key retailers. In short, the latest Covid issue in China is not going to help already disrupted supply chains.
Looking more broadly at toy manufacturing, this latest challenge in China as we get towards the main production period of the year is just going to further strengthen the gradual shift of toy production away from China. Any toy companies who don’t have a risk diversification strategy well underway on their sourcing efforts are taking a big risk.
In Europe, the dreadful war in Ukraine is continuing. The horror of this war makes any commercial considerations seem meaningless, but there will be some loss of sales to the ever more isolated Russian market. This shouldn’t have too adverse an affect on the overall toy industry though as the Russian toy market accounted for just a few percent of the global total before the currency was devalued by the current war. Toy companies have been admirably doing their bit to provide toys and other critical items, as well as funding, to the people of Ukraine. Looking forward we are now seeing suggestions of a peace deal being reached in the foreseeable future, we hope this comes as quickly and effectively as possible. Oil prices have receded significantly from their highs of the last few weeks, where prices went above $130 per barrel, such exorbitant prices only previously being exceeded during the global financial crisis. At the time of writing this article, the cost had slid back to just under $100. The issue for the toy business here is that plastic materials purchased now as production starts to ramp up will inevitably be significantly more expensive, as will transportation. In short, the terrible war in Ukraine will only add to the general inflationary pressures we are seeing in the world today. We would expect yet more difficult conversations with retailers about pricing as things stand.
We run a Consultancy business helping toy & games companies get ahead. For more information, check out www.KidsBrandInsight.com/services
We also run a Strategic Sourcing Consultancy advising toy & game companies around the world on their Sourcing strategies, reviewing their vendor base & suggesting improvements. To date our Sourcing services have saved our clients $tens of millions. For more information on how we can help, just go to: www.ToyTeamAsia.com