Hot Wheels, Polly Pocket, Masters of the Universe, and Barbie. Such iconic toys are all part of the Mattel brand.
And its toy brands that are finding themselves in a particularly precarious position – more than 85% of toys that are sold in the US are made abroad, according to the American Toy Association.
This is leaving toy brands exposed to the worryingly still waters of the world’s oceans as port congestion and escalating freight costs are causing supply chain pains.
Many businesses have been warning that their toys may not arrive in time for the holiday season. Yet Mattel are confident that they can meet their high demand for its products.
And they are confident because the company shifted its production operations closer to home; they moved their offshore to nearshore.
“We leveraged our scale,” said Ynon Kreiz, CEO of Mattel, “our diverse manufacturing footprint to optimize nearshoring of production,” adding that “we are ready for a strong holiday season.”
On top of their moving closer to home strategy, they also locked in ocean freight capacity well in advance, something which many other companies have begun to prioritize.
When it comes to the rate of ocean freights, they have exploded by 385% since last year. While at the same time, thousands of containers are laying idle at ports – many for more than a month.
This jam-packed environment has led companies to seek out alternatives in shipping products. What Mattel did was secure access to a broader supply of ports and shipping lanes.
Competitor Hasbro has followed down the same path, activating new ports in reply to the company logging $100 million in unfulfilled orders during the third quarter.
These congestion issues have arrived as toymakers are witnessing a rise in demand for their products as we approach the holiday season.
Toy sales rose by 11% in the third quarter compared to the same period last year. In turn, this rising tide of demand has encouraged companies to lift the prices of products in order to offset costs.
However, even for those companies that have managed to navigate through the choppy waters of supply chain issues, they are being weighed down by higher costs as freight inflation is eating into profitability.
For example, air cargo rates from China to the US are up 42% compared to last year, with costs expected to continue to rise. However, some companies are not expecting to continue increasing their prices. “”We don’t intend to take additional price increases this year,” according to Deb Thomas, CFO of Hasbro. “So what we have built in is what is there to cover our costs.”