When can I ride my bike?
The coronavirus crisis has severely disrupted the market for certain products over the past year. This is the case, among others, for the global bicycle market, where supply and demand have become severely imbalanced and delivery times are currently very long. The crisis brought to the surface the dependence on a limited number of major producers of bicycles and bicycle parts in distant, mainly Asian, countries. It would be good if Europe could seize the opportunity - taking into account its comparative advantages - to increase the production of bicycles and parts domestically. Opportunities lie mainly in niche segments, such as sports bikes, which use new bicycle technology. A number of promising start-ups in Belgium are already demonstrating that it can be done.
The global bicycle shortage has multiple causes and is an example of a perfect storm that hit the international bicycle industry during the past year. The problems began over a year ago in China and other parts of Asia, where by far the most bicycle frames and parts are made. Factories there had to shut down production due to the pandemic. This also applied to suppliers of materials, such as aluminium factories. Closer to home, Italy, one of the few European countries where there is still significant production of bicycle parts, was also hit hard by covid-19, causing production problems there as well. More recently, logistical shortages have also slowed the supply of bicycles and bicycle parts from Asia. Shipping companies are facing a shortage of sea containers to meet the increased demand for maritime transport capacity. This left a gap in the international supply of bicycles that has not been closed to this day.
The disrupted supply went along with a sharply increased demand for bicycles due to covid-19, on top of the already strong demand growth in the pre-crisis years. As the pandemic persisted and sports in team settings, sports halls and fitness clubs were no longer allowed, people began to look for alternative recreational options such as walking, running and cycling. Also, the fact that people had more time to spare and were moving shorter distances on average due to the containment measures made them cycle more. In addition, many people wanted to avoid public transport and therefore opted more and more often for the bicycle to make their regular trips covid-safe (home to work, shopping, etc.). For Belgium, the MOBI research group of the VUB (Free University Brussels) conducted research into travel behaviour during the covid-19 lockdowns. It shows that especially walking (+19%) and cycling (+13%) increased at the expense of the use of public transport, with especially an increased popularity of electric bikes.
Increased dependence
The global bicycle shortage points to a number of problems that were brought to the surface by the coronavirus crisis and also apply to many other product markets. A first concerns the high dependence on producers in faraway countries, often in Southeast Asia, to which production was moved at the time because of lower (wage) costs (so-called offshoring). The coronavirus crisis has shown that global trade with its global production chains is very vulnerable. This is all the more so as the greater emphasis on cost control has also come to imply economies of scale in production (so-called single-sourcing). In practice, this has led to the creation of (near) monopolies that have further increased the strong dependence on one or just a few suppliers. A concrete example in the bicycle industry is the Japanese manufacturer Shimano, which has a virtually global monopoly for key bicycle components such as gears, pedals, brakes and chains. The company cannot keep up with the exploding international demand, so delivery times are now rising sharply.
A related problem is that the dependence is also fuelled by the often long transport distances and the associated logistical risks. The covid-19 crisis has taught us that large shocks can trigger erratic, rapidly changing consumer demand patterns. For example, during the pandemic, people suddenly bought much less clothing, but more hygiene products, gardening supplies and sports equipment. In addition, there was a major shortage of shipping containers, partly because they were in the wrong place. The combination of changing consumer behaviour and long, disrupted logistics chains meant that the timely and adequate supply of many products, including bicycles, was jeopardized. This often drove up prices as well.
The question is whether re-shoring (bringing production back to the home country), near-shoring (outsourcing production to a company in a relatively nearby other country) and/or multi-sourcing (maintaining a broader supplier pool) can offer an answer to the problem of vulnerable production chains. Whether this is the case depends on whether the disadvantages of higher labour costs and fewer economies of scale in production are outweighed by the benefits of better guaranteed and faster product availability, lower transportation costs and, also importantly, a more sustainable (because its shorter) supply chain. Assessing whether more disruptions similar to the current covid-19 shock can be expected in the future is also important. The current economic environment is often labelled as VUCA, which stands for Volatile, Uncertain, Complex and Ambiguous. Such an environment increases the likelihood and potential impact of major crises (e.g. trade conflicts and climate change).
In order to avoid new future problems, many companies will want to reduce the risks in their supply chain. The growing importance of e-commerce, where delivery times are becoming increasingly important, also contributes to this. Global production chains are therefore likely to undergo a transition in the coming years to more regionally oriented chains that offer greater certainty of product availability. The extent to which this happens will also depend on the ability to absorb the relatively high labour costs and shrinking labour force through innovative production technologies. In countries that are at the forefront of the fourth industrial revolution (high-tech materials, robotization, 3D printing, etc.), the labour cost factor will become less relevant, economies of scale less localized and the choice of production location increasingly determined by the general investment climate, proximity-to-market factors and, increasingly important, sustainability aspects.
More local production
Once upon a time, a few European countries, especially the Netherlands, had the most successful bicycle industries in the world. Today, (the components of) two out of three bicycles are produced in China. To protect the European bicycle industry from dumping by Chinese producers, Europe has maintained a high import duty on Chinese bicycles since 1993. Nevertheless, Europe’s share of global bicycle production remains rather small. The market is very fragmented, with around 800 mainly small and medium-sized enterprises producing bicycles and bicycle parts. Together they directly employ around 60,000 people. Portugal, Italy, Germany and Poland are the main manufacturers. Belgium has 16 and 11 manufacturers of bicycles and bicycle parts, respectively (2019 figures, European Bicycle Manufacturers Association).
It is to be expected that higher bicycle use, both for recreational and necessary, local travel, will continue. A number of trends, such as the success of e-bikes and the de-carbonization of cities, are contributing to this. On the other hand, global supply problems will continue for some time yet. It would be good if Europe could take the opportunity to increase its own production of bicycles and components and thus reduce its dependence on supplies from faraway countries. Opportunities for re- and nearshoring are mainly contained in niche segments (e.g. sports bikes) that use new bicycle technology. The bicycle of the future must be comfortable, low-maintenance and trendy. In Belgium, there are already promising start-ups, including Classified Cycling in Turnhout (new gearing system) and REIN4CED near Leuven (new composite material for bicycle frames), that are responding to this.