How Supply Chain Issues Have Affected The South African Bike Industry
Bud, where’s my bike?
An article by Dino Lloyd on the supply chain nightmare faced by the bike industry and how it impacts on South African riders.
March 2020 kicked off a tailspin no one could really have imagined. As the first Covid pandemic lockdown announcements came through, most people can recall where they were and what they were doing at the time. We were, or are, living through a significant moment in history.
I’d managed to pull in a last-minute media project for a bike brand and various editorial at one of the world’s untamed events, having arrived in Cape Town for the Cape Epic. Hours later the cancellation announcement came through from event CEO, Kevin Vermaak. Personally, the news came with a twisted sense of irony. My initial project for Cape Epic was working media alongside an Italian team contesting for the overall win, podium at least. This was canceled barely two weeks before the event as Italy was struggling with a near healthcare collapse. Still, such scenes were far from the minds of Saffas. Until they weren’t, that is until we found ourselves going into various stages of hard lockdowns and border closures. A spiraling surreal and distorted cacophony of ‘family’ meetings.
Arriving back in Johannesburg a week later (Cape Town is always difficult to leave) South Africa was just going into its hard lockdown. A lofty level 5 nogal. The initial response was apprehensive as in typical Saffa fashion, cycling wholesalers, retailers and events went into survival mode. Trade was locked down and along with that cash flow as stock sat. Abroad, the general consensus among manufacturing was a wait and see with the view that once restrictions were lifted the market demand would be decreased. Consequently, a significant percentage of factory operations were either mothballed or repurposed. Subsequently, brands forecast a downturn in product volumes.
Of course, as we now know, once restrictions lifted, demand didn’t just return to normal, it soared beyond expectations. Bikes cleared faster than sales could maintain, for months stock that stood gathering dust, cleared in a matter of weeks. People felt a renewed sense of freedom with the lifting of restrictions, and cycling presents the best discovery and connectedness of that. Ironic how we lost sight of such basic requirements in human nature. All it took was an apocalypse now.
As people dusted off their old 26rs and joined kids, friends and family on rides, the demand started to surge more. People needed new bikes, bikes for the kids. Tyres were worn, chains broken, brakes needed replacing. There were new people by the millions taking to cycling around the world.
Manufacturing is heavily based in the East, even manufacturers in other parts of the world rely on China and the greater Asia region for raw material supply. In approximate figures, some operations had mothballed 20% of previous production operations. The market demand ratio has surged anything between 20-50% over and above those numbers. Leaving a shortfall of 40-70% in the global supply chain. Exact figures are difficult to pinpoint as it depends on who you speak to and which market areas. Youth, entry and mid-range products are the most affected.
Whilst manufacturing slowly stabilizes operations, some brands are pushing ahead with re-shoring and up-shoring manufacturing in Europe, India and other Asian nations. Portugal, Italy, Spain, Holland and Spain, in particular, are seeing multimillion Euro investment into factories. These are long-term projects to meet supply demand. Alongside these factors is a consolidation of industries and brand, one of the more significant being the buyout of Dorell by PON.
Today, supply-demand is still constrained as shipping is severely constrained, some areas report a severe shortage of containers. One logistics consultant in shipping cited harbour bottlenecks as another cause of delay, in particular, South Africa with a near defunct rail network. Just drive out of Durban to see the number of trucks taking up three lanes. In the US, harbours face increasingly constrained container shortages. Similarly sourcing raw materials such as alloy are also under pressure and in competition with other industries.
All of these factors drive increasing costs, an average container fee in the US has jumped from _+ $3000 to approximately $20 000 per container. Locally one retailer and wholesaler confided that shipping costs per unit (bike) went from R80 to anything between R380 and R500 per unit. These are significant cost percentages to absorb, even partially. Compounding this is competition among other demand industries, all of whom utilise the same logistics infrastructure. Fortunately, given the growth of cycling, this portends a positive boost in the long term.
Despite consensus that all the above has undoubtedly caused an increase in costs in the end product, there is also a cautious belief the supply chain should level out in 2023 – 2024 as demand will naturally downturn in line with scaled-up production and supply. The cycling industry like cycling itself will continue to contribute to a healthier and better living environment. More people on bikes is better for everyone.
So while your LBS or online retailer may not have the exact parts or a shiny new discounted bike immediately available. Patience is a virtue, even though they’re busy and business looks good. In all likelihood, they are in a constant game of chess between supply access, stock, margin shrinkage and paying staff. For some, the supply issues have meant scaling down or closing doors.
Conversations with a number of South African brands, manufacturers, wholesalers and retailers reflects the same sentiment, with some unique factors. For example, much of our market is tied to events (as mentioned by Andrew McLean, CycleLab) we have one of the largest event calendars in the world. And even though we’re considered an outlier market compared to other regions, SA does have a relatively unique makeup in that there is a cottage industry of innovative local brands, manufacturers and global subsidiaries.
Take a look at Pyga Bikes, cSixx, Titan Racing, Signal Bikes, South Industries, Mercer etc, these are just some examples of local industry. Additionally, SA is home to subsidiaries and distributors of the top tier bike brands such as Specialized, Trek, Scott, Giant, Cannondale and Merida. A number of those mentioned above responded to a few questions.
Andrew McLean of CycleLab
Did CycleLab experience a demand surge?
Yes, unbelievable upsurge, particulary in newbies which is exciting. Gyms were closed social distancing was important and I think people realigned what was important to them. Obviously no travelling was taking place so people had those funds available. Health was a lot more important to them and cycling was one of the big beneficiaries of this.
What are the positives and negatives from that?
Lots of excited customers as cycling stores we were (are) able to change lives, make lots of new friends helping them ride better, safer, further and more often. The downside is that there were and still are some serious stock shortages. For many many years in my life we’ve had more stock than customers, now we have more customers than stock, in particular in certain price points.
What have been some of the main challenges?
The challenges have really been around stock as well as shipping cost increasing astronomically, and it looks like they’re (shipping costs) are going to stay there for some time to come. Delivery dates were pushed out with lots of uncertainty. Then also competing against sports like golf and running. Golf absolutely boomed, maybe even more so than cycling. Obviously, social distancing is great in golf, especially if I’m playing.
What is the effect on costs through the line?
Ja, undoubtedly costs are up and this could continue for long – some say even two years.
What is your expectation/forecast as to stabilisation?
My expectation is difficult to say, it’s not a science. It certainly is already starting to improve, but some are saying this backlog, especially with the shipping and containers out of sync around the world could last as long as another two or three years. We hope not, but as said it is starting to improve.
Any other insights for our readers?
Cycling is certainly booming, ebikes in particular. And this despite all the challenges mentioned. We certainly are competing against sports like golf and running. The South African market is very much an event-based market and for the last two years we’ve had very few events and we don’t have a commuter market. So without events and no commuter market, you would have thought sales should be down. Yet despite this, we had a bumper month-on-month trade. Events are coming back on track so I’m expecting an even bigger upsurge, as I’ve said though, stock is still a challenge and even with improvement, I’m expecting it still poses a challenge for possibly a year to eighteen months.
Alex Mancini of cSixx components
Did cSixx experience a demand surge?
Yes, this surprised us as I’m sure everyone else in the industry. Fortunately for we were able to switch on extra production relatively quickly and due to us manufacturing locally we could ship to customers the next day.
The support from South Africans has been incredible, I think the buy local movement has grown considerably during the pandemic and hopefully gains traction.
What are the positives and negatives from that?
We are incredibly lucky to experience this growth when so many were negatively affected by the pandemic.
We were fortunate enough to grow our team and now have an incredible group of riders/engineers that can really start pushing the development of locally produced product.
What have been some of the main challenges?
Our biggest challenge has been supply. We still had 3 product lines supplied from the East and we lost two of those due to ridiculous cost increases and lead times. This has worked in our favour as it pushed us to accelerate our development of in-house manufacture for these product lines and we’re very close to launching them. Raw material supply has also affected us, we have been very close to running out of aluminium on a couple occasions and that would be truly disastrous for us. We’ve taken steps to limit the risk in this moving forward.
What is the effect on costs through the line?
The biggest issue we have, that is totally out of our control, is the Aluminium price surge and supply. We use aluminium for everything from the parts themselves, the moulds for carbon parts and the jigging in the CNC machines. We have tried to mitigate this as much as possible by bringing other processes in-house such as Anodising and Laser etching to absorb the price increase as much as possible.
Tell us about your expectation/forecast as to stabilisation?
As with most market fluctuations, there should be a counter-stabilisation, not as big, but still noticeable.
General viewpoint/insight…
Overall it’s great to see more people starting to cycle and others getting into the sport more seriously.
This will not only do great things for the industry but also health and the environment!
Richard Crouse of Pyga
Did Pyga experience a demand surge?
There was a dramatic uptick in demand for bicycles across the board. The global number touted at the time was about 4 times. Certainly riding bikes ticked all the boxes during lockdown and the bug seemed to bite quite hard.
What are the positives and negatives from that?
The upside of any increase in demand is increased revenue. The major downside is that the global supply chain basically broke as a result of the increased demand. Lead times went from 30 days to over 2 and a 1/2 years in some instances. Pricing also rose dramatically, up to 50% increases have been implemented. As a small boutique player, cash flow is always difficult, thus with the stretched lead times, planning has become almost impossible. Different components come from different areas around the world with vastly different lead times.
What have been some of Pyga’s main challenges?
All of the above, however due to the fact that we are a highly niched boutique brand, the market has embraced our top end offering – the MOBU, – which has helped keep our heads above water.
The effect on costs through the line?
Prices are continually increasing as result of all of these pressures, this is an unfortunate consequence of the supply side pressure we are experiencing.
Your expectation/forecast as to stabilisation?
There is no current end in sight, however there are noises coming out of the international market that a supply-side correction is coming. Production capacity has been increased to meet demand, however, there is as yet no concrete timeline. We have also received notice of additional price increases.
General viewpoint/insight.
The cycling industry is currently extremely buoyant. Consumers in the different market segments are seeking vastly different value propositions. Fortunately for us, the discerning customers seem to have a desire as well as the means to afford unique bespoke solutions. We have embraced South Industries’s locally produced wheelsets and enhanced the local content proposition which seems to have struck a chord. It is currently anybody’s guess as to when the dire shortage situation will subside, however in the meantime, we have been incredibly busy with the design and sorting of three exciting new platforms that we will be manufacturing in-house in our Pietermaritzburg Factory. One of which is our first E-Bike which has proved to be a game-changer segment for the industry.
Greg Hall of Trek South Africa
Did Trek experience a demand surge?
Yes, our business has felt the positive impact of the now deemed “Bike Boom”. We saw 0 sales in April 2020 and then when lockdown lifted South African’s demand for all things outdoor skyrocketed. This was most felt in the Sub 40K market for bikes which indicates lots of new cyclists entering the market.
What are the positives and negatives from that?
Positives – more people riding bikes, more feet through South African businesses, new customers and markets popping up and market share growth for the brand. Negatives – Missed opportunities to get even more people riding, long lead times from all suppliers leaving customers in the dark have turned to Trek for a solution.
What have been some of the main challenges?
Manufacturing backlog from the biggest component brands in the market. Shipping costs and delays out of the east as the global demand for consumable goods grew in the double digits overnight. Freight partners choosing profit over relationship and loyalties. Container shortages and slow turnarounds from larger continents (EU/US) delayed returns of containers. Local suppliers going dark – No ETA’s on product drops to support product in country.
The effect on costs through the line?
We did see the rising cost in the supply chains globally, largely from shipping and 3rd party manufacturers. As Trek, we tried our best not to pass this down any further to the end consumer and held our pricing.
Your expectation/forecast as to stabilization?
The only thing certain about any boom in demand is – it ends. We predict that the Sub 40K market will continue to boom through this year. The higher-end items (excluding E-bikes) will stabilize by mid-2022.
General viewpoint/insight.
There is a lack of knowledge of the number of businesses involved in the cycling industry. Consumers often come to Trek looking for a solution to a 3rd Party Brands warranty. IBD’s switched on very quickly and operated superb businesses, providing a high level of hospitality in light of a very difficult business environment.
Joggie Prinsloo of Scott Sports
Did Scott experience a demand surge?
Absolutely. Especially newcomers to the sport as well as the fact that this became a more family-focused sport.
What are the positives and negatives from that?
Supply on demand is for sure a challenge as well as securing consistency for our dealers. The positive is that we are selling and have interest in every segment of our range. Another positive is the demand in aftermarket accessories, clothing, shoes & helmets. This has also shifted our focus to the complete Scott range offering. The current situation has also forced us to increase our focus on strategic planning & communication to make sure our dealers have stock to sell and the consumer demand is fulfilled, as best as is possible. We have already finished Scott 2023 & Scott 2024 planning.
What have been some of the main challenges? ie: manufacturing backlog, shipping, competing with larger brands/market etc
The challenging part at this moment happens on an OEM level where suppliers can not supply parts in time (due to material shortages) which means the factories struggle to complete production. For sure shipping & customs clearance also adds to delays.
Tell us about the effect on costs through the line?
Unfortunately because of such a big demand factories are forced to prioritize and this adds cost on shipping and labour. This will for sure have an effect on pricing, but it is a priority for us to make sure our consumers get the best possible offering under circumstances. We will prioritize negotiations and see how we can absorb as much as possible.
Your expectation/forecast as to stabilisation?
Although lead times are still packed with delays, our planning and forecasting helps to close these gaps as factories and manufacturers recover. It’s all about planning – now more than ever.
Robbie Luis of Titan Racing
“So this is a subject which I could almost write a book about given there has been so many direct effects from Covid onto the bike industry. We certainly did experience a surge in demand. I would go so far as to say the market exploded. The industry globally experienced unprecedented demand. Never had the cycling industry had such a surge across all ranges. The industry insight is that the demand for bikes increased roughly 350% from 2020 to 2022. Now you can imagine this is why no factory has been able to keep up.
At this time, most brands are still experiencing very long lead times and again it’s all affected by various challengers – unprecedented demand, raw materials, shipping and freight issues, continued spikes in Covid resulting in lockdowns and reduced capacities…
Positives – well certainly an increase in Sales is never a bad thing and I would say the majority of the industry have traded well even under these difficult supply circumstances. Retailers were able to clear out older stock and in general the demand has given new life to the industry. While it’s not expected to last like any boom, there is a strong belief the industry can retain around 20% of the “new customers” to the bike industry. Its also given opportunity to lesser known brands to step up and take some market share, show their products to the consumers and it’s an ideal time for new products to carve out market share for themselves.
Negatives – Not being able to supply and take advantage of the demand is frustrating. The lead times make it very difficult to plan and predict and the risks are very high should you go too long without a supply of key bikes. The news also brought many new players trying to “jump on the bandwagon” and that can have an adverse effect on the market once this boom calms down. It could also see a lot of cyclists with products which is then left without backup as these “fly by nights” disappear.
The cost is one of the big negatives and this is a concern for all. The FOB or “raw cost” of the bike has increased dramatically, especially on the lower end bikes and this is affected by raw material increases, freight increases and profit-taking. We have to remember the bike industry is now fighting against all others to secure the supply of raw materials needed to produce all these orders and that’s proving very tough and it comes at a great increase in cost which is being passed on. The same with the shipping. Securing containers and shipping routes during this time has been very difficult and very expensive….its down to economics – supply and demand.
Due to the cost of freight being so expensive, we have seen the more “supermarket” type of bikes becoming available again on “normal” lead times due to massive cancellations for the worlds largest markets which consume these bikes but for the sport and high-end bikes that we play in, personally I don’t see this situation improving or returning to normality until the 2nd half of 2023 or first quarter of 2024. You will see an improvement run of stock in the 2nd half of this year and that should then be the start of stores having decent ranges of stock available again but the impact will definitely be here for another 18-24 months unless there is a massive drop in demand in the northern hemisphere this coming summer. Consumers have to remember that South Africa is a very small market in global terms and we don’t have the buying power to stand “first in line” and so it’s been tough to secure bikes, to secure parts and productions and then get them to market in SA.
In closing, we are very excited and optimistic for the future. Covid has certainly brought many more people back to cycling and new to cycling and we truly believe that many of them will continue to ride and enjoy the lifestyle that cycling brings. In a world where health is now the new currency, cycling is definitely something that can bring joy, excitement, fun and benefit your health, and its great for the whole family.“
Bobby Behan of Specialized
Did Specialized experience a demand surge?
Yes, we certainly did experience a surge in demand, more people riding bicycles, seeing families outdoors in nature. The explosion was very evident immediately after the hard lockdown. I never saw queues on trails like that before; it was really cool. The vibe between riders in that period especially was special. People just wanted to be outdoors.
What are the positives and negatives from that?
Hard lockdown created so much uncertainty. No one could honestly predict what the outcome was going to be, at this point there were so many unknowns around COVID and a level of fear amongst certain people. Obviously, there was concern on our side to see retailers forced to close their doors indefinitely. In the early period of COVID, because the supply chain at this point already had inventory in the pipeline, we could meet demand. The supply chain challenges really became a reality in July 2021, over one year later. Obviously, it is great to see the demand, but it is not nice not being able to help customers.
What have been some of the main challenges?
I don’t think there is one specific reason or multitude thereof. The supply chain headwinds are like a perfect storm, all attributing factors culminating at once. Visualize a bicycle having 10 various vendors as an example. Each vendor needs to source raw materials and produce a certain product. These products come together to be assembled and packaged, then moved into the supply process meaning customs, ports, ships and shipyards. If COVID impacts a certain number of points in this chain of events, this obviously leads to turbulence, specifically backlog. Heightened demand exacerbates this.
The effect on costs through the line?
To date there has been about a 10% increase, partly attributed to currency devaluation. The increase certainly is not in parallel to the shipping cost surge.
Your expectation/forecast as to stabilisation?
It is difficult to predict demand trends, which obviously is a central driver. The situation is going to gradually improve on our side, month-on-month, with vendors exceeding record capacities in terms of production. With all of this said, if the COVID-19 situation worsens, which I highly doubt, forcing factories to close or reduce shifts, the situation will worsen. Once again this is super hard to predict.
General viewpoint/insight.
I am, by nature, an optimist. I believe that the worst is behind us and that things are going to gradually improve. In conjunction I feel that with challenge comes learnings; the challenges these past two years have presented to the world has forced the world to adapt and improve given that the playing field has changed.
| ARTICLE: Dino Lloyd | IMAGES: Pexel |
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