AmerCareRoyal - Market Update Q3 2024

AmerCareRoyal offers disposable products used in the food service, janitorial, sanitation, industrial, hospitality and medical industries.

Quarterly Market Update

Quarter 3 | Summer 2024

Restaurant Supply Product Pathway

Q3 2024 Market Update

SUMMARY: Near-term cost pressure potential arises due to tariff actions and global supply chain disruption

OCEAN LOGISTICS

MANUFACTURING

GROUND LOGISTICS

RAW MATERIAL AVAILABILITY

PORT DISRUPTION

INBOUND PORT TIME

CONFLICT DISRUPTION

DIESEL FUEL COST

COST

DOCK TERMINAL TIME

WAREHOUSE INVENTORY

TARIFFS

BERTH / VESSEL AVAILABILITY

LABOR

Vessel berthing and freight handling delays have increased at various US ports driven largely by early seasonal demand and infrastructure projects. Canadian port times have remained steady in Q2. Potential for recent years’ problematic shortages of truck drivers somewhat alleviated by Yellow Freight going out of business and relieving several thousand drivers.

Paper pulp supply remains tight, prices highest in 17 months. May prices up 5% from April, 33% vs. Q3 ‘23. Mill closures driving supply constriction. 5 of North America’s 6 largest containerboard suppliers increased prices in May.

Ocean freight rates have increased 2.5X to 3X since January 2024.

Houthi rebel rocket attacks on cargo ships in the Red Sea continue to force longer sailings around the Cape of Good Hope, tying up vessels longer and diminishing berth capacity at industry level. System imbalances driven by Red Sea diversions, adverse weather events, and infrastructure failures have caused port congestion reemergence around the world, particularly in Asia.

US allowing molded fiber and aluminum tariff exclusions to lapse in June & July, tariffs reverting to higher percentages.

Labor shortages in Malaysia have reduced glove output and many facilities are now booked at full production capacity through September.

Diesel fuel prices are mixed across North America, down slightly in the US vs. 2023, while slightly up in Canada.

North American foodservice supply product inventories remain steady in the first half of 2024.

Nitrile Butadiene Rubber (NBR) raw material output is being throttled, driving > 15% cost increases in May & June.

Global Shipping and Logistics

Q3 2024 Market Update

SUMMARY: Perfect storm of factors reigniting shipping container capacity crunch, higher rates, uncertainty

Ocean shipping capacity is rapidly becoming constrained in the first half of this year and that is contributing to the unexpected spike in ocean freight rates now being experienced. Major elements of this situation include:

• An early start of peak shipping season • Longer transits around the horn of Africa to avoid the on-going Houthi rebel attacks on container ships in the Red Sea • Bad weather in Asia Carriers have increasingly skipped ports or decreased time in port, as well as not picked up empty containers to keep vessels on track for delivery, and all of this is happening when consumer goods for back to school and holiday seasons are set to be moved on the water. (CNBC)

Global shipping demand ended 2023 at a robust 8% over prior year and has stayed at reasonably strong mid-single digit rates through May. Demand spiked in June driven by inventory restocking as retailers increased buffer stock to prepare for longer voyages related to the Red Sea situation, initiating an early start to peak shipping season and earlier- than-normal ordering. Resultingly, spot rates for ocean shipping doubled in May over prior month and are now 2.5 to 3 times January 2024 rates. (DHL, beeontrade.com) Barring an end to the Red Sea crisis or slowing demand, industry experts see the congestion and delays persisting through the rest of summer. With the global container fleet expected to reach 30 million TEUs in June, between 6% and 7% of that capacity is getting tied up by port congestion. Logjams at the world’s busiest port, Shanghai, have spiked to as long as five days, the highest level since the Covid pandemic. (Journal of Commerce, Loadstar.com) International Longshoreman’s Association negotiations with management at East Coast and Gulf Coast ports broke down in early June over issues about automation displacing dock workers. ILA’s contract for these locations expires September 30 . (CNBC)

Global Capacity Development Apr- DEC’24 (in mTEU)

Alphaliner, SeaIntel, Linerlytica - Republished by DHL Global Forwarding Alphaliner, SeaIntel, Linerlytica – Republished by DHL Global Forwarding

scrapping

existing capacity Apr’24

planned deliveries

delays or congestion

routing avoiding Suez

idle, repair, lay up

forecasted capacity Dec’24

A note of good news - Baltimore Harbor remarkably re- opened on June 10, just three months after a tanker crash destroyed the Key bridge and blocked ship traffic.

Spotlight on Tariffs and Trade Actions

Q3 2024 Market Update

SUMMARY: Trade actions likely to drive cost upward for certain products manufactured for foodservice

A tariff is a tax imposed by one country on goods and services imported from another country. Tariffs may result in increased prices for domestic consumers, which in turn may make imported goods less appealing relative to domestically produced goods. Historically, governments have relied on tariffs to protect or promote domestic industries from foreign competition while also raising government revenue. (Masterclass) Anti-dumping duties are taxes imposed on imported goods when a government believes they are priced below fair market value and could harm domestic producers. The goal of these duties is to raise the price of the imported goods back to fair market value. (Investopedia)

On May 14, the White House announced that following an in-depth review by the United States Trade Representatives, President Biden was taking action to protect American workers and companies from China’s unfair trade practices. (whitehouse.gov)

As a result, the US Trade Representative will allow exclusions to Section 301 tariffs to expire, reverting the tariff on these goods to 25%, effective 06/15/2024 (ustr.gov)

Further, Section 301 tariffs on aluminum foil rolls manufactured in China will increase from 7% to 25%, effective 08/01/2024. (ustr.gov)

Additionally, exclusions to Section 232 tariffs of 10% placed on aluminum foil rolls for national security reasons will be removed effective 07/01/2024, regardless of the product’s countr y of origin. (ustr.gov)

Anti-Dumping Duties investigations on aluminum foil pans made in China is underway, prompted by a petition filed by the Aluminum Foil Container Manufacturers Association. The US Department of Commerce is scheduled to deliver a preliminary antidumping determination on 10/23/2024, and final determination on 01/06/2025 and the US International Trade Commission following a similar timeline. The outcomes of these investigations will influence market prices and availability potentially as early as the second half of 2024.

North American Ground Logistics

Q3 2024 Market Update

SUMMARY: Volume and labor stabilizing, diesel fuel prices are mixed, rail strike watch in Canada

North American trucking outbound tender volumes surged 7.1% at the end of May, one of the strongest demand surges to start a summer shipping season since 2019, helping sustain spot rates at relatively elevated levels. The domestic full truckload market has been in extreme oversupply since the first half of 2022 when the impacts of the COVID pandemic on supply chains demand began to fade, overcapacity that may now be fading, presenting potential consequences of upward pressure on shipping rates. Meanwhile, trucking jobs dipped significantly in May, according to the monthly employment report from the Bureau of Labor Statistics, and now are at the level they were at last November. Large employer Yellow Freight recently defuncted, ending the employment of several thousand drivers, contributing to a seasonally adjusted decline of 5,400 jobs fromApril to May, an interesting development for the industry that has been contending with significant shortages of drivers for several years. Seasonally-adjusted warehousing jobs rose in May by 700, to 1,772,100, continuing a recent positive streak in this sector's hiring. After a year of significant declines in hiring in 2023 - warehouse jobs declined greater than 5,000 positions several months and increased only one month of the whole year – the warehousing sector seems to have rebounded somewhat with jobs steadily up 5,200 from December 2023. (FreightWaves) As this is written, rail shippers in Canada are awaiting reply comments / orders from the Canada Industrial Relations Board on federal government concerns about a potential strike by Canadian National and Canadian Pacific Kansas City rail workers. Rail worker’s union, Teamsters Canada Rail Conference, authorized a strike to start May 22, prompting federal government appeal to the CIRB for review of the matter. Negotiations between the unions and railroads are continuing. (Argus Media, CTV) Variable consumption and demand patterns present a mixed picture of fuel costs across North America at the start of the summer travel and peak shipping seasons. Diesel fuel prices averaged $1.78 per liter across Canada in the second quarter of 2024, up from $1.56 per liter the same period last year. In the US, weekly average prices for diesel declined to $3.82 in May from $4.00 per gallon in April, and down from $3.91 in May 2023. (Statista Canada, US Energy Information Administration)

Industry and Economy Perspective

Q3 2024 Market Update

SUMMARY: Inflation steadily retreating, not yet at Fed target; Food inflation varying in US vs. Canada

As of May 2024, the 12-month consumer price index (CPI) in the United States was 3.4%, excluding food and gas prices. This is a decrease from the 9.1% peak in 2022, but still higher than the 2% target set by the U.S. central bank. (Bureau of Labor Statistics)

The US Producer Price Index, measuring wholesale prices paid, declined 0.2% in May, and US consumer prices remained steady in May as cheaper gasoline offset higher costs for rental housing. However, inflation likely remains too high for the Federal Reserve to start cutting interest rates before September against the backdrop of a persistently strong labor market. The Fed’s Open Market Committee predicted on June 12 there would be just one rate cut in 2024. (Modern Distribution Management, Reuters) Food-at-home (grocery store or supermarket food purchases) CPI increased 0.1% from March 2024 to April 2024 and was 1.1% higher than April 2023. Food-away-from-home (restaurant purchases) CPI increased 0.3 percent in April 2024 and was 4.1 percent higher than April 2023. Food price inflation overall is expected to continue decelerating in 2024. (USDA) . Latest reported rate of inflation in Canada is for April, 2.7%, down from 2.9% the month prior and from 4.4% in April 2023. 2.7% is lower than the recent long- term average of 3.15% and is within the Bank of Canada’s target range of 1 to 3% for three consecutive months. Canada’s food inflation rate slowed in April as well, with grocery store costs dropping from 1.9% to 1.4% and restaurant prices falling from 5.1% to 4.3%. (The Globe and Mail, Statista, Trading Economics) Wholesale inventories rose 0.1% at the start of the second quarter, mirroring a similar rise in sales, according to US Commerce Department data. Current metrics suggest that inventory stocks are broadly keeping pace with demand, and the inventory-to- sales ratio sits at 1.35 months compared with 1.39 months a year ago. (Nasdaq RTT News)

Consumer Price Index Year-over-year percentage change

1M 3M 6M YTD 1Y 3Y 5Y 10Y MAX

US Inflation Track - YCharts

Canadian Inflation Track – Bank of Canada

JUL ’23

OCT ‘23

JAN ’24

APR ‘24

Target Range CPI Inflation

Foodservice Industry

Q3 2024 Market Update

SUMMARY: Backlash to high menu prices is slowing growth, but hiring and optimism are strong

Technomic’s Long Term Forecast published in May, predicts that for at least the next 18 months, the Restaurant industry will deal with slowdowns in response to high menu prices. Limited-Service Restaurants promise better longer-term performance expectations, better than other segments, however, because limited service has been very aggressive at implementing price increases, it’s not any longer seen as the default trade-down option for price-conscious consumers. Full-Service Restaurant rate of growth is expected to decline in 2024 as that sector deals with the same dilemma as LSRs, ultimately returning to tempered growth moving forward next year. Growth rates between chains and independents will not be greatly dissimilar. 2024 will bring another 1,500-plus net closures to the restaurants and bars sector. Although LSRs are expected to add some 2,800 to their total in 2024, FSRs will show a net decline of almost 4,800 — the most since 2021. Slow traffic, high rents and resumption of rent payments are all reasons for this aggressive closure rate forecast. A third of the Top 500 restaurant chains declined in number of locations in 2023, more than seen in 2021 and 2022 and the pace of retrenchment has continued in the first half of 2024. (Nation's Restaurant News)

Restaurant hiring continues to outpace pre- pandemic numbers with nearly 69,000 (0.6%) more than February 2020. The full- service segment continues to lag in full recovery from deep pandemic cuts, however, with FSR employment levels in April 2024 4% below February 2020 levels. 937,000 job openings remain in the accommodation and food services sector. (National Restaurant Association) 90% of 500 restaurant operators surveyed by Technomic earlier this year are confident their business will survive the next six months. This figure is up from 74% when the survey was conducted last November. (Technomic)

CONSUMER PRICE INDICES 12-MONTH CHANGE

Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr 2023 2024

Food at Home

Food Away from Home

Technomic

Driven largely by backlash over meal price inflation and the resulting decline in restaurant traffic, in early June Technomic lowered its January 2024 foodservice industry growth forecasts for FSRs from 4.4% to 2%, and for LSRs from 5.9% to 4.9%, for the remainder of the year. This despite steady decline in away-from-home meal pricing over the past year – operators surveyed still feel prices are too high for most patrons.

Key Takeaways – Q3 2024

Q3 2024 Market Update

Prices for imported goods in the foodservice industry are likely headed up due to election-year trade and tariff actions being taken by the US administration on key component substrates, aluminum, and molded fiber.

Another factor likely to add to price pressure through the second half of ‘24 is anticipation about potential for anti -dumping duties to be levied by the US on goods from China.

And as if that wasn’t enough, the global container freight system is again unsettled by geopolitical and infrastructural issu es; attacks on cargo ships in the Red Sea by Houthi Rebels siding with Hamas over the war in Gaza are forcing longer-than- normal routings around the southern tip of Africa, which in-turn ties up vessels and cargo berths for several additional days per each voyage; anxious retailers, concerned about space availability are placing import orders early and bidding up spot market shipping rates to ensure they get space on boats; ocean container firms have increased instances this year of blank- sailings where vessels “skip” scheduled port -calls or voyages to optimize fleet utilization, operations and / or profitability; once more, as it did earlier this decade, the interwoven trans-oceanic supply chain demonstrates its vulnerability to disruption. Answering these challenges, ACR’s Supply Chain experts have diligently maintained focus on these issues, planning and executing sourcing strategies that have diversified manufacturing points for upwards of half of our product portfolio to geo- politically favorable countries. Our logistics teams are on top of every container shipment to secure space, optimize routing and ensure smooth product flow, and our warehouse teams in North America do everything possible to ship orders complete and on-schedule. ACR teams are committed to the success of your business, keeping your foodservice essentials flowing and your operating costs in-line.

Finally, we’ve got some BIG NEWS to share! Keep your eyes on AmerCareRoyal’s Linked In and Facebook pages in late June leading up to a big announcement on July 2. And follow us on those pages for information & insights!

Count on us to help your business win each day!

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