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BY MARK B. SOLOMON, SENIOR EDITOR
TOYS: A SUPPLY CHAIN CHRISTMAS STORY
Tepid demand, ocean capacity shortfalls,
and tougher product safety rules have set up
the toy business for a lump of coal this season.
bah,humbug!
IT’S NOT EVERY DAY THAT TRADE ASSOCIATION
executives talk candidly about the economic pressures facing the industries whose interests they are paid, often handsomely, to represent. But Jeff Bergmann, chief operating
officer of the Cincinnati-based Toy Shippers Association
(TOYSA), could not sugarcoat his response to a query
about the outlook for toy sales this winter.
“It’s not going to be a very good holiday season for our
members,” he said in a late October interview.
Bergmann has valid reason for concern. According to a
mid-October survey from the National Retail Federation
(NRF), the typical U.S. consumer will spend $682 on holiday items this year, down 3. 2 percent from 2008 and the
lowest level since 2003. (The survey didn’t solicit responses
specific to purchases of toys.)
Not surprisingly, a separate NRF paper that tracks U.S.
containerized ocean traffic entering U.S. ports has reported
the weakest activity since 2003, as worried retailers pare
back new orders in response to tepid end demand.
“We see stock levels [at retailers] that are significantly
lower than in previous years,” Eric Levin, executive vice
president of Techno Source, a Hong Kong-based toy and
game manufacturer, said in late October.
Levin said the financial crisis stands to reshape the entire
supply chain landscape for the toy business. Traditionally,
retailers placed their orders early in the year and suppliers
shipped holiday stock throughout the summer for delivery
to stores by early September. This year, retailers concerned
about buying too much too soon spread their orders over a
five- to six-month period that began in July and ran
through November, Levin said. This has wreaked havoc on
many supply chains, which were ill-prepared to make the
adjustment, he said.
The executive said it’s too early to tell if the shifts in order
patterns are a one-time event in response to the downturn,
or the start of a long-term trend. If it’s the latter, “it will
change a lot of the business flow in Chinese factories going forward,” he said.
The retailers’ cautious stance is not new. In
2008, toy import tonnage from China—by far the
main source for U.S.-sold toy and game products—declined 8 percent over 2007 levels, according
to consultancy IHS Global Insight. By contrast,
import tonnage from China in 2007 rose 14 percent
over 2006 levels, the firm said. It has not made projections for 2009’s import activity.
Tight capacity
Weak demand is not the only challenge facing the toy
industry. Another is a shortage of ocean liner capacity. In
response to the global downturn and a non-compensa-tory pricing climate, a number of ocean carriers have taken
ships out of service, leaving toy shippers and importers hard
pressed to secure cargo space when they need it. TOYSA’s
Bergmann lauded the steamship lines for being flexible and
accommodating to his industry’s needs, but acknowledged
the group has fielded “a few calls” from members looking for
capacity during peak season and not finding it.
Should the space become available—and steamship lines
can quickly get mothballed vessels back in the water if
demand warrants—it will likely cost more to procure. Or at
least it will if the carriers have their way. In August, the toy
supply chain was hit with a $500 rate increase per forty-foot
equivalent unit container (FEU); most of that increase has
stuck. That increase was followed by a peak-season surcharge and “equipment repositioning” charges, as carriers
look to shore up their bottom lines any way they can.
The third-party logistics service providers (3PLs) have
been the main targets of the carriers’ rate hikes. That’s
because so-called beneficial cargo owners—typically manufacturers or retailers—had language in their contracts barring rate increases or absorption of peak-season surcharges.
