06/10/2021
Posted on one of our distributors page. Worth keeping in mind.
As society slowly opens up and our lives begin to get back to normal, we would all like to assume that everything will go back to the way it was in February 2020, before the world changed. In the last few months, it has become apparent that, from a supply and logistics perspective, that is far from the case. In all industries, especially our niche hobby industry, there have been major issues in keeping shelves full and keeping prices down. We want to take a minute to walk you through some of these issues in case you were not fully aware, so you can properly prepare your store for the near-future:
Supply: Many manufacturers are having difficulty producing goods for various reasons. One of the most common reasons is not that they are having trouble producing their core product, but rather, they are having trouble obtaining the vessel in which the product is packaged. For example, some paint manufacturers are unable to get aluminum spray cans and glass or plastic bottles. A model rocket manufacturer might have an issue getting the canister that the rocket engine is packed into. These raw materials are as crucial to the production process as the product itself.
Prices for Raw Materials: Because of the above, many suppliers of these raw materials are using the opportunity to drastically increase their pricing. Think back to your Economics 101 class – when demand is up and supply is down, prices can increase with little impact on sales. When the cost of the paint bottle increases, the cost of the final packaged product must as well, for example.
Shipping Lead Time from Abroad: Booking a shipment from a foreign country has many complexities to it. But the basic logistics involve staging the goods and finding space on a ship or airplane. With the number of daily flights still well below their pre-pandemic level, most goods must go by sea. But because of labor shortages and shipping companies a limiting the number of ships sailing at any given time, finding space on a ship, specifically for full container loads, is extremely difficult. What used to take 2-3 weeks to book space now can take well over a month. At the same time, manufacturers are dealing with increases in demand, leading to longer lead time for production. Both of these factors together mean that orders previously taking 8-10 weeks to receive are now taking a minimum of 12-16 weeks.
Shipping/Freight Costs from Abroad: The supply/demand curve is also at play here. With fewer ships operating coupled with higher demand for those ships, prices have skyrocketed. A 40-foot container from Asia that used to cost between $4,000 and $6,000 now costs close to $20,000, a cost increase that ultimately gets blended into the price to the end user.
Shortage of Domestic Trucks: Once goods arrive at a USA port, they must be transported by one of the many truckers that drive the country’s highways on a daily basis. Just like with the previous issues, the labor shortage and added volume has left a shortage of available trucks and truck drivers in many regions. This causes transport prices to increase, as well as delays in receiving shipments from the port.
We do not foresee any of these issues improving significantly before the end of 2021, though we are hopeful that we start to see baby steps in the right direction as we get closer to this year’s holiday season. Nonetheless, all of these issues, taken together, have already begun resulting, and will continue to result in MSRP and cost increases for many brands.
We encourage everyone to remain acutely aware of the global issues and how they are affecting both the availability as well as the price of the goods you stock in your stores. This way, you can stay ahead of the changes and continue operating at the proper gross margin. We thank all of you for your understanding and welcome any further questions regarding how the global situation is affecting the hobby industry.
