Like many industries, hotels are at the mercy of the delays in the global supply chain.

Sarah Churchill is a senior manager of business development for Benjamin West, a procurement company that spends $1.5 million daily on furniture fixtures and equipment and operating supplies and equipment. She said global supply chain issues have produced issues with freight and logistics to the point of delays and higher costs.

“This is the most challenging climate we’ve seen in the industry,” Churchill said.

Hotel operators agree this is a time unlike any other as far as obtaining goods and supplies.

Rob Auerbach, senior vice president of purchasing for Island Hospitality Management, said the procurement situation is “much worse than usual” with inventories low and freight more expensive.

Philip Bates, CEO of TMC Hospitality, agreed that the procurement situation is “much worse than usual.” For instance, a contractor approached TMC Hospitality toward the end of a contract in an attempt to retroactively recoup material cost overages backdated to March 2020.

“We rejected the request,” Bates said. "But it is just one example of how the construction market is responding to the recent challenges."

While peak lumber pricing has softened, order backlogs and supply chain issues are a long way from meeting demand “and therefore we have found that price reductions have not substantially fed through to job pricing at this point,” Bates added.

What has driven the problems, Churchill said, is that “parts of the world did not slow down during COVID.” The hospitality industry represents just a small portion of the home furnishings industry and the overall global supply chain, she said. With so many people stuck at home during the pandemic, home improvement projects soared in number and so demand was rechanneled.

One complication that became worldwide news was the blocking of the Suez Canal in March, which further slowed deliveries. Benjamin West actually had a container on that ship, Churchill said, but fortunately it had placed the order early enough so there was no issue with the overall project turnover.

Even during the pandemic, some well-capitalized hospitality clients “did not hit the pause button,” Churchill said. They realized this was the time to do a 20- or 30-year renovation so they could address major building issues that cannot be handled with normal occupancy so they could be ready when guests returned.

Kim Kushner, managing director of supply and studio design for Best Western Hotels & Resorts, said the company is experiencing an “unprecedented global disruption” to the supply chain.

Production issues related to a scarcity of materials, labor shortages, factory shutdowns due to COVID-19 outbreaks and lack of staffing and transportation issues have created “the perfect storm,” she said. Shipping costs have also increased because manufacturers are dealing with a scarcity of containers, port closures and congestion and containers costing at least three times more than usual.

Raw materials that are used in so many products — nylon, yarn, rubber, lumber — are scarce and costs have increased, Kushner said. Bigger projects with high-dollar spend, including hotel renovations, are expected to take longer than they typically would, and Best Western is advising hotels to take that into consideration when planning.

Bjorn Hanson, adjunct professor at the Jonathan M. Tisch Center of Hospitality at New York University, said procurement is inconsistent even by category of equipment and material. For example, small air handlers are generally available while large air handlers are not. Some stone flooring materials are readily available; others are unavailable and vendors are unable to commit to a delivery time.

Costs and delays appear to be the core issues in this crisis, exacerbated by pandemic-driven issues like the lack of staffing. As an example, Churchill that a freight container holding 12 to 15 guest rooms' worth of case goods used to cost $1,500 now can run upward of $20,000. Delays mean lead times that used to be 18 to 22 weeks can now take up to between 32 and 36 weeks, depending on the commodity.

Product shortages across all departments and long lead times are impacting operations, said Molly Preston, director of procurement for Benchmark, a global hotel development and management company. One example is a replenishment order of linen that would typically take two to four weeks to arrive once the purchase order is issued now takes 12 to 16 weeks or more.

Shipments from Asia present a particular problem, Preston said. A few key Benchmark partners have shared with her that their organizations are having to pay “a priority premium” on their containers leaving Asia. Otherwise, their goods would sit for months at the ports with no movement.

Aaron Schock, developer and owner of the dual-branded Hyatt Place LAX/ Hyatt House LAX, opening this fall at Los Angeles International Airport, said his team had originally placed an order at a factory in Vietnam for the project’s 401 rooms, including cabinets, bathroom vanities, and guest kitchens — approximately 150 of the rooms are suites with full kitchens. Once the pandemic hit, the factory being sourced in Vietnam shut down. And when it reopened, the shipping industry was so backed up it would have severely delayed construction by nearly a year. Developers found an alternative domestic fabricator.

The project still had some delays, Schock said, specifically with tile and wall coverings, due to factory closures during the pandemic. However, most of those issues were resolved once the factories reopened or the developers found suppliers that had enough product already manufactured prior to the pandemic and could be bought off the shelf.

There are longer lead times on materials across the board, but it has been particularly severe for custom and specialty items such as doors and windows, heating ventilation and air conditioning, and steel framing, Bates said. TMC Hospitality recently encountered a 75% to 100% increase in lead times on windows for a southern California ground-up project.

The fluctuations in wait times are based not only on product, but also on region and distribution centers, so it’s not easy to know what to expect for any given item, Kushner said. A bright spot for Best Western is that it has been able to leverage its strong partnerships in its endorsed supplier program to create offerings that are manufactured specifically for its brands, like shampoos and conditioners. This has helped mitigate some of the pain for operators because those inventories can only be used by the brand’s properties.

Many observers cite staffing issues as compounding the challenges. But Island Hospitality Management's Auerbach said even when an item is in stock, “there are no drivers to drive to the facilities.”

Jansen Medeiros, regional vice president of operations at hotel management company Prism Hotels & Resorts, which is managing the Hyatt project at LAX, said shortages and long wait times in procuring/getting furniture, fixtures and equipment has had an impact on pre-opening operations, primarily in recruiting, staffing and training.

Recruiting is often paused or accelerated based on how the overall project progresses. In this environment, “flexibility, good communication and contingency planning are more critical," Medeiros said.

In secondary markets outside urban centers, Island Hospitality Management is working to combat staffing issues by employing specialist trades from outside the immediate area, although this increases costs, Auerbach said. The company has also begun signing partial prime-construction contracts in order to phase construction so that cost savings have a chance to take effect in the market to reduce overall development costs.

Deniz Omurgonulsen, vice president of membership for luxury hotel collection Leading Hotels of the World, said the pandemic has elevated the company’s capacity to be more innovative as it has learned to deal with shortages on everything “from staff to mini-ketchups.”

The one that has the longest-term effect is staffing levels, Omurgonulsen said. Furniture, fixtures and equipment can be replaced, or a substitute can be found, she said, but not people.

For example, if it is not possible to obtain the ingredients for a certain menu item, the menu can be changed, However, she said, “it is impossible to provide the luxury service levels without a proper team in place.”

Most operators are finding way around these issues, she said, “but the recruitment challenges remain.”

Benchmark’s properties are being creative to ensure there is minimal impact on guests, Preston said. The company is adding partners to its portfolio that manufacture products directly, own plants and/or have partners who have a firm handle on the supply chain. The company encourages its properties to buy local and in doing so are investing in the local economy “and adding the added flair of local flavor to our guest’s experience. “

Time and planning are keys to dealing with problems, Benjamin West's Churchill said.

"We don’t want to rush the process, but we do want to make sure everything is 100% approved and ready to go." she said. "We’re telling clients if you can’t do production until next year, at least get a model room process in gear right now.”

It’s crucial to be creative and seek “a flight to quality,” Churchill said, working with vendors with whom Benjamin West has a relationship and who can be counted on to perform. Being creative means going into every project with one domestic and one overseas source for that same item. When it’s time for production, the domestic manufacturer might be able to deliver — or the international one.

“We want to have the option,” she said.

Another solution is aiming for the correct port of delivery, Churchill said. If a project is in California, vendors can ship to Long Beach; if it’s in Florida or Washington D.C., they want to route through the Panama Canal — all to avoid waiting for cross-country shipments and to find a less crowded port. Just recently, over 50 ships were waiting to be unloaded in Long Beach.

Many items can be produced domestically, but there might be higher prices to factor in. However, in the past, case goods have heavily come from China, Vietnam and Indonesia, Churchill said.

Auerbach said Island Hospitality Management is seeking “workarounds” and paying premium prices for a few products. So far, the issues have not really affected operations as the company has been able to adjust to conditions.

Schock said his team has been able to circumvent some of the roadblocks on the Hyatt Place and Hyatt House LAX project. For example, developers were able to identify a local fabricator in downtown Los Angeles. That crew was grateful for the work, as many new-start homes had paused due to pandemic. The crew was able to compete on cost because tens of thousands of dollars were saved on shipping — they drove the finished product from downtown Los Angeles to the airport. This also allowed for modifications in the field that wouldn’t have happened if everything was finalized half a world away.

Best Western has tailored its guest services in response to the pandemic, and that has affected the amount of product that hotels use, Kushner said. For example, properties no longer automatically perform housekeeping services unless requested and that has reduced some product usage.

Food distribution channels have also been affected and can be spotty based on region and distribution center, Kushner said. As a result, hotels sometimes have to streamline their offerings due to product availability. As a brand, Best Western is looking at ways to simplify its breakfast services and reduce waste, “without sacrificing the guest experience,” she said.

Hanson said the state of procurement requires more narrowly defining projects — not just “guest room renovation” — and defining critical paths so each material and task can be verified as available and able to be completed. Just one unobtainable or unachievable material or task can cause the entire project to be postponed.

Observers are fairly optimistic about near- to mid-term improvements. The procurement situation will level out at some point, probably after the holidays and Chinese New Year are over, Churchill said. This may result in 2023 and 2024 seeing an all-time high for hotel capital expenditures as well as many more property-improvement plans than in the past. While tradition has meant a 4% capital expenditure reserve to cover costs, hotel lenders during the pandemic have been allowing owners to use that reserve on more urgent expenses.

With the uncertainty around COVID-19 and vendor backlogs coupled with the country entering the winter months, Bates said TMC Hospitality does not see any major improvements in supply or pricing in the immediate future.

However, by mid-2022, he said, “We anticipate base material pricing will be falling back in line with pre-pandemic levels and availability.”

This is highly dependent on interest rates, measures of inflation, and the Fed's response to those numbers, Bates said.

The outlook is getting better, Prism's Medeiro said, noting that vendors involved in projects scheduled further into the future have not mentioned any significant delays or shortages in furniture, fixtures and equipment.

Supplier partners are telling Best Western they expect to see improvements in spring 2022, but it’s dependent on how the pandemic continues to unfold, Kushner said. Once that situation starts to improve again, she said, it will likely still take a couple of months for the supply chain to catch up.

Preston said Benchmark has an upcoming roundtable discussion aimed at optimizing business sustainability by maintaining goodwill and positive relationships with suppliers. She said the company will continue to serve as “advocates and protectors” of the guest experience "by overcommunicating projections with supplier partners, ordering product early and staying nimble."