AmerCareRoyal - Market Update Q4 2021

Market Update

Quarter 4 | 2021

Product-to-Market Pathway SUMMARY: Raw material cost inflation continues to rise though at a slower pace for many commodities than those we witnessed earlier in the year. However, shipping expense, on land and at sea, continues to drive up the cost of moving products to market around the globe.

Q4 2021 Market Update

Severity Scale

Low

Moderate

High

Factory-to-Port Outbound Logistics

Ocean Transport Inbound to North America

DC-to-Customer Outbound Logistics

Raw Materials

Manufacturing

Record North American demand driving Aluminum cost to 10-year highs

Hurricane Ida’s landfall in late August had significantly reduced North American rail and intermodal operations, across the continent Driver shortages continue to reduce available truck capacity, driving 3 rd Quarter freight rates up nearly 30% since the start of the year

Covid outbreaks have plagued production in China, Malaysia and Vietnam throughout the summer and into fall

North American retailers are scrambling to build inventories ahead of the Holiday rush, further straining cargo capacity

Recovery continues from Covid disruptions at Chinese port complexes in Ningbo and Yantian that occurred during the summer

Unstable consumer demand has increased cost of paper production, especially for specialty products

Chinese government shutdowns of power grids for infrastructure renovation and hydro-electric conservation are disrupting and limiting production capacity

Estimated effect of which outpaced supply chain impact from the Suez Canal blockage in March

Shipping container cargo fees now routinely exceed $20,000, a level five times higher than this time last year

PVC-based product costs increasing sharply in Q4

Cost of raw materials used to manufacture takeout meal packaging and associated products, including aluminum, thermal papers, bagasse and plastics have continued to rise throughout 2021, as increasing consumer demand has put pressure on material availability.

Material Cost Rate of Change since January ‘21

Raw Material

Affected Product Lines

PVC

Vinyl Gloves, aprons and other apparel

30-35%, up 20% since July

Aluminum

Foil sheets, lids, wraps

40+%

Register Rolls, Thermal and Bond Paper, Placemats, Paper Takeout Products, Napkins, Crayons, Filter Papers

Bleached Paper

5 - 35%

Bagasse Fiber

Eco-friendly Takeout packaging and Cutlery

20%

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Inbound Shipping and Logistics

Q4 2021 Market Update

The Ocean Freight Logistics of Importing Products from Asia

CHOKED PORTS and SHIPPING BACKLOGS IN ASIA ▪ Covid outbreaks, severe summer weather, and shortages of drayage drivers, equipment and warehouse space is challenging smooth transition of finished goods from factory to port throughout Asia. ACR’s China Logistics Team ▪ Ports in China and Vietnam are experiencing ship turn-times 5 days longer than normal due to heavy fleet congestion, pandemic testing protocols and sporadic Covid shutdowns. Severe storms in Q3 caused further delays. ▪ 242 container ships were off-shore awaiting berths at Chinese ports alone, during the last week of September. American Shipper

OCEAN FREIGHT COSTS STILL HIGH, STILL CLIMBING ▪ Average cost to ship 40-foot containers from Asia topped $20,500 in Q3, a 500% increase versus 2020. Container prices for shipments from India have held steady below $10,000 but rose in the Third Quarter to over $13,000. Freightos, ACR DELIVERY DATE ACCURACY WORSENS ▪ Typical ocean transit time before the pandemic was 35 days, but last quarter, we reported the average time for goods to arrive from Asia was 71 days; through mid- September, average shipment time had increased to 74 days. Flexport

Ningbo, China, 09/28/21 – MarineTraffic.com

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Flexport Logistics

Outbound Shipping and Logistics

Q4 2021 Market Update

The Domestic Transportation and Warehousing Logistics of Delivering Products to North American Customers

CHOKED PORTS & SHIPPING BACKLOGS IN NORTH AMERICA  At Los Angeles - Long Beach, North America’s busiest port, over 150 ships were docked at port in late September, more than twice the normal number, while another 60 ships waited at-anchor off- shore. American Shipper  Estimated 500,000 containers await unloading at LA-Long Beach, alone. At an average of 1000 cases / container, 500 million cases of product await passage thru the port. CBS News  Average wait time to dock and unload a container ship at LA-Long Beach is now 10 days, up from the normal 4. Marine Exchange of Southern California  New shipping services seeking a share of record profits have entered service, typically sailing smaller vessels that carry less freight and disproportionately reduce port operational efficiency. Woodland Group, American Shipper DRIVER SHORTAGE + HIGHER FUEL PRICES = HIGHER COST  North America has more than 60,000 open truck driver positions, a need projected to exceed 100,000 by 2023. CNBC  Drivers are commanding large fees and bonuses, and selectively avoiding routes prone to storm weather in the Southeast and wildfires in the West. Freightwaves  Diesel fuel cost over $1 more per gallon than in Q3 ’20. Energy

Ports of Los Angeles & Long Beach, 09/28/21 – MarineTraffic.com

Information Administration

 By mid-summer, Full Truckload shipping rates had spiked 44% from January levels. ACR Transportation

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Summary Takeaways

Q4 2021 Market Update

% Change From 2019 Levels

▪ A fourth COVID wave in Q3 slowed but did not stall the pace of economic recovery in North America. Travel and dining out are near 2019 levels. ▪ Global supply chain disruption is the leading cause of rising costs for products, across all industries. ▪ Overlapping and interrelated vulnerabilities in the system of getting products to market are vexing governments and corporations and will persist deep into next year. ▪ Government-forced power cuts in China due hydro-electricity system flaws are likely to reduce production output and impact supply availability within weeks.

Open Table, TSA, NY Times

Reminder: Chinese New Year February 1-7, 2022

Repeated price increases and diminished service reliability are the calling cards of the pandemic- era supply chain crisis we are in together now. AmerCareRoyal will continue to stand with you in efforts to innovate solutions to these problems and minimize their impact to your business.

Tiger

AmerCareRoyal Recommendations for Customers

✓

Diligently monitor and disseminate price increases; act decisively to stay apace with the rate of inflation.

✓

Understand operator demand and plan inventory investments to sync with holiday and Chinese New Year events.

✓

Maintain day-by-day flexibility to market and sell the inventory available to your business now.

✓

Stay informed, monitor industry information sources for forecasts on raw material and supply chain costs.

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