Category: Bikes News

Don’t be concerned. There will be no shortage of the E-rim wheels.

WHAT’S HAPPENING NEXT?

As we all know, our collective bike industry COVID-19 story to date has been that after some initial uncertainty, demand for our products took off in March and stayed at full throttle, at least until about June or July for most dealers. Then a combination of winter and supply constraints started to bite, and things leveled off, but still at a much higher altitude than where we normally fly for each respective month.

This leads to the first problem for 2021. Virtually all of the reserve stock that wholesalers usually hold so that retailers can order on demand, has been sold. During my road trips I’ve walked down empty aisles of warehouses that might normally hold 10,000 bikes with barely a few hundred. One company reported 107 bikes in stock compared to a usual holding of 18,000 bikes. Other smaller warehouses were completely empty with the next two or three shipments already fully pre-sold.

They’re using different allocation systems, but one way or another, every wholesaler is rationing bikes and those bikes that land are coming in and going straight out again without even leaving the loading dock.

FREIGHT RATES AND DELAYS ARE BOTH RAPIDLY INCREASING

Most bikes come into Australia in 40-foot “high cube” shipping containers. The shipping cost per container has gone ballistic. Depending upon which wholesaler I spoke to and their particular contract situation, typical increases were in the 300% to 400% range, from say $1,200 normally to say $4,800 now.

This should drop off a little after the peak summer season, but there are also major disruptions being caused by waterfront disputes, COVID-19-related fumigation issues, the escalating trade war with China aggravating a backlog of empty containers waiting to be returned to China and other issues.

So next time you hear one of your suppliers talking about freight issues and delays, they’re not making it up!

FACTORIES CAN’T KEEP UP WITH DEMAND

Shimano has been talked about the most, being by far the largest component manufacturer in the world and multiple bike brands have told me that they’re having to place orders for Shimano components up to 400 days in advance. That’s over 13 months!

But it’s not just Shimano. Apparently, Velo saddles, who are the market leader for saddles and mainly manufacture for many other brands, are quoting 480 day lead times. That’s over 15 months. In other words, order now, get delivery in March or April 2022.

Given that Shimano is so far behind, some bike brands are choosing to spec’ components from second or third-tier manufacturers, so that they can minimize delays. But because these companies are so much smaller, just a few percentage points of “Shimano overflow” on top of other orders is seeing their lead times blowing out too.

Most of the bike wholesalers I’ve spoken to have already had to finalize their 2022 model year orders (mainly for production in the second half of 2021) and some are already having to commit to early 2022 production. They’re being told that there will be no opportunity to increase orders later, so they’re having to make and live by very long-range forward estimates.

It’s not just increased demand that’s causing problems for the factories. Bikes have complex supply chains with as many as 50 different component lines on each spec’ sheet, defining components that might come from several different countries before the final bike is assembled, say in China or Taiwan.

If any one of these components is not available on time, then the bike won’t be built. So production is only as strong as the weakest link in the chain.

When you visit bike factories in China or Taiwan you notice large, quite basic-looking, multi-story apartment buildings, often on the factory site itself or nearby. These are home to “guest workers” who in the case of Taiwan mainly come from lower-wage countries such as Indonesia, the Philippines, Thailand and Vietnam. In China they often come from poorer, inland provinces.

Reports estimate that there are usually between 700,000 and 800,000 guest workers living in Taiwan alone. COVID-19 related travel restrictions have caused multiple logistical problems with guest workers that are leading to labor shortages and disruptions.

Another consequence of short supply, is that you can expect bike prices to rise. In fact price increases have already been announced by some suppliers.

Consumer Behavior

Ultimately the shortage of bikes we’re currently seeing is due to a surge in demand. This increased demand can be traced to two main groups: Firstly, existing cyclists upgrading their equipment. Secondly, newcomers to our market.

A large proportion of those newcomers may well throw their new bikes into the back of their shed or storage unit once life returns to normal. But many of them will have enjoyed their unexpected cycling experience and want to keep going.

As every dealer knows, regular active cyclists at the very least wear things out and need parts and servicing. But many of them also decide to upgrade after a year or so, causing ongoing demand for new bikes.

In the case of these thousands of covid-induced new cyclists, those subsequent bike upgrade sales will be new demand that would not otherwise have happened, but that will continue the ripple effect of 2020 well into 2021 and even beyond.