Price Increase in An All-Round Way in Bicycle Industry Chain
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Price Increase in An All-Round Way in Bicycle Industry Chain

The market survey of the bicycle industry chain found that since the outbreak of the epidemic in 2020, the average price of upstream raw materials has increased by about 50%.
Published: Jun 01, 2022
Price Increase in An All-Round Way in Bicycle Industry Chain
The interference of the epidemic and the unresolved Russian-Ukrainian war caused the situations of pushing up international raw material prices and rising production costs in the bicycle industry chain, which even affected the gross profit margins of many companies in the first quarter. Including spare parts factories, OEMs and bicycle foundries, all of them have recently increased their prices in an all-round way, and some companies have adopted a monthly rolling adjustment of quotations.

The market survey of the bicycle industry chain found that since the outbreak of the epidemic in 2020, the average price of upstream raw materials has increased by about 50%. Since May 2022, the overall increase has been as high as 63%, and the aluminum usage of a bicycle accounts for about 30-40% of the entire bicycle! As for bicycle components, the average increase is about 20% to 30% according to different grades; the average increase in the export price of complete vehicles is about 100% to 20%.

Taiwan's bicycle Giant Group and Merida Group both stated that since the global epidemic broke out for more than two years, "the most important thing in the bicycle industry chain is orders", but they have to face the global bicycle market. Due to the shortage of parts caused by the interference, the current average delivery rate of orders is only about 80%; this year, we have to face various business challenges brought about by the Ukraine-Russia war, inflation, rising raw materials, shortage of materials, poor logistics and unstable global epidemic.

Taking the world's leading bicycle manufacturer, the Giant Group as an example, the consolidated revenue in the first quarter reached 22.26 billion yuan, an increase of 8% year-on-year, setting a record high for a single quarter. Under the unfavorable factors such as the increase in the proportion, the gross profit margin performance in the first quarter was rarely affected. Although the huge Q1 gross profit margin reached 22.91%, it was still 1.5 percentage points lower than last year's Q1's 24.41%. Giant Group admitted frankly that the rising cost of raw materials and labor has indeed affected the gross profit margin of Q1. Therefore, Giant Group will also increase the selling price in a timely and moderate manner to reflect the production cost.

Fortunately, the global bicycle industry is still in a "seller's market" with insufficient inventory levels and lack of bicycles in various countries' distribution channels. Large bicycle manufacturers such as Giant Group and Merida Group, after cooperating with component manufacturers to increase prices recently, are still expected to smoothly pass it on to downstream customers.

Merida Group stated that the shortage of materials in the industry chain and the rise of raw materials are indisputable facts. Since everything is rising, bicycle component manufacturers have recently shouted that "As long as the price increase is reasonable, Merida Group can accept it"! Merida Group emphasized that the bicycle industry is indeed a seller's market at present. In addition, Merida Group specializes in exporting markets such as high-priced bicycles and electric bicycles in Europe, the United States, and China.

In addition, the bicycle foundry-AXMAN Group stated that the quotation basis of AXMAN Group is the cost-plus quotation, and the increase in raw materials is absorbed by the customers themselves. However, since the outbreak of the epidemic, international raw materials have risen sharply, component manufacturers have followed the price hikes to reflect costs, and the export prices of the most downstream OEMs have also risen by 10-20%. Seeing that production costs continue to rise, AXMAN Group is targeting major customers with large order, agreed to adopt a rolling adjustment quotation, and adjust the unit price of the products to be shipped in the next month every month to ensure the gross profit rate.

Taiwan's bicycle industry is facing the challenge of one strike and three strikes at this time! The good news is that the post-epidemic ushered in the largest wave of orders in history. OEMs and parts factories are full of orders, and this year’s revenue and profits will continue to hit new highs. However, behind the full orders, we have to face three bad balls, including the price of raw materials has soared, the production of overseas factories in the supply chain is not smooth, the shortage of materials has worsened, and the delay in shipments caused by poor shipping and lack of containers has caused the warehouses of finished bicycles, semi-finished products and raw materials to fill up, and inventories soar to new highs.

Bicycle manufacturers said that in the third quarter of the supply chain, some factories in Vietnam were forced to suspend production or reduce production. In addition, the mainland has adopted a power curtailment policy since the fourth quarter. Kunshan is the base of Taiwanese bicycle industry, including OEMs, tire factories, and parts. The factories are all set up in Kunshan. The power cut and production cuts and the soaring raw material prices may erode the gross profit margin; and the delay in shipments caused by lack of materials and cabinets is a problem that bicycle manufacturers will have to face until 2022.

After the epidemic, the bicycle industry has benefited from the encouragement of people in Europe and the United States to replace public transportation with bicycles, and the popularity of leisure sports has driven the sales of high-end bicycles and electric bicycles. For brands and parts factories, revenue in the first three quarters of this year and profits in the first half of the year both set new highs for the same period.

From the second quarter of last year to the third quarter of this year, the bicycle industry has ushered in a once-in-a-century prosperity for six quarters. Due to the hot sale of bicycles, the current inventory level has generally dropped to a record low in Europe and the United States, and even in Asia; Since entering the fourth quarter, OEMs and parts factories with full orders are also facing various problems such as shortage of materials, shortage of cabinets, soaring raw material prices, and unsmooth production in the supply chain.

The parts factory said that a bicycle has nearly 20 supply chains for key components alone, and Taiwan's bicycle industry is highly reliant on large Japanese parts manufacturers. When the Kunshan plant stopped production irregularly due to power cuts in the Mainland China, the shortage of materials intensified, and the supply of materials was extended from six months to 22 months. The lack of materials caused the semi-finished products to fill the warehouses of the OEMs, and even rented warehouses to cope with them; Seeing that the price of raw materials has soared, the factory is full of orders, and the warehouse is also full of materials. The bicycle industry not only has to face the test of lack of materials and cabinets, but also has to face the challenge of indeterminate electricity deadlines and affecting production capacity in mainland factories! Taking Kunshan City as an example, since the end of September, power outage messages have been issued irregularly, and the floating electricity price has been adjusted, and the electricity fee has increased by nearly 20%.

The industry said that the rise in electricity prices and raw material prices can be appropriately passed on to the client, but the lack of electricity and the suspension of production will inevitably affect the number of working days and the unsmooth supply of upstream and downstream, and the reduction in production capacity may prolong the delivery time again and again! The listed parts factory set up in the Mainland China suffered a four-day power outage without warning at the end of September, resulting in a lower-than-expected revenue performance in September. Fortunately, the demand in the Mainland China market has slowed down. In addition, the European and American markets continue to flourish. It is expected that the overall operation of the bicycle industry will continue to hit a new high this year.

Published by Jun 01, 2022 Source :Commercial Times

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