How container price increases dramatically increase the cost of cycling items
Explaining to the consumer that their bike is not only stuck in a container, but that it will have a higher price tag by the time it lands has been the bike store’s biggest headache this summer. In order to understand the ripple effects of the slowdown in exports, CI.N talks with the bosses of the trade to understand the reality …
What a year it has been so far. From the euphoria felt just 12 months ago when bikes were flying at record speeds, the comeback is now being felt due to factors beyond the hands of the most persuasive in our industry. Shortages of everything from microchips to potato chips are hitting the market and the list of reasons the outlook remains bleak over time. Some factories in Asia are still stammering over the Covid, key shipyards in Asia much the same story. Raw materials increase in price, but not in availability. The Suez Canal incident is now resolved, but the global freight business is still behaving abnormally in terms of both time and price.
For the consumer who is used to throwing the phrase “it’s only a five-minute job, can’t you fit me in?” Laughter from the bike shop turns to tears. If only we could.
So what does the consumer not yet understand about the supply crisis? One thing is the rising costs in the chain and ultimately on the handlebar tickets. Some products, especially lower priced and larger items, become downright unsustainable to import until normalcy returns.
Peter Nisbet, Managing Director of Windwave, explains: “We absorbed the price increases until May, but we were unable to continue to do so because the margins on the bikes are tight. We had no choice but to raise the prices, we are not making a profit, we are just getting our margins back. In the future, we hope that container prices will drop. In the meantime, we have to ask ourselves whether it is worth importing certain products. Nisbet tells us about the reality of importing bicycles in today’s climate, and math makes your mouth water. Where around 120 bikes can be loaded into a 20ft container, the cost per bike was previously £ 8.33. At £ 4,000.00 per container, instead of £ 1,000, the price is £ 33.33 per bicycle shipped.
“It was the perfect perfect storm. The blockages around the world have happened at different times. Chinese factories, which actually produce containers, have stopped production. Blockages at UK ports due to Brexit have caused delays. Containers containing PPE are scattered around the world and have not been emptied. The grounding of the Ever Given in the Suez Canal caused further delays, put a vessel out of service and it has a lot of containers on board. These factors added up mean fewer containers are going home and space on the ships is limited, ”adds Nisbet.
The Global Container Price Index, found on the Dewry.co.uk shipping site, has a US dollar tracker of 40ft containers. Prices had increased steadily until 2020 and there was hope of a plateau around March of this year. Unfortunately, a very brief period of price stability, where the index was averaging around $ 5,000, is once again unstable and heading as we write further north towards $ 7,000. For context, this is an increase of 305% compared to the same period last year. Some high-demand routes from China to Europe exceed this average with 40-foot containers shipped from Shanghai weighing nearly $ 11,000, an increase of more than 500% year-over-year.
A notable result of the crisis to date has been a frantic reshuffle of sources of supply. At the start of the pandemic, many sources told CI.N that they take almost all bikes that meet certain quality standards, often using suppliers that may not have been used for a few years. Flexible distributors won out in terms of sales against groups dependent on inflexible parent companies and supply chains. Whatever the structure of a business, the non-traditional sources in such sudden demand have just passed the parcel in short supply and another answer has been the DIY route; it is to bring manufacturing closer to the house.
In the case of Cycling Sports Group, a new factory will be launched later this year in the Netherlands, which will increase the group’s European bandwidth by a certain margin.
Country manager Nikki Hawyes told CI.N that price increases are currently capped, but the story isn’t over yet – we don’t currently need to make any further adjustments. There are, however, other increases in FOB from a number of component manufacturers, things like tires. We assess the impact and hold the prices as long as possible and CSG prefers not to have to change the prices mid-season.
Compounding the problems, but largely under the radar since people’s attention turned to the virus, Brexit is not helping matters, especially a shortage of truck drivers willing or able to make it to the Kingdom -United. The BBC reported in June that strict new criteria for work visas had reduced the available labor force, which is attributed to the government’s new immigration system. Ultimately, transit times increase, as does paperwork and, in many cases, the cost as well.
Are there ways to avoid the aggravating headache? Windwave boss Nisbet says it’s not by plane, that’s for sure.
“Air freight has always been expensive, and it has increased proportionately more than ocean freight. Previously 50 kg cost $ 500.00, now it is $ 1600. It is certainly not economical to transport bicycles by air. Historically, as a company we have only stolen small, expensive parts because they are profitable. “
The ripple effect, as CSG is also committing to, is more localized production “not only to reduce transport costs, but above all to reduce time to market,” he said, adding that ” for UK based companies assembling bikes rather than bringing them complete has become an option since we left Europe. Most bicycle parts attract 4.7% duty while complete bikes attract 14%. E-bikes only attract 6% tariffs, so it’s much less of a problem in this industry.
This trend is certainly starting to grow and become commercially attractive in the face of companies linked to increasingly unsociable forward order rules with suppliers from the Far East. David Wilsher, owner of a bicycle and tricycle business, Mission Cycles, points out that the pressures on his business are largely due to the tension up the chain.
“We have to place orders until 2024, but factories are asking for 50% upfront, deposits for more than 12/24 months to come. It is often before receiving this year’s orders that we are asked to settle the balances. As a small business, I don’t intend to take out bank loans to keep the factories running. They have to take out the loans. Unfortunately, I think a lot of small businesses will be shutting down next year.
How long will the maritime crisis last? This is something that supply chain and shipping site specialist The Loadstar is feeling, pointing to the appetite of major carriers for adding fleets as an indicator that these giants expect much more. the same thing. Reporting that shipping giant MSC had bought a ship that in a normal market could have been sold for scrap at around $ 6 million, the operator paid $ 37 million, triple its value only at the same time last year.
“It is difficult to come to any conclusion other than that which demonstrates MSC’s belief that the market will continue to operate until 2022,” London-based shipping broker Braemar told the site.