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t has certainly been a lively first half of the year: on the positive side, toy sales have continued to be encouraging across the globe. However, this strong demand has been tempered with a series of challenges which have been impacting the entire worldwide toy community. A very rough summary goes thus: major fuel and raw material price increases in China, along with increased lead times exacerbated by severe container shortages and massive hikes in shipping rates, have put huge pressure on suppliers to increase prices to mitigate their spiralling costs.
from the publisher
John Baulch - @Baulchtweet
The past month has seen further complications thrown into the mix in the form of port closures, power shortages and rumours of fresh Covid outbreaks in China. Local authorities have been so concerned about the power situation that several cities in Guangdong have asked factories to curb power usage by suspending operations for hours or even days at a time, as a combination of high factory activity and hot weather have placed considerable strain on the region’s power system. The situation has been compounded by local outbreaks of Covid, which have resulted in some factories being forced to shut down entirely. A covid outbreak was also responsible for the closure of Yantian Port in Shenzen, one of the largest container terminals in the world. The port partially re-opened after a week, but it was certainly not back to full capacity straight away, and a backlog had already built up while it was shut. To be fair, with all the challenges China is currently facing, there is little doubt that the surge in global demand for consumer goods is a major factor behind many of them, making it a better class of problem in many respects. But inevitably this has all lead to container rates spiraling, with prices on the Asia to Europe route edging towards $20,000 for a 40ft container. As a result, it seems that some retailers have been postponing or cancelling orders, seemingly in the belief that this will all blow over in the coming weeks / months and they’ll be able to reinstate their orders at a lower rate. One company based in the Far East told us: “We have a retailer with 14 containers waiting to be shipped, because they are waiting for cheaper prices. The same retailer is putting pressure on us to confirm an order for August shipment and all Q4 shipment orders.” Meanwhile, someone from Israel admitted: “I had companies here delaying when the cost was $8000, and now its $17000. There is no choice but to take the
Toy World 7
products as soon as they are produced. No stock=no sales.” In a nutshell, this is pretty much spot on – I imagine the retailer which postponed orders when the container price was $8000 was kicking itself when it doubled. And here’s the news I doubt any of you want to hear; I spoke to someone who works in sea freight sales for the world’s largest shipping company recently, and it is his considered opinion that prices have not peaked yet. He sees August as the likely pricing nadir and believes that rates could hit $25,000-$30,000 over the late summer period, as festive stock starts to flood in. And while prices will eventually correct, it is his belief that this is unlikely to happen for a good while yet – certainly not this year, and maybe not even in ’22. Indeed, the general feeling seems to be that conditions are not likely to change dramatically until the new vessels that have been ordered by carriers are ready to launch, which will help to relieve the current capacity issues – and that is widely believed to be 2023. So, what is the upshot of the ongoing disruption in China and absurd shipping price rises - could it all lead to product shortages, price rises or non-deliveries (or all three)? Almost certainly. On the other hand, if you are a toy company with stock already on the ground or on its way, you could be in a very strong position. If last year saw the toy community encouraging consumers to shop early for Christmas to avoid disappointment, this year may well see that message needing to be repeated…on steroids. Because, as we have seen, it looks like consumer demand for toys is going to remain incredibly strong. Reflecting the tremendous diversity of the toy market, we have another packed issue for you this month: category features covering Construction, Tech Toys, Dress Up and Role Play and Stationery, plus a special story commemorating The Entertainer’s 40th anniversary. There is also an exclusive article introducing the new Just Play UK operation, an interview with MGA’s Neil Bandtock six months into his new role, and one of the most honest and forthright Viewpoint articles we have ever published - written by Wicked Uncle’s Liam O’Shea, looking at the thorny subject of how to communicate news about price increases. The value of partnership, and the fact that we can all help each other through these challenges, has never been more evident. Stronger together indeed…
