Category Archives: Business

Some Thoughts on Hazardous Goods

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When a customer orders a chemical from a chemical company, a series of events are triggered leading to the shipment. Every company has a unique business system for order fulfillment. Variable as the details may be though, certain aspects are shared by all companies.

There are special considerations for chemical goods that other manufactured items may not have. Chemicals must be packaged and shipped according to the nature of the material and to certain types of hazards that are present. The type of packaging is not just governed by good sense, but also by transport regulations.

Some substances are covered under regulations meant to control illicit drug manufacture or distribution. Diethyl ether, iodine, phosphorus, phenylmagnesium halide, phenylacetone, ephedrine, acetic anhydride, and many more seemingly ordinary chemical products are constantly under watch by authorities from behind the curtains.

Some substances may be used for explosives and munitions manufacture or use and prospective customers are screened accordingly. Other substances have been identified by the authorities as substances of interest. Phosphorus trichloride is one that comes to mind. Zirconium and titanium powders and components are subject to limitation also.

The kinds of regulatory constraints depend upon the compound of interest and whether or not it is an item for export or import. Import and export controls are in place for many reasons. The control of dangerous goods or illegal substances is an obvious goal. But the act of goods crossing the border is an opportunity for governments to temper the effects of international competition on behalf of homeland businesses through the imposition of duties.

International or domestic shipping of chemicals is rife with complications owing to the potential hazards of the cargo. Chemicals are classified according to their hazard and certain hazard classifications are barred from air transport or constrained to maximum package quantities. What is not transportable by air is usually fine for surface or ocean shipping, but these modes have their limitations as well. Fortunately, the regulations are internationally harmonized for the most part.

Woe is he whose container of hazardous goods is damaged or leaks at a foreign port of entry. Such an event may trigger remedies by the local authorities that will not only be very expensive, but will block the delivery of the material for a long time. This is why a smart manufacturer ships FOB -Free on Board. Once the order is on the truck and rolling off your mfg site, it is the responsibility of the customer thereafter.

For ocean shipments, the captain of the vessel has the final say as to what goes on the boat. Accordingly, your shipping container full of metal alkyls (Dangerous When Wet) will get loaded only at the pleasure of the skipper. It is not unheard of for the boat to sail without such cargos. More likely than not your container will get on the boat, but it will be placed at the top of a stack along side the railing. If there is a leak, over it goes.

A company that practices just-in-time inventory control with hazardous goods that come or go by boat must be prepared for delays and long transit times relative to air transport. It is always best to work with a logistics company that specializes in intermodal international shipments.

Thoughts on the Panic of 2008

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While the congress and the various media are grinding their battle axes and taking swings at each other, I hope that we all remember that the absence of suitable regulations on the financial markets is really not the cause of the Panic of 2008. The cause of this trainwreck can be found in the practices and mindsets of certain elite players in the market. This is a pathology of the marketplace, our culture, and ultimately, of human behavior.  

Blaming government for the excesses of the market is like blaming your doctor for your riotous and drunken merrymaking.  In the end, the participants in this orgiastic financial frenzy should be called to account for themselves in front of something like an angry mob. The rest of the herd needs to cull the troublesome members, either through the courts or through social stigma like excommunication or shame.

Obviously, the government was asleep at the wheel in its regulatory duties. But to some extent it was plainly maneuvered out of the way of Wall Street.  While we are hurling epithets at congress, we should not forget that the boards of directors and executives of the troubled corporations have neglected their fiduciary responsibilities to the shareholders. These are the same smug bastards who will hammer you if you miss a mortgage payment. Surely they should be held to a similar accountability as a mortgagee.

As long as we are considering accountability, the show business component of this is the broadcast media (the Fourth Estate). The commercialization and show business aspect of news reporting can only lead to structural biases that favor the needs of the corporation. If news and commentary is regarded as entertainment (ie., Mad Money, Rush Limbaugh, etc), then it is inevitable that it will be conducted like any other carnival enterprise- it becomes a traveling freakshow meant to attract the eyes of a gawking but uncritical public.

It is not in the nature of corporate governance to accept divisions that are not profitable. Important but dry news will be replaced with anything that meets the definition of “compelling”.  Panem et circenses. Celebrity becomes a credential and the drama of controversy becomes more important than the particulars of the case.

If the information feedback loop to other members of the marketplace is filtered by self-serving players, then the equilibrium is fundamentally shifted in favor of the owners of the filter. Inescapably, the broadcast media are part of this whole Panic phenomenon.

Brain Draino

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The Obama administration famously put restructions on executive pay, capping at US$500k for institutions receiving TARP money. Naturally, there has been some shameless howling from the Masters of the Universe. Who? You know, the geniuses who were instrumental in birthing this finance mess.

There has been some wagging of tongues and tut tutting in regard to the problems of living on $500k per year on the upper East Side of Manhattan. Mathematically, this may in fact be true.  But I would offer that this is the market supplying pushback towards equilibrium. If the swanky life in Manhattan is not feasible on the meager sum of $500k, then the banks need to relocate. Banks should consider the kind of lifestyle an executive could have in Manhattan, Kansas, or Little Rock on $500k. Or York, NE. We got yer swank right here!

I love this description of financiers by David Gillen at the NYT-

Banking executives and recruiters say talented financiers — the driven, hyper-numerate, slightly ruthless ones with a preternatural knack for making money in bull markets and bear — are always in high demand. NY Times, Feb 21, 2009.

It sounds to me like the finance industry needs a therapeutic brain drain or a cerebral colonic.

Indignation of the Self-Righteous Self-Made

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There is an undercurrent of disatisfaction that is surfacing regarding the rescue of homeowners who got themselves into bad mortgage arrangements. Talking heads like the guy on CNBC are going off about how wrong it is that citizens who were more clever about their spending habits should have to pay for the mistakes of those who made bad choices.

As a first order approximation, it is hard to argue that we should line up to provide this payout.  If you make bad judgments based on greed, ignorance, or simple miscalculation, the theory is that in an ideal free market you should be free to suffer the consequences as well as the benefits.

That’s fine. Except that we do not have an ideal free market.  In this particular bust, the risks of mortgage trading were not accurately communicated to investors or even particularly well understood by anyone. The macro effect of a large number of mortgagees who are suddenly unable to deal with a large interest rate uptick in their adjustable rate mortgages (ARM) was under appreciated by most.

Adjustable rate mortgages and the subsequent investment instruments that followed were dreamed up by somebody- but probably not by hourly workers or anyone outside real estate and finance. There was a kind of wink-of-the-eye understanding between banks, mortgage brokers, builders, and the real estate business. Not only was there the invention of the ARM and the degradation of qualification standards, there was a nationwide marketing campaign aimed at marginal buyers. This real estate boom was financed in part by mortgage instruments designed to capture marginal borrowers.

The previous owner of the home that I presently occupy was a mortagage broker who had hit the big time at the start of this bubble.  After the signatures were on paper, he told his wife that she could have the BMW that she had wanted from the equity.  Mortgage brokering was practically a cottage industry and many people were making money.

Real estate agents knew this of course. They knew that easy qualification was available and they continued to do what they always do:  push buyers into the most home they could afford.  It was a sellers market and real estate speculation was rampant. Builders were routinely putting up spec homes and selling them like hotcakes.

This is not just a problem limited to greedy buyers. A whole business phenomenon grew into being around the housing boom. Lending institutions, mortgage brokers, real estate brokers, title companies, builders, and buyers all bought into a dream built upon sand. Buyers may have been guilty of bad judgement, but it was facilitated by entire industry ready and willing to make it happen.  

So, are the angry men we see on television justified in their assertion that they should not be forced to help bail out those facing foreclosure? I suppose the position you take depends on your vision of what civilization should look like. I think  if you investigate the self-righteous self-made, you’ll find that many of them benefitted in part by the distribution of wealth at some scale. Inheritance money, Pell grants, scholarships, good mentoring, good fortune, talented parenting, and many other forms of benefit that are not necessarily distributed by bank deposit. Simple hard work is rarely enough.

The parties involved in this fiasco should bear the brunt of it themselves to a large extent. That means that lending institutions should not be entitled to the profits they were anticipating and the borrowers should not be entitled to large equity on overvalued homes. There should be suffering on the part of all participants.

Edsel, Studebaker, and Saturn

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As that grand Zepplin of Corporations, General Motors, sinks like a deflating airship, it has begun to pitch everything overboard in a vain effort to stay afloat. It was inevitable then than underperforming assets would be unceremoniously dropped from service like a lame mule or an Oldsmobile.

Back in 1993 while living in South Bend, Indiana, I struck up a conversation with an elderly neighbor in my apartment complex. Turns out she was one of the last two employees of the Studebaker company. She and a coworker managed retirement benefits for Studebaker employees in a small office in South Bend for 17 years after the plant closed. On the last day, as she told the story, she and her colleague simultaneously walked out of the office and that was it for Studebaker.

And so it goes with Saturn. If the dealers cannot find a buyer for the manufacturing operation, they too will one day sell the last Saturn and close up the shop.  Parts manufacturers will continue to make parts for many years, but the Saturn will become synonymous with the dinosaur and the Dodo bird.

Make or Buy? Gaussling’s 11th Epistle to the Bohemians.

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The most important reaction in chemistry is the one in which you transform chemicals into money. Some chemicals convert into a lot of money per kg, others not so much. The kind of money you want to focus on is profit. Just turning cash over at cost wears thin rapidly and is hazardous to your career. At the end of the day, after you’ve paid the raw mat vendors, payroll, and the feds, you want to have a steaming heap of luchre left over as profit.

At some point in the game, everyone in fine chemical manufacturing realizes that you can’t make everything in-house. There are good reasons to consider making as many intermediates as you can. When you buy an intermediate, the vendors price (cost + profit) becomes the cost you plug into the economics. Optimally, you might be able to make the material cheaper than buying it … eventually. But some raw materials are deceptively simple looking. A company can rack up a lot of brain damage and wasted time trying to make certain kinds of materials outside of your skill set.

We used to joke that at some point in process development, you have to shoot the chemist and get on with scale-up. Often, the decision to make-or-buy an intermediate gets to the table only after you try to make it. In process development, it is important to identify the make-or-buy decisions as early as possible. This can save valuable time. While you may end up spending more per unit mass for the material, not having to make it is equivalent to opening up extra capacity in your facility. Ideally, your want precious reactor/equipment hours spent on the highest value added steps. With each successive step, the value of the intermediate becomes greater.

If your make-or-buy decision revolves around a known item of commerce, then the economics and scheduling is relatively easy. You will have to settle on specifications, delivery schedule, shipment details, and pricing. If the material is not TSCA listed, then you will have to get the vendor moving early on a filing with the EPA, if they are in the USA. If you intend to import a non-TSCA listed fine chemical, not for pharma, ag, food, or other covered use, then the importer of record is responsible for the TSCA paperwork. This can take a few months of lead time.

But if the compound is novel and/or proprietary, then it is instantly much more complex. Not only do you have  to deal with the EPA on TSCA filing, but you have to find a vendor who is willing and able to ramp up a new process. They will need specs, projected delivery information, an agreeable price, and quite possibly a lined-out process and analytical methods. If the vendor has available capacity, this might happen as quickly as 3-4 months. More likely than not, this can take 6-9 months.

If your raw material is part of a critical technology or major account, then you may have to consider dual sourcing. If one plant goes down or the quality or delivery drifts beyond what is acceptable, then you still have one facility that can deliver. And, if you have two vendors, you can start a dandy little bidding war between them for your business. Many companies require their purchasing managers to qualify two vendors for crucial materials. You can argue that you should always have two vendors, but many times the amount of business the material feeds into is too small to bother with.

Chemical manufacturing is much more than reaction chemistry. A chemist in manufacturing can find him/herself involved in many kinds of work.   Regulations, chemistry, process safety, engineering, packaging issues, IP, marketing, and process economics add up to the knowledge set that a chemist needs to acquire while heading up the career ladder.

Chemist Alert! NFPA 400 to be posted in May 2009.

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The National Fire Protection Association (NFPA) is an international nonprofit organization dedicated to the prevention of fire related incidents. The have recently pitched a set of regulations as NFPA 400 pertaining to the storage of hazardous materials. The comment period is long over and soon the rules will be issued as a published document.  While the NFPA is not a regulating body, their rules are widely adopted by government organizations and promulgated.

If you have not taken the chance to review some of these documents, it is well worth your time as a chemical professional to do so. Why? Because the practice of chemistry is being dramatically necked-down in terms of the kinds of chemistry that can be practiced and the manner in which materials are stored. Not only is your local fire marshal packing a stack of NFPA based fire codes, but a whole host of federal regulators are armed with regulations from Homeland Security, EPA (i.e., TSCA), DOT, REACH, and an alphabet soup of regulatory coverage aimed at every conceivable substance.

Organizations that oversee chemical operations include the chemical industry, hospitals, agriculture, mining, and academia. All organizations are under the obligation to provide a safe workplace for the employees. It makes sense to minimize employee exposure to risk. But the web of applicable regulations for any given chemical operation is expanding by the day.

Not only is an organization obliged to conduct business in compliance, but quite often there is the requirement of self-reporting of noncompliance. An organization finding itself out of compliance is an organization in need of legal representation. The nuances relating to most any kind of regulation are such that your average company president will generally be unwilling to settle the malfeasance with the regulatory agency without the help of an attorney. This is the point where a jet of cash starts flying out of the company coffers.

So, the question of the effect on academic chemistry arises.  Academic chemistry departments are seeing increased coverage under the regulatory umbrella as well. Should academic research labs have some sort of dispensation given the nature of the activity? Given that OSHA regulations may not be applicable to students, academic labs are already under somewhat less scrutiny. More to the point, how much government intrusion should researchers accept in relation to the kinds of chemicals they work with and store and the kinds of risks that are taken during research?

This is important for a very good reason. The issuance of proposed rules by organizations like NFPA results in regulatory pressures that eventually find their way to individual researchers. But the researchers don’t hear about it directly from NFPA. The University Health and Safety department hears about the regulations (or guidelines) and they apply requirements on chemistry departments. Faculty being faculty, they’ll perform a gritching ritual and eventually comply.

Generally, the arrival of new regulations results in new constraints. The end result is that the department has to spend more to operate the labs and students receive less experience with interesting chemistry. This whole unfortunate trend of increasing government oversight of all things chemical will eventually neuter US chemical education and industry leaving a bland and uncompetitive culture averse to risk.

I hate to be critical of fire safety people. But I also hate to see chemical education and research hamstrung by well intended parties who have devised highly detailed and extensive rules that will seep into every aspect of the chemical sciences. I am aware of absolutely no pushback of any kind when it comes to this matter.

Microsoft finds new method to deposit eggs in host

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A Microsoft patent application claiming pay-as-you-go computing has appeared. The claimed method will apparently allow you to pay for only the capacity and tools that you select. A commentary can be found on ars technica.

Imagine being a lab rat and watching the lab tech prepare a new type of surgical device for use on you. That’s about how I feel right now after hearing this news.