Covid-19, the Gray Market of N95 masks… and Bearings (of course, it’s Mitch!)

My partners and I failed recently to secure a federal government Request for Proposal (RFP) to obtain 10 million plus masks. Our proposal involved armed guards to destination, insured air shipments, and quality control checks both at source and destination. I'm sure there were cheaper bids. We failed despite my extensive and successful professional experience and knowledge procuring a product in tight supply (bearings) on international markets. Here’s my story.

In late 2006, deliveries on bearings started getting pushed out. Our customers complained and threatened to find new suppliers, so we needed answers. We pressed our partner manufacturers, who told us that scarcity of raw materials were at the heart of the issue. Checking with our friends in distribution around the globe, we learned that this was not a problem unique to our company or our market. Years later a theory (which I buy into) arose that China was running behind in constructing their facilities for the upcoming Beijing Olympics in 2008, driving global steel prices up and mopping up the supply.

Nevertheless, people needed bearings. The first time I heard (and believed) the sentence: “find me that bearing at any price”, I knew this was a tremendous business opportunity. Having been in the family business for several years, I travelled the world meeting people and learning about how distribution was done across various markets. I had some good contacts who I thought could position me well in this wild-west of bearing procurement. I started to reach out to suppliers, customers, and competitors, putting the word out that I was interested in any opportunity where customers were losing lots of money, and had shaken all the bushes unsuccessfully on their own to find product. Those were the opportunities that I found the most interesting, challenging and rewarding.

At first, there was a lot of interchanging, re-engineering, and re-designing applications. There were two flavours of inquiries: Small quantities of large bearings, and large quantities of small bearings. Occasionally, a large inquiry for large bearings would sail across my desk. Early on, it was difficult to know and understand how much inventory was available throughout all of the supply channels across the globe. As time went on, having been immersed in this world of gray market supply, I developed a good sense of what product might still be around, and what product wasn’t. It would play out like this: First the product would dry up in one market, then it would flow from market to market, then all the product would dry up. Then the surplus companies would perk up and raise their prices, and eventually sell out their stock. Customers would start flailing, offering higher and higher prices to get bearings. At this point, most people had given up, whereas I was just getting started. Here’s an example.

In this case, the pinnacle of the bearing crisis revolved around one part number. This particular bearing was in a prolifically manufactured piece of well-loved and popular pre-sold seasonal machinery. To procure large quantities of this bearing was demanding. The barriers to entry were high to play this game, as were the stakes. Basic requirements were: deep pockets, credit, knowledge how to navigate charlatans and crooks, and exceptional logistics capabilities. In the end, the buyers who qualified became a very small community and we all knew each other, constantly trying to out-hustle each other one minute and working together the next. Whoever had the highest priced mandate was in the spotlight. I was always working through intermediaries, the best 2 of which are now long since happily retired, and another has disappeared.

Every customer involved had lots of these bearings on order (which were late, obviously), and those would show up any day, so it was a race against the clock to deliver before the supply chain normalized. The biggest risk was getting stuck with large volumes of over-priced product, but you always needed to be very aware of the serious risk and dangers of supplying counterfeits. Very no bueno.

Eventually, once things got hot enough in the purchasing agent’s seat, their CEO would call their primary bearing manufacturer’s CEO (we are talking the biggest multinationals here) to put pressure for a solution. This would only result in higher prices and more pressure on our tight knit community of hustlers… After all, there was only so much product, and by now most people had given up on looking for it. Every time I lost a contract, I learned. Every time my skids were stolen off loading docks, or my truck tracking numbers mysteriously vanished (true story), I knew someone was working harder than I was or had better relationships than I did. The one event that spooked me the most was when I purchased product from US-based company A for their own factory in Canada, and “supposedly” (according to the carrier --- one of the major carriers in the USA) someone from the government stopped the truck to seize and re-route the shipment back to the US factory. I remember how baffled the customer service agent was who explained this to me. We do a lot of courier business, and I could never get that done. Whoever called that shot was pulling a heavy, on behalf of a very powerful friend. This was a clear indicator of how big the stakes were in the bearing procurement business. At the time I was absolutely livid, but really had very little recourse. I complained to no avail to local politicians who nodded at me in disbelief and were of no help.

Fast forward to Feb/March 2020, and the urgent need for N95 masks. Canada began to feel the Covid crunch a little earlier than the USA (approximately 6 days, I think), but certainly later than China, Italy, France, Spain and various other countries across the globe. In the early days, I could tell how this supply situation was going to play out, and being in the nation’s capital, I felt a sense of duty to help my country given my knowledge and skillset in the international procurement sector.  Canada was already late to the PPE/Ventilator/Covid supplies party, and the juggernaut tsunami USA was coming in right behind us. Time was certainly ticking. Just to take the pulse of the situation, I looked for wholesale N95 masks in my market: nothing worth talking about to be found. Switching gears, I looked for good reputable factories in China and the most trustworthy government-connected agents I could find. I quickly learned that everything PPE was cash in advance in China, and serious volume was required to get their attention, especially to jump the queue. Good agents were a must since counterfeit and fraud was rampant, and you “could” get whatever you asked for, though I knew better. I started nailing down competent and qualified logistics partners (far from obvious during a pandemic, when 50% of cargo travels in the belly of passenger planes, and passenger planes aren’t flying) and leveraged some connections in Shanghai and Toronto for temporary warehousing space. I knew the only way I could get supply was to secure the entirety of Canada’s usage of kN95 masks over the course of the pandemic, and even that might not excite the Chinese factories. After all, they were taking larger orders from bigger economies than ours.

Then “someone” paid cash on the tarmac to have a plane full with 10,000,000 N95 masks destined for France re-routed to the USA. Chapeau! Impressive move. VERY big operator at work. Whoever that was had the “we’ll pay any price for any volume” order. https://www.theguardian.com/world/2020/apr/02/global-battle-coronavirus-equipment-masks-tests

… And the USA sent 23 (24?) planes to pick up masks (my Chinese friends called them “Jared’s planes”) https://www.bloomberg.com/news/articles/2020-05-01/trump-hails-kushner-s-airlift-but-details-of-sales-are-secret

… And France ordered 1 billion masks https://ca.reuters.com/article/idUSL8N2BL0KY

In the end, I could not convince our government to work with my partners and I. Perhaps, I might be better off. At least I have this fun story to tell my grandkids, and a lot of friends and family who probably grew very exhausted of me ranting and raving about masks like Leonardo DiCaprio playing Howard Hughes in The Aviator. If you are one of those people, thank you for reading, and for putting up with me. Luckily our government has managed to keep Covid-19 under wraps a little better than our neighbors to the south, so our PPE shortages were not as severely felt or accentuated, but rest assured that I was on the case!

All that being said (and what prompted this post), here’s a great piece in the New York Times by Doug Bock Clark published November 17, 2020, about how a bit of this N95 procurement game played out in the USA. If you prefer, it’s a 45 minute listen, so pour yourself a stiff glass of your poison of choice and think of me slinging bearings back in 2006/2007.

https://www.nytimes.com/2020/11/17/magazine/n95-masks-market-covid.html