I read across many platforms to understand what is happening and is going to happen to the toy economy. The big questions that currently confront us are these:
- Is the current rate of inflation going to continue?
- Will prices go back down for consumer products?
- Will container prices settle back down to pre-covid norms?
- Will inventory continue to be scarce?
Here is what I think based upon what I have read, those with whom I have spoken and history:
I think we are going to continue to see inflation for at least another year. Walmart almost single-handedly tamped down inflation by a decades-long passion for saying “No!” to price increases. Walmart had unprecedented buying power and the toy community fell in line.
They can, however, no longer hold back the waves of inflation. Walmart and other retailers now greet price increases with reluctant acceptance. Because the dam has broken, many factories, consumer products companies and retailers will see this as a chance to increase margins and add a little fat to their bottom lines.
In addition, Chinese workers, who make up the vast majority of those whose hands make the toys, are different than past generations. There are fewer of them; they don’t want to work in factories, expect better working conditions, and want higher salaries. Their expectations will drive the cost of worker compensation up.
China is struggling with its electrical grid, causing brownouts and blackouts. Closed factories can’t produce anything and therefore contribute to a scarcity of products and, as a result, higher prices as demand continues to outstrip production.
I think there will be some moderation in container prices due to fears of government intervention. Ocean freight carriers don’t want that, so some of the price gouging and fat bottom lines will moderate.
I think the days of container prices in the under $3,000 range will never return. I do expect, however, that we will see them go back below $5,000 on the spot market in the next two years. That is when new containers and container ships will come online, and we will see a glut of carriers.
Inventory will continue to be scarce until the kinks in the supply chain are worked out. That will take until 2023.
Bottom line, I see us as having at least another year of turmoil. What comes next will be a new normal with product and transportation supply back in balance with demand, only at higher prices.
