Document ID: EPA-HQ-OPPT-2017-0244-0019
Agency: epa
Document Type: Supporting & Related Material
Title: 
Posted Date: 2017-11-14T05:00Z

June 23, 2017

Erik Winchester, Chief
Fibers & Organics Branch
USEPA/OCSPP/OPPT
Winchester.Erik@epa.gov

Dear Mr. Winchester,

I want to thank the EPA for their ongoing effort to understand our company's and the furniture industry's important timelines.   The understanding of these timelines are essential for setting up a feasible EPA formaldehyde rule.    To begin, I would like to expand on a few points made in my May 4[th] letter to Mr. Scott Pruitt.   This letter will be more detailed than before, but I hope the added explanations will not add confusion.

There are several factors that determine the time required from production order to importing those finished goods into the US.    These factors include:

 Production lead time is 85 to 120 days.   The longer 120 day lead times are often required for products that have parts with longer lead times, or for first manufacturing runs that are less efficient than a reorder.   These first runs occur in the months leading up to and after the April and October High Point NC Furniture Market.  These production lead times include the amount of time it takes to buy composite wood until an item is produced, but it does not incorporate the time needed to import the furniture to the US.

 Creation of bookings to ship goods to the US can be as long as 21 days.   Frequently, we can plan a booking before the product is completely produced, which can reduce the booking time to approximately 7 days after being produced.   The months of September, October, and November are more challenging due to the competing Christmas container demand of all goods coming to the US.    Bookings that are depleting our Asia Inventories, rather than depleting a planned production order, would normally require a longer time for the inventory to sit while the booking is placed.   This is because it is impossible to know when a customer order will be placed for our Asia Inventory, so we cannot preplan such a booking.    Our customer's orders can also have extended delays in bookings when it consist of products from the Asia warehouse mixed with products that are still in production.   This requires us to hold that available inventory until everything is ready to ship.

 The time it takes to ship and import furniture can take 35 days from China and 40 days from Vietnam, India, Indonesia, or the Philippines.

 When considering the longest cumulative lead times (Production, Booking, and transit time), it could take 181 days from the placement of an order for production until the product was imported, excluding any shortages of containers, Lunar New Year shutdowns [(a)], storms, dock strikes, or the variety of other problems that can delay the production and movement of goods from Asia to the US.

 For the February 8, 2017 Lunar New Years, Asian furniture factories were closed during various dates between January 30 to February 29.   The number of days these factories were closed ranged from 9 to 30 days, with the average being 14.25 days.   We do not yet know the shutdown dates for 2018.   It should also be noted that when factories start up following the Lunar New Year that there can be added delays due to the loss of efficiency as new workers replace workers that did not return from holiday.
The April and October furniture markets, which are held each year in High Point, North Carolina are also very important dates to consider.   Our retailers generally want their orders from the first run of furniture to be available reasonably soon after the market.    Furniture importers often use the same furniture fabricators, so they find themselves competing for production time as they attempt to get their first orders placed in production before their competition.   It is a critical time because late availability may result in retailers canceling their orders.    Consequently, furniture importers are often gambling on the market by ordering their first run with uncertain demand history.  It should be noted that this uncertainty of demand can create added inventory for our Asia warehouses if this expected demand falls short.    It is imperative that the new formaldehyde laws not effect this flow of new products.

One of the ways that our company and many others in the industry plan for the uncertainty of what customers will want and where they will want the product shipped is by maintaining inventory in Asia.   Our Asia inventories are vital to supply our key dealers throughout the country and our international dealers at the best value possible.  Our Asia inventory accounts for nearly thirty percent of our company finished goods inventory.   Approximately 60 percent of this Asia inventory is about 60 days old or less, approximately 80 percent is about 240 days old or less, approximately 95 percent is about a year old or less.    

The minimum order for making each item of furniture is often the same despite the price point or level of demand.   Higher priced items often sell slower than lower priced items.  As we tend to be a higher price point importer, our items may have to be inventoried longer than our lower priced competitors.  

Other factors effecting how long inventory is held is the rate of sale.   An example of lower demand items might include some of the accessory pieces that compliment a dining group and chairs.   These items are necessary, but may not sell at the rate of the dining table and chairs.      

Our longer cumulative lead times and our need to warehouse goods in Asia makes it essential that the EPA formaldehyde rule have an adequate offset between the availability of TSCA Title VI compliant board and the date that all finished goods imports must be compliant with such board.   Failure to incorporate an adequate offset will likely shutdown furniture production during the cumulative lead times leading up to the last days that CARB P2 compliant furniture imports are allowed.   Such a shutdown would continue through the cumulative lead time after TSCA compliant board became available.    

As an example, if the last day to import CARB P2 compliant furniture is Dec 12, 2017 and compliant board was not available before this date, companies would have to stop issuing production orders in the summer of 2017 (very soon from now).   This would be done to ensure the orders in the system could be produced and imported before the Dec 12[th] deadline.   Additionally, no new production work could be started until the compliant board was available on Dec 12.   However, the product that starts production on Dec 12[th] would not be available for sale in the US until after the cumulative lead time plus any necessary downtime required for the Lunar New Years.   Therefore, the furniture industry would have SUBSTANTIAL negative consequences as the formaldehyde rule is written now... it will shut us down for a significant period of time.  

The start of the EPA's formaldehyde rule should be managed like CARB used in their program.   The EPA needs to have a date when TSCA board is available and then allow time for the supply chain to switch over.   It could go faster if the EPA grandfathered CARB P2 board, as it is essentially the same board.   There is a CARB requirement that a production date be placed on the CARB label, so there will be a record of what was made with CARB compliant board before the TSCA effective date.

Our company recommends that this offset between the allowed use of TSCA board and the deadline to import only TSCA compliant furniture be at a minimum of 14 months.   This would allow sales of the previously made CARB P2 compliant finished goods inventory for a year, with an additional few months to import the remaining furniture into the US.   This 14 months offset would still be much less than the timeline allowed with the start of CARB, comparing the deadline requiring fabricators to buy only CARB P2 board and when they had to sell only CARB P2 finished goods.  
(https://www.arb.ca.gov/toxics/compwood/outreach/regguidance0711.pdf). 

I truly expect that the EPA will create a devastating hardship for the furniture industry by having a shortened offset, because this would require a mass exiting of furniture from Asia to the US by our company and others during some of the busiest shipping months.   It will certainly raise transit prices due to the furniture not be in the best replenishment location for our customers.   Not only can it make finding containers difficult, but it will be nearly impossible for companies to receive, find warehouse space, and manage such a fast dump of a significant quantity furniture.

Erik, we will do everything in our power to help members of the EPA understand the logistical requirement of our company and our industry.    My company's executives and I will be glad to answer any questions or meet with the EPA.   I truly hope that you and the others at EPA can understand how damaging this law will be as it is currently written.   Please let me know how else we can be a service to your agency.

Sincerely,

Harrison S. Toms
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