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Oil boom manufacturers left awash in inventory

Markets | October 1, 2010 | By:

Companies supplying oil boom for the Gulf worked around the clock, then found themselves awash in inventory.

After more than 30 years in the containment systems business, MPC Containment Systems LLC of Chicago, Ill., found itself thrust full steam into making a new product: oil boom. Immediately after the BP oil spill in the Gulf of Mexico on April 20, MPC and similar businesses around the country, and even internationally, ramped up to meet emergency needs.

“We basically had to set up a separate, new facility,” says CEO Benjamin Beiler. “We bought new equipment, hired 50 people and had it up and running in four days.” Upon renting a 160,000-square-foot former airplane factory, investing $150,000 in fabric welders and sewing machines and buying up raw material wherever it could be found, MPC at peak production churned out 200,000 feet of boom a week in two 10-hour shifts, seven days a week.

The moving target

MPC made good money selling 300 miles of boom in three months. But that’s hardly the beginning or end of the story. As Beiler and others in the vinyl supply and boom manufacturing business tell it, BP urged them to supply as much product as possible as quickly as possible, but then threw up roadblocks. For one thing, BP kept changing specifications: from 18-inch to 24-inch boom, from 1/4-inch to 5/16-inch chain, from 18-ounce to 22-ounce PVC, from cables sewn into the fabric to heat-welded plastic tube, from flat plates to Z-shaped universal connectors.

Before we received a purchase order, they went from Revision A to F in a period of two to three weeks and asked us to make changes after the purchase order was released,” says Thomas Slaughter, project manager for Ducts Unlimited Inc. of Wallington, N.J. “They sent inspectors up here and they had the Revision G checklist.

Like MPC, Ducts Unlimited previously had not manufactured boom. The company bought two welders and an abundance of new material (fabric, floats and connectors). “When BP came to visit us, we had to demonstrate that we had the capability,” Slaughter says. “You have to have materials on the shelf.”

Even with the revisions and on-site BP inspectors, Ducts Unlimited fared well. “We received a purchase order and we delivered on the purchase order, and nothing was rejected,” Slaughter says. “I know a lot of boom was rejected, and that’s why we didn’t start until we had a purchase order and a drawing to build on.”

As noted, MPC also fared well—if you consider only the money it made selling boom. Unfortunately, there also were canceled orders from the intermediaries to whom the company sold. “We had made $1 million worth of boom for a customer and [BP] squashed the deal,” Beiler says. And when BP’s buying spree ground to a halt in July, MPC was left with $2.5 million worth of inventory. “We made a profit. But it still hurts, and we still feel victimized—and that’s the point,” says Beiler, noting that he heard horror stories from other IFAI members. “[BP was] encouraging everybody under the sun to make boom,” he says. “They were trying to drive down the price.”

Suppliers and demand

Vinyl suppliers prioritized the call for boom in an effort to meet perceived demand. Top Value Fabrics of Carmel, Ind., provided about 600,000 yards of vinyl to boom manufacturers, pushed back its normal business to fill orders for 22-ounce vinyl and halved production and shipping time to meet demand.

“In about a week period, we had probably 15 containers [230,000 yards] of orders canceled,” says Bob Burns, vice president of sales. “From what I have heard, a lot of [boom sales] were based on verbal commitments and handshakes. BP played upon the eagerness of these [boom manufacturers] to help out the situation. [The manufacturers] kept making, making, making. Those people have four, six, seven million feet of finished boom sitting in their places. All of us have way, way too much inventory.

Top Value did secure purchase orders from its customers. Some honored their commitments; others didn’t or couldn’t. “It’s been very frustrating,” Burns says. “You work so hard. You trust BP will do the right thing. They just had no regard whatsoever for any of these guys who were trying to help them.”

Value Vinyls of Grand Prairie, Texas, supplied more than $1 million worth of vinyl, half of which had to be shuffled off to warehouse space the company was forced to rent.

“We heard from the beginning that BP said, ‘We will take as much as you can make in 90 days,’” says president Randy Busch. “Some [boom manufacturers] speculated, and most of them received orders that matched their expectations.”

When the well was capped

According to BP spokesman Scott Dean, BP aggressively pursued manufacturers to determine their ability to meet demand and ordered boom in increments of what the company felt would cover a two-week period. “However,” Dean says, “once the well flow was stopped, the upside demand scenarios for boom were no longer required.” Dean claims that purchase orders were canceled only if the product did not meet the company’s quality standards. He further states that “BP is working to follow the terms for each P.O. that was placed,” though he says he is unable to elaborate on the specifics of how that is being accomplished.

In any event, boom manufacturers and their suppliers say orders came to an abrupt halt once the well was capped in mid-July. Value Vinyls’ customers attempted to cancel orders. “They were well past the production date,” Busch says. “We were just waiting on transportation and delivery. People refused delivery, and we are now holding significant excess stock. We are trying to work with them fairly on a resolution.” Busch says his company turned away other business for the four to six weeks it dedicated to the oil spill. “The good news is,” he says, “we are a 26-year-old company that’s financially sound.”

Slickbar Products Corp. of Seymour, Conn., also has the advantage of longevity: 50 years of manufacturing oil spill products, including boom. The BP spill was, however, an anomaly in Slickbar’s history. “We usually design and build for solutions way in advance of anything happening, so equipment is usually in storage and ready to go,” says CEO Steve Reilly.

Slickbar rented 25,000 square feet of space eight miles north of its existing operation; hired temporary employees (ranging from 20 to 30 at a time); brought in equipment from its joint ventures in Europe, Asia and Middle East; and operated 24/7. The company also sent a team of 20 to the Gulf and more recently fielded interest in its boom-washing products. “We also have some designs and systems for complete decontamination centers,” Reilly says.

Resolution pending

Although Ducts Unlimited doesn’t have surplus inventory, it has invested in a new product line in need of a market. “We are looking at various trade shows. We are doing cold-calling on oil spill contractors,” Slaughter says. “My only immediate concern is there is a surplus of oil boom out there.”

Top Value Fabrics is renting warehouses in Indiana and California to accommodate excess material. “Some of the boom manufacturers we would normally sell it to, they’ve got inventory up to their ceiling, probably a five-year supply of boom themselves. I am not sure what we are going to do,” Burns says. The good news is that the company gained new customers in the oil cleanup; the bad news is “it could be five years before they need us again,” Burns says.

MPC sold a couple hundred thousand feet of boom to help clean up the July oil spill in Michigan’s Kalamazoo River and sold some at or below cost to emergency responders taking advantage of discounts for their own stockpiles. Some of the raw material can be used in other applications; the foam is being destroyed because it takes too much room.

While ordering processes may have contributed to excess inventory in the end, these were unusual, emergency circumstances and companies believed they had been reassured by BP that all the boom would be purchased. Beiler offers a final assessment of the situation: “It’s a disappointing end to a valiant effort.”

Janice Kleinschmidt is a freelance writer based in Palm Springs, Calif.

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