Episode #83: Predicting Retail Market Trends After The Shipping Container Crisis
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How much do you know about how the toy products that you make and play with get to you? Most likely, they were shipped to the city you bought them from, on boats in containers. In January of 2021, shipping container prices started to climb. By early spring they were double the standard pricing and today shipping container prices have been reported to have increased 4x what importers are used to paying to ship their products. The growth in sales that the toy industry experienced over the past year is just a fraction of the growing demand weighing heavily on our supply chain. Shipping ports are congested and shipping containers are limited, all leading to a container crisis that’s wiping out profit margins.
In this episode, you’ll learn the history of the shipping container, gain an understanding of the pricing and functionality of containers, but most importantly we’re going to wrap this episode by building out an extensive Market Shift Mind Map around the shipping container crisis. The goal of creating this mind map is to predict and prepare for the future with this major shift in mind. You’ll learn to break apart and analyze the 4 different aspects of the rising shipping costs and predict changes to come so you can be proactive instead of reactive. Whether you’re new to the industry or an experienced toy professional this is a great exercise to appreciate the history of shipping and to think ahead for its future.
See My Pinned Shipping Containers Cities With This Google Earth Link:
https://earth.google.com/earth/d/1_U7sRtXK--aGxm9vstp8s3Y648kQG-oi?usp=sharing
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Azhelle Wade: [00:00:00] You were listening to making it in the toy industry episode number 83.
Well, Hey there toy people, Azhelle Wade here. And welcome back to another episode of the toy coach podcast, making it in the toy industry. This is a weekly podcast brought to you by thetoycoach.com.
It is beyond time that we have a talk about shipping toy people. In early spring, I ran into a friend of mine who mentioned the shipping container prices were through the roof.
And at the time they were double the norm. Today, we're hearing reports that shipping prices are four X. What they used to be analysts believed for months that the pricing would even out, but it hasn't. And with COVID restrictions, loosening and consumers, shopping more retailers are actually concerned with keeping their shelves stocked with the products that consumers want.
Our demand for cheap consumer goods is now outpacing supply, and it's resulting in shipping container costs, rising and costly premiums being tacked on per container to guarantee that you get a space on the books. Now, these premiums are really just the equivalent of, of FastPass at six flags.
But imagine that 25% of the park also has the fast pass. Yikes. So you're not going anywhere fast. And the growth in sales that our toy industry experienced over the past few months is just more demand than the shipping ports can handle. And it's not just the toy industry, I should say it's every industry.
So today we're going to kick off our conversation, talking about the history of shipping containers, because in preparing for this episode, I got a little type a and dope in a little too deep, but the stuff I found was way too interesting, not to. After we talk about history, we're going to talk about shipping costs, highlighting approximately what they are now and what they used to be and why they've gone up then after all that I think we will be then ready to talk about the main event of today's episode, the mind map that I want to put together, just like I did for the COVID-19 pandemic way back in episode 11, we're going to create a mind map today and we're going to create some predictions around what's going to happen due to the rising container costs, the rising shipping costs.
When you look back at episode 11, many of the predictions rang true. Some of the things predicted from that mind map or toys designed after our healthcare heroes, shout out to Mattel. And we predicted an obsession over books about health and cleanliness.
There was a prediction in that mind map about noisy toys falling out of favor with parents stuck at home with their kids for extended periods of time. And we talked about stem toys and careers becoming in favor, becoming the hip new thing. Now doing that mind map exercise allowed us to theorize what the future might have in store and pivot our toy businesses to align with what was potentially coming down the pipeline.
So today we will hopefully do the same thing for this shipping crisis so that you can be prepared instead of reactive during Q4 and beyond. By the end of this episode, you will have a better understanding of how shipping works what's happening today, and why you'll know how to create a mind map to break apart and analyze the four different aspects of the rising shipping costs and predict changes to come so that you can be proactive instead of reactive.
Now, whether you're just starting out to create your toy company, or you've been in the business a long time, this is a great exercise and episode to get you appreciating the past and then forward thinking about the future ready? Well, of course you are. Let's dive into it. Now.
Containers. What are they? Shipping containers are large reusable steel boxes designed to withstand shipment, storage, and handling, traveling across the seas. They come in two sizes, 20 feet and 40 feet that's length and are filled with goods that you intend to ship by sea and then loaded up onto boats.
Now, before 1956, the process of transporting goods at sea was super messy at best. So before the shipping container goods would be stored at a port warehouse until a boat was available to carry the goods to their destination.
And when the boat was available, goods were taken from that warehouse to B side, the dock ship, and then loaded into crates or barrels or bags, just to be loaded by hand one by one onto the ship. So needless to say, it took a long time. Goods were piled and, and stacked like Jenn and gov blocks or like Tetris blocks as best as they could to hold around 200,000 pieces of cargo on board.
So using this process, it's this process was called a break bulk cargo. It would take about a week to load and unload a ship because it was all very piecemeal and manual. So at this point, Antar Malcolm McLean. So Malcolm McLean owned the fifth largest truck transportation business in all of America.
He had over 1,750 trucks. So in 1937, McLean was actually watching as dock workers were loading and unloading cargo for hours. And he just had this feeling that there had to be a more efficient way to do what they were doing.
So years later with that thought process floating around in his head trying to avoid fines on heavy loads carried by his trucks, McLean conceptualized an idea for a standard shipping trailer that could be loaded onto boats in the hundred opposed to being loaded.
You know, one on one of his trucks. So really believing in this idea make lean, took out $42 million in a bank loan to just bet on this idea. So with the help of an engineer, McLean designed standardized shipping containers and they prevented theft. They save time. They reduced the man hours required to ship goods.
Now the first international container ship voyage was April, 1966, and it was from the us to the Netherlands and it had 236 containers on board. Now from 1960 to 70 international standards were then defined for shipping containers. In order to maintain the international modularity of the system, McLean had designed the modularity also depends on how the goods are actually loaded into the containers.
And that is why everything that you ship In a container needs to be palletized. If you don't know what that is, I just had a weird word and you're like, that's not even a word of shell. So all palletized really means is that your product needs to be boxed in larger master carton boxes. And that would be stacked on top of a pallet wrapped and labeled. Now, why is that? When you head over to a port, you will see a few different tools they're designed to help load the boats. There are cranes to lift containers. There are some automated crane slip containers. There are forklifts and pallet jacks to lift the pallets. All of the tools involved with shipping are designed to work with a very standardized modular system. So pallets have a standard size of 40 inches by 48 inches, and that size works out well with the shipping containers.
Okay, but back to McLean. So every time that you want to ship your product in a container, it has to be palletized, or it has to be a systematize, or I'm going to coin the term McLean eyes. You know, if you will. But the introduction of these shipping containers and the use of the pallets, all of this actually reduce shipping costs more than 90%.
But today our beloved shipping containers are coming back to hit us the wrong way with massive unprecedented price increases. Now, if you want to read the articles that I researched while doing this podcast, head over to the toy coach.com forward slash 83, because I'm leaving all of the juicy history of shipping container links and all that information in the show notes.
So head over there, but now let's dive in to those price increases because the first question about price increases that are happening today with shipping containers and shipping fees in general is, you know, where are they coming from now with the containers? There's two parts to this, right? Number one, there's congestion at the ports, meaning there's no space on the boats, multiple shipping lines in China have blamed COVID-19 for causing low productivity at the ports I was doing some freight digging on a site called I containers. It actually had a bright yellow notice alerting about the congestion at the ports.
And I'll I'll quote, the notice, the notice said severe congestion affects global shipping. And then it also underneath that headline quote, the psych quoted that vessel space shortage was pushing availability dates back weeks. So the date that you're seeing when you actually go to book, they have this notification to let you know, like that dates not actually the real date. They had another bullet point that said equipment shortages of empty containers and tools to move them was also affecting the global shipping time. They also noted that there's port congestion in long beach, California, in which boats docking, there are experiencing four to eight days time in unloading, which we now know from our history lesson earlier in this episode, that timeline is crazy because it's pretty close to the timeline experienced before that container system was introduced. Now the second reason. The second cause for the freight increase is high demand and low supply. You know, we don't have enough containers to ship our goods in and ship our toys in during the pandemic see shipping air shipping, everything just stopped. And when it restarted demand skyrocketed, you know, you saw toy sales at the end of 2020 and 2021. They were record-breaking. But here's the thing. According to the world, shipping council, 226 million containers are shipped annually. So if 226 million containers are shipped annually, where are all the empty containers?
How can we possibly have a shortage? How do we not have enough? . Well, believe it or not thousand containers a year are lost at sea. Some make their way into the multi-million dollar container home market, and some are returned and reuse to ship more product. But the rest thousands of other shipping containers are piled up in makeshift landfills in port cities. seriously. If you look at port Elizabeth in New Jersey or long beach, California, and look at the port there, you'll find makeshift container cities of containers piled five high, presumably empty and visibly rotting. One of these container cities or dumping grounds are over 2,300 feet long. Now, if you take a look at these container dumps, honestly you'll even find some that are fenced off by a wall, and I'm not kidding. A wall made of other containers it's as light.
So disturbing that it makes you realize we have a serious waste and trade imbalance issue on our hands here. Containers are sitting in the U S because they're too expensive to ship back empty, and we've got nothing to ship back to the main importer of our goods, China.
Now you may be wondering as y'all, how do you know what the container situation looks like in California and New Jersey? Where did you find that? Well, I found it on Google earth and you can too. I actually created a link and I tagged a few spots. So you can visualize what everyone is talking about. To grab that link and all of my resources for this episode, head over to the toy coach.com forward slash 83. Now the next question is how much has shipping really increased? Well before March of 2020 shipping a full container load FCL, we just learned would cost you around $3,000.
Us dollars and to ship LCL would be around $400 per cubic. Now when you ship FCL, you normally are getting a much better bang for your buck. Since a full 40 foot container can hold like 65 cubic meters. But today the prices have doubled for full containers and wait times have increased. So now you'll easily find FCL shipments costing 10,000, $15,000.
Based on some reports from friends of mine, contacts inside and outside of the toy industry. So it's hitting everyone. So let's break down what that means a little bit. I want to give an example of a product so that we can really get a real world view of what this means. So let's. You are going to get a full container of your product.
And let's say you can fit 4,000 pieces of your tour game product inside of a container and your product costs $10 a piece fob from the factory. So that's 4,000 times $10, which is going to equal 40,000. And typically you would tack on about 3000 to ship that product in a container. So when you add on that 3000 to your product, it bumps your cost per piece, up to a $10 and 75 cents.
So that means that you're spending 75 cents per item on shipping. If you planned your margin, well, you'd still maintain 40 to 50% of your profit. Maybe more if you're selling direct to consumers, But today with shipping costs between 10 to 15,000 that cost is going way up and your margins are probably going way down.
So let's estimate that you are paying this new, higher freight cost. And we're going to estimate that you're somewhere in the middle. You're at 12,500. So now you're looking at paying $3 and 12 cents per piece to ship your product. I mean, it's unsustainable. What is the industry doing to mitigate? Cause this is happening.
Well, they're splitting costs. Retailers manufacturers for the most part are splitting costs temporarily. But honestly, I have to say, I doubt that that's going to last for long, I believe. And honestly, there are many articles about this that we're just headed for massive inflation. It's not just going to be the toy industry.
It's going to be every industry and we're just going to see a, a major increase in our retail prices, likely all at once.
Which brings me to the inspiration for today's episode, a mind map, mind maps are great visual tools to help you analyze a major social change or a major shift, a major source of change and problem solve these challenging situations. In episode 11, I did what I called a market shift mind map around the COVID-19 pandemic to help predict the trajectory of the toy market.
And today we're going to do a market shift mind map around the shipping container crisis. Now to follow along, I really want to encourage you to head over to the toy coach.com forward slash 83, where I've shared a graphic of my own mind. If you would like instead to just follow along, you can also create your own mind map as we're going through all of it here.
I'm going to walk you through. Step-by-step how to do that. Now, I want to challenge you to just use my mind map as a starting point. Don't feel committed to it. It's not written in stone. You can build your own or build on top of mine. This can be your own thought process. There are many different ways this could play out.
If you would like access to an editable template of a mind map, so you can create your very own really easily. Then you should be a member of my podcast, insiders club to become a member head over to club dot the toy coach.com and join today.
EP83_Audio_raw: [00:19:14] Now the very first step to building out this mind map is to define the source of change. That's what's going to go in the center of the mind map. So the source of change that I have on my mind map is shipping container crisis.
So I want you to just write shipping container crisis and the center of the page, not too big, circle it, and then create four branches.
From those four branches. You're going to create four other circles. You're going to write immediate effects in the first circle. You're going to write what will increase in value in the second circle. You're going to write what will decrease in value in the third circle.
And then you're going to write heroes in the fourth circle. Now, what does all that mean? I'm going to get into that right now. So mind-map branch number one, as I said, what are the immediate effects you wrote immediate effects in your circle. Now, from that circle, you want to create four more branches. In those four more branches, we're going to add to them.
We're going to add more words, more terms, but the question we're going to ask ourselves to answer what are the immediate effects of the shipping container crisis? We're going to answer this question. What's currently on the rise during the shipping container crisis, what are social or current economic trends that are actually on the rise due to this shipping container crisis?
So we're looking for immediate effects. So you're asking yourself that question and you draw a branch off of immediate effects and you might say, oh, number one, increased shipping costs. Obviously we have four X container prices. We've got premium fees now. And you might even say. Yeah, it's for container shipping prices.
We've got four X container prices now, and we've got premium fees. So number one, increased shipping costs. Now, number two, the immediate effects are we're seeing increased retail prices. I haven't seen it so much yet in toys, but I do know it is coming. And we've definitely seen it in other products.
Number three, low inventory. One of the things we're already seeing is that because of the shipping container crisis because people can't get their goods fast enough, already low inventory in the stores. Now we might have another branch off of immediate effects, branch number four, delayed product shipments.
So delayed product shipments. Yes, because of the shipping container crisis, we are seeing delayed product shipments and finally, a fifth branch that we can create off of immediate effects. Number five, lower margin manufacturers are dealing with these increased prices and thus are experiencing lower margin. It's going to, as I said, manufacturers and retailers.
Okay so that is the easiest part of our mind map. Just thinking about what is already changing, what's already happening in our world right now, due to this major source of change that we have in the center.
So now let's move on to branch number two, which is what will increase in value. So you're going to look at your branch. Number two, you're looking at shipping container crisis, and you're thinking what will increase in value? So the question that you need to ask yourself is what is, or will become more important or more valuable to people as a result of the shipping container crisis.
You can also ask yourself, what will they really miss or what will they feel that they need once this crisis passes, once these immediate effects of lower margin the low inventory passes, what do they feel like they're going to need?
So I want to point out that this branch in the mind map is, is a little bit twofold. It's a little bit during the. Crisis. And then after the crisis, your answers can be both here and you're going to see the ones that I'm going to give you are at that. Some of them are what's going to increase in value during the crisis and what will likely increase right after.
So, number one, we could say e-comm platforms like Amazon and Walmart. And why is that? These companies are not just marketplaces. They're also logistic services. So they are going to be able to deliver goods faster than anyone.
They also are the companies that are prioritized when ports are deciding who is going to get on a boat. They're also companies with the funds to pay the premium fees, which as I said earlier, are the, you know, equivalent to a six flags fast pass. So for consumers that are going to be seeing higher prices looking at e-comm platforms like Amazon and Walmart that will still have the power or may still retain the power to deliver those low price goods.
They're going to increase in value. Now, after this crisis passes, what is going to increase in value? I believe is just more physical products. If people get to the point where, you know, they could buy a gift for somebody for so long, or it was a lean Christmas because the things couldn't get delivered on time the belief then might shift to believing that they need more products.
Now branch number three, what will increase in value while the shipping container crisis is going on small retailers, smaller retailers who are able to maintain their stock, who might be getting shipments in at varying times, cause maybe they're doing LCL or maybe they're buying from within the U S from somebody who's already imported individual goods smaller retailers where a customer can maybe go to the physical store and pick it up cause even fed ex shipping is increasing in prices.
So small retailers where people can go into the store, pick it up and then move on, are likely going to increase in value. Number four, what will increase in value digital products. So I think that while this I think that while this crisis is going on, as we get closer and closer to Q4 people who can't purchase what they wanted to purchase for themselves or for their significant others might opt for digital products, one type of digital product, possibly being NFT versions of toys. This is a golden opportunity for some of those holiday dollars to get transferred from physical product to digital product. If someone is not able to get the goods that they want for someone's birthday or for the holidays they might opt for something like an NFT, like the digital product version of the product that they wanted. So that is an interesting thing that could be coming down the pipeline.
Additionally experience purchases could increase in value especially since restricted re restrictions on COVID are lifting. Consumers are struggling to buy the physical gift that they want to for Q4, for someone that they love, they could potentially opt for experienced purchases. Experience purchases might be continually on the rise, just due to a lack of being able to get the physical product that you really want.
And number six is DTC direct to consumer. And I, you know, I almost didn't put this one because I thought you might think that small retailers are similar to direct to consumer, but I actually think that with the shipping container crisis what could potentially increase in value are small, independent e-commerce sites.
So I'm talking like the hobbyist, the people that have Etsy's that have their own website, the artists that create handmade goods that they create at home. So I'm thinking that the handmade consumer products could increase in value, especially if everything does inflate. Like if the price of our everyday products goes up the products that people at one point used to see a specialty like where they would see, oh, you know, that beautiful hand-sewn sequined purse on Etsy that I want so bad, it's just, you know, too expensive because it's $10, more expensive than something kind of similar I could buy at target.
But now if target has to raise their prices, these custom products might have a bit more of an edge and increase in value in our consumers.
Okay, let's move on to branch. Number three, what will decrease in value? Now you're going to go over to that branch and create four spokes on this one. So we're going to fill that up. And the question you're going to pose to yourself for this branch is what will become less important to people As a result of the container crisis or what will people no longer value.
So, I mean, this one just has so many options. So the first thing that I put on mine is container houses. Oftentimes if you want to manipulate the container in a creative way, by stacking it in a, in a way that it's not meant to be stacked, like not sacking it directly, one on top of the other, you actually have to reinforce it with more steel. So it creates a need to use more material.
You're not really saving material as container houses like to tote.
Now, number two, what will decrease in value? We could guess that, you know, low ticket or impulse online shopping items could decrease in value. The reason just being that the shipping cost will be prohibitive. And I don't even just mean for the manufacturer. I mean, for the consumer.
If, and when the shipping costs start to get passed on to the consumer, you know, you know, no consumer is going to want to do the impulse shopping of one small thing online. If that small thing is going to come. Two times the price of the product to ship to their house. So maybe low ticket items and impulse item online shopping will decrease in online.
Shopping might start to become a little bit more strategic where you fill up your cart over a week or two weeks until you have enough stuff that it's worthwhile shipping. And this actually makes me think that perhaps e-commerce sites could start putting limits on how many items you need to order in order to ship it all.
Some sites do have a limit on how many items you need to add for free shipping, but considering how bad the prices are quoting right now. I mean, I wouldn't be surprised if certain companies just simply refuse to ship something that is just too small. Now number three what will decrease in value? I hate to say this. But it's potential that manufacturing in China could decrease in value that it might already be decreasing in value in the minds of some manufacturers, just because of the cost.
And number four, what could decrease in value, larger packaging? I mean, this one's a simple one. You want to fit as much as you can on that boat, especially when you're paying so much money for it. So I think a really, really, really simple fix that we might see sooner rather than later. Even smaller packaging for online items.
There was a time when, when companies were first starting to get online, that they did not worry so much about creating a different package for online shipping of their products. But I think once with how everything is shaking out now, you would be foolish to try to ship the same product in the same box that you do for retail, for online sales.
And actually because of that statement, there might be an increase in value in these online platforms for that very reason that you can get away with having a smaller package without affecting the customer's perceived value of the product. So that might be something we have to add to our increased value branch.
Okay. Finally, let's move on to the hero section of the mind map and in the hero section of the mind map and the question you have to ask yourself in the heroes branch of the mind map is who or what will be known as the heroes or the leaders that care.
During this time, this shipping container crisis. So number one, I have steelworkers. And the reason I have that is because some people believe that the, the shipping container price crisis, the prices will not be alleviated until we have more containers to put the products into. I don't know, we have so many in the U S and I know they're not cost effective to ship back.
I don't know if we really need more shipping containers, but yeah, steel workers could potentially be the ones that everyone's like, yeah, you made more shipping containers. Now we can ship. Number two would be domestic manufacturers. Anybody that has a product domestically makes product domestically or close or nearby could definitely be the heroes coming in to save the day from empty shelves.
Sometimes a product with a lower margin is better than no product at all on the shelf. So domestic manufacturers or even just companies maybe you're producing in Canada and, you know, nearby, you might be creating like a card game or something. You might come in as the hero for a retailer during this time.
Number three for heroes, we have delivery services are definitely going to be seen as the heroes because no matter how long you wait for your package, you were super excited once it actually comes. So delivery services, especially three PL shipping and logistics services are definitely going to be the heroes here because they are going to be able to figure out the systems and the automations and handle the customer service that is all gonna culminate come along with this entire shipping container crisis.
And the fourth and final hero that I see in the future here is not a who it's a, what and what is automation? The only way to pivot from all of this, if, if costs really don't come down is to figure ways to automate other parts of our process so that we can recoup some of that loss costs and then, you know, bump up prices, but maybe not so much, and then split some of the loss between the retailer and the manufacturer.
So there will be loss on all sides. Consumers will pay more manufacturers at first will probably make a little less retailers will make a little less. But continued work on this automation side is really how we're going to try to re that margin.
Now before, and I jumped into my summary of today's episode, I'd like to take a quick break and give a shout out to Chanel McCullough, who is a member of our Facebook community, but she also left a lovely review of the podcast. And I want to share that with you today. Chanel says I've been listening to this podcast with one idea of a product in mind, as I continue to listen and get insight.
My product ideas have expanded. Ezell has truly opened up my eyes to the possibilities in this industry. I enjoy her style of teaching and her vast knowledge in this industry. Looking forward to learning more and working with her in the future. Oh, thank you so much, Chanel.
I love that review. I'm so happy to have you as a listener of the podcast and also a member of the Facebook group. I see what you're doing I'm so happy that you're supporting your daughter's entrepreneurial dreams and that you help for my hometown and long island. Thank you so much for the review Chanel.
Okay. Let's dive back into the conclusion of what we learned today. What I want you to walk away with is a fresh future based perspective on what this shipping crisis could mean. We did our mind map and identified things that would increase and decrease in value.
And my summary today is this. We are experiencing major pressures on the cost of goods right now, due to this container crisis and considering all of the social pressures we've been under in the past few years. And now the financial pressures building, it feels safe to say that we may be heading for our fourth industrial revolution.
And I believe it's going to be one around automation. Automation typically comes about to industries out of just necessity, environmental necessity. Social necessity or financials, necessity. And right now we have a really big financial necessity to figure out a way to automate more of our product development and fulfillment process.
Further automation of ports could help avoid port congestion and decrease warehousing fees, or maybe automation of our product development process could reduce product life cycle times. And the number of employees needed to complete them. Thus reducing the cost of developing product and adding profit back to our now diminished margins. Automation is the only key I can see here to reducing overall cost of our goods and avoiding a paralyzing inflation rate. It could mean that more eCommerce sites establish third party logistics services so that they can cost effectively automate shipping and selling their own products.
And it could mean that existing third party logistics services or three P L's start selling goods directly to consumers online because they have the systems in place for it. It appears to me that if the costs don't come down, our supply chain is going to need to simplify, and someone is going to get cut out of the line and out of the profit.
As always, thank you so much for spending this time with me today. I know your time is valuable and there are a ton of podcasts out there. So it means the world to me that you tune into this one until next week.
I'll see you later. Toy people.
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