Author: Chris Reese

By: Chris Reese

“It’s always something”, is the saying every year for consumer fireworks retailers. For 2020 we had to deal with COVID-19, industry shortages, and regulation changes in China that would most certainly increase prices and availability of items for 2021. There are always delays, issues with the supply chain, and constant threats to move the industry into chaos. But what transpired in 2020 set off a chain reaction that will have substantial negative implications for the industry for years to come. No doubt this will be the most challenging year in the history of the consumer firework industry and will likely alter the industry forever. Listed below are the 8 reasons why retailers and consumers should be genuinely concerned.

• Metal Cages and The Reclassification of Larger Consumer Items

In a surprise announcement last year China arbitrarily decided that any firework with a tube size of 30mm or greater will be reclassified as 1.3 professional fireworks. As a result, these items will have to be wrapped in a metal cage significantly increasing their cost. The bottom line is these items will be so expensive that they will be met with price resistance from the consumer and will most likely be phased out of production soon. Fireworks with low shot counts (large shells) offer unmatched performance in height, special effects, and break size. Those massive breaking effects that people love to see will price themselves out of the market and fade into history. Be sure to check out our October 2020 blog post to get all the specific details on how reclassification will change the product and industry forever.

• US Port Delays

As of this blog post ships full of containers are wandering in the ocean off California waiting to doc. There is a tremendous back log as the ports are short on workers due to the pandemic. Unfortunately, that shortage extends into the entire supply chain from rail and freight. What normally takes about 2 weeks to receive a container once it hits the port is now taking up to 2 months. This problem is not unique to the fireworks industry. Now more than ever consumers are shopping at Amazon, Walmart, and other big retailers online in the comfort of their homes. As retailers are seeing diminished stock, they are submitting some of the largest orders in history. With a depleted supply chain, it’s causing a traffic jam of epic proportions. Specifically, for consumer firework retailers, containers must be shipped by early April or its likely they won’t be delivered in time for the July 4^th season which is devastating because the July the 4^th season accounts for 60 to 100% of yearly gross revenues.

• Limited space on shipping vessels

Delivering your container once it hits the port is one thing, but actually getting it on the boat and shipping it to the US is growing more worrisome by the day. Shipping vessels can only set aside a small amount of space to ship hazardous materials. Since consumer demand is at an all-time high, space for any consumer goods is extremely limited. Of the limited space available for consumer fireworks TNT has a pact with the Chinese government and therefore 50% of the limited shipping space is monopolized by one company. As a result, many importers, wholesalers, and retailers are worried that the product won’t arrive until after the 4^th this year and this has created a bidding war to get companies’ orders shipped before the window of opportunity passes.

• Shortage of shipping containers

With a dramatic increase in demand from China, retailers are experiencing severe delays in transit times. Unfortunately, this means that many of the containers needed to fill orders from China are tied up in the US. The fact is there is a huge trade imbalance with China, so the containers are sitting in the US waiting to be filled with US goods to be exported. However, with little exports shipping to China, empty containers are piling up in the US. With no empty containers available in China fireworks can’t be shipped to the US.

• Short production season

With product piling up and hitting capacity in the factory warehouses due to the logistical issues stated above, factories were forced to close 10 days early this year for Chinese New Year. This means when the factories open back up in March importers/retailers will only have four weeks to get product produced and shipped in order to receive it in time. A shorter than usual production season means certain products will not be manufactured and other fireworks will have lower supply quantities. Combine that with the largest orders in consumers fireworks history because of historic inventory lows at wholesaler warehouses, Chinese factories will not be able to meet demand.

• Bidding wars

Its not a secret that China’s economic activities are somewhat scrupulous, and you can get just about anything you want if you’re willing to pay the price. With historic demand shipping has become a bidding war with various importers willing to pay as much as 200% to 300% more in shipping costs just to ensure their product finds its way onto a shipping vessel in time for the July 4^th season. As we get closer to the season there is no doubt that the war will rage on and shipping costs will only escalate.

• Value of the US Dollar

Unfortunately, the flood of economic relief and stimulus in the US had devalued the US dollar. With the pandemic still raging in the US, we have had a much more difficult recovery than China. So far in 2021 COVID-19 has had little impact on the Chinese economy. As a result, the US dollar has weakened against the Yen. Further weakening is expected moving forward driving up product costs about 10-15% over what was expected in 2020.

• Impact on the industry and consumer

As I write this article prices are rising almost weekly and supply in the US is at an all-time low while consumer demand is at an all-time high. Containers loaded with fireworks are trickling in and while the industry expects shipping volumes to increase in the upcoming weeks there is limited space available which means wholesalers/retailers/importers expect to receive only 60 to 80% of their orders. What arrives before the 4^th is still up for debate. But regardless this is going to come at an enormous cost to the consumer. Retail prices across the country should rise about 30% to as much as 100% on some products.  That means that consumers who spend $100 in fireworks every 4^th of July will probably on average get about $50 to $70 worth of fireworks that they normally purchase. Unfortunately, if supply is significantly less than projected prices may increase as much as 40% to 150%!

So, what should you do if you plan to buy fireworks this year?

Shop early: Shortages will mean that products that are normally well stocked will be in short supply and as the season gets closer prices will only continue to increase. Fireworks don’t have a shelf life so stocking up now will save you some serious cash.

Contact your retailer in May: By late April or early May your retailer will have a good grasp on what products will arrive in time for the 4^th season, the % of price increase, and what will be in short supply.

Pay in cash: Retailers won’t be motivated to offer huge discounts or special promotions this year due to the increased cost. But cash is always appreciated due to high credit and debit processing fees which means your retailer might be willing to cut you a better deal when paying with cash.

How is Xtreme Fireworks Prepared? In regard to Xtreme Fireworks we expect some minor price increases this year but we are well stocked for the upcoming season and do not expect any significant shortages on product availability.

In an upcoming blog post I will explore how this will continue to impact the consumer fireworks industry in the future. Unfortunately, there is even more turmoil ahead as more volatility is expected.

October 23, 2020
By Chris Reese

Every year the consumer fireworks market is under substantial peril. In 2019 the market was bracing for its greatest threat ever. Two of the largest consumer fireworks retailers teamed up to change the industry forever. Like a thief in the night, secret negotiations were made with the consumer protection safety commission to remove all metals in aerial fireworks. In short, removing all metals would render all consumer aerial fireworks useless and the industry would have been reduced to safe and sane fireworks like fountains and sparklers. While this may seem counterintuitive to the average consumer, the retailer giants had everything to gain and nothing to lose. Their goal, under the guise of safety, was to create an extremely profitable monopoly of the industry. With the supply chain agreements in place with Walmart locations all over the country it was a slam dunk. Thankfully at the stroke of midnight the National Fireworks Association was made aware of this hostile takeover plot and in late 2019 the industry was saved allowing it to survive another day.

In conjunction with the industry turmoil, in 2019 fireworks were also facing a 25% tariff due to the hostile trade relations with China. Fortunately, just in time for the importing season the 25% tariff was lifted and once again the industry could take a brief sigh of relief.

Fast forward to 2020 and the fireworks industry once again faces tremendous obstacles that will likely force significant changes for the foreseeable future. In 2020 the fireworks industry not only survived Covid but thrived! While this may be cause for celebration, 2021 does not look so rosy for the consumer’s wallet. The combination of factory shutdowns due to Covid 19, tragic factory accidents in China, and decimated inventory across the industry, has caused a perfect storm of a major supply chain log jam that simply cannot meet the US and European demand. To add insult to injury the Chinese government continues to force permanent closures of fireworks factories. It is no secret the Chinese government would prefer to abolish the fireworks industry altogether.

Over the last five years consumer fireworks have increased in cost on average about 5-10% year over year. However, this potentially may pale in comparison to what we see starting in 2021. The primary reasons for the price increase in the past include continued increase in demand, raw materials, labor, and shipping. There is no evidence that these price increases within the supply chain will abate anytime soon. To make matters worse the Chinese government is about to enforce a new regulation that will further increase the cost of consumer fireworks and will likely forever change their performance.

In 2021, all fireworks with tubes greater than 1.2 inches in diameter will need to be caged for shipping. In conjunction with the supply chain issues mentioned above, this will likely start to further escalate prices for years to come.

So why is the Chinese government requiring cages and how will this increase the retail prices of consumer fireworks? To be direct the US market does not quite understand the reasoning behind the Chinese government’s position on this new regulation. The Chinese government claims that the cages will provide an extra layer of safety during fireworks transportation. However, without going into a long lengthy explanation as to why this position is false, the cages will do nothing but add cost to the products affected and waste to US landfills.

At this point most Chinese factories expect an increase of about $12 to the case price of the items that will require a cage which is $3 per item for a 4/1 packed case. While that does not seem like much, as it moves along the supply chain the cost will exponentially increase. For example, let us say that firework X, packed 4/1, has a current FOB case price of $68 and the tube size is greater than 1.2 inches requiring it to be caged. This will increase the FOB price to $80 or by 17%. Keep in mind the cage will also increase the size (or cubes) of the case taking up more space on the shipping container and increasing the shipping cost. Once the case lands in the US the distributor may remove the cage or may leave the cage for the retailer to remove. Either way the cost will once again increase either through added shipping weight and extra labor for the retailer to remove the cages or extra cost for the distributor to remove and dispose of the cages. So, let us add another $1 per case to account for this added cost. This brings the landed distributor cost to $81 or an increase of 19%. Unfortunately, the cost increase will not end at this point.  The distributor must add their margin to the total landed cost. As you will see their margin will only exacerbate the case price of product “X”.

Original landed cost without the cage with shipping: $68 FOB + 30% shipping cost = $88.40

Landed cost with the cage including shipping: $80 FOB + 31% shipping ($24.80) + $1 cage removal = $105.80

Now let us add in the distributor’s margin for sale to retailers throughout the US:

Without cage distributor/wholesale price: $103.43

                                VS.

With cage distributor/wholesale price: $123.79

What was an initial $12 price increase has now roughly grown to $20. However, we still need to calculate the estimated retail price to get a better understanding of how this will impact the consumer.

To do this we need to add the average shipping cost and margin for the retailer:

Current retail price per item (non-caged): $68.52 (non-caged, shipping cost and average industry margin)

                                 VS.

Projected retail price per item (with cage): $82.01

What was initially just a $3 increase per item has now inflated to $13.50 per item or a whopping $54 per case! Most consumers will by more than just one item which means China’s new regulations will hit their wallet hard in 2021.  Also, keep in mind this is just using industry averages. Some areas will see an even higher increase for their market. Finally, what is even more concerning is that we do not know how shipping and raw material cost inflation will increase this price even further nor do we know how increase in demand will raise product cost.

There is no doubt the price increase forecasted for 2021 will be much more substantial then we have seen in the past and it most likely will not go unnoticed by the consumer. Unfortunately, this will not be the last threat to the industry as there are more perilous times ahead and baring another last minute miracle some fireworks are literally about to explode.