Excerpt from CoStar
Container Shipping Costs Down but Product Price Inflation Persists
Procurement and purchasing experts in the hotel industry say strong relationships with suppliers are helping to mitigate cost increases and delays.
The supply-chain environment has been in an ongoing state of flux since the onset of the COVID-19 pandemic, and 2022 hasn't brought much relief.
"This year has been no different," said Shahid Javed, executive vice president of procurement at Aimbridge Hospitality.
Javed said part of this state of flux stems from "refocused priorities for brands and operators, along with new expectations of travelers today, but geopolitical shifts are also a factor that emerged in the past year."
Aimbridge, a global third-party management company based in Plano, Texas, has felt the impact of inflation, specifically in commodities such as food, he added.
"However, we worked with our suppliers on alternatives and with hotels on drop sizes to optimize the number of deliveries. We also utilized menu engineering to keep overall cost increases in check," Javed said in an email interview. "These actions, coupled with our strong relationships and agreements, collectively reduced the overall impact on cost."
Products with the longest wait time — between three and six months — include furniture, fixtures and equipment. However, day-to-day products such as food and supplies are more readily available, he said.
Construction costs have reached a higher price point in 2022 than cost levels seen in the past few decades, and it's not limited to hospitality construction, Javed said. The good news is Aimbridge has seen costs begin to level off with the expectation of lower inflation in 2023.
"We are closely watching this area for our capital projects to ensure they are completed on time and on budget," he said.
Anu Saxena, president and global head of Hilton Supply Management, said the industry is in a "different and better place than we were a year ago, but challenges do remain." Hilton Supply Management is a global procurement and supply chain services program supporting more than 12,000 properties, half of which are non-Hilton-branded hotels.
"The manufacturing sector remains in what I would describe as a demand-driven, supply-chain-constrained environment," she said in an email interview. "On the upside, things have settled down and back orders for goods are significantly better."
Container Costs Down From Peak Prices
Alan Benjamin, president and founder of Benjamin West — a furniture, fixtures and equipment and operating supplies and equipment purchasing firm — said the cost of containers now is way down.
Shipping costs for an average 40-foot box in route from China to Los Angeles costs less than $4,000, he said. At its peak, it cost between $26,000 and $28,000.
"That's a massive change," he said. "I would always get the question, 'Well what does that mean for my project?' For case goods, typically 10 to 12 rooms fit in a 40-foot container. If [container freight costs] are down roughly $20,000, which is a good estimate, and there's roughly 10 rooms, that's $2,000 per key on the case goods only. That's really significant, whether it's an extended-stay hotel or a luxury hotel."
However, domestic trucking and rail rates are still very high, and that's largely driven by fuel costs and labor shortages, Benjamin said.
"Domestic freight is still high. Overall, freight for CapEx projects, whether you're shipping building materials or FF&E, it is way less than the peak," he said.
Product inflation costs are also a factor, he said.
A hotel client of Benjamin's renovated a 950-room hotel and had to pay some of the peak container costs. As a result, the client estimated they paid about $3 million more in container costs.
"But [the client] made the statement he's glad he did the renovation when he did because the FF&E costs today are a lot higher and he was able to get a pretty significant boost in rate post-renovation, so it actually was a good return on investment for that owner," he said.
"Part of the one-way street benefit of container costs going down is being eaten up by the other one-way street of product costs going up," Benjamin added.
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