Planning to buy a new bike next year? Well, bad news, the way current trends are going, you might have to save a bit longer. The world is in a pretty extraordinary state at the moment and that probably means the cash you've been saving won't go as far as it should. Read on to find out how everything from a coup in Guinea to congestion in ports is going to affect the price of bikes.
1. Labour Costs in Taiwan are Continuing to Increase
Labour costs for bike construction are set to rise as Taiwan has announced a minimum wage increase of 5.21%. The minimum wage in Taiwan has increased annually for the past six years but this is an especially large hike, the biggest in the past 15 years. The minimum wage will jump from NT$24,000 a month to NT$25,250 ($899.42USD), while hourly pay is set to grow from NT$160 up to NT$168 ($5.98USD), with the increases set to take effect starting Jan. 1, 2022. Around 2.1 million households are expected to benefit from the policy, taiwannews.com reports
It's worth noting that most, if not all, workers in a bike factory probably won't be on minimum wage, but as the wage floor rises there will be pressure to maintain wage competitiveness. We're definitely glad to hear that the workers that build our bikes are being paid more fairly but it does mean that cost is almost certainly going to be passed along to the end customer of bikes. Of course, labour is a small part of the total cost of a bike but that price has to be reflected somewhere.
2. Raw material costs are increasing
So the labour to build the bikes is costing more but so is the price of the materials to make them too, specifically aluminium. The above chart shows the cost of aluminium over the past 12 months rising up to a 13 year high - you have to go back to the 2008 financial crash to find the last time it cost as much.
So why is it so high? Well, the price is being hammered on both ends. On the supply side, the unrest in Guinea
, one of the world's largest producers of bauxite
, as well as disruption to refineries in Jamaica and Brazil have made it harder to source the metal. On top of this, China, currently responsible for 57% of the global production of the metal, is slowing down its production growth
following stricter environmental policies. There is also increasing demand as aluminium is used in electric vehicles and renewable energy, two rapidly growing sectors at the moment, which further elevates the price.
It's not just aluminium prices that are affected. Cardboard prices hit a record high in 2021 after skyrocketing 1000 per cent in the pandemic in what has been called the 'Amazon Effect' and there are similar stories for steel
, magnesium and more. Bike brands face consumer and retailer pressure to keep prices stable, but they will only swallow so many cost increases. If the raw materials price spikes continue, we expect that they will adjust the bottom line of their bikes too.
3. Shipping Rates are Still High
We've spoken fairly extensively about how rising shipping costs are affecting the industry at the moment. Everything from the grounding of the EverGiven
to a shortage of containers have led to record prices for ocean freight and brands have been open about how that is affecting the price of their bikes
. We've even heard that brands have had to start hiring warehouses in the Far East to hold their stock until a shipping slot is available.
Thankfully, it does seem like the cost of bulk shipping is starting to come down. Bloomberg reports
that on the Shanghai-to-Los Angeles trade route, the rate for a 40-foot container fell by almost $1,000 last week to $11,173, an 8.2% drop from the prior week and the steepest weekly fall since March 2020. However, the price is still magnitudes higher than it has been previously as the above graph from the Financial Times
However, we're probably not out of the woods yet and it's worth saying that there's still a lot of uncertainty around these numbers. It could be that prices only slumped temporarily due to a fall in productivity over China's Golden Week holiday and there are also fears that Black Friday / Holiday demand toward the end of the year could spark another increase in costs.
4. Lead Times are Still Huge
One of the big talking points in the bike industry this year has been lead times and you probably won't be surprised to learn that they are still gargantuan. Noel Buckley, Knolly CEO and Head Engineer, said in a recent statement
, "current lead times in the bike industry are over 600 days for most mainstream components. Raw materials purchasing for many of our OEM suppliers and specialty manufacturers is over 350-400 days which further complicates the situation. It is common in today’s climate that purchase orders have to be placed up to 24 months in advance with all vendors; Knolly's purchasing team has us well-positioned for 2022 and 2023. We've begun placing 2024 orders, which frankly seems insane, but that’s the game that we're all playing now."
If a brand is waiting almost two years to receive a product, that means it has a lot of cash tied up in inventory - cash that could be used to get more sales or to price its products more competitively. Some brands are also reportedly double and triple sourcing to secure as much inventory as possible or to insure against a vendor who can't actually ship on time. If a brand ties ots money up buying stock for a long time in the future, it has to find money from elsewhere to continue funding R&D, marketing and more. One way to do that is to rack up prices on the stock it currently has.
5. There's a Lot of Pent Up Demand
This one is pretty self-explanatory. A lot of people haven't been able to get what they want this year. If people are still buying, prices will keep going up.