Snarled supply chains stretch wait times for top bicycle maker

Taipei

GIANT Manufacturing is waiting as long as 2 years for bicycle parts as unprecedented disruptions and lockdowns roil the global supply chain, putting one of the world's biggest bike makers at risk of missing out on a demand boom.

"It is a hell of job," said chairperson Bonnie Tu in an interview at Giant's Taichung City headquarters in Taiwan. Some bicycle parts have a lead time of 2 years and even simple components can take 6 months, she said. That compares with a normal wait time of 1 to 2 months.

The global supply chain has been plagued by chaos for more than 2 years as sudden shortages, shipping delays and soaring prices hit everything from masks to cars and iPhones. Russia's invasion of Ukraine and China's hard line approach to stamping out its worst virus outbreak in 2 years has further exacerbated the problems, boosting the risk of a global recession.

Giant has temporarily shut 4 plants in Kunshan, which borders Shanghai, to comply with local lockdown measures. The restrictions have also meant components can't be brought in, Tu said. The company has 5 manufacturing centres in China, which account for about 3.5 million bikes - more than half its total capacity.

The disruption has underscored the importance of diversifying sourcing and production locations. "We understand we can't put all our eggs in one basket," Tu said, and Giant is joining many other manufacturers in shifting to producing more goods locally. The company also has one plant in Taiwan, the Netherlands and Hungary.

Giant plans to start production at its new factory in Vietnam by the end of the year, benefiting from the country's free-trade agreement with the European Union, which accounts for almost 40 per cent of Giant's total sales. Competitors have shifted their supply chains away from China to Cambodia, which has zero export duties on goods sent to the United States, Tu said.

There are tentative signs that the worst of the supply crunch is easing. Bike inventory has rebounded to about 4 weeks of demand from almost zero last year, though it's still lower than the normal level of 8 weeks, said Tu.

High-end bicycles face the worst shortages of parts, though Tu predicts that will likely ease by the end of this year. Some components, like the Shimano derailleur set that is a core part of a bike's gear mechanism, may still be in short supply into 2023.

Tu estimates Giant will post high-single-digit to low-teens revenue growth in 2022, after reporting a record NT$81.8 billion (S$3.8 billion) in sales last year, in part due to rising demand for e-bikes. The sector may account for 40 per cent of Giant's total sales in 3 years, compared with 31 per cent in 2021.

Still, Tu warned the company's outlook will depend on supply conditions, particularly in China.

"No one knows what the China government will do" with its Covid Zero policy, Tu said, adding that measures to allow workers to live at factories during lockdown periods will help ease disruption.

A so-called closed loop system was deployed by some companies, including Hon Hai Precision Industry, in Shenzhen last month, with the city also allowing factory bubbles.

In that set-up, workers travel only from company housing to plants and are tested regularly. BLOOMBERG

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