Avendra Commodity Market Update Q2 2022_MRO

COMODITY MARKET UPDATE Q2 2022 Published April 2022 MARKET TRENDS | PRICING INFORMATION | UNIQUE PLANNING EXPERTISE

TABLE OF CONTENTS

03 Executive Summary: Top 8 Takeaways 04 Key Considerations for the United States 06 Macroeconomics 07 Additional Resources

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Disclaimer: Predicting the future carries a certain amount of risk. While every effort has been made to ensure accuracy, the information presented here is predictive and not intended to be taken as fact. This material is furnished for informational purposes only, is subject to change without notice, and should not be construed as a commitment by Avendra or our suppliers. While Avendra has made every effort to supply complete and accurate information, Avendra assumes no responsibility or liability for errors or inaccuracies that may appear herein.

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EXECUTIVE SUMMARY: TOP 8 TAKEAWAYS Our goal is to deliver hospitality procurement solutions, mitigate inflation, avoid disruptions and keep our customers informed. To that end, the following is a summary of the particularly impactful market forces affecting commodities, and updates to be aware of:

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Russia-Ukraine War

Inflation (overall)

Product availability

In the U.S., the Federal Reserve expressed its concerns about the new COVID-19 variant further disrupting global supply chains and the labor market well into 2022. We anticipate inflation to be more than double the historical average, i.e., 5-10%. In Mexico, the annual inflation rate is ~7%, the highest rate in 20 years.

Suppliers have reduced the number of SKUs available to maximize output. Low-volume items have been temporarily or permanently discontinued.

Avendra is tracking manufacturer fill rates of master food distributors and working with our manufacturers to improve the fill rates. Continue to communicate your needs as often and as far in advance as possible with distributors.

We are monitoring the Russia-Ukraine war. The immediate impact to our business has been increased prices/volatility on key commodities, namely: oil, steel and copper. We do not expect a short supply situation as a result of the conflict.

4 Energy/Oil Energy prices have been volatile with sharp increases across several markets due to lower supply and increasing demand; this has been exacerbated by Russia-Ukraine. North American energy prices are forecasted to increase 2-5% in Q2 2022. To reduce costs, clients can enroll in demand response programs and revisit efficiency projects as the payback may have changed. Also, managing energy supply contracts in advance of expiration can help to identify and take advantage of short-term price decreases in the market.

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Tight labor market

High product demand

Packaging

A common theme across the U.S., Canada and Mexico are labor shortages and increasing wages driving prices up and, in some cases, affecting production (i.e., less staff results in fewer shifts). This situation is also affecting ports and customs clearance, increasing the lead time for imports and exports.

Many commodities experiencing price increases have higher than expected demand, including energy, seafood, beef, cooking oil, coffee and to-go packaging. Retail business has remained strong, and foodservice has been strong since the spring, creating challenges in building safety stock in many categories.

Transportation challenges and lead times

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U.S. national average freight rates remain at historically elevated levels. Supply chain bottlenecks (backlogs at ports), high fuel costs, and driver shortages are expected to impact freight rates well into 2022. Plan for 20- to 28-week lead times on textiles and equipment, and even longer (40 weeks) for mowers and carts.

Suppliers are experiencing an increase in the price of input costs, most notably labor and raw materials (e.g., resin, aluminum, corrugate, paper). This is putting pressure on price and availability for disposables, orange juice, eggs, milk, wheat and key cards, to name a few categories.

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KEY CONSIDERATIONS FOR Q2/2022 BUDGETING Key Category Inflation Inflation Category

Inflation Projection

Maintenance, Repairs and Operations (MRO)

Expect inflation in the range of 3-8% for the first half of 2022 with supply catching up to demand in the second half of the year.

Mitigation Purchase private label products where available to offset the increase.

MRO – Raw Materials COMMODITY

DESCRIPTION

CARBON STEEL

2-5%

Demand will drive prices slightly higher, and the forecasted stabilization was delayed due to a new Q1 COVID-19 wave. Market should begin to favor the buyer in mid-to-late 2022.

STAINLESS STEEL

2-5%

Expect prices to stay elevated through 2022, driven by global inflation and demand.

ALUMINUM

3-6%

Expect prices to stay elevated through 2022, driven by global inflation and demand.

COPPER

3-6%

Expect prices to stay elevated through 2022, driven by global inflation and demand.

Demand and global political tensions are expected to continue to drive WTI crude and Brent prices higher.

CRUDE OIL

10-15%

POLYMERS

1-4%

Expect marginal increases and possible stabilizing of prices in mid-year.

WOOD PULP

0-3%

Expect marginal increases to price per ton led by consumer demand and spending increases over the coming quarters.

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KEY CONSIDERATIONS FOR Q2/2022 BUDGETING MRO – Finished Goods COMMODITY

DESCRIPTION

CLEANING CHEMICALS

15% +

Expect prices to increase based on global pressures from fuel, caustic soda, and inorganic acids, which are all key components in chemical manufacturing.

ELECTRICAL CABLE

1-3%

Although demand is increasing, output has created a surplus. Expect prices to have a slight drop in early 2022 but to rebound by EOY.

HVAC FILTERS

6-10%

Raw material and logistic costs continue to push pricing higher. Set expectations for the potential of multiple price increases over the course of 2022.

HVAC UNIT

4-8%

Input cost drivers, demand and import costs will continue to raise prices higher. Customers can expect multiple price increases from most manufacturers. Contracts with price increase caps are recommended to help mitigate impact.

REFRIGERANT

4-8%

Expect pricing to have marginal increases throughout 2023. To reduce impact the recommendation is to buy in larger volumes, when possible.

Freight/fuel surcharges: Avendra contracts are designed to protect our customers and mitigate against significant increases.

However, due to the current environment, surcharges may be unavoidable as some Avendra contracts permit such surcharges.

If customers receive an unexpected fuel surcharge from an Avendra-contracted supplier, please contact Customer Service at 866-AVENDRA (866-283-6372) or customerservice@avendra.com so that we can address it with the supplier.

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MACROECONOMICS – MAJOR MARKET EVENTS Macroeconomic Trends • U.S. manufacturing sector activity rebounded in February with some easing in supply constraints reported.

February’s seasonally adjusted IHS Markit US Manufacturing Purchasing Managers’ Index (PMI) rose to 57.3 from a reading of 55.5 in January. The improvement in supply conditions contributed to the slowest rate of increase in cost inflation in nine months. However, the survey was completed just prior to the start of the conflict in Ukraine.

• U.S. retail sales soared in January as households continued to spend on larger volumes of goods and services despite the highest inflation seen in 40 years. Retail sales increased 3.8% for the month, well above official estimates, and 13.0% year-over-year compared to CPI-U inflation of 7.5%. Double-digit gains in online shopping and rising sales activity for furniture and motor vehicles were the primary drivers.

• U.S. consumer sentiment fell to its lowest level in over a decade in February as concerns intensified over high inflation and its impact on personal finances. The University of Michigan reported its sentiment index had dropped to 61.7 from a reading of 67.2 in January. Consumer sentiment on current economic conditions and future expectations both dropped to their lowest levels since 2011. Surveyed inflation expectations over the next 12 months rose to their highest level since 2008.

United States

• Hiring activity surged in February as industries shook off the effects of the latest wave of COVID-19 infections driven by the omicron variant. The Bureau of Labor Statistics reported nonfarm payrolls increased by 678,000 for the month with the unemployment rate dropping to 3.8%. The leisure and hospitality sector continued to lead job gains.

Energy/Transport Markets • Crude oil prices rallied to their highest level since 2014 in February, fueled by worsening geopolitical tensions that later erupted into war between Russia and Ukraine. West Texas Intermediate (WTI) crude oil front-month futures rose by over 10% for the second straight month. National average diesel and gasoline prices also surged to new multiyear highs.

• The latest forecasts from the U.S. Energy Information Administration (EIA) indicate domestic crude oil production rising through 2022 and reaching record high levels by 2023. In the EIA’s Short-Term Energy Outlook, high crude oil prices are expected to encourage rises in output this year averaging 12.0 million barrels per day (bpd), a 6.8% rise from 2021 output levels. New investments in the Permian region are also expected to support record high production levels in 2023 with early estimates of 12.6 million bpd.

• National average freight rates eased off historic high levels in February, but capacity tightened by the end of the month with spring volumes expected to lift rates higher. Supply chain bottlenecks, high fuel costs, and labor shortages are expected to support freight rates well into 2022.

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ADDITIONAL RESOURCES .

Supply Chain Spotlight Communication An overview of affected categories along with actions and implications to help you prepare and adjust operations accordingly.

Educational Webinars The latest information on key topics impacting the supply chain including procurement best practices, food trends, and more.

Supply Chain Updates Page Resources and guidance including best practices, cost inflation outlook, and other information to help improve operations.

The Avendra Customer Service team is available to answer your questions at customerservice@avendra.com and 866-AVENDRA or 001 (301) 825 0200 (international customers).

Visit myAvendra to access your purchasing data, program and supplier information, opportunities for savings and much more.