Shenzhen In Lock down Means Trouble for the Toy industry
Due to China’s Covid “zero-tolerance policy,” factories are currently closed in Shenzhen. Shenzhen is the center of the world’s toy manufacturing and home to Yantian, China’s second-busiest port, troubling news for the toy industry.
The disruption will delay toy manufacturing because you simply can’t make toys if no one can come to work. It will also play havoc with shipping as containers cannot be loaded if, again, no one can come to work.
How bad could it be? Here is a quote from Bloomberg News:
A Covid outbreak last year that closed Shenzhen’s Yantian port decreased San Pedro Bay area import volumes by 14%, with the effects felt for two months… With the current lockdown being more widespread, the effects could be bigger and last longer.Shenzhen Lockdown Leaves U.S. Ports Bracing for Fallout, Laura curtis, bloomberg news, march 15, 2022
Grocery Prices Up 11.5% Year-Over-Year
If you have to pay more for groceries, you have less to spend on everything else, and that means toys. If you think an 11.5% year-over-year increase is troubling, grocery inflation has soared 18.2% over the last two years.
I suggest that you read an excellent report from McKinsey & Company entitled: “Navigating the current disruption in containerized logistics.” The report provides an excellent overview and makes some predictions (expect no relief in the next six months). I found these suggestions helpful in working around the container shortages and high prices. Here are some of their recommendations:
Ship into the port of Prince Rupert in British Columbia. They cite it as less congested than other west coast ports. A plus is that it provides rail services to America’s mid-west.
Ship directly by water from Asia into east coast ports like Newark, Savannah, or Charleston.
Instead of contracting in advance for containers at a guaranteed cost, try creating a mix of spot market and contracted rates. That way, you can hedge your bets if container rates drop and you are stuck with a high contracted rate.
If you decide to contract at a fixed price, include a clause guaranteeing space on a container ship. Current agreements do not carry such a guarantee.