A look back at 2021 and what 2023 could bring
Supply chain challenges have become a hot topic in 2021 and as the year progressed, industry professionals and regular consumers made headlines daily. In 2021, port congestion, manufacturing delays, commodity shortages and significantly rising container costs from Asia to the United States were the biggest supply chain challenges.
Port congestion in the United States reached an all-time high at the end of 2021; in some cases, more than 90 container ships were stranded outside the ports of Long Beach/Los Angeles awaiting unloading. Congestion began to ease in March 2022, and currently the container ship backlog is hovering around 15-20 ships per day. Transit time for goods from Asia still remains an additional eight to 11 days over pre-COVID times.
Factory closures due to the delta variant of COVID-19 were also common and still very problematic from late 2021 to early 2022. Vietnam, for example, has seen several cases of manufacturer closures following outbreaks of largely unvaccinated workers. Other challenges included shortages or delays in raw materials, with items ranging from foam and cotton to hardware and other components.
Container shipping costs from Asia to the United States have reached record highs in 2021. The average cost has gone from a range of $2,500 to $3,000 to $29,000 for a 40 container. feet to US West Coast ports. Container rates started stabilizing at around $12,000 in June 2022, still significantly higher than before COVID-19, but very likely the new normal for the rest of the year.
Other factors driving costs and a shortage of raw materials in the supply chain include the ongoing conflict between Russia and Ukraine. Although oil prices rose before the conflict due to increased demand, some three million barrels of Russian oil were withdrawn from the global supply chain. At the end of March 2022, oil prices rose to over $110 per barrel and continue to rise. This increase has not only hit consumers’ wallets at the gas pump, but transportation companies have implemented fuel surcharges to cover the increase.
E-commerce has grown over the past decade, but in the wake of the COVID-19 pandemic, consumers have turned to the internet in record numbers to make purchases and take advantage of delivery of goods on the latest kilometer/home. Amazon and other online retailers have seen tremendous growth since 2019, and the trend continues today.
The changing landscape of online ordering with home delivery and less reliance on department stores has created a strong demand for warehouse space across the country. The warehouse industry has always experienced high turnover, but in 2021 the industry has also experienced a significant increase in labor cost as well as a huge labor shortage. Large e-commerce setups for companies such as Amazon, Wayfair and Walmart have had a big impact on the labor pool, increasing labor costs and creating a significant challenge for private warehouse companies. Additionally, the industry has seen a large percentage of older employees retiring and a very small percentage of younger workers applying for the labor-intensive positions available.
So what does this mean for hotels that plan to receive new furniture, fixtures and fittings over the next 18 months?
As in 2021, project teams should continue to anticipate, at a minimum, an additional two to four weeks for crate goods, lighting, stone, etc., from Asia.
Increased container costs continue to be passed on to hotel owners and are, for the most part, not absorbed by manufacturers. In 2021, these fees were typically carried as an additional line item in the FF&E budget. Crate goods will generally accommodate eight to 10 rooms per container for full-service hotels and 15 rooms for limited-service hotels.
Although container rates stabilized at around $12,000 per container in June, experts are unsure what will happen over the next 18 months. A looming recession, rising inflation, risk of future COVID-19 shutdowns and holiday shopping in the fourth quarter make it unclear whether container prices will rise again in the next six months. A 150 room limited service hotel with 10 containers of goods from Asia should be budgeted with $120,000 to $250,000 of additional container costs depending on the degree of contingency desired.
The price of truck shipping to the United States is trending down but still significantly higher on average than before COVID-19. In 2019 the average cost per mile was $1.83 and in June 2022 it was $2.71. Rising fuel costs will continue to be a concern and will offset any downward trend in the mileage rate. Owners should continue to budget an additional 2-3% for freight costs and consider adding an additional 1-2% in anticipation of prolonged fuel price hikes, which could be compounded by a heavy winter season. hurricanes in the Gulf.
Supply chain issues, rising transportation costs and labor shortages will continue into 2023, with costs and lead times unlikely to return to pre-COVID-19 levels, although there are still small improvements compared to the situation of the industry in 2021.
Darlene Henke is President and CEO of Audit Logistics.
The views expressed in this column do not necessarily reflect the views of Hotel News Now or the CoStar Group and its affiliates. Bloggers posted on this site are free to express opinions which may be controversial, but our aim is to provoke thought and constructive discussion within our community of readers. Feel free to contact an editor with any questions or concerns.
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