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."

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.

Benjamin said many were avoiding some container ports in California last year because there were more than 90 ships waiting for berth space to open up at the California ports of Los Angeles and Long Beach.

At Long Beach's port in December 2021, during the peak, there were 96 ships waiting for space and 42 ships berthed, he said.

As of September 2022, only 14 ships were waiting and 17 berthed.

During peak months, the demand shifted to other ports such as in Savannah, Georgia.

"The other ports are so small ... having 40 ships waiting in Savannah is worse than having 90 or 100 ships waiting in Long Beach," Benjamin said.

In Southern California, warehouse storage space demand is 3% more than total capacity, and that shortage is anticipated to last all of 2023 and through early 2024, Benjamin said.

Prior to Hurricane Ian, the five parts of the country that were the most oversold in terms of warehouse capacity were Southern Florida, Southern California, Denver/Colorado Springs, Houston and Maryland, he said.

"Now, the other problem is labor in the warehouse," Benjamin said. "It's a huge issue. Warehouses, it's hard work and it typically doesn't pay real well."

Because of the relationships Aimbridge has built with certain suppliers, they're frequently bringing the management company new ideas, alternatives and options to minimize disruptions to operations, Javed said.

"When traditionally approved supplies aren't available, our suppliers have proposed suitable replacement items to keep hotels stocked with essentials," he said. "We then work with our brand partners to gain necessary approvals."

An additional workaround that Aimbridge's procurement team took advantage of was deploying menu engineering for its on-site hotel restaurants, which requires working closely with the culinary experts, chefs and individual hotels to develop menus based on which food products are available.

Saxena said she would describe the past few years as "one massive workaround."

And while her team at Hilton Supply Management is still working through shortages, inflationary pressures and inconsistent port volumes, they are leveraging their expertise in operational cost savings, cost avoidance and supplier management, she said.

"A key to successfully navigating this period has been the strength of our relationships throughout our network, particularly with our incredible supplier community. We remain in constant communication to anticipate, mitigate, and navigate challenges while also staying open to being nimble and creative in our solutions," she added.

Hilton Supply Management has established weekly communication with freight and logistics providers and watches for any potential bottlenecks by monitoring all major ports and delays.

"We've been managing inventory down to the wire in some cases," Saxena said. "Even though we don't physically manufacture the goods, we've been spending time building out our capacity for demand planning to be able to get what we need, when we need it, without paying high overages in costs."

She said her team has invested in data analytics and technology to further streamline data, allowing them to better process supplier data and report on product spend through multiple applications, which enables them to understand and anticipate potential product outages. From there, they can find product alternatives.

Additionally, as the pandemic wore on and shortages and price increases grew in certain ingredients, Hilton was able to reengineer menus and Hilton Supply Management could buy straight from the source and keep food supply local.

"That not only supports our communities, but also trims costs and enhances our sustainability goals by reducing the carbon footprint associated with transporting food across longer distances," Saxena said.

Hilton Supply Management has also found additional domestic sources for categories experiencing manufacturing constraints overseas to ensure it has built greater resilience into its supply chain for the long term, she said.

Saxena said it's important to "spend time focusing on forecasting and demand planning to ensure enough product is available for properties and to give us lead time to be proactive in finding alternative solutions or to secure more stable or better-priced supply. We work to look around corners for our hotels and take proactive, fast action to future-proof prices."

Saxena said Hilton Supply Management has experienced a significant increase in the number of requests for proposals for renovations this year as travel demand rises.

"The backlog of renovations during COVID have contributed to the increase in renovation work in addition to the steady travel that continues to build globally," she said. "The RFPs for 2023 continue to come in rapidly and that means we need to grow our team. As a result, we've taken proactive steps to expand our FF&E projects to meet the increasing demand."

Benjamin said he's never seen such massive demand for renovations in his entire career as well as demand for immediate starts. Most of these renovations are owners wishing to reposition their properties to take advantage of the rates that travelers are willing to pay right now.

"And the crazy thing is, we get a call on a Monday, they barely even want a proposal, and they have specs ready to go," he added.

The challenge, however, is "everyone is oversold," whether it's purchasing firms, designers, architects or FF&E procurement agents, he said.

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