May 1, 2020
Buying and Selling 100 Million Face Masks
James Steinberg is chin-deep in what’s now the world’s hottest business.
A looming global economic depression, nosebleed levels of unemployment, and the world under lockdown don’t matter.
James isn’t a divorce lawyer (for all those quarantined people tired of their spouses)… or a hair trimmer-vendor (corona-buzzcut, anyone?)… or a Zoom Peloton guru.
James is a face mask broker.
Just two months ago, this 29-year-old Chicagoan knew as much about face masks as you or me.
Today, he knows his N95 masks from his Uzbek-made two-plys and GVS Elipse P100s… And he tells me he’s selling hundreds of millions of face masks to governments and other customers around the world…
Right now, he has “around 40” cargo planes lined up to send face masks from China to customers around the world, James told me from Hong Kong a few days ago.
He tried to book the world’s biggest cargo planes… but had to settle for Soviet-made Antonov An-124 Ruslans. They’re more than two basketball courts long. And they can hold as much as nine 18-wheeler tractor trailers.
As you well know, face mask demand is soaring…
Early on in the spread of COVID-19, the World Health Organization and many governments discouraged the widespread use of face masks – probably at least in part because there weren’t enough of them to go around.
But now in much of the world, you’re not supposed to leave where you’re sheltering-in-place without wearing one. Many face masks are single-use, since the collected bacteria on the surface could make you sick.
France’s health minister recently said that the country – with 67 million people – was using 40 million face masks per week. That’s more than 2 billion face masks in a year… just for France, with 0.9% of the world’s 7.8 billion people.
The problem is that there aren’t enough face masks… and no one was ready for them to become hotter than Rubik’s Cube (1980), Beanie Babies (1995), and Rainbow Loom (2012) put together. Manufacturing facilities all around the world have been retooled – either voluntarily or by government edict – to make personal protective equipment (“PPE”). Even iPhone-maker Foxconn Technology redirected some of its capacity to make face masks.
The shortage of PPE has been one of the many defining tragedies of the COVID-19 pandemic. Health workers in the U.S. (including my brother the ER doc) didn’t have sufficient PPE for weeks, including face masks, to adequately protect themselves.
Strictly speaking, it’s not face masks themselves that are scarce. Rather, there isn’t enough of the filter in face masks, which is made of a non-woven polypropylene called “meltblown.” It’s used in everything from diapers to air filters to jackets, and it isn’t difficult to make. But the meltblown industry wasn’t equipped for the explosion in demand – and it will take a while for manufacturing capacity to catch up.
In the meantime, there’s a lot of finger-pointing. Ahead of the crisis, the U.S. had just 40 million masks in the national strategic stockpile. “What a small, shameful way for a strong nation to falter: For want of a 75-cent face mask, the kingdom was lost,” wrote a commentator in the New York Times in late March.
The lousy preparation of the U.S. and much of the rest of the world for a pandemic spawned supply-chain chaos, intense competition between countries and states for masks and other protective gear, and thousands of entrepreneurs and profiteers interested in negotiating between often-Chinese suppliers and American hospitals.
James became a master of the (face mask) universe almost by accident. In late January, he was in Shanghai, running a logistics company, when the Chinese authorities started to use a sledgehammer to squash the Wuhan virus (as we called it back then, without irony).
Sensing opportunity, James did what any red-blooded American entrepreneur – who happened to have helped head up two logistics startups in Silicon Valley – would do. He Googled “face mask suppliers U.S.” and went to work.
“I found a supplier in Texas and ordered 30,000 face masks,” he told me. And conveniently, just weeks before James had built up some savings for the first time in his life. “I paid for them with my credit card. I had no idea if I’d be able to sell them,” he said. “My friends in the U.S. had just one word for me: Why?”
His American friends didn’t get it. James put his newly acquired face masks up for sale on the website of his firm – kind of like an Amazon for foreigners in Hong Kong who want products from home that they can’t buy locally – and wound up selling the shipment to a Hong Kong mothers Facebook group. (Just weeks before, the authorities in Hong Kong tried to prohibit anti-government protestors from wearing masks… shortly after, they required everyone to wear them all the time.)
James called the supplier from Texas back and ordered another 20,000 masks, though he could have taken a lot more. “I wasn’t sure if the whole thing would blow over in a week, and I’d be left sitting on a mountain of face masks,” he said.
In fact, the opposite happened. James sold the next batch, and within days, China – the world’s largest producer of face masks by far – banned face mask exports. Wuhan, then emerging as the virus epicenter, is home to some of the biggest face mask factories in the world.
With Chinese face masks off the market, supply dried up for the rest of the world. James went back to Mr. Google. “I went through the first three pages of search results, and just started calling and buying.”
He imported face masks into Hong Kong from around a dozen countries, running up his credit-card bill. “I was getting around 20,000 masks from different factories. Then I found one in Poland that could deliver a few hundred thousand.”
James’ Hong Kong moms Facebook group apparently included some power players, and soon a big university in Hong Kong got in touch with James. “Can you bring us 1 million face masks?” they asked.
It was a tall order. A lot of the countries that James had been buying from were starting to ban face mask exports to secure them for domestic consumption. The day that he was about to pull the trigger on a deal with a plant in Uzbekistan (“They weren’t great quality, but face masks are face masks,” James says), the government stopped exports.
That’s when James turned to India, the Wild West of face mask scammers. On his first deal with a company in India, he was ripped off on a 300,000-mask order, erasing the profits of the previous six weeks.
Then as India realized what it was up against, face mask exports were shut down there, too. Fortunately, face mask producers in China, where the curve had been flattened, were by then open for business again.
The university in Hong Kong was a big buyer, and a commissioner from the police got in touch with James. Wary from experience, James noticed that the e-mail address was a bit off… It turned out that the “commissioner” was in fact a scammer.
Then someone from the Australian government got in touch (“I insisted on meeting him in person,” James said)… then a representative of the Netherlands. They were real buyers. And soon, France came knocking.
“How did you get so much business, so quickly – with a thousand other Googling guys doing pretty much the same thing?” I asked.
“I was a real person, I was one of the first, and I delivered,” James told me. Desperate buyers are well-fertilized ground for swindlers. A fresh-faced young American guy who speaks Mandarin with a Chinese logistics firm behind him – with a solid record of making good on his promises – was a promising partner.
You’d think that James would be imitating Uncle Scrooge swan diving into a gold-coin vault with all the money he’s making. Even if profits were only a few cents per mask, those pennies on hundreds of millions of masks should add up fast.
At the beginning, James viewed the face-mask business as a bit marketing exercise for the company, and wasn’t looking to earn a profit. But in order to not lose money, he has now built in a respectable margin – well within global price-gouging laws of around 20% – because challenges are like flies on honey when there are big sums involved, James explained to me. And those difficulties cut into profits fast
“Even if everything is perfect, we have problems,” James said. Before spending a dime, his team on the ground needs to be sure that the plant they’re buying from can deliver. Even if he has a contract in place, there’s always the chance that someone shows up at the factory gate, big cash in hand, and bigfoots James’s order.
Getting goods through customs in China is a trial. The rules are “changing every day” – what forms are required to get a shipment out of the country, or anything else that a sticky-fingered customs guy might dream up. Also, boxes of face masks are stolen along the way by anyone looking to make a quick buck on a valuable commodity.
At the airport in Shenzhen – and other cities in China – lines to get the goods onto the plane can be days long. “They’re backed up with dozens of planes on the tarmac, full of PPE, hand sanitizer, you name it,” James said. Cargo planes are even bumping into each other as they jockey for position on the tarmac.
And once the masks are finally in the air, you can’t stop being paranoid. “We had a shipment stopover in Chicago to refuel on the way to Canada, and some of the shipment disappeared,” James said.
Now his company is moving up the value chain, by making branded face masks and hand sanitizer. “We never planned on getting into this business… lightning strikes only once for a startup like mine,” he told me.
James is in a good line of business… and it looks like demand won’t be dropping off anytime soon.
Now here are some of the stories we’re reading…
A Staggering Toll: 30 Million Have Filed For Unemployment
Another 3.8 million people filed claims for jobless benefits last week, according to the Labor Department. While that’s down from the previous week’s 4.4 million, a staggering 30.3 million have applied for unemployment in the six weeks since the coronavirus began taking a wrecking ball to the U.S. job market. That’s roughly one out of five people who had a job in February.
Musk vs. Zuck: A tale of two CEOs acting much differently during a pandemic
The contrast mirrors the ongoing debate in the U.S. about when to open up the country to avoid a total economic collapse without endangering citizens who are more vulnerable to the coronavirus that is spreading across the globe. The San Francisco Bay Area — where Facebook and Tesla are based — announced an extension of its shelter-in-place Wednesday that will allow for more freedoms beyond the essential activities allowed currently.
Clorox and Lysol Want to Kill Germs – and Each Other
Each is more than a century old. Each is a leading name in cleaning wipes and disinfectant sprays. Neither can manufacture and ship enough product to satisfy America’s pandemic-driven demand for cleaning, with sales up two- to three-fold over the same period last year, according to Nielsen. And each has it out for the other. They are the Coke and Pepsi of wipes, the Capulets and Montagues of the toilet bowl.
Gold set for best month in 4 years as central banks unleash stimulus
“The massive monetary support we are witnessing at the movement is helping gold… The U.S. Federal Reserve left interest rates unchanged and it should stay there for sometime. Going forward, the unprecedented monetary stimulus provided by the European Central Bank and the Fed is likely to increase demand for gold.”
And let us know what you’re reading at [email protected].
May you find your way through the chaos,
Chaos Chronicles Editor, American Consequences
With P.J. O’Rourke and the Editorial Staff
May 1, 2020