Suitcases full of cash offered at PPE factories overseas affecting global supply

Cutthroat global competition, large supply chains and the almighty dollar have created an environment where the highest bidder might win shipments of personal protective equipment — regardless of contractual obligations.

Worldwide demand for PPE is leading to disruptions in the global supply chain, according to two suppliers of PPE in Canada.

Ron Pecchioli founded Ronco, an Ontario-based company with PPE manufacturing facilities overseas in China and Malaysia. He says staff there reported seeing people from various countries standing outside the facilities with briefcases full of cash to bid for available PPE.

"The loyalty of the companies in China doesn't exist anymore," said Pecchioli.

"Since COVID-19 started … in order to speed up and prioritize [orders], people arrived with cash, or cash arrived to China, allowing them to do the auction purchasing."

States in the U.S. are competing with themselves and foreign countries to acquire PPE. Meanwhile, in Canada, governments at the federal and provincial levels have centralized their procurement efforts to lessen the competition and ensure that everyone at least gets some of what's needed.

Daniel Thomas/Radio-Canada

But even that doesn't stop ordered products from disappearing somewhere between the manufacturing plant and the commercial boat or flight, and not arriving at the intended destination, suppliers in Canada say.

The circumstances have turned PPE procurement into a 24/7 job for Levitt Safety.

What's happening overseas is kind of like the Wild, Wild West of global supply chain right now. - Julie McFater, Levitt Safety

The PPE supplier, which has branches from British Columbia to New Brunswick, formed a procurement task force and split it into two teams, said director of marketing Julie McFater.

One team works days and the other works nights to track orders, stay updated on ever-changing export regulations, and file updated paperwork required by those new regulations.

"We've been somewhat fortunate in sourcing some materials, but what's happening overseas is kind of like the Wild, Wild West of global supply chain right now," said McFater.

Levitt Safety has lost orders at the last minute because another company swoops in and offers three times more for the items; some shipments went missing "out of thin air," and some suppliers have disappeared because of the demand, she said.

The company has gone so far as chartering Air Canada planes to ensure its orders land on Canadian soil.

"There have been moments of elation when we secure something," said McFater. "I would be lying if I said there have been no tears along the way. A lot of sleepless nights."

Trevor Brine/CBC

'Invisible' supply chains

The COVID-19 pandemic is shining a light on how North American companies rely heavily on sourcing goods in foreign countries, where costs are cheaper, but supply chains become "invisible," said Mahesh Nagarjan, an expert on supply chain management at the University of British Columbia.

"If I go to the person who's buying in Manitoba and I ask them, 'Do you know where this PPE was made?' I highly doubt if they're going to be able to track it down to a factory in [China]," said Nagarjan, who has experience with the U.S. and Canadian health systems.

North American companies often deal with distributors, who deal with manufacturers, who work with a number of suppliers — making the supply chain "not transparent, which makes it much harder to get things," he said.

This is different from a supply chain, where an organization deals directly with a manufacturer, he said.

The muddiness and influx of demand has allowed foreign companies to give orders to whoever is willing to pay the most, regardless of contractual agreements, said Nagarjan, and it's hard to enforce these contractual obligations.

Mike Segar/File Photo/Reuters

If this happened in Canada, he said, an entity could sue, or ultimately just choose not to do business with that company. But "these supply chains are so long, neither of these exist," he said.

Supply chain experts interviewed by CBC News, including Nagarjan, all said there will be systems analyzed once the COVID-19 pandemic is over, and supply chains especially. It is very likely there will be a shift toward relying less on making things in foreign countries, experts say.

"I think they're already asking … these questions at the government level," said Nagarjan.

Public Services and Procurement Canada, the agency acquiring PPE at the federal level, is continuing to assess the situation and get supplies from where it can.

"We have reached a consistent pace of deliveries, however there continue to be challenges at multiple points of supply chains and distribution networks," a PSPC spokesperson said in an email to CBC News.

"We have set up an A to Z procurement approach, with flights at a pace of about one per day now arriving in Canada, delivering supplies that we need for the short and long term."

PSPC has partnered with a few companies to ensure their cargo has eyes on it "from the point of pick up" in China until it touches down in Canada, the spokesperson said.

The federal government is also working with its foreign embassies "to leverage diplomatic channels," the spokesperson said, and trying to find ways to increase PPE production capacity here at home.

All PPE companies on deck

In late March, the Manitoba government called on local businesses to help supply the province's PPE stock.

Lanette Siragusa, chief nursing officer of Shared Health, which co-ordinates health care in Manitoba, said PPE levels were adequate, but procurement was becoming more difficult. She said the organization went from working with 60 PPE vendors to 600.

On May 7, CBC News reported that ABC Fire & Safety had started taking orders from Manitoba dentists, who were recently allowed to reopen.

"Our phones have been blowing up off the hook" said president Dave Jeanson. The company has received inquiries from emergency services workers, doctors and dentists from British Columbia, Quebec, Ontario and Prince Edward Island.

Holly Caruk/CBC

To navigate that type of competition, the Manitoba government turned over procurement responsibilities to Manitoba Central Services on March 31. Centralization allows the province to manage all PPE procurement activities and costs, a spokesperson said.

The province said it is now "working with more than 80 unique vendors."

By mid-April, the province had already budgeted $400 million for PPE procurement, but earlier this month Finance Minister Scott Fielding said PPE spending could reach one billion dollars — the original amount the province earmarked for its pandemic response.