Hasbro and Mattel have most toy shipments locked in as port strike looms, analysts say

By Bill Peters

Toy makers and retailers looked ahead, shifted a 'substantial' amount of imports to West Coast ports, UBS says

A strike along dozens of East Coast ports could cost the economy hundreds of millions of dollars a day, leaving things like cars, furniture, alcohol and pharmaceuticals stuck on ships, while potentially raising shipping costs for businesses and consumers.

But as the holiday season approaches, potentially bringing in billions of dollars in online sales alone, toy makers like Mattel Inc. (MAT) and Hasbro Inc. (HAS) are likely to be a bit more in the clear, after getting much of their production and shipping out of the way and routing deliveries to ports along the Pacific, UBS analysts said in a research note Monday.

"Toy makers and retailers have been concerned about potential port strikes since spring of this year, and our checks indicate substantial shift to West Coast ports from East Coast and earlier shipment of goods to navigate what has already been a challenging supply-chain environment since fall of last year," the analysts said.

They added: "We believe peak production and shipment of toys wrapped up end of August/first half of September."

The analysts said more than 85% of the two toy makers' U.S. shipments come through the Port of Long Beach, which with the Port of Los Angeles serves as a massive gateway for products coming in from Asia.

They also said that most of the freight for Hasbro and Mattel was handled under contract, at a set rate. But they said the companies were still exposed to the spot market, where prices to ship goods have fluctuated, as supply-chain panic occasionally leads businesses to pay up to secure space on a shipping container, giving shipping companies leeway to charge more.

"We expect an impact on spot rates from potential congestion, though immediate impact for toy makers could be limited given peak production/shipment is behind Mattel and Hasbro and 85%-90% of freight is locked in for the year," the UBS analysts said.

The analysts said that every 5% increase in distribution-related expenses could cost the companies a few cents in per-share profit.

Thousands of unionized dockworkers in the International Longshoremen's Association along the East Coast were preparing to walk off the job when their current contract expired at the end of the day on Monday. Some analysts said a strike appeared inevitable.

A work stoppage would follow labor tension elsewhere along key points of the nation's infrastructure - in the West Coast ports, and in the nation's railyards - as workers seek better pay and other protections and try to keep automation at arm's length. Their employers, meanwhile, have faced pressure to control costs and pad profits.

The Conference Board, a business research group, said a strike would cost $540 million a day. The group said there were 36 ports along the East Coast and the Gulf Coast. Combined, they handled 57% of U.S. container volume.

Over the past year, attacks in the Red Sea and drought along the Panama Canal have made shipping routes more difficult to cross. The world's supply chains overall have received greater attention, after an online-buying boom in 2021 crashed into production restrictions abroad and a shipping industry that was caught off-guard. The chaos led to a spike in container-shipping costs.

As the war in Ukraine in 2022 further pushed prices higher, particularly for food and energy, shoppers have spent less on things like toys.

"The toy consumer has been hanging in there," the UBS analysts said on Monday. "With nearly half of year's retail still ahead, toy [point-of-sale] trends have been somewhat stable."

Shares of Hasbro finished regular trading 0.3% higher on Monday. Mattel's shares were up fractionally.

-Bill Peters

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09-30-24 2014ET

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