Explaining to the consumer that their bike is not only stranded in a container, but will have a more expensive price by the time it lands has been the bike shop’s greatest headache this summer. In a bid to understand the ripple effects of the export slowdown CI.N checks in with trade bosses to understand the reality…
What a year it’s been so far. From the euphoria felt only 12 months ago when bikes were flying out at record pace, the crash back down to earth is now being felt as a result of factors out of the hands of even the most persuasive in our industry. Shortages of everything from microchips to potato chips are hitting the market and the list of reasons why the outlook remains bleak compounds with time. Some factories in Asia are still stuttering in the face of Covid, key shipyards in Asia much the same story. Raw materials are surging in price, but not in availability. The Suez Canal incident is now straightened out, but the global freight business is still behaving abnormally both in terms of lead times and price.
For the consumer who is used to rolling out the phrase “it’s only a five-minute job, can’t you fit me in?” bike shop’s roars of laughter are turning to tears. If only we could.
So, what does the consumer not yet understand on the supply crisis? One thing is the costs mounting in the chain and ultimately on handlebar tickets. Some goods, in particular low-priced and larger items are becoming flat out unviable to import until normality resumes.
Peter Nisbet, Windwave’s Managing Director explains: “We absorbed price increases until May, but have not been able to continue doing this as margins on bikes are tight. We have had no choice but to increase pricing, we are not profiteering, just getting our margins back. Going forwards we would hope container prices will fall. In the meantime, we need to consider if it is worth importing some products.” Nisbet lets us in on the reality of importing bikes in the present climate and the mathematics are eye-watering. Where approximately 120 bikes can be loaded into a 20’ container, the cost previously per bike sat at £8.33. At £4,000.00 per container, rather than £1,000, the price rises to £33.33 per bike shipped.
“It has been the perfect Perfect Storm. Lock downs around the world happened at different times. Chinese factories, which actually produce containers stopped production. Hold ups at UK ports due to Brexit caused delays. Containers containing PPE are dotted around the world and have not been emptied. The stranding of the Ever Given in the Suez Canal caused extra delays, has taken a ship out of action and it has a lot of containers on board. These factors added together mean less containers are finding their way home and space on ships is at a premium,” adds Nisbet.
The World Container Price Index, present on shipping site Dewry.co.uk, has a US Dollar tracker of 40ft containers. Prices had risen steadily through 2020 and there was hope of a plateau around March of this year. Unfortunately, a very brief period of stability in prices, where the index averaged around $5,000, is once again unsettled and at the time of writing heading further north toward $7,000. For context, that is a 305% increase on the same time last year. Certain high demand routes from China to Europe surpass that average with some 40ft containers shipped from Shanghai weighing in closer to $11,000, or over 500% up year-on-year.
One notable result of the crisis such far has been a frantic reshuffle in supply sources. Early on in the pandemic many sources told CI.N they were taking almost any bikes that met certain quality standards, often calling on suppliers that may not have been used for some years. Distributors with flexibility won out in sales terms against groups that are answerable to inflexible parent companies and supply chains. Regardless of the structure of a business, non-traditional sources being in such sudden demand just passed the shortage parcel and another answer has been the DIY route; that is bring manufacturing closer to home.
In the case of Cycling Sports Group, a new factory will launch later this year in the Netherlands that will boost the group’s European bandwidth by some margin.
Country Manager Nikki Hawyes told CI.N that price rises have for now been capped, but the story is not over yet: “We made adjustments to our retail prices earlier this year to offset increasing container costs, Brexit import duties and FOB increases, so we don’t currently need to make any further adjustments. There are, however, further FOB increases from a number of componentry manufacturers, things like tyres. We evaluate the impact and hold prices for as long as we can and CSG prefers not to have to change prices mid-season.”
Compounding issues, but largely flying under the radar since people’s attention turned to the virus, Brexit is not helping matters, in particular a shortage of lorry drivers willing or able to journey to the UK. The BBC reported in June that strict new criteria for work visas had reduced the available workforce, something attributed to the Government’s new immigration system. Ultimately transit times are increasing, as is paperwork and in many cases cost too.
Are there ways to avoid the compounding headache? Windwave’s boss, Nisbet, says not by air, that’s for sure.
“Air freight has always been expensive, and it has gone up proportionately more than sea freight. 50kg used to cost $500.00, it is now $1,600. It is definitely not economic to air freight bikes. Historically, as a company we have only ever flown in small expensive parts as these are cost effective.”
The ripple effect, as CSG is committing too, is more localised production “not just to reduce freight costs, but more importantly to reduce time to market,” he says adding that “for UK-based companies, assembling bikes rather than bringing them in complete has become an option since we left Europe. Most bike parts attract 4.7% duty whereas complete bikes attract 14%. E-Bikes only attract 6% duty, so it is much less of an issue in that sector.”
That trend is certainly one that is seeding and becoming commercially appealing in the face of companies being bound to increasingly unsociable forward-order rules with far eastern suppliers. David Wilsher, owner of specialist bike and trike business Mission Cycles points to the pressures on his business largely being referred strain from up the chain.
“We are having to place orders for as far into the future as 2024, but factories are asking for 50% up front, deposits for over 12/24 months ahead. This is often before receiving this year’s orders we are asked to pay the balances. As a small company I have no intention of taking bank loans to keep the factories in business. They need to take the loans out. Sadly, I believe that many smaller companies will close up next year.”
How long will the shipping crisis go on for? That’s something specialist supply chain and shipping site The Loadstar is getting a feel for, pointing to the appetite of big carriers for fleet additions as an indicator that these giants expect plenty more of the same. Reporting on ship- ping giant MSC purchasing a ship that in a normal market may have ended up being sold for scrap at around $6 million, the operator instead paid $37 million, treble its value only this time last year.
“It is difficult to reach any other conclusion other than this being testament to MSC’s belief that the market will continue to run well into 2022,” London-based shipbroker Braemar told the site.