AmerCareRoyal - Special Market Update - June 2021

AmerCareRoyal - Special Market Update - June 2021

Special Market Update - June 2021

Manufacturing and Supply Chain Status and Outlook

Global Manufacturing

Costs for raw materiel inputs to all types of finished goods have risen significantly and repeatedly thru the first five months of 2021

Material Cost Index Rate of Change since Jan 1, 2021

Raw Material

Affected Product Lines

Aluminum

Foil sheets, lids, wraps

17 – 26% (up 38% from Sept. ‘20)

Nitrile Rubber

10%

Latex

7.5 - 9%

Disposable Gloves

Vinyl

18 – 28% (stabilizing after April peak)

DOPT Plasticizer

16%

Folded Board Boxes & Containers, Guest Checks, Register Roles, Wipers, Towels, Filters, Cups & Lids, Placemats

Pulp and Paper Board

15 – 29%

Polypropylene, HDPE, LDPE, Resin, Polystyrene, PVC

Cutlery, Cups & Lids, Take Out packaging, Stirrers, Straws

6 – 9%

Eco-friendly Takeout Packaging and Cutlery

Bagasse Fiber

28% (stable in May, down 3% first week of June)

2

Shipping and Logistics

➢ The global supply chain has been whipsawed by the pandemic’s unprecedented consumer demand, increasingly constrained shipping capacity, port congestion, truck driver shortages and rising fuel prices, resulting in cost inflation throughout

➢ Ocean freight space is scarce, transportation costs are at an all time high, yet carrier service levels are at an all time low

INBOUND: Ocean Freight Logistics Importing Products from Asia ▪ US imports from Asia have been at record levels for 10 consecutive months and consumer demand in North America has increased more than 27% in 2021. In April, for example, shipping volume from Asia to North America rose 53% vs. 2020 and 44% vs. 2019. ▪ Limited ocean ship and shipping container capacity and spiking consumer demand have created severe scarcity of available trans-pacific shipping berths, impacting cost and delivery time reliability. ▪ As we predicted last fall, ocean container companies continue spot-market pricing practices in-which container shippers cancel set-rate contracts and price loads apace with demand and highest profitability. Spot pricing rates averaged $1,700 a year ago, climbed steadily to $5,600 this spring, and now exceed $10,000. These higher rates are setting pricing levels for contracts being written now that will run well into next year. ▪ Concern among shippers about being unable to secure space on cargo ships to move their products to North America is very high and shipping companies are bidding-up berth prices to reap profits from this uncertainty. Some experts are predicting per-container rates above $20,000 for deliveries to the East Coast. (Souhang APP) ▪ Covid outbreak at the major Chinese port of Yantian / Shenzhen in late May caused further system-wide delay of shipment processing and container recovery. ▪ Average container shipment invoices from Asia to North America on January 1 of this year were 236% higher than the same date last year, and by the end of May last week, the average invoice was 344% higher. (Freightos) ▪ Transit time for cargo from start of packing in Shanghai through to delivery in Chicago has risen from 35 days pre-COVID to 73 days now. (Flexport)

OUTBOUND: Distribution to Customers across North America ▪ Ground transportation challenges are complicating the supply chain situation for finished goods on both sides of the ocean transport passage to market. ▪ In North America more than 63,000 truck driver positions remain open, limiting the number of available shipping options resulting in route scarcity and record-high contract rates. The truck driver shortage isn’t new, it preceded Covid -19, but the pandemic has worsened the problem and having fewer drivers to meet expanding demand is the central factor driving higher trucking rates. (Coyote) ▪ Additionally, shortages of lumber, another high-import segment affected by pandemic recovery demand, are driving 400% increases in the price of shipping pallets, tacking on several more dollars to each transportation invoice. ▪ Crude oil prices are currently at their highest level since October 2018 and reserve inventories that built during the pandemic are now below historical norms for this time of year. (Barron’s)

3

Summary Takeaways Industry is experiencing higher rates of inflation than have been felt for more than a decade, and supply chain cost escalation and performance inconsistency are posing significant operational challenges to businesses entering the post-pandemic economy. ▪ To ensure the continuation of supply to customers, Importers and Distributors are incurring higher costs to ship products. ▪ The rate of inflation in the US for 2021 is currently 4.2%, its highest annualized level in a decade. (US Department of Labor) ▪ Entering the summertime heavy shipping season, industry experts predict that trans-Pacific shipping rates will skyrocket in June and aren’t likely to stabilize until port congestion eases and shipping berths become more plentiful. (Vespucci Maritime) ▪ The Pandemic exposed numerous points of fragility in the global supply chain and recovery is likely to take many more months. Current cost increases are being driven by Covid-related dislocations in the transportation market and while things may get worse before getting better, we don’t expect this environment to be permanent. ▪ AmerCareRoyal is working to mitigate this crisis by prioritizing critical cargo, increasing collaboration with freight forwarding and cargo ship partners, exploring and developing alternat port-of-discharge options, and fully leveraging our manufacturing and carrier networks.

AmerCareRoyal Recommendations for Customers

We are working hard to provide information and insight that puts our customers ahead of the curve and customers should use this information to take necessary actions, react and manage accordingly.

✓

✓

Look for product-mix refinements to offer your value-oriented customers that object to price increases.

✓

Plan orders carefully, with the focus on buying available products and marketing and selling what you buy.

✓

Monitor and research industry information sources for forecasts on raw material and supply chain costs.

4

Work closely with your customers to understand their demand and plan your inventory investments accordingly. ✓

Exhibits

Annual US Rates of Inflation since 2011

China to US Air and Ocean Freight Rate Changes

US Bureau of Labor Statistics

US Truckload Rate Increases, Spot Market and Contract

Average Ocean Container Shipment Invoices, 2021 vs. 2020

5