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Shipping madness and future cost of board games

Andrei Novac
Poland
Warszawa
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I have to start my story in November 2019, a time I can now fondly call... normal. It did not seem like it back then, with lots of work and not enough time to prepare for the winter holidays. As responsible for production and logistics (and many more) at Board&Dice I had to make sure that some 50,000 copies of various games got picked up from our factory in China and shipped to various warehouses in USA, Europe and East Asia. That used to be a time consuming, yet routine job. It was as simple as asking for offers from a single logistics partners (FedEx), confirming them, and putting FedEx in touch with our factory (plus a bunch of documents, but that's besides the point). Bored yet? Well you should be, because that story is in no way exciting.

The special thing that happened in 2020 was, unfortunately, a pandemic. I won't dare discuss the social or personal impact of COVID, as I am far from an expect, and also luck enough to have my family and close friends alive and well. But the pandemic also affected almost every aspect of our lives, and it heavily still influences the economy. Board games are part of the aforementioned economy, and that's what I plan to write about.

Let's compare the situation from November 2019 to August 2021 and look at some data:

In Nov 2019, the cost of shipping by sea for 40ft container from Shanghai, China to Oakland, CA, USA (on the West coast) was $2900. On top of this amount, there are other charges (port, loading, unloading, customs, insurance, etc), but we're not going to talk about this part, as this pretty much remained unchanged.
From gallery of anovac


Today, as I write this piece of text, I am able to check the cost of shipping for the same route live on www.freightos.com, which is an aggregator much like booking.com but for sea shipping. Even the largest suppliers of logistic services have integrated it into their quotation system, so that they can provide pricing to clients on the spot. Why the rant about freightos.com? Simple to underline that rates found there are totally realistic. Coming back to the main topic, today, the cost for the same service, on the same route is $18,000!
From gallery of anovac


Let's make the same comparison for a different route, from Shanghai, China to Hamburg, Germany, which is one of the largest ports in Europe and the gateway to at least one third of the board games arriving on this continent.

In 2019, the cost is $1600...
From gallery of anovac


...while today, in the summer of 2021 it is $16,500!
From gallery of anovac


But why should anyone care about this surge in sea shipping prices? The obvious answer is that logistics cost is embedded in the overall pricing structure of products, and board game are... products. So, let's dive into a little more details, and for that we'll need a few titles to use as examples. To see how the container shipping price affects the price of a game, we need to look at its size (and thus how many games fit in a container) and its MSRP.

First, let's take a look at big (Ticket-to-Ride) box size games: Teotihuacan: City of Gods, with an MSRP of $50 is a good example. In one 40ft container, one can fit roughly 6000 copies of this sort of games, so the overall shipping cost per copy would be that of the container divided by 6000. Before we dig into the math, a few industry facts: a publisher offer distributors an average discount of 60% to 65%, so we (the publishers) retain 35% to 40% of the MSRP. We also cover a part of or the whole of the shipping cost to the distributor. Let's use an average scenario, in which the discount is 65% but the distributor covers the cost of shipping.

For Teotihuacan: City of Gods, in 2019, the publisher retains 35% of $50, which is $17.5. This $17.5 covers the production cost, marketing, designer royalties, etc. The distributor includes the shipping cost in the own price structure, but this shipping cost per copy is based on 2019 shipping prices (China to USA), so $2900/6000 = $0.48 per copy. Looking at 2021 shipping prices, this cost suddenly jumps to 18000/6000 = $3, so an increase of $2.52. In 2021 the distributor can no longer afford to cover the shipping cost, and asks the publisher to cover the difference, of $2.52 (let's say $2.5 for ease of calculations) per copy. The publisher has no choice but to accept, or lose the distribution deal, and this is in the end a fair request, since distributors take a fair amount of risk and retail a small margin. However, the publisher may not afford this reduction of profitability. Let's see why, looking at the usual costs for publishing a game:
- manufacturing (1/6 to 1/5 of MSRP, we take the average): $9
- marketing: $1
- designer royalties (usually 7% to 9%): $1.4
- operational costs (salaries, office, development costs, etc): $2
Subtracting all of these from $17.5 (see above, what a publisher retains from a $50 game), we have $4.1 left, which is the profit before taxes. You can see now that the extra $2.5 to be covered with the hike in shipping prices is a pill rather hard to swallow. Since manufacturers are also affected by the increase of cost of shipping raw materials, it is unlikely that they can lower the production cost, instead that cost is likely to grow.

Let's have a look at another game, 7 Wonders Duel, which has a smaller box, fitting 18,000 copies in one container. Based on 2019 shipping prices the cost of sea shipping per copy is 2900/18000 = $0.16 and in 2021 this is $1, an increase of $0.84.

Following the same logic as above, from an MSRP of $30 the publisher retains $10.5, from which production, marketing, royalties, and operational costs are covered. I expect that covering an additional $0.84 in shipping costs is nowhere near realistic (but that's an educated guess, since Board&Dice does not publish that game). However, after discussing the matter of increased shipping costs with other publishers, it is safe to assume that almost no one in the board games industry is able to simply assume these costs and carry on with their business as if nothing happened.

So, if I were you right now, I'd have a few questions (and concerns), like "Why did shippers increase their prices?", "When did this happen?", and "When is this going to go back to normal?".

Let's start with WHY?. After the first months of the pandemic when China has been pretty much shut down, their manufacturing sector picked up, based on an increase of demand from... everywhere in the world. (People under lock down buy instead of travel.)
When the demand exceeds the offer, prices grow until there is an equilibrium. With a massive shortage of containers in China and a backlog of hundreds of thousands of TEU worth of products ot be shipped out of China to North America and Europe especially, shipping prices went up, by a lot.

WHEN? We felt the first surge in shipping prices in November 2020, by January 2021 the price from China to USA (West coast) had already reached $11K, and then we got the good news: the situation should return to normal by May 2021. But it didn't. So let's go to the second WHEN?

According to industry experts (shipping, not board games), the prices should return to normal by Q2 of 2022, however back to normal means back to the prices of Jan 2021, which were already 3x higher than what we used to pay prior to the pandemic. Also, one extra thing is worth mentioning here: even at the ridiculous rates that shipping companies are asking nowadays, the space is severely limited. For our latest container to USA (containing Teotihuacan: City of Gods, Tekhenu: Obelisk of the Sun, and Tawantinsuyu: The Inca Empire) we had to wait for 85 days to find a free spot on a vessel, after paying a high-season fee of 50% of the shipping cost on top.

While I do not feel qualified to make prediction about the evolution of inflation worldwide, one thing seems to be certain: the price of board games is going to grow, because publisher simply won't be able to afford to bring their games from China otherwise. We (Board&Dice) have tried to wait it out without increasing the MSRP, and have been able to do that until this summer, hoping that shipping would again become business as usual. It looks like we will have no choice in the very near future.

There's another legitimate question to be asked here: "Why not manufacture locally in Europe or North America?". Without developing much, there simply aren't enough board game factories on those continents ready and able to produce modern board games (but that's a topic for another time).
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