A perfect storm is leading to a possible toy shortage in the U.K. Shippers of all industries are having difficulty importing their goods into the U.K. due to a confluence of issues such as rising container rates, lack of empty containers, and general port congestion. Industry professionals are becoming increasingly worried that there could be a toy shortage ahead of the Christmas holiday.
“Get out there and try and get any products that they want as they may well run out,” Derek Crookes, Toy Retailers Association, told U.K. consumers regarding the potential shortage of toys.
Ocean carriers are escalating the problem by cutting and running, where they drop off their shipments in a port but don’t load any empty containers due to their fear of missing their slots in other ports.
“They’re leaving cargo in the yard, so the yard gets even busier, which slows down deliveries at the gate, which slows down the next ship, so that ship cuts and runs and leaves more cargo in the yard,” Eleanor Hadland, ports analyst at maritime consultancy Drewry, said regarding ocean carriers behavior in U.K. ports.
Last week, I highlighted how container rates from China to the East and West Coast of America have flatlined over the past two and a half months. While rate volatility has evaporated on China-U.S. trade lanes, container rates from China to Europe have skyrocketed.
Since the beginning of November, China – North Europe container spot rates have elevated ~72% and have left shippers little time to adjust for the added costs in their supply chain. The rate that is quoted by Freightos is the basic spot container rate and does not take into account any premium services that shippers have to pay.
“Toy manufacturers are facing a drastic price increase on freight due to a shortage of capacity and containers, which has seen prices increase three-fold and as much as four-fold in some cases,” the British Toy and Hobby Association said regarding the recent surge in transportation costs.
As we head deeper into the holiday season, it is unlikely that any of these factors contributing to shipping problems are going to be alleviated. Container rates will face upward pressure, imports will be strong and empty containers will be scarce. If you live in the U.K., it is best to wrap up your shopping as soon as possible.
One-year high corn prices are a headwind to input costs. Corn is of utmost importance in the CPG industry, not only as a standalone good but also an ingredient in many other products. Corn or derivatives of corn are an ingredient in many cereals, toothpastes, peanut butter, taco shells, along with many other necessities.
Source: Macrotrends.net; Corn prices
Corn has been on a parabolic run over the past four months with prices rocketing higher by ~37% and are now at 1-year highs. While CPG companies certainly hedge their input costs, if prices are elevated for a meaningful period of time companies will be forced to buy at higher prices.
Companies such as General Mills use a combination of different purchase options to manage their exposure to commodities. These different means of purchasing and hedging include purchase orders, long-term contracts with suppliers, exchange traded futures and options, and over-the-counter (OTC) options and swaps.
As of now, it is likely that companies that use a significant amount of corn have benefited significantly from their hedges.
The rise in corn prices comes at a time when truckload and reefer rates are at all-time highs and not showing signs of deteriorating. In my opinion, truckload rates will have upward pressure for the meaningful future as tight capacity persists and carriers and shippers renegotiate their contract rates. These two factors will contribute to significantly elevated supply chain costs.
Uncertainty surrounds who will be deemed “essential” for COVID vaccinations. The first shipments of Pfizer’s COVID-19 vaccine were shipped Sunday, but there remains uncertainty over who will have first access to the vaccine after health-care workers and the elderly in long-term care facilities.
Individual states will likely decide how to roll out vaccinations. One group that has been campaigning for early access is meatpacking employees. It has been well documented that meatpacking employees have been hit especially hard from the pandemic, leading to lawsuits.
If states decide to consider these factory workers “essential” and prioritize them for vaccinations, this will undoubtedly help assuage stress on the supply chain. Companies should encourage this designation since it will help remove the risk of lawsuits sooner due to less likelihood of employees becoming sick while at work.
“Clearly health workers get it first, and the vulnerable, the elderly, people with pre-existing conditions,” Cargill Chief Executive Officer, David MacLennan, told The Wall Street Journal when asked about who should be prioritized to receive the vaccine. “We will advocate that then the essential workers—I would include the food-supply chain—should be right at the top.”