The Basic Fun toys company made an unusual decision with three months to Christmas: one-third of its Tonka Mighty Dump Trucks will be left behind in China for U.S. stores.
Why? Due to rising shipping costs and congestion in the supply chain, the transportation cost to transport yellow bulky toys to the United States is 40% higher than the retail price of $26. This is a dramatic increase from the 7% that was reported a year ago. It doesn’t include shipping costs to the U.S. from ports to retailers.
Jay Foreman CEO of Basic Fun, stated that “We have never left product behind in such a way.” “We had no other choice.”
Toy companies are trying to sell their products quickly to retailers, as they struggle with severe supply chain problems that could lead to reduced stock for critical holidays. They are trying to find containers that can ship their goods, while also looking for other ports. To ensure delivery by Dec. 25, some are flying the toys in place of shipping them by boat. Basic Fun is an example of this. They are waiting for the costs to drop so they can leave certain toys in China.
Toy manufacturers have been dealing with supply chain problems since the pandemic began. In early 2020, factories in China were temporarily shut down. U.S. stores then temporarily halted or cut back production during lockdowns. Since spring, the situation has only gotten worse with businesses having difficulty meeting the rising demand from shoppers returning to the United States.
Manufacturers face bottlenecks in factories and ports such as Long Beach, California. Additionally, it has been difficult to unload cargo from ships onto trucks due to labor shortages in the U.S.
For toy manufacturers that heavily depend on holiday sales, however, there is a lot at stake. The industry in the United States is worth nearly $33 billion. The company’s fourth quarter is responsible for 70% of annual sales. Holiday sales make up 20% of total retail industry revenue. Steve Pasierb CEO of The Toy Association estimates that 85% of toys are made in China.
Some retailers have begun telling companies that they won’t buy products from them if they ship after October. Marc Rosenberg, a consultant in toys, said that products used to take four to six weeks to arrive at American distribution centers after leaving China.
According to NPD Group (a market research firm), the U.S. toys industry saw a 17% increase in sales and a 40% rise in sales in the first half this year, as parents sought to entertain their children at home.
Analysts expect strong growth in 2021. However, many toy companies believe they will see their sales drop because they won’t be able fulfill orders for hot products, especially surprise hits. Some toy companies will have to close due to high costs.
Toy executives claim they cannot raise prices more than 10%, even though it won’t fully cover the higher costs. They are worried about shoppers reaction. Mattel Inc., America’s largest toy manufacturer, stated this summer that it will raise prices to offset rising shipping costs. However, it did not specify how much.
Container costs on ships have increased sixfold since last year. Some brand executives claim that they are now $20,000 higher than the $3,000 they were a year ago. This has caused major retailers such as Walmart and Target to charter their own ships.
Foreman estimates that 1,800 Tonka trucks can fit in each 40-foot container. At $20,000 each, that would mean $11 per container. This is an increase from the average $1.75 per container in a typical calendar year. As he aims to maximize the profit margins and dollar value of each container, he is focusing on smaller items such as Mash’ems, which are water-filled, soft collectibles that are water-filled. He estimates that he can fit $150,000 worth Mash-ems into a container, compared to $40,000 worth Tonka trucks.
MGA Entertainment, maker of L.O.L dolls is expediting the shipping of its toys as it costs about the same shipping.
Jim Silver, editor in chief of TTPM (a toy review website), says that big discounters like Target or Walmart should have a greater supply of toys than smaller ones due to their power. Target claims it has been working closely with its suppliers and transport partners to ensure that its stores are well-stocked and ready to serve its customers.
Melissa McCollum, the owner of Learning Express Toys, Birmingham, Alabama says that she has received 25% of the holiday toys since mid-September. Typically, this figure is 50%. The Toy Book is the most respected trade magazine in the toy industry. It promotes a list of in-stock products that can be quickly shipped from U.S. warehouses.
Advertising is often reduced by many toy companies, such as Basic Fun and PlayMonster.
Tim Kilpin, President of PlayMonster, stated that 15% to 20% of the company’s holiday products are in a tangled supply chain. Koosh is a rubber filament toy ball that was sold out in August. There’s no way it will be replenished before Christmas.
Expect to see lingering effects from the bottlenecks. Retailers are urging toy manufacturers to ship their first holiday 2022 merchandise in March, rather than late April, and the second in June, instead of late July, according Andrew Yanofsky (head of marketing and operations at WowWee).
He says that this will make it difficult for companies to decide how much to order and reorder, without knowing the full sales data.
Yanofsky stated that he initially placed a large bet on Got2Glow FairyFinder, which is a light show in an jar that allows children find virtual fairies. He knew he would not be able replenish the production due to the snarls.
He said, “We took a chance on excess material beyond what we thought could be sold,”
Labor shortages have caused even the few toys companies that produce goods in the United States to struggle.
John Gessert, CEO and President of American Plastic Toys is based in Walled Lake in Michigan with another in Mississippi. According to Gessert, the company is currently missing between 35% and 40% of its front-line employees. It is now shifting its focus away from play kitchens that require six workers, and more towards less labor-intensive toys such as basketball sets, which only require three workers.
“I’ve never had to solve such a complex puzzle.” He said.