As the first waves of COVID-19 hit, governments responded by imposing restrictions on social events, entertainment and hospitality, as well as travel and mobility. However before these measures could be implemented, a surge in consumer buying began, creating shortages. It started with the toilet paper. Then tinned goods, computer monitors, home gym equipment and crucially, bicycles.
Fast-forward to November and the shelves of toilet paper rolls are full. The limits on canned goods are gone and computer monitors are back in stock. Even dumbbells are back for sale on Amazon. But not bicycles. Why?
The cycling spike began in April. Millions of people were keen to maintain their physical and mental health 1 in spite of gym, pool, and sporting closures. Others saw bicycles as an alternate, safer method of travel to buses, subways, and public transport2. Whatever the reason, people wanted bikes and shops happily obliged.
April’s boom produced the largest sales month ever recorded in the cycling industry 3. A 75% increase of traditional bike, indoor bike, parts, helmets, and accessory sales, resulted in a never-before-reached $1 billion dollars in a single month. Basically, shops sold 7 months of products in 7 weeks. By early June, most were empty, waiting for new arrivals that would sell out before they arrived.
At the same time, factories in China and Taiwan were forced to temporarily close or drastically reduce their output as COVID-19 swept across Asia.
Now, it’s November and bike shops are still empty and lead times have only lengthened, well into 2021. But factories in Europe and Asia have been opened for months. Other industries that rely on Asian factories have recovered, to some extent. So what’s going on with cycling?
I spoke with an industry insider to get some answers.
It starts with a complex supply chain. An assembled bicycle, or simply a component, requires getting lots of smaller parts to the factory at the right time so it can be assembled. When a single part is late, it causes a bottleneck. And when many parts are very late, well, you get the idea.
These pieces, such as the kevlar bead that goes into a folding tire, or the fabric bonded onto a saddle, come from small companies that have operated for decades with a deep understanding of their demand. Given that there is typically very little volatility, they run their factories very lean. These companies have the capacity to cope with a 10% variation in demand, but not >40%!
Imagine the following scenario. Let's say that the kevlar bead company forecasts 10,000 units a month. Now, they are making 11,000 per month, while receiving orders for 15,0000. This difference of 3,000 units (or the difference between 10% and 40%) doesn’t seem like much, but the problem is cumulative. After 6 months, the backlog isn’t 3,000 units, it’s 20,000. That puts this company, in this scenario, two months behind and no orders will be remotely on time.
Another issue is that there is little flexibility. Many components are made in one factory only. No one else has the skills, material, and infrastructure required to effortlessly switch production. For example, when Shimano had factory shutdowns in Malaysia and Singapore at the beginning of the boom, they were unable to divert production elsewhere. The global production of entry level cranks came to a stop for a couple of months 4.
Flexibility is also hampered by the use of molds. Bespoke parts, like frames, wheels, stems, etc require them. Molds create a manufacturing capacity. There is a maximum throughput that can’t be increased by throwing more people at it. An increase in production requires more molds, which is expensive and time consuming. Furthermore, most products and their molds have a relatively short life cycle before getting replaced. If there is a new part or design coming in, let’s say, 9 months time, then any extra molds would be better used for the new product. This, however, doesn’t help supply catch up.
Finally, and this might be surprising to some, but another factor is the cycling industry’s lower margins, especially on lower priced goods. I’ve used IT as an example of an industry that has been built around speed and flexibility to market 5. Here, their smaller sized products and higher margins allows the use of air freight and couriers if they are running behind schedule. This can save a few weeks in getting the raw materials to the secondary suppliers. And another few weeks in getting the components to the primary supplier. And even more time getting the finished product to the warehouse. But it's nearly impossible for cycling companies to do this with bicycles and still maintain a profit.
Given that most bicycles and bicycle part manufacturers must rely on ocean freight, this presents another area subject to delays 6. From port closures, to restricting the number of workers allowed to work at a dock, to seafarers refusing to work due to government's denial to allow them to repatriate, coronavirus is affecting every step. Even once the goods are in the United States, the unprecedented surge in packages has caused further shipping delays with UPS, FedEx, and the USPS7.
It’s not that every cycling company is facing all of these obstacles at once. They might only be facing one or two. Rather, it's a deluge of delays throughout the industry that are responsible for the long lead times we are facing and will continue to confront into 2021.
These lead times are frustrating. But they are beyond our control. Like other bike shops around the world, we will continue to patiently wait. Why? Because at the end of the day, we know that the wait is worth it.
The good news is that even as you read this, lots of product is on it’s way while even more is being assembled. The COVID boom’s strain on the market is forcing companies to reevaluate their systems. And as people bring home their new bikes and governments work to reopen, studies are showing that many new riders plan to keep riding their bikes in the future 8. Silver linings.