Commentary on Political Economy

Thursday, 17 December 2020



America’s PPE supply chain looks distinctly sick

© Ingram Pinn/Financial Times

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Earlier this week Martin Steinbauer, an American entrepreneur, showed me a video message he had received via WhatsApp that looked like the kind of “proof of life” message used in hostage dramas. But what the video depicted was not people, but nitrile examination gloves, stashed in a dingy warehouse — with an identifying time stamp to show it was “real”.

Similar videos are circulating online as the US Covid-19 crisis worsens. They show that large parts of the distribution system for personal protective equipment remain worryingly disorganised, at best, and prone to fraud and wild price swings, at worst.

Nearly a year after the crisis started, boxes of PPE are being traded on WhatsApp by small-time entrepreneurs — both reputable and shady — in a murky underworld. Unsurprisingly, fake deals are widespread and prices wildly volatile. Hence the need for the videos.

“It’s a very fraudulent market,” complains Mr Steinbauer, who runs an online platform called Immunity Health that he says has provided tens of millions of units of PPE for frontline workers. “My WhatsApp blows up every day, but the vast majority of the offers are fake.” A harried medical administrator tells me: “It’s crazy. We never know what will arrive, when.”

This is alarming, not least given that a recent report from the US Government Accountability Office, found that “most states reported certain PPE supplies (eg nitrile gloves) remain scarce, and about one-third of respondents were ‘greatly’ or ‘completely’ concerned about having enough supplies to administer vaccines in the future.” 

Nitrile gloves are typically used to administer injections. They have been in short supply in recent weeks after a key manufacturer, Top Glove, temporarily halted part of its production because of an outbreak of Covid-19 at a Malaysian plant. The shortage could worsen as the vaccine rollout gains momentum — fuelling “glove wars” in the supply chain.

Can the incoming administration of President-elect Joe Biden ameliorate this? It will not be easy. One reason why the shadowy market exists is that the US had limited PPE production before the pandemic. Instead, it relied on a network of brokers and imports from Asian manufacturers. Nitrile gloves, for example, mostly come from Malaysia.

This year American companies such as Ford and 3M have repurposed some domestic assembly lines to make medical items, such as ventilators and masks, to great effect. But it is hard to produce nitrile gloves without building new plants — and, thus far, no US company has done this at home. Seemingly they do not want to make the necessary long-term capital expenditure without guaranteed long-term demand (also known as government support).

The other issue is fragmentation. The US’s federal structure — and weak central co-ordination — has left cities, states, hospitals and nursing homes in brutal competition for supplies. This has created a sort of PPE “hunger games”, says Jenny Durkan, mayor of Seattle. 

Big bidders with their own cross-border networks, such as state governors’ offices, have generally been able to buy PPE at acceptable prices. Tiddlers have used retail platforms, which offer reasonable efficiency and price transparency for small batches of PPE.

But those in the middle, such as community hospitals or nursing homes, have often struggled — and still do — without a transparent and reliable wholesale market. Using retail platforms is fiddly, since they cannot usually offer sufficient scale.

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Some are finding solutions. A procurement manager at a large Washington DC hospital says that after trial and error she now has reasonably reliable access to stocks through relationships with brokers. But she also admits there is still “uncertainty” in supply and “gloves will be a challenge in 2021”. Her hospital is trying to help smaller neighbours. But nursing unions complain that supply is difficult for groups such as care homes. This is lamentable.

There are steps the Biden team could take to help — and which the administration of President Donald Trump could, and should, have taken months ago. The sector needs clear anti-fraud rules and quality controls. Central government could create a temporary national brokerage or distribution platform as a back-up to the private brokers, at least for non-profit customers. 

The federal government could also use its national strategic stockpile of PPE to offset with temporary supply chain blockages. This would be hard since the Trump administration has not managed to expand its PPE stockpiles as promised. It could even offer guaranteed orders for a domestic would-be nitrile glove manufacturer.

Hopefully some of this will occur. But even if Mr Biden’s team embraces these sensible steps, they will not come soon enough to fix the situation speedily.

That means the shadow glove wars will probably intensify this winter, along with attempted frauds and price hikes — and stress at American hospitals and other healthcare providers. It is a sad indictment of the failure of the Trump administration to offer effective government or act as a proper umpire for free-market commerce. Parts of America’s political economy today look distinctly sick.

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