AmerCareRoyal - Market Update Q1 2022

AmerCareRoyal - Market Update Q1 2022

Market Update

Quarter 1 | 2022

Product-to-Market Pathway

Q1 2022 Market Update

SUMMARY: High energy costs are keeping prices high at both ends of the product-to-market pathway. Raw material substrates that require a lot of energy to produce are thus more expensive, as is the price to get those products to market. In between, shortages of labor, warehouse space and new fleet assets are sustaining factors keeping the supply chain crisis at the top of the list of global business concerns heading into 2022.

Risk Scale

Low

Moderate

High

Factory-to-Port Outbound Logistics

Ocean Transport Inbound to North America

DC-to-Customer Outbound Logistics

Raw Materials

Manufacturing

Diesel fuel prices were 25 to 30% higher across North America at the end of 2021 than at the end of 2020.

High energy prices are increasing costs to manufacture energy-intense products such as Chinese bagasse, paper and paperboard, and resin-based. Nitrile and natural rubber both crept up in late 2021 and are expected to continue ticking higher in Q1 2022. Vinyl cost spiked in late ‘21 and will remain stable through February ’22.

Already critically low, availability of container space to ship supplies from Asia to North America worsened in late 2021.

Labor shortages are a daunting problem for factories throughout Asia.

Shipping container shortages have contributed to enormous logjams of finished goods needing storage at Chinese ports prior to loading on cargo ships. This has consumed available port-side warehouse space resulting in log-jams of finished goods leading to production cuts, shipping delays and added cost-of- product.

China continues to manipulate the power grid to favor certain manufacturing types and regions. Zero-tolerance policies in China and Vietnam have resulted in full-province lockdowns idling factories and slowing port operations after Covid outbreaks and the ensuing recovery and catch-up periods.

Shipping industry experts predict rates for ocean freight will remain high as spot rates near $20,000 per container are normalized as contract rates in 2022.

Semi-conductor shortages have curtailed automotive manufacture production of long- haul tractors and are constraining the North American trucking industry’s ability to expand to

Fines and increased operating hours has helped lower the number of vessels in port at LA / Long Beach; but the number of boats idling off-shore has increased.

expand to meet increased freight demand.

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Ocean Freight and Logistics

Q1 2022 Market Update

SUMMARY: Overseas shipping cost remains extremely high, driven by port backlogs and constrained availability of ocean-going container berths, and average delivery lead-time continues to stretch. Industry experts predict this situation to continue thru 2022 which will tend to sustain the inflationary pricing pressures felt by industry during the past year.

Year on Year Pricing Tends

OCEAN FREIGHT COSTS AT VERY HIGH LEVELS, SETTING NEW BAR ▪ Average cost to ship 40-foot containers from Asia remains at all time highs, averaging above $15,000 per container, globally, with further increases likely to come again closer to Chinese New Year. Spot rate price levels, the rates around the $20,000 mark, are anticipated to set the norm for contract rates in the new year, setting a new floor for the industry’s rate structure. Ocean freight executives are expecting shipping contract rates set at for 2022 at rates double what was the case in early 2021. ACR’s China Logistics Team, Flexport, Vespucci Maritime, Wall Street Journal ▪ China, Vietnam and other countries in the region are adhering to strict no-tolerance policies that put entire provinces in lock-down immediately upon the report of Covid cases. Manufacturing production and dock operations continue to be intermittently stalled for days and even weeks at a time upon each occurrence. ACR’s China Logistics Team ▪ Chinese government manipulation of electricity grid for manufacturing continued throughout the Fall of 2021 and is expected to last at least until the completion of Chinese New Year and the Beijing Olympics. Power black outs are used to suppress and steer manufacturing to desired provinces and types of product manufacture, based on government edict. GOVERNMENT ELECTRICITY EDICTS, COVID NO-TOLERANCE AND PORT WAREHOUSING SHORTAGES ▪ Importers from China are facing critical challenges securing warehousing space near ports for finished goods to stage awaiting cargo ship berths to North America. This backlog is adding tens of thousands of dollars to the cost of each container of product and is contributing to inflationary pressures. DELIVERY ETA DATE ACCURACY ERODES FURTHER ▪ Ocean shipment arrival times averaged 76 days at the end of 2021, 84% longer than the year prior. Freightos

Global Ocean Container Shipping Avg Rates

Freightos Baltic Index

Freightos.com

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Domestic Shipping and Logistics

Q1 2022 Market Update

SUMMARY: Costs to move goods across North America also remain far above normal, with ports crushed by inbound volume and truck dwell times for loading expensively extended. Once on the road, rig operators are paying 40% more for fuel, trucking companies can’t acquire new trucks or enough drivers to meet the demand. Expect to see double -digit freight rate increases in 2022, as a result.

One Step Forward, One Step Back: North American ports remain clogged and off-pace  Port of Los Angeles & Long Beach instituted 24 / 7 operating hours and fines for loitering containers, steps that reduced the number of ships in-port. Los Angeles Times  However, as a consequence, the number of inbound cargo ships forced to idle further off-shore dramatically increased to over 90 vessels awaiting berths to dock. American Shipper  Port of Charleston (SC) serviced over 250,000 containers in November 2021, an all-time-record number and the ninth consecutive month of year-over-year record levels for the port that processes a majority of AmerCareRoyal incoming stock product. gCaptain High Energy Costs, Truck Shortages Too Few Drivers: Ground transport of goods across North America continues to cost more and arrive later  Fuel prices remain elevated at about 40% above prior year rates. (Coyote Logistics)  Trucking companies are struggling to acquire new tractors to meet increased shipping demand due to automotive production shortages caused by semi-conductor scarcity. Freightwaves  North American trucking companies are forecasting double- digit freight rate increases for 2022. Wall Street Journal

On-highway diesel fuel prices

Year-over-year change in domestic freight expenditures

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Summary Takeaways

Q1 2022 Market Update

PLAN AHEAD!

Our industry faces significant risks at the outset of 2022, including … ▪ Restaurant recovery did happen in 2021, as industry sales bested 2019 (pre-pandemic) rates. However, government assistance and recovery programs have ended, and the count of restaurant patrons remains well-below pre-pandemic levels. Nations Restaurant News ▪ Inflation has reached its highest level in four decades, 6.7%. The inflationary environment we are experiencing is the driven by a complex web of supply chain factors that will not be easily or rapidly untangled. ▪ Manufacturing and material expense, spiking energy costs, labor shortages and challenges to obtaining materials for production are making it more expensive for operators to run their companies. ▪ Shipping products, both at-sea and on-land continues to be costly and fraught with uncertainty. Container lines are setting long-term contract prices in ranges four times higher than previously seen, ports remain jammed, diesel fuel costs nearly $1.50 more per gallon now than at this time last year, trucking routes go underserved due to driver and equipment shortages, and delivery lead times lag severely.

Chinese New Year February 1-7, 2022

Beijing Olympics February 4-20, 2022

Working Together in 2022, AmerCareRoyal and You!

AmerCareRoyal recognizes these risks and continues to mitigate them for our customers through the Supply Chain Crisis:

• We have sought and sourced alternative manufacturing options that cost less with no sacrifice in quality.

• We leverage deep relationships with transportation providers for best-cost solutions to move product to your warehouses. • We are investing in near-shore and domestic manufacturing and in new material substrates and product configurations to derive greater efficiency and to keep supplies flowing.

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