COVID-19 first appeared in Wuhan China in December 2019 – causing disruptions to trade which linger today. Besides the direct impacts of city shutdowns and quarantines which have impacted Chinese worker availability, the ongoing pandemic has affected everything from; the availability and prices of shipping containers; cardboard; and manufacturing capacity which shifted to essential PPE and pandemic directed supplies.

Phase 1: Shutdowns. The initial response to COVID from the Chinese government was to halt the movement of people across China. Coming on the heels of Chinese New Year, the lockdown prevented workers from returning to factories – delaying toy orders for months. As workers did return, the world’s focus had shifted from the supply of inexpensive consumer products to protective personal equipment (PPE) such as face masks, shields and ventilators.

Phase 2: Supply comes back online. Workers returned, and factories began to re-open in late spring 2019. We saw supply of consumer products and toys start to flow again as backorders were fulfilled and consumer demand surged due to the CAREs act passage and the fiscal stimulus pumped into households. While demand was uneven across the sectors, toys flourished in the 3rd quarter and ended +16% ahead for the year according to NPD Group which tracks point of sale at retail.

Phase 3: Everything has become dearer. The influx of orders and shipments from China upset the basic economics because of surging demand for raw materials, factory output, ships, shipping containers and cardboard. Shipping container demand from the far east, compounded with longer shipping transit times and dock unloading has tied up containers in the US – resulting in double digit price increases. Containers which used to cost in the low thousands were commanding fees up to $10k if they could even be found. Additionally, the surge in ecommerce deliveries has driven shortages in cardboard boxes.

According to the Washington Post “Box demand typically peaks in September, then tapers off through the end of the year as merchandise arrives in stores. But this year, between June and October, box shipments met 34 billion square feet – an industry record – each month. Demand swelled as retailers and shoppers alike adapted to the pandemic…”

Phase 4: Return of phase 1? China is again preparing for Chinese New Year. Due to renewed COVID-19, the Chinese government had discouraged workers from returning home for the long holiday. However, many workers are still going home. Factories are closing earlier as workers are leaving to face quarantines in their hometowns and will start later as they will be forced to quarantine on their return to factories. The US looks likely to pass another fiscal stimulus and the slower roll-out of vaccines have kept families and especially kids home. Demand for toys promises to continue to provide lockdown distractions – while supply constricts.