Due to several events beyond our control, the cost of fireworks imported from China has risen dramatically for the 2008 and 2009 season. Fireworks Outlet is concerned, and we would like to briefly educate you on the reasons for these increases, all of which will affect the entire fireworks industry worldwide.
Currency Fluctuation: Chinese currency continues to increase in value, especially against the U.S. dollar which has struggled in the global marketplace over the past year. These fluctuations alone added approximately 5% to costs this year.
Raw Materials: The cost of raw materials continues to rise globally, with no exceptions in China. Metals & paper products used in the production of fireworks have seen remarkably large increases, which the factories have calculated into their production costs. This adds another 3 to 5% increase in FOB prices.
Export Tax : Historically, the government of China charged an "Export Tax" on all exports, then refunded most of that amount back to the factories. Beginning July1, 2007, the Government discontinued this refund and began keeping 8% of that tax, resulting in an 8% increase in FOB prices. Since factories can no longer depend on those refunds as part of their profits, and cannot absorb the loss in revenue, the lion's share of that 8% is passed on to their foreign importers.
National Security: Since China joined the WTO (World Trade Organization), the Chinese government now enforces the same rules for transporting fireworks that we have endured for years. However, what's good for national security isn't always good for the bottom line, and the enforcement of these rules adds antoher 4-5% to the cost of transporting both raw materials and completed fireworks within China. The factories do absorb some of the increased costs, but they operate at such a slim profit margin that they have no choice but to pass along the majority of these operating costs to their foreign importers.
Freight: Ocean freight and domestic trucking costs have soared over the past few shipping seasons. U.S. importing freight costs escalated over 20% in just two years, and we expect another 5% increase by the end of the '08 selling season, resulting in an estimated 15 to 20% minimum increase in the cost of Chinese fireworks before they ever land at the warehouse dock.
San Shui Fire: Finally, the February 2008 explosion and subsequent fire at San Shui continues to have an overwhelming effect on the entire industry. At least 100,000 cases of fireworks that were bound for U.S. markets this season were destroyed (and that number has been quoted as high as 300,000, depending on the source), which may cause shortages nationwide if that product cannot be reproduced in time for the '08 selling season. Also, the Chinese port that exports the largest volume of fireworks is currrently closed as a result of that fire, forcing many vendors to add even more inland trucking fees to get their goods to working ports, and putting a premium on cargo vessel space at the remaining ports.
Each of these factors is a problem in and of itself. Combined, they have a huge ripple effect across the entire fireworks industry. As a result, all fireworks importers, wholesalers, retailers and customers must be prepared for the largest annual price increases in recent memory. Because China supplies 90% of the world's fireworks, this will be a world-wide event with no alternatives.
Fireworks Outlet will work diligently for our customers by constantly sourcing existing and new products with our vendors to bring you the best consumer fireworks at the most reasonable price. |