It’s the lament of U.S. toy manufacturers, large and small: All I want for Christmas is shipping containers.
Toy makers currently are playing a high stakes game in which they have to outbid and outmaneuver competitors for shipping containers to get their goods from overseas factories to U.S consumers in time for the holiday season.
In July, the time when toy companies typically start shipping their holiday toys to retailers, prices for shipping containers increased by as much as 500%, according to industry group The Toy Association.
Toy makers say they are being charged $20,000 to $25,000 for 40-foot containers that previously would have cost $3,000 to $4,000.
The situation has become so dire that The Toy Association, has urged federal lawmakers and the Federal Maritime Commission to take immediate action to address the shipping crisis.
The hunt for container space favors Hasbro, Mattel and big toy manufacturers with the cash and the clout to navigate supply chain challenges, at the expense of small toy companies that risk being shut out during their most important sales period of the year.
Paying the inflated container costs still doesn’t guarantee toys will be delivered on time, due to backlogs at U.S. ports, railyards, and trucking companies.
“Even if you pay these crazy $20,000, $25,000 prices, there is a delay to get it to you,” said Isaac Larian, CEO of MGA Entertainment, which makes the L.O.L Surprise! and Rainbow High fashion dolls, the Little Tikes outdoor toys, and other playthings. “Once it gets here, there are no truck drivers, no chassis to put the containers on,” Larian said. “Everything that could go wrong has gone wrong at the same time.”
“It’s not going to be a fun Christmas, to be honest with you,” Larian said.
The toy industry in recent years has grown accustomed to weathering an annual crisis that threatens the holiday season. Every year Christmas still arrives, with lots of toys under Christmas trees. But this year’s challenges are likely to be more disruptive, resulting in price increases, and shortages of popular toys, which will limit the ability of retailers to use toys as holiday loss leaders to draw shoppers.
“It’s a bigger hiccup than anyone was planning for,” said James Zahn, deputy editor of The Toy Book, which has reported on the shipping crisis. Toy makers, and all consumer goods manufacturers, are facing backlogs resulting from the Covid-19 shutdowns around the world.
“When things turned back on, there was a huge rush from all industries looking for the same container space, shipping space, warehouse space, all of it,” Zahn said. “And the consumer demand is hot. People want to buy stuff,” he said.
Over the past four years, Zahn said, the industry has survived speed bumps like the trade war, the closing of Toys R Us stores, and the pandemic. “Now we have one that is going to be a little bit harder to roll over,” he said.
Hasbro CEO Brian Goldner, and Mattel CEO Ynon Kreiz, in earnings calls with investors last week, both said they believe their size will give them an advantage in the supply chain and container competition, because they source from multiple countries and have longstanding relationships with multiple freight providers. While both companies expect they will have to increase prices, they don’t anticipate inventory shortages.
It’s a different story for smaller toy companies, who say they have little chance of getting a container when one of the giant toy companies is prepared to outbid them.
Some manufacturers, Zahn said, have told The Toy Book that they opted to delay releasing new toys this fall because they couldn’t be sure they could get them shipped.
New toy brands “are not even attempting to bring product to market in this environment,” said Curtis McGill, co-founder of Hey Buddy Hey Pal, maker of the Eggmazing Egg Decorator, a top-selling Easter toy, and the Treemendous Ornament Decorator, a holiday hit last year. “In the end, the consumer and innovation are the biggest losers,” McGill said.
Hey Buddy Hey Pal was able to minimize some of the impact of the shipping backlogs by getting product manufactured and shipped early. But high shipping costs have forced it to raise prices, and demand for containers could put its holiday deliveries in jeopardy.
“At the current rates, our cost per unit just on the freight piece is up five times year-over-year, and is now 50% of our landed cost,” McGill said.
Joshua Loerzel, vice president of sales and marketing for mid-size toy company Hog Wild, said ocean freight rates that are four to six times higher than at the beginning of the year are forcing Hog Wild to implement double digit price increases.
The company has had to raise the MSRP price of its newest toy release, Handy Grabs, by 20%, from $14.99 to $17.99.
“In terms of when this will normalize, nobody is sure,” Loerzel said.
Toy companies are limited in how much they can raise prices before hurting sales. “A toy that sells a million pieces at $10 each, once you go to $15, you sell 250,000.” MGA Entertainment’s Larian said, “We’ve raised prices a little bit, but we are taking a hit to our bottom line.”
MGA Entertainment is using its container space to prioritize shipments of its most popular items, and the toys likely to be holiday hits, such as the L.O.L Surprise! OMG House of Surprises playset, the Little Tikes Pelican exercise bike and the Rainbow High Color Change Car, rather than shipping lower-demand items. “We held back on a lot of things to make room for the hottest sellers that we have,” Larian said.
Larian said MGA Entertainment still expects to have double-digit growth this year, but sales volumes could have been higher without the logistics problems. “We’re lucky that we have great products and great brands people want, but even with that, we’ve got to get the merchandise on the shelves,” he said.
The container shortage will mean hot toys will sell out faster, and retailers may not be able to restock them in December, as they have in past years. They also won’t be able to offer deep discounts on hot toys to lure consumers to their stores in hopes of selling them lots of non-toy items as well.
“You’re not going to see as much of that this year,” Larian said. “There’s no product.”
“My advice to consumers is don’t wait,” he said. “Do your shopping before Thanksgiving or you’re not going to have toys.”