F*UCK COVID – 2021 Mountain Bike Supply and Pricing

If you are part of Commencal Bicycles newsletter or you follow the news part of their site, you saw the email they sent out right before the New Year. First, I want to thank them for being so public about what is going on in the industry. I do believe it helps the consumer to know what is going on even if have to take the risk of telling them prices will be going up. It takes integrity to do that and it is not easy to do.

What Commencal is doing here is basically laying out the state of the industry for it current and potential customers. Bottom line…it’s a mess. I am going to highlight some of what they said and then provide some additional insight into what I know and what I am currently hearing.

The Demand Side of the Biking Industry

At the beginning of the year, there were a lot of unknowns about the COVID-19 situation. No one really knew what this virus was or how it would effect our lives in the short and long term. By the middle of March in the US…everything was shutting down. The schools were closed along with restaurants. Businesses were telling people to work from home. Even with all of this…we didn’t really know what was going on.

Then a weird thing happened. Kids sports were canceled and school in was in virtual learning while people were getting the recommendation to social distance. Part of this recommendation was to do outside activities in groups of 6 or less (if I remember correctly). The net product of having nothing to do and having to do outside activities in small groups? Demand or outdoor gear and anything related to it went THROUGH THE ROOF. Commencal points this out in their email.

As you know, the bike industry has generally been among the lucky ones to “benefit” from the situation.

Demand has exploded. People have realized the value of cycling and the joys of mountain biking in the great outdoors. And this is obviously very good news for our planet.

But on the other hand, with this rapidly growing demand, several factors are now slowing momentum.

Commencal.com

This was not unique to the biking industry. RV’s, boats, camping gear…anything outdoor related flew off the shelves. The same held true for any office related items like computer monitors, web cams and desks as people were working from home now. And who can forget the toilet paper shortage of 2020?!

So normally demand being high for bikes would be a good thing right? Well…normally. The problem then became the supply end.

The Supply Side of Mountain Bikes and Components

With any sharp increase in demand, you can expect a supply shortage in the short term as companies push to refill their supply chains. That is really normal. However, there were more factors at play here that made the situation even worse.

There was a lot of economic uncertainty in early 2020. People were losing their jobs and getting furloughed as businesses were closing and others were prepping for an economic downturn. The suppliers of steel, aluminum and other raw materials started cutting back on production almost immediately both in foreign and domestic mills at the beginning of the year. The worry is that the economy would bring decreased demand and they would be left with unusable inventory. The same was happening for manufacturers as they slowed down production or had to shut down for a period of time due to COVID. So while short term demand was at an all time high…raw material production was at an all time low.

So what happened? The economy didn’t slip like everyone thought. There were certain segments of the economy that were hurting…and badly. If you are on the service side you know this first hand. If the company you are working for is not allowed to open its doors, that is bad for you and everyone involved. What we were not expecting is for other industries to start breaking records. Residential construction demand exploded as people were moving to the suburbs and renovating their houses now that they were working from home. The outdoor industry continued to boom as families and individuals were still looking for things to do outside. Unemployment was high but it was very concentrated to certain markets as the other markets figured out ways to make working at home actually work.

The bottom line…demand continued to climb in certain areas where supply was falling. That increases lead times and increases prices all on its own. I am hearing from bike shops that they are getting their orders they place today pushed to 2022 in some cases.

First of all, production. Particularly components. Finding the vast majority of components required to assemble a complete bike is extremely complicated today. Saddles, tyres, suspension, transmission. Major component brands such as Shimano, SRAM, FOX and Schwalbe, who produce mainly in Taiwan, give lead times of between 9 and 18 months. They are normally able to deliver within a maximum of 3 months. The reason for this stems from difficulties in finding certain raw materials and/or factories that have had to be shut down due to COVID, which also lengthened supply times.

On top of this, issues related to transport. The delays in moving goods from Asia to all other continents have skyrocketed. A concrete example, it took us about 3 weeks to ship a container from Taiwan to Golden, Colorado, but now we need between 2 and 3 months. The ports are full. Boats are floating outside port entrances for several weeks whilst waiting to be able to dock (see photo). Transportation prices have suddenly and strongly increased. We are currently paying on average 4 times more for the delivery of a container compared to the same time last year.

Commencal.com

Now let’s talk about pricing…

As I just mentioned, the supply and demand curves running away from each other is naturally going to increase pricing. However, there is more at play here.

When a component manufacturer like Shimano or Fox is placing orders for a commodity like steel or aluminum, they normally do it one of two ways.

  1. Mill Contract – They buy enough volume that they are able to negotiate a price for the year on steel. Steel pricing does fluctuate buy the month but due to their volume and forecasting, they are able to make an agreement with the mill on that price based off of projections on pricing throughout the next 12 months.
  2. On a Lag – Your pricing now is based off of what the steel or aluminum was 30/60/90 days ago.

Typical steel/aluminum lead times are in the 60-90 range from the mill depending on exactly what you are ordering. That is why the lag works well as you can kind of hedge your bets on what the market is going to do. With the mill contract price, you get stable costs over the course of the year that…generally…as a small premium on average to do so.

Right now…we are seeing the price of steel and aluminum increase at a rate that has never been seen. The market is completely dried up and any tons that you did not contract are really hard to find. Lead times from the mills are also increasing as markets are trying to refill their supply chains. This creates higher prices and increased demand on the supply side.

What does that mean for you? The bikes that were in production or stock already were produced at a lower price of raw materials than the ones that will be produced in 2021. The consumer does not see those increases until that high cost or raw material has to be used…and then sold. On the supply side, we do not expect a change in that until at least the end of Q2 2021 and then it will take time to even back out. The pricing of bikes and components will feel the effects into 2022.

All of that doesn’t even get into the exchange rate portion that Commencal lays out here.

Final point, exchange rates. The currencies of our main countries (United States, Canada, Europe, Australia) have fallen sharply against the Taiwanese dollar. The cost price of our bikes has therefore increased sharply in just a few months.

Commencal.com

What to expect in 2021 with mountain bikes and components

So here we are…the beginning of 2021…what should you expect?

Expect supply to be low and pricing to continue to rise. There is nothing in the current market that suggests that is going to change. If anything…it’s on a lag and should get worse in the short term rather than better (especially on the pricing end).

The other thing you are going to notice is that used pricing is going to start going up more than it already has. With no new bikes out there to buy, people are going to be increasing the demand on used bikes. Originally, people though that there would be a flood of “COVID Bikes” that would decrease the pricing in the used market. The issue will be that the new bike market will be slim and more expensive so the used bikes will be going at a premium.

Bike shops are also going to continue to struggle. While having high demand is great…having no inventory is bad. You can’t sell what you don’t have and some bike shops are even buying up used bikes just so they have some inventory to sell (which also increases used pricing).

It’s a wild ride for the biking industry continuing into 2021 as we recover from all of the factors that have got us here in 2020. There a lot of companies in many different industries that are really struggling to supply their customers with the demand they need at a price that is affordable. On the other end…there are companies that are struggling to keep the doors open or many never open again at all. This is unlike anything the industry has ever seen and hopefully the back half of 2021 will start to see some return to normal as capacity opens up on the supply chain side.

The good news? Hopefully through all of this…there are a lot more people enjoying the outdoors and riding bikes. It used to be hard to find kids outside in our neighborhood riding bikes at all outside of our son. Now…we see them regularly and I have parents of his friends asking me about mountain bikes when they wouldn’t have been before.

Quotes from Commencal were from this article along with the featured image above.

6 comments

Charlie January 12, 2021 - 11:20 am

What a great post! I didn’t see the Commencal email, so just hearing it had been sent is excellent.

The stand-out here is how, by combining your knowledge of some of the involved manufacturing industries with your bike industry know-how, you have written the best piece I’ve seen interpreting the truth behind all the rumours we can find on the net and on the trail.

For example, my wonderful (to ride) 14 month old 2020 Turbo Levo with 600Km on the clock is in having its third motor. It’s had a new TCU, two new battery connectors and some of the ‘loom’ replaces as well – only the handlebar control and battery are original electrics. And yes, I know about the extended warranty and my LBS who sold me the bike is, frankly, amazing.

Deciding what to do about this in a ‘normal’ year would be a nightmare (not being a washing machine kept in a clean utility room, it’s always harder to make the case for a full replacement or money back on a new MTB).

But this year, well…. Your info helps me a great deal.

As a result of reading it, I’ve asked my LBS to get a written statement from Specialized U.K. summarising the bikes history, advice on care and setting out a plan with justification for what will be done if it fails again in the next few months. Mine is not the only Turbo L they have big issues with, so they are fully on-board now to help not just me, but all their customers (they are a big chain in the N of England and sell a lot of Specialized E-Bikes).

Yes, thank you

Reply
Robb Sutton January 12, 2021 - 11:57 am

Charlie, sorry to hear you are having so many issues out of your Levo! I had heard pretty good things about those bikes in the past. It will be hard to get replacement parts here soon I have a feeling. Good idea to get on the same page with your dealer. It sounds like they have been pretty good at supporting your issues so far.

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Charlie January 12, 2021 - 1:24 pm

Thanks Rob. Yes, great dealer – ‘on my side’. As a last resort if it ‘dies’ again as quickly as before, I’ll try and negotiate a favourable trade in for a new model on the basis it’ll sell instantly for them as it’s otherwise in excellent serviced condition with MT5 e-brake and e-disk upgrades (brilliant brakes combo btw). Yes, I’ll have to put in some money and then there’s the wait for the new one. But Specialized has offered $350 compensation (refused so far) and I can put a price on just getting reliability from another manufacturer — I’m thinking Trek ….

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Dan January 6, 2021 - 11:59 am

How about carbon fiber manufacturing? Does that have the same diminished supply effect as the Mills? Also, would this potentially put US built boutique brands at a more competitive advantage, like Guerrilla Gravity?

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Robb Sutton January 6, 2021 - 12:09 pm

I am not as involved in carbon but I am seeing supply chains even like lumber dry up. Wood costs twice as much now as it did before. The biggest issue I am seeing for a lot of manufacturers is getting components. I don’t think it has hit the frame market as bad…yet. It is coming. US brands are going to have a cost/logistics advantage here for awhile but prices will still be up for them as well. I’ll have to do some digging into the carbon end. I am personally involved with steel and aluminum so I am more well versed on that subject.

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Pat January 7, 2021 - 11:59 am

Even if they can build a carbon frame they can’t buy components to put onto it.

Reply

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