Coinslot has been reporting on the current shipping crisis and the impact it’s having on the supply of equipment in the amusements and machines sector for the past few months. If there were any doubts as to what this means to the industry, then take some time to read Phil Setter’s perspective. The Whitehouse Leisure MD wastes little time on the emotion of the problem which makes his – and many others’ experience – all the more concerning. For a lesson on how we got here, and where it could take us, settle down and listen to Setter. It’s a brutally honest account that needs a wider political audience – and some crucial government support.
Coinslot: When were you first advised of the shipping problems and how does it impact on you?
Phil Setter: Our Freight Forwarder met with me in November last year and gave me the news rates had increased to $5800 per 40’ container over the previous couple of months.
That was shocking news!
During 2020 we had a contract rate fixed at $1380/40’ and now we were facing increases of over 4 times that.
However, it’s turned out this was only the beginning with Shipping Lines now demanding between $12,000 – $13,000 currently…… 10 times what we were paying just 12 months ago.
Coinslot: Assuming it’s a case of increased costs and delays, how long will this be for?
Phil Setter: Back in November we were assured this was a temporary, demand led problem that was expected to last until Chinese New Year in January and thereafter we should see rates start to fall back to normal more manageable levels. However, that hasn’t happened and rates have steadily increased all year.
We keep thinking they cannot possibly go any higher and that some sanity will return to the market, but I’ve heard of importers agreeing to $16,000 in order to secure space over the past few weeks.
Coinslot: Is the price rise temporary, reverting back when the crisis is over, or do you fear it will be permanent?
Phil Setter: At the moment it’s the Wild West out there. I’ve been in this industry for 40 years and have never in that time seen rates go above $5000/40’ with the average probably around $2500/40’. There’s currently a colossal shortage of both shipping capacity and actual containers and it’s a global problem. As importers we’re faced with a straight forward choice, agree to these unprecedented rates or have no product to sell.
Coinslot: How does this affect your customers in the short term – for example for the current summer season?
Phil Setter: In normal times things happen slowly and we have time to plan. It is always a primary focus not to increase prices to customers and there are various ways we can manage our production to mitigate the ebbs and flows of price changes. We can switch suppliers, use different materials, there are many ways we can avoid price increases, but the freight hikes have been so severe and so dramatic in the past 6 months that we simply have no choice in the short term but to pass some of this increase on.
I checked the price on something last week that a year ago cost us $0.39 per piece in freight…now it’s costing $2.37. There’s simply no way of us being able to absorb that.
Luckily, due to slower demand throughout last year we have plenty of stock in our warehouse at the previous prices so on average, the overall impact on our prices this year isn’t too terrible.
Coinslot: How do you plan on building this problem into your importing schedule – will you import your goods in bigger quantities but less frequently?
Phil Setter: The increased costs are the result of container shortages and lack of shipping space and we’re definitely seeing a huge impact on lead times. Previously it would generally take 3 months from placing an order to receiving it but now we’re sometimes experiencing 4-6 week delays just trying to load a container in China.
It will mean us bringing forward all of our commitments for 2022 and praying rates reduce in the meantime. We would normally ship around 300 containers during December and January in time for Easter. That equates to more than $3,000,000 in additional freight costs compared to a year ago which of course has a dramatic impact on our cash-flows and forecasting.
Coinslot: This is a major blow for the supply chain, another one if ever another was needed. How can you work towards a damage limitation strategy and how can you minimise the damage for customers?
Phil Setter: The challenge here is simply the not knowing. We didn’t expect these rates to remain so high as it is and there appears to be no end in sight. With regard to prizes, we have a huge collection covering an array of price points meaning that if customers aren’t able or willing to accept price increases then they can choose a cheaper product to fit their needs.
In the end if we sold a product for 50p and now it’s 60p then that’s not the end of the world, but for the machine suppliers there’s going to be a dramatic impact on the cost of new kit. It’s a global issue, freight has increased to and from all countries so there’s no avoiding the consequences.
Coinslot: We clearly don’t want to create a panic amongst the industry, but what will this mean for operators on a practical basis?
Phil Setter: I can only speak as a supplier of prize merchandise but my guess is that customers will choose to trade down to lower price points to avoid the impact of price increases so from Whitehouse Leisure’s perspective there’s no reason to panic.
We understand the nature of this business better than anyone and will be working flat out during the next 6 months to ensure that any impact on our customers businesses will be negligible.
Whilst we certainly couldn’t have predicted these level of freight increases any more than we could have predicted Covid, things will return to normality at some point…it’s just a question of when.
Coinslot: Finally, what can you do about the problem, what can we all do about it and what can the government do?
Phil Setter: Unfortunately, other than mitigate in the ways I’ve mentioned above this is completely outside of our control. I am surprised this hasn’t made more news in the general press and Government seem very slow to appreciate the consequences this will have on inflation. So much of our consumer products are imported from the Far East and everything will be severely impacted this year.
It’s inevitable prices will be passed on to consumers across a variety of products and coupled with the expected increase in consumer demand following the recent lockdowns, an increase in inflation is I suspect, unavoidable.