Taylor Healthcare - Material Matters Oct 2022

Material Matters October 2022

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The information set forth in this document may not be reproduced or disclosed by the recipient(s) without the prior written consent of the author.

Contents MATERIAL MATTERS

01

Market Overview

3

05

Signs & Graphics Market

16

02

Paper Market

6

06

Logistics Markets

19

03

Label Market

9

07

International (Imports)

22

04

Packaging Market

13

08

Price Information

25

2

Market Overview

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Important Updates MATERIAL MATTERS Wholesale prices have risen for the first time in three months and show inflation is still raging. CPI shows inflation remained near a 40-year high in September.

Paper price increases continue in Q4 and are projected into 2023.

Demand: Overall, graphic communication demand remains steady. There are pockets that are slowing. e-commerce deliveries and corrugate pricing are moderating. Q4 deliveries will influence pricing and demand into Q1.

Energy costs as a percentage of GDP have risen significantly worldwide.

The U.S. Dollar continues to strengthen. An index of the dollar versus other major currencies is trading on a 20-year high.

Global container freight rates hit a 17-month low, down more than 70% from its peak.

4

Market Overview MATERIAL MATTERS

RISING INTEREST AND MONEY SUPPLY

MATERIAL CONSTRAINTS

TRANSPORTATION CHALLENGES

CHINA’S COVIDZERO POLICIES

EUROPEAN ENERGY CRISIS

The Federal Reserve raised interest rates by 75 points for the third time this year, stepping up their fight to curb inflation that's near the highest levels since the 1980's. In addition, the M1 money supply time is at an all-time high.

Supply constraints continue. Two examples include an Ingredion plant strike (starch) and a Pixelle mill closure that impacts many paper-based products.

While challenges still remain with many transportation modes, there are several experiencing improvements: Global ocean container rates are seeing reductions and wait times at U.S. ports have decreased.

China’s COVID-zero policies continue and have impacted the supply chain in the U.S. and worldwide. By some reports, the country is battling its broadest COVID outbreaks yet.

The European energy crisis is severe and the effects are being felt all over the world. A longer and deeper recession is expected in Europe.

5

Paper Market

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Paper Market MATERIAL MATTERS

Market Overview Though there have been reductions, demand is still outstripping supply on all grades. This continues to create an allocated and oversold market where securing paper and delivering it on time remains a challenge. Compromises will continue to have to be made on a daily basis.

Market Update

Thermal Paper

● Ongoing mill price increases and freight and fuel surcharge announcements continue in October.

Thermal paper costs are at an all-time high and the record price increases are not expected to slow down soon. Thermal mills are running at 100% capacity. End users are ordering much more volume than in previous years. Their reasoning is to hedge against future price increases and prevent future supply outages. This habit seems to be slowing, which could reduce demand from paper mills. However, the political environment with China is heating up. China supplies most of the chemicals for the thermal coatings. As to such, there will most likely be a price increase before the end of 2022.

● Sappi accepted an offer to sell three European graphic paper mills to focus on other segments, including packaging and specialty papers, pulp, and biomaterials. ● Neenah announced an expanded moratorium on key grades, specifically index and tag. ● Neenah also continued to discontinue SKUs to focus on their premium grades. ● Fedrigoni and Mohawk forged a manufacturing partnership. ● Pixelle Specialty Solutions announced the closure of the Jay, Maine mill in Q1 2023. This mill produces specialty label and release papers, as well as industrial and packaging solutions for E-Commerce and food service. Capacity removed will be 230,00 tons annually. ● Stora Enso will divest four paper mill sites to focus on strategic growth areas. ● ND Paper is rationing grades and weights and discontinuing their Escanaba brand.

Envelope Industry The envelope industry continues to face significant pricing pressures, inflation, and raw material and labor shortages. Supply chain problems and paper allocations continue to plague the industry, these conditions are expected to continue throughout Q4 of 2022 and into 2023. Backlogs are very tight going into Q4, which is traditionally the busiest time of the year for the industry.

7

Paper Manufacturing MATERIAL MATTERS

U.S. Coated Freesheet Mill Operating Rate Forecast

U.S. Uncoated Freesheet Mill Operating Rate Forecast

8

Label Market

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Label Market MATERIAL MATTERS

Market Overview Label demand remains high with some pockets of improvement. Paper shortages and inflation will continue into 2023, worsened by a paper mill closure impacting around 25% of the 40# SCK liner market in North America.

Paper

Films

Adhesives

Packaging/Freight

● Allocations, pricing pressures and long lead times continue with paper

● Polypropylene (PP) film has stabilized and may see downward movement in Q4

● Hotmelt adhesives have stabilized for supply and pricing. There is upwards pressure given the volatility in oil and gas feedstocks globally.

● Ocean-bound freight rates are down significantly but still higher than perpandemic norms

● High demand for pulp, shortages of paper making/coating chemicals and production capacity shortages continue ● The Pixelle mill shutdown (next page) will have a large impact on liner availability and alternatives in 2023

● Polyester (PET) has been challenged YTD but starting to stabilize. It may also see downward movement in Q4 ● Demand for PET liner is projected to grow in 2023 given the paper line shortages

● Acrylic adhesives have improved the past quarter and most allocations have been removed. Pricing is expected to be flat for Q4 ● Hurricane season is ongoing and can also impact the supply chain

● Truckload rates have stabilized ● FedEx recently announced the largest general rate increase in its history ● Supply of corrugated, cores, steel drums, and totes have stabilized

10

Label Market MATERIAL MATTERS Paper Mill Closure Adds Pressure to Label Liner Supply Chain The mill closing removes around 20% to 30% of release liner from the North American market in the middle of an already existing release liner shortage. ● On September 20, 2022, Pixelle Specialty So lutions LLC announced the upcoming mill clo sure. ● The Androscoggin mill will continue to run through Q4 2022 and officially shutter its doors in Q1 2023. ● April 2020, a pulp digester exploded, destroying part of the mill. It was not replaced, and this has resulted in higher costs. ● The ongoing starch strike is affecting paper, liner, corrugate, etc., production ● Dunn Paper announces closure of Port Huron paper mill in Michigan ● Resolute Forest Products shares impact of M enominee fire on employees, manufacturing ● Read more on the Taylor Blog

11

Label Market MATERIAL MATTERS

TLMI Update – October 27

Next Steps

Supply chain is still in the headlines and the potential railroad strike is front and center. TLMI partner Pace LLP, Bryan Vickers and TLMI Regulatory Affairs committee co-chairs, Patrick Potter, and Tracy Tenpenny, have been actively monitoring the situation. Attached is a letter TLMI has signed along with other trade associations that will be sent to the President.

A “status quo” period is now in effect, with union and company leadership continuing to negotiate. While union leadership has indicated there will be no labor strikes during this period, these timeframes conclude as early as November 19 for some unions, and as late as December 4 for others. While Congress has the ability to prevent a strike via legislation, leadership in the House and Senate have indicated none will be brought to the floor for a vote, at this point in the negotiations.

TLMI Joins Over 300 Trade & Business Associations Requesting Action on Rail Labor Agreements This week, TLMI joined 321 local, state and national trade associations, urging the White House and Administration to continue their work with railroad unions and railroad companies to ratify the tentative labor agreement, which was announced on September 15.

TLMI will continue to keep members apprised of updates to the ongoing labor negotiations and agreements, along with next steps for re-votes, additional ratification votes, potential Congressional action, and clarity on the timeline of the “status-quo” period.

Two of the unions covered by the tentative agreement framework voted down their proposed contracts earlier this week, while only six of twelve covered unions have seen their members approve and ratify. Any one of the unions not agreeing to ratify their labor agreements can effectively shut down rail services, posing serious service threats for TLMI members’ supply, distribution, and customer chain partners, alongside the broader business community and their respective companies.

12

Packaging Market

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Packaging Market MATERIAL MATTERS

Market Overview The market trend for corrugate is indicating consistent pricing through the rest of 2022. Packaging supply availability will continue to stay tight as demand remains high heading into the retail heavy season.

Aluminum While aluminum remains tight in the market, the availability of magnesium is improving, as US MAG is coming out of their lawsuit looking like they will be producing again.

Resin Resin is holding steady and there may be downward movement on pricing at the start of the year. Hurricane season is here, so it will be important to watch plants that produce resin.

Corrugated Pricing has been holding steady through Q3 and is expected to remain steady for the remainder of the year.

There may be downward movement on pricing heading into Q1. Capacity is starting to increase with a few major suppliers.

Packaging Materials The availability of liner board boxes remain tight, and there are still lead times of 6-8 weeks to secure material.

Wood Pricing Pallet prices on new/used is holding steady, and pricing may drop at the start of the year.

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Packaging Market MATERIAL MATTERS Materials Impacted Price Impact for Top Spend Raw Materials

Materials in corrugated pricing have remained steady through Q3.

Products Impacted All paper products produced in the U.S. have been affected, including boxes, paper collateral, paper mailers, publications, paper stickers and labels, paper tape, paper tubes and paper void fill.

Increase Factors Although price increases have started to stabilize in the packaging market, overseas conflicts and fuel pricing are items still being monitored.

More to Come Packaging supply is expected to remain steady for the remainder of Q4. It is still recommended to source products ahead of time. With hurricane season approaching, more supply chain disruptions could be on the way as well.

15

Signs & Graphics

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Promotional Market MATERIAL MATTERS

Market Overview Challenges continue to plague the printing industry overall. Supply chain disruptions are again a significant concern.

The prices for substrates and finishes continue to increase while the availability of both is on the decline.

Industry Update ● While availability has decreased for nearly every substrate, it has remained relatively unchanged for the last 60 days. However, coatings and toner seem to be less available. ● Regardless of availability, price increases have been the most significant change over the last 60 days for both printing substrates and consumables.

The majority report higher prices for all substrates, with nearly all reporting increases for coated paper (96.7%) and uncoated paper (95.4%). More than half report price increases for all consumables; with coatings (84.8%), plates (78.1%), ink (77.6%) and emulsions (76.5%) topping the list.

● Supply chain disruptions have contributed to decreased 2022 revenue for many. ● There are real reasons for concern when looking at current economic trends.

According to the numbers and expert opinion, the odds of a recession are increasing. As the economy slows, so will the printing industry. PRINTING United Alliance estimates that total industry sales adjusted for inflation will grow by less than 1.0% during the final quarter of 2022. There are actions you can take to prepare, and the time to do it is now. Actions include stress testing your company, acting on early warning signs and exploring credit options.

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Promotional Market MATERIAL MATTERS

18

Logistics Market

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Logistics Market MATERIAL MATTERS

Market Overview The busiest time of the year is almost here, especially when it comes to small parcel shipping. FedEx and UPS are gearing up for another strong peak season. Planning and communication with vendors will be key for success during this time.

Small Package Outlook

LTL Outlook

Small package capacity is expected to exceed volume in 2022. Expected capacity for small parcel carriers in 2022 is estimated at 110 million parcels per day, with an average daily demand of just 92 million packages per day. This is good news as Q4 is typically the busiest time for small parcel shipping. It is expected that there will be capacity to ship all parcel shipments during peak of 2022. Many retail consumers are shopping earlier and this along with added capacity is driving what looks to be a much smoother peak season for parcel carriers.

LTL continues to demonstrate freight volumes at, or exceeding, industry supply capabilities.

The manufacturing industry is the historical foundation of the LTL trucking segment, and it continues to demonstrate growth in both the Purchasing Managers Index and job creation. The August ISM-PMI registered 52.8, which illustrates 27 months of consecutive growth. Growth rates do seem to be slowing, but with what growth there has been, there could be shortages of capacity in Q4.

In addition, manufacturing employment increased by 22,000 in August according to the Bureau of Labor Statistics, continuing its expansion. With LTL's foundation freight of manufacturing expanding, LTL continues to grow due to the expansion of the ecommerce retail that middle-mile freight needs.

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Logistics Market MATERIAL MATTERS

TL Freight Outlook

Fuel Prices

● Rates have dropped some in Q3 and it is expected that there will be small increases for the holiday season.

Fuel costs are expected be steady to slightly higher in Q4.

● If spot and contract rate deflation continue for another quarter or two, it will likely push capacity out of the market, leading to the start of the next cycle of increases in mid 2023. ● There is much uncertainty in the market currently, as some analyst are projecting rates to remain steady and others slight increases.

● The U.S. government release of oil from the strategic reserve did lower fuel costs during Q3. ● OPEC has announced a slowdown in production of oil, which along with the continuing unrest in Ukraine, could dive fuel costs higher again in Q4. ● Below is a YTD diesel graph showing the increase in early 2022 and the decrease in late Q2 and Q3.

● Below is the DAT History of rate per mile and their projections for October.

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International (Imports) taylor.com/healthcare

International (Imports) MATERIAL MATTERS

Market Overview The U.S. dollar is showing strength against RMB and other currencies — this will help lower the material cost of imports.

Freight is showing signs of declining container costs as well. U.S. Customs is increasing its audits and inspections.

The Strengthening of the U.S. Dollar and Weakening of Global Currencies

Exchange Rate for 1 USD to RMB

The U.S. dollar continues to rise in value against other major currencies, after the U.S. central bank increased interest rates again earlier this month. USD soared against major currencies from Euro to the Chinese RMB. An index of the dollar versus other major currencies is trading on a 20-year high. A stronger dollar will make purchases overseas cheaper.

Golden Week Holiday

● $1=7.2287 Chinese yuan renminbi

Prepare for the long holiday in China from October 1 through October 7 ● There will be slowdown for production and outbound/inbound traffic will be impacted.

Production will mostly stop, which traditionally leads steamship lines to ration services and set up blank sailings to adapt the capacity to the lesser volumes. ● Prepare for increased additional shipments AFTER the public holidays as folks ramp up shipping and production again.

Zero Covid Policy in China China's COVID worries to take shine off Golden Week holiday ● Travel during this yearly holiday when folks go back home for extended visits is set to hit its lowest in years as COVID-19 concerns spur calls for people to avoid travel. ● Chinese President Xi Jinping is set to begin a third five-year term in October, breaking the precedent of stepping down after two terms. ● Lockdowns are expected to continue at least through the meeting of the 20 National 23 Chinese Communist Party Congress.

International (Imports) MATERIAL MATTERS Section 301 China Tariff

Congestion in the U.S. Continues

The U.S. Trade Representative (USTR) recently announced that the Section 301 China Tariffs will not expire on their four-year anniversary dates and will remain in effect, subject to further review.

This announcement comes because of the USTR receiving 434 requests from domestic industries and trade associations to continue the tariffs in response to the public comment period from earlier this year.

West Coast ● LAX/LGB: Around 9 ships at anchor/loitering with vessels slow-steaming as well. Berth wait time averages 7 days.

Chassis shortage port wide and rail car shortage.

U.S. Customs Released Operational Statistics

● OAK: 9 vessels at anchor. Average dwell to berth is about 19 days. Westbound railcar supply is slightly improving.

If you have any compliance concerns — for example — HTS classifications, compliance audits (forced labor/social compliance issues) — please reach out. There has been increased activities in this area.

● SEA/TAC: No ship at anchor, but the terminals are operating at 80%+, and lack of WB railcar supply driving increased dwell times on IPI cargo.

U.S. Customs released the August 2022 Monthly Operational Update. Some of the updates include:

● VCR: 1 vessels at anchor, but berth time is about 19 days due to freight backlog on the terminal and lack of westbound railcars.

● CBP seized nearly 2,099 shipments that contained counterfeit goods valued at more than $159 million.

East Coast

● CBP targeted 838 entries valued at more than $266.5 million for suspected use of forced labor in the production of imported goods, including goods subject to the Uyghur Forced Labor Prevention Act and Withhold Release Orders.

● CHS: Berthing activity is smooth this over the past few days.

Still high dwell on IPI cargo driven by congestion with the offdock dray to the rail ramp.

● CBP issued 6,964 emergency action notifications for restricted and prohibited plant and animal products entering the United States.

● HOU: 19 days berth delay, 21 vessels at anchor. Emergency dredging of berths has been completed but it will take 6-8 weeks to work through the backlog further challenged by seasonal labor shortages.

● In August 2022 alone, CBP processed more than 3 million entry summaries valued at more than $294 billion, identifying estimated duties of nearly $9.4 billion to be collected by the U.S. government.

Lockdowns in China ● China’s official case count remains minuscule, with only 949 locally transmitted cases reported nationwide last week, out of a population of 1.4 billion. ●

● ORF: 8 vessels at anchor, 3 days berth delay, rail cargo dwell time is increasing. ● NYC: 14 vessels at anchor with 6 days dwell times. Chassis supply remains extremely tight due to high import street24 dwell. Empty returns continue to be a challenge in NY/NJ

Price Information

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Information on the Following Slides PRICE INFORMATION Information Slides Supply Chain/Inflation References Freight, Energy, Fed Funds, Money supply ISM Report – Extract U.S. Consumer Price Index Paper Manufacturing PPI Commercial Printing Labels PPI: Pressure-Sensitive Products Plastics Materials and Resin PPI Transportation Corrugated and Pallets

Key Acronyms CFS – Coated Free Sheet UFS – Uncoated Free Sheet POP – Point of Purchase TL – Truck Load LTL – Less than Truck Load PS – Pressure Sensitive PPI – Producers Price Index

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Supply Chain/Inflation References PRICE INFORMATION

Sources and Recommended Articles Wholesale prices rise for the first time in three months and show inflation is still raging October 12, 2022 Source: MarketWatch The Trucking Industry Needs to Prepare for the Q4 Retail Boom October 6, 2022 Source: SupplyChainBrain Businesses added 208,000 jobs in September, better than expected, ADP reports October 5, 2022 Source: CNBC The U.S. lost more than a million job openings in August October 4, 2022 Source: Quartz Costco says higher supplier wages to keep prices elevated September 28, 2022 Source: SupplyChainDive New wave of UK port labor strikes begins, with 'massive impact' for Christmas supply chain September 28, 2022 Source: Corridor Business Journal No talks slated as Ingredion strike nears end of second month September 26, 2022 Source: Corridor Business Journal FedEx announces largest general rate increase in its history September 23, 2022 Source: Freightwaves Supply Chains easing but 'still a major problem,' economist explains September 22, 2022 Source: yahoo!finance Pixelle Specialty Solutions to Close Specialty Paper Mill in Jay, Maine September 22, 2022 Source: Paperage

Fed's tough task: History shows inflation takes average of 10 years to return to 2% September 21, 2022 Source: MarketWatch FedEx CEO says he expects the economy to enter a 'worldwide recession' September 16, 2022 Source: CNBC Rail strike averted as employers, unions reach tentative deal September 15, 2022 Source: SupplyChainDive U.S. Manufacturing Output Increases for a Second Straight Month September 15, 2022 Source: Supply Chain Brain Inflation is a lot worse than it seems, as companies do not always pass on the costs September 12, 2022 Source: Supply Chain Dive Supply Chain Problems Are Getting Worse, Not Better, for U.S. Food Retailers September 19, 2022 Source: Supply Chain Brain China Is Battling It's Broadest Covid Outbreak Yet August 29, 2022 Source: Bloomberg The World's Energy Problem Is Far Worse Than We're Being Told August 29, 2022 Source: Oilprice.com Commercial Printing Establishments - 2010 – 2020 August 12, 2022 Source: WhatTheyTh!nk Target Report: Stronger Players Continue To Move Upstream From Pure Print Providers July 19, 2022 Source: Packaging Impressions

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Price Information MATERIAL MATTERS

Freight Highlights Global container freight rates hit a 17-month low, down > 70% from their peak.

The number of ships waiting to get into Port of LA/Long Beach “as declined to only 6 as of late September. It had peaked at 106 ships in January 2022.

Spot rate carnage could result in more ships laid up, 'with worse yet to come' October 7, 2022 Source: TheLoadStar

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Price Information MATERIAL MATTERS

Energy Highlight

Germany Producer Prices

Energy costs as a % of GDP in 2020, 2021 and 2022 in Europe (and the world average).

Past 2 years: Up 60% Past 40 years before that: Up 60%

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Price Information MATERIAL MATTERS

Federal Funds – Rate Hikes

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Price Information MATERIAL MATTERS

M1 – Money Supply

M1 is the money supply that is composed of currency, demand deposits, other liquid deposits—which includes savings deposits. M1 includes the most liquid portions of the money supply because it contains currency and assets that either are or can be quickly converted to cash.

31

Price Information MATERIAL MATTERS

ISM August 2022 Report Extract

Source: https://www.ismworld.org/supply-management-news-and-reports/reports/ism-report-on-business/pmi/august/ 32

Price Information MATERIAL MATTERS

U.S. Consumer Price Index

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Price Information MATERIAL MATTERS

Paper Manufacturing

34

Price Information MATERIAL MATTERS

Commercial Printing

35

Price Information MATERIAL MATTERS

Labels PPI

36

Price Information MATERIAL MATTERS

Plastics Material and Resins Manufacturing

37

Price Information MATERIAL MATTERS

Transportation

Transportation

Container Rate Index - Asia to North America

Trucking Cost Index (FL)

38

Price Information MATERIAL MATTERS

Corrugated

Pallets

39

Thank You

CONFIDENTIALITY NOTICE: This document contains confidential information intended solely for the recipient(s) named herein.

The information set forth in this document may not be reproduced or disclosed by the recipient(s) without the prior written consent of the author.

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