If there is a common
theme throughout this newsletter it is that "stuff has been delayed." We are
not the only ones. Most model train manufacturers have experienced
production delays, and here is why.
In January I broke the news on the
CanModelTrains forum
that another large model train factory in China had shut down, forcing 3000
people out of work. Whatever your beliefs may be about globalization, nobody
wants to hear that 3000 people lost their jobs just before a big family
holiday. This was just the latest event in the ongoing saga of manufacturing
model trains in China.
A couple of years ago, Sanda Kan was purchased by
Kader Holdings
(the Chinese company that owns Bachmann Trains). Sanda Kan was the largest
supplier of model trains in the world, and most of the trains made by North
American and European manufacturers came out of Sanda Kan's many factories
in Guangdong province, China.
After initially telling their clients that nothing would change, Kader
decided to dump the vast majority of their customers. Suddenly, about 50
model train companies around the world had no factory to produce their
models. As you can expect, a form of panic ensued as everyone was scrambling
to find a supplier. Our industry is what you could call "cash poor." We
manufacturers make money, and then invest it in new tooling. That means that
for all but the biggest manufacturers, a delay in production can cause
serious cash flow problems as we don't have piles of cash lying around.
The result of Sanda Kan booting out their customers is that the existing
model train factories found themselves with an onslaught of new clients
desperate to get their models back into production. These clients also
needed to start new projects to ensure that they don't run out of cash in
the long term. No model train factory was, or is, anywhere near the size of
Sanda Kan. The demand outstripped the supply - by a huge margin.
The industry is still recovering from the eviction of Sanda Kan's clients.
The January closure of one of the largest remaining suppliers in the
industry will only add to our collective problems. This closure was caused
in large part by the fact that model railroad price increases (averaging
10%-25%) have not kept pace with cost increases in China, and it is often
difficult for the Chinese suppliers to stay in business while meeting the
demanded price point from their major North American clients.
Our industry is currently tied to Chinese production, as southern China has
developed the special skill set required to produce model trains. Bringing
the manufacturing back to North America would cost even more due to very
high start up costs and higher overhead, and there are no reliable model
train factories set up yet in places like India. So I think we're looking at
tough times ahead in our industry: more delays and even larger price
increases.
Rapido has largely been insulated against these major price increases. But,
as you can see from this newsletter, we have not been insulated from the
major production delays in China. Rest assured that we are not taking these
challenges lying down. We are working on a plan to significantly speed up
our production in 2013, and I will be able to tell you more about these
ventures later this year. Stay tuned.
written by Jason Shron,
President, Rapido Trains Inc. - February 29,
2012 |