2 Feb, 2022
Mattel, Hasbro outplay congestion challenges; GE, Regal turn to Mexico
By Eric Oak
The Supply Chain Edge provides a curated weekly overview of Panjiva's research and insights covering global trade policy, the logistics sector and industrial supply chains and draws from global shipping and freight data.
Mattel, Hasbro outplay
Mattel Inc. has secured the rights to produce toys based on Walt Disney Co.'s princess movies and the "Frozen" franchise, with the transfer from its rival Hasbro Inc. happening in 2023. This is a win for Mattel, which had previously lost the rights. Total U.S. imports of toys boomed in the fourth quarter of 2021, up 14.6%, although some of the increase may be attributed to late shipments getting through congestion at the last minute before the holiday season. Panjiva data shows that 3.1% of fourth-quarter shipments can be associated with Disney, marking the significance of the deal. Both companies are not expected to give earnings reports until the second week of February, but Panjiva data shows that fourth-quarter imports associated with Hasbro and Mattel increased 20.4% and 22.8% year over year, respectively. An increase in imports may translate into increased sales for both firms, given demand for those goods last holiday season.
Imports associated with Jakks Pacific Inc. increased 55.8% year over year in the fourth quarter of 2021, accelerating from a 32.0% year-over-year rise in the previous quarter. Some of this success may be attributable to flexible logistics operations, with the company rerouting goods to Shanghai, away from Yantian, Guangdong Province, during COVID-19-related disruptions at the latter container terminal. CEO Stephen Berman said in an earnings call Oct. 27 that this reduced the backlog of goods "overwhelming" the floor space of factories, thus allowing production there to continue. Hasbro and Mattel also offered insights into the challenges facing them and the importance of the fourth-quarter season, with Hasbro interim CEO Richard Stoddart saying on an Oct. 26 call that the firm is "expertly managing the supply chain to ensure the shelves will be filled with Hasbro products this holiday." Mattel CEO Ynon Kreiz also outlined the firm's strategy in dealing with supply chain issues, saying in an earnings call Oct. 21 that it "closely collaborated" with its retail partners, "pulled forward finished goods production" and invested in tooling to permit "dual source manufacturing of critical product lines."
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GE, Regal show largest truck exports from Mexico
Supply chain challenges have remained persistent into 2022, with congestion forcing ships to wait outside of ports for a chance to unload, empty containers piling up on docks, and extreme lead-time environments forcing companies to rethink their supply chain strategies. One solution to reduce supply chain risk is the use of nearshoring. This is a sourcing strategy where a company's goods are produced in a country close to the intended market (in contrast to offshoring or onshoring, where goods are produced away from, or within, the target market). Panjiva analysis of official data shows that the nearshoring trend may be continuing as congestion persists. U.S. imports from North America increased 19.7% by value year over year in October and November 2021, while imports from South America increased 46.0% year over year in the same period. This was higher than the global increase in imported value in that period — 18.1% year over year — and indicates that there may be a preference for closer production.
For U.S. companies wishing to nearshore, one location that may be especially attractive is Mexico. The main mode of transport to and from Mexico is trucking, with 70.2% of exports by value bound for the U.S. thus transported in 2021. While there are still concerns about trucking availability, the scale of trucking versus ocean shipping should allow enterprises to manage their logistics more efficiently. Panjiva data also shows which companies may be taking advantage of this, including industrial conglomerate General Electric Co., or GE. The firm was at the top of the list in Mexican truck exports in the fourth quarter of 2021, moving $235.0 million in goods out of the country, an increase of 175.7% year over year. Regal Rexnord Corp., a maker of electric components and motors, also increased truck transport 12.5% year over year in the same period, to a total of $172.0 million.
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Columbus McKinnon taps Asia to reduce backlog
Columbus McKinnon Corp., a maker of industrial and factory equipment, reported a 29.8% year-over-year increase in revenues, matched with a 35.8% year-over-year increase in gross profit for the fiscal third quarter ended Dec. 31, 2021. This was supported by a large order book and a 127.2% year-over-year increase in associated imports in the same period, according to Panjiva data. Regardless of success, there were still supply chain challenges to discuss, with CEO David Wilson saying on a Jan. 27 earnings call that "electrical components, castings and motors remain difficult to source predictably." To mitigate that unpredictability, the company likely turned to known suppliers in Asia and China, increasing imports from those regions 151.7% and 271.5% year over year in the fourth calendar quarter, respectively. Further sources are being developed in Europe as well, with CFO Gregory Rustowicz saying in the same call: "I know a number of our sourcing team are in Eastern Europe, as we speak, looking at alternative sources in certain components."
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GLOBAL SUPPLY CHAIN WRAP
ZIM renews, redrafts agreement with 2M Alliance
ZIM Integrated Shipping Services Ltd. has updated its strategic cooperation agreement with the 2M shipping alliance — A.P. Møller - Mærsk A/S and MSC Mediterranean Shipping Co. SA — regarding vessel sharing and slot exchange (slots being the space on a container ship occupied by a container). The carriers are extending agreements on the Asia to East Coast U.S. and Asia to Gulf Coast U.S. routes. ZIM is ending collaboration with the alliance on the Asia to Mediterranean and the Asia to Pacific Northwest North America routes as it is launching its own service instead. The carrier has said that the changes — planned to begin in April — will help operational efficiency. U.S. seaborne imports associated with ZIM increased 10.3% year over year in the fourth quarter of 2021, and the firm is likely looking to build on that success with additional investments.
EU refers China to the WTO
The European Union has taken the first step to launching a dispute settlement case against China at the World Trade Organization, or WTO, by submitting a "request for consultations." The EU has said that China has banned Lithuanian goods and has influenced companies to stop sourcing from the country. Notably, the U.S. has asked to join the consultations as well, potentially creating a source of future trade friction between China and itself. The WTO recently issued a ruling on a case dating back to 2012, decreeing that $645 million of U.S.-imposed annual countervailing duties were illegal and not lifted in a timely enough manner, and giving China the ability to seek redress. The new complaint outlines difficulties in Lithuanian goods clearing Chinese customs due to issues such as sanitary certificates, much like other issues seen with imports to China in the past. If the consultations fail, the next step would be the institution of a dispute settlement case. While the WTO appellate body is still without a quorum, however, any appeal by the EU or China would leave the case in limbo.
(American Journal of Transportation; Inside Trade's World Trade Online)
Manufacturers running out of memory
The United States Department of Commerce has warned that inventories of chips held by U.S. manufacturers have fallen to an average of five days' worth of production. The department is concerned that this leaves U.S. manufacturers without enough of a cushion to absorb any new supply chain shocks that could arise. The chip shortage is the result of a confluence of demand and supply pressures, in tandem with a series of events such as droughts in Taiwan and the fire at a Renesas Electronics Corp. manufacturing plant in Japan. These concerns have already reached U.S. lawmakers, who included $52 billion in semiconductor subsidies in a new bill called the America COMPETES Act, but, as with the CHIPS for America Act, the funds may not be allocated or used in time to make a significant near-term difference. Investments in chip capacity take time, with an oft-cited number being about three years, which would put the first post-COVID-19 chip foundries online in early 2023.
Eric Oak is a researcher at Panjiva, a business line of S&P Global Market Intelligence, a division of S&P Global Inc. This content does not constitute investment advice, and the views and opinions expressed in this piece are those of the author and do not necessarily represent the views of S&P Global Market Intelligence.
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