511 - Market Update Q4 2024

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Quarterly Market Update Quarter 4 | Fall 2024

Restaurant Supply Product Pathway

Q4 2024 Market Update

SUMMARY: Threats of strikes at East Coast ports and air freight services roiling the supply chain

MANUFACTURING

OCEAN LOGISTICS

GROUND LOGISTICS

RAW MATERIAL AVAILABILITY

TRUCK DRIVER SHORTAGE

PORT DISRUPTION

DIESEL FUEL COST

ARMED CONFLICT

COST

WAREHOUSE INVENTORY

ADVERSE WEATHER

TARIFFS

The International Longshoreman Association contract expired on September 30. Negotiations on a new deal did not produce a new agreement and strikes at East Coast and Gulf Coast ports began on October 1. Dockworkers agreed to return to work October 3 on a deal extending the expired contract through January 15 to afford negotiation of other unresolved issues.

Attacks in the Red Sea continue to drive lengthy voyage diversions, resulting in higher ocean freight rates.

New US glove tariffs announced on Chinese nitrile gloves, potential wider impact on Asian glove exports. Tariffs rates on medical nitrile gloves out of China will increase to 50% in 2025 and 100% in 2026, up from the previously proposed 25% in 2026.

Typhoon Yagi, the strongest storm to hit China’s southern coast in 10 years, impacted operations in September.

The chronic truck driver shortage across North America is projected to reach 88,000 fillable positions by year-end.

Global Supply Chain – Labor

Q4 2024 Market Update

SUMMARY: Strike disruptions in the US and Canada threaten supply chain stability, pose higher costs

Labor unrest affected operations on the rails, in the air, and at sea across North America as Summer turned to Fall.

Significant disruption occurred on both sides of the US – Canadian border in late August as shippers awaited a potential Canadian rail strike. Inventory and logistics planners worked overtime to build inventory reserves and truck transport alternatives that would sustain product flow if a strike occurred. Eventually, the strike was short lived and train movements were halted for less than a single day, but embargoed shipments a week prior to the event interrupted supply chains leading to production shifts being cut and intermodal container flows into and out of ports were interrupted. Freight Waves, Maersk.com Air Canada and the union representing more than 5,200 pilots announced on September 14 a tentative agreement on a four- year contract, averting a threatened strike that could have started within days. Industry trade associations had warned that a work stoppage at Air Canada, which carries cargo in the belly hold of passenger planes and on six Boeing 767-300 freighters, would harm agricultural, manufacturing and medical supply chains that rely on air transport to move time-sensitive goods. Freight Waves, CBC Most concerning of all is the strike by 45,000 International Longshoreman’s Association (ILA), anticipated after contract negotiations between the ILA and the United States Maritime Alliance broke down in June. At issue are wages – the union is demanding a 77% pay increase – as well as a complex thicket of issues including overtime payments, container royalties and automation of port operations. The ILA strike began October 1 and a short-term extension (through mid-January) of the previous contract was agreed to two days later, just as this publication was being finalized. This strike was the first action of its type from the ILA in nearly 50 years, shutting down operations at ports on the US East and Gulf Coasts, impacting 43 percent of all U.S. imports and billions of dollars in trade each month. The extension may calm a roiled global supply chain immediately prior to the holidays, but significant negotiations over safety and port automation – the ILA wants a total ban on automation – remain to be had. In solidarity, the International Longshore and Warehouse Union (ILWU) has publicly stated their support for the International Longshoremen's Association (ILA) in their strike action in 2024, pledging solidarity with the ILA in their contract negotiations. The Biden administration has stated they will not invoke federal law to prevent a strike. Freight Waves, ILA Union, Hellenic Shipping News, Reuters

Global Supply Chain – Geopolitics

Q4 2024 Market Update

SUMMARY: Red Sea conflict continues driving lengthy re-routings, adding inefficiency and cost

Ship attacks in the Red Sea Gulf of Aden continue to limit Suez Canal access. Since December 15, 2023, most maritime carriers have announced they will avoid the Suez Canal following a sequence of attacks on container vessels launched from a part of Yemen. Most vessels now travel around the Cape of Good Hope, adding an average 14 days to transit time. This longer transit time has a significant impact, not just to trade that moves via the Red Sea, but across all global trade lanes and it is estimated that 6 to 9 percent of all global capacity is consumed by the demands of this alternative routing. This situation continues to have a large influence on the ocean shipping market, draining capacity, impacting shipping and equipment utilization efficiency, and generally increasing ocean freight rates, which were triple prior year levels, settling back at the end of Q3 to over twice the container rates of a year ago. CH Robinson, Google News, Drewry, DHL Migration of manufacturing away from China for products imported to the U.S. is driven by a combination of geopolitical tensions, economic factors, supply chain resilience needs, and corporate responsibility goals. By mid-2024 , a majority of ACR’s for-sale products were made in countries other than China and over the preceding twelve months, the company has reduced the proportion of its manufactured products for sale imported from China by over 1500 basis points, accomplishments that demonstrate determination to mitigate geo-political supply chain risk and a commitment made by ACR to protect the interests of our customer.

Foodservice Industry Outlook SUMMARY: Performance lags as remnants of inflation cut restaurant traffic and purchases Due to sluggish performance of many large players to date in 2024, Technomic downgraded full-year chain sales growth forecast from 6% predicted in January to 4.9% now forecast for year-end. High foodservice inflation continues to have a major impact on chain restaurant performance as menu prices have increased by 4.1% over the trailing 12-month period ending in July. Technomic

Q4 2024 Market Update

Low- income households continue to limit their food service spending, and as highlighted in last Quarter’s Market Update, has led many quick-service restaurants to provide value- oriented platforms, like McDonald’s and Burger King’s $5 meal deals. However, early r esults from McDonald’s value platform have yet to show a measurable impact on same -store sales despite the mild boosts in traffic. Last quarter, McDonald’s U.S. business’ same -store sales fell by 0.7% — the first decline it reported in the key metric since 2020. Restaurant Dive The morning daypart is growing significantly for Quick Service Restaurants, now accounting for 8% of that segment’s total sal es. Driving this are upward trends in office-based employment with resumption of morning commutes and coffee stops, as well as restaurant breakfast meetings and office catering demand. Implications for Distributors are product demand shifts toward hot beverage supplies (cups, lids, sleeves, stirrers, etc.). NACS / convenience.org Fredonia Research findings presented at a recent fiber packaging conference that plastic is starting to lose market share in several areas, largely due to shifts in consumer preferences, regulatory changes, corporate sustainability goals and investor pressure, and advancements in the production, performance, and quality of alternative materials like molded fiber. Demand for single-use foodservice products made from molded fiber is forecast increase 10% per year through 2028. Fredonia Research

The General Economy

Q4 2024 Market Update

SUMMARY: US and Canadian inflation nears target levels raising hopes for Q3 prime rate cuts

Overall inflation continued to decline in Q3 2024 in both the U.S. and Canada to levels slightly above both country’s central bank 2% targets . US Bureau of Labor Statistics, Statistics Canada, Technomic

88% of 101 economists polled by Reuters in late August predicted the U.S. Federal Reserve will cut interest rates by 25 basis points at each of the remaining three meetings of 2024. In actuality, the Fed lowered the benchmark interest rate a half-percent to 4.75% on September 17, signaling confidence that inflation is under control and the Fed’s focus is moving toward fostering employment growth. The Fed meets again next in November and then again in December CBS Bank of Canada began lowering its prime rate in June and cut twice since then, lowering the key policy rate to 4.25% currently. Reuters Unemployment rates in the US and Canada trended up through the first half of 2024. 4.2% was the US rate in mid-September, 6.6% in Canada. WSJ Economists at Modern Distribution Management forecast U.S. wholesale distribution revenue for 2024 to increase 2.2% annually versus prior year and 2025 revenue growth to be 5.7% for the distribution sector. MDM

CANADIAN UNEMPLOYMENT RATE

U.S. UNEMPLOYMENT RATE

20%

10% 12% 14%

15%

10%

2% 4% 6% 8%

Charts by Technomic

Key Takeaways – Q4 2024

Q4 2024 Market Update

Threatened strikes in Q3 2024 on Canada’s rail lines, its domestic air carrier, and at US east coast ocean ports are emblematic of perhaps the most contentious and stability-threatening labor relations climate in many years. According to the US Bureau of Labor Statistics, in 2023, there were 33 major work stoppages, the largest number of major work stoppages since there were 39 in 2000. Exacerbating the strike's potential for extended economic impact in Florida and the Appalachian region is the unprecedented devastation caused by Hurricane Helene. The wage increase agreement of October 3 temporarily put East and Gulf Coast workers back on the job is slim comfort for a jittery North American market. Strikes and other threats to the global supply chain efficiency, including conflict in the Red Sea, typhoons in Asia, and fluctuating consumer demand drive uncertainty and instability. Agility and vigilance are required of foodservice distributors and restaurant operators to keep business treats at- bay and ACR’s teams of global sourcing and logistics professionals are experts with proven experience, methodologies, and resources to minimize supply flow disruption and keep your operation humming. Staying abreast of economic indicators, industry reports, and market analyses will be crucial for navigating the dynamic landscape of ocean freight shipping in 2024. In the weeks prior to the October walkout, ACR teams worked the phones around the clock on both sides of the Pacific to ensure maximum levels of supply on-hand to keep customers running as long as possible in the event the strike dragged on. When the deal was announced on October 3, ACR stayed at it, clearing cargo logjams and port backlogs incurred during the short work stoppage. Restaurant operators and industry distributors rely on ACR for timely and accurate insights and action. Work with your ACR representative to develop and execute the best solutions for your business! Chinese New Year is celebrated on Wednesday, January 29, 2025. The official government holiday period spans January 28 to February 3 and manufacturing production and shipping from mainland China facilities will pause for several days before and after the holiday period. Plan your forecasts and purchasing now to ensure supply continuity throughout this period.

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