In the recent price discussions with potential OEM customers one important fact emerged. This fact has become a very important point in the years of small margin production, meaning now.
Most of the companies are aware of it but are still not taking steps to protect themself.
Here is the scenario:
September 2025 – Customer approaches you with a request to produce a bicycle for them. Your team prepares the offer with the bill of material which, in most cases, is decided together with the customer. You check the prices with your suppliers, calculate the additional costs (landed costs), add the production costs and a very narrow profit these days.
October 2025- you agree on the business, sign a contract and start ordering components for your production in February/March 2026 to be able to deliver for the season start after receiving the first advance payment for the contract.
Usually everything is last minute because of customers protecting their cash flow and wanting to lock up the money for least amount of time.
Now here comes the tricky part and a question. What percentage (value wise) of your components for these bikes is coming from Asia and what percentage is coming from Europe ?
What happens between October 2025 when you placed the orders and March 2026 when you need to deliver the bikes?
For Asian origin components it happened that exchange rate between USD and CNY changed a good percentage, exchange rate between USD and EUR changed as well, shipping costs that were 2500$ are now 6000$ for one container which for low cost components impact the price in a major way. Shipping times also changed and you can end up paying penalties as well.
With small profit margins we have these days, which I estimate are 10-15% for OEM factories, it means profit has been eaten up. There is also a possibility of a loss.
Meanwhile for European made components, not too much happened actually. For the last three years the prices remained the same, we even saw some price decreases in the last few months.
And here comes the exposure point.
When you see what percentage of EU made components against Asian ones ,you have in your production, you will know what is your exposure! The higher the exposure to volatile components the higher your companies exposure becomes.
If banks understood bike production they would definitely want this parameter when offering loans to the companies. This is because that this one point can make or break the factory.
My question to you is :
What is the price of insurance you are willing to pay to lower your risk ?
