With his trip Thursday to a warehouse outside Allentown, President Donald Trump chose to visit a firm positioned to profit from a pandemic. It is one of the few remaining U.S. makers of surgical gowns and other personal protective equipment, or PPE, the now-familiar acronym.
PPE makers like Owens & Minor Inc., the president suggested, could be a model for reviving U.S. manufacturing.
Through tariffs and government contracts, Trump says, he wants to revive manufacturing and warehousing across the nation. Only about a tenth of U.S. workers now labor in factories, a modern low.
The Justice Department this month said it would not use antitrust laws to stop Owens & Minor from joining McKesson Corp., Cardinal Health Inc.. and other large U.S. PPE suppliers in coordinating efforts to ship more PPE to hospitals and nursing homes.
Moreover, Owens & Minor, founded in 1882 in Richmond, Va., where it remains based, was among the U.S. companies that won Trump administration contracts earlier this spring to replenish the federal Health and Human Services Strategic National Stockpile.
But if Owens & Minor is a model for the future, it’s also an example of the challenges ahead.
For one thing, a majority of its workforce toils outside of the U.S. in plants in such places as Mexico, Honduras, and Thailand.
And it needs a federal boost. Squeezed by global competition and cost-cutting in the U.S. health-care industry, the $9 billion (yearly sales) company has lost money in each of the last two years; its share price has fallen to half its 2018 level and a quarter of what it was worth in 2016.
In a May 6 conference call with investors, Owens & Minor’s chief executive, Ed Pesicka, warned that even with the government contracts, the PPE industry is still facing a loss of demand for other products, and sales for this year would likely drop from 2019 levels.
Pesicka and his aides said that paradoxically, Owens & Minor had also lost a lot of sales recently because of the massive reduction in elective surgeries following anti-virus shutdowns.
In his remarks in the Upper Macungie Township warehouse of Owens & Minor — a speech that took only brief shots at frequent targets such as reporters and Democratic rival Joe Biden — Trump said he wants to bring factories back to the U.S., with government contracts, government loans, government limits on what U.S. buyers can purchase abroad in key industries, and other policies.
Along with the import taxes (tariffs) Trump has imposed on goods from China and other countries, these protectionist policies, while helping U.S. factory owners, also tend to impose costs, borne by taxpayers and by consumers and businesses in the form of higher prices.
In the case of the PPE industry, Trump is betting that pain is worth it to keep U.S. users closer to supplies of vital goods that have run short in the coronavirus crisis.
Long a distributor of goods made by others, Owens & Minor began acquiring medical gear makers in the early 2000s, as U.S. companies left the business or moved operations overseas. In 2012 it bought Movianto Group’s European operations, and in 2018 it bought the former Kimberly-Clark PPE and medical gear manufacturing operations. Kimberly-Clark’s plants were in North Carolina and Central America.
The deals more than tripled Owens & Minor employment, to 15,400, including 9,000 outside the U.S., compared with 4,800 mostly U.S. warehouse workers a decade earlier. Owens & Minor is mainly nonunion in the U.S., while most of its foreign workforce is unionized.
Six week ago, Pesicka, who took command of the firm last year, had visited the White House to tell the president’s coronavirus task force how much he appreciated “all the support” the president has given his industry. (Pesicka, a former Pittsburgh-based official of Thermo Fisher Scientific Corp. and adviser to venture capitalists, has in the past donated to Democrats including U.S. Sen. Tom Carper of Delaware and former U.S. Sens. Arlen Specter of Pennsylvania and John Kerry of Massachusetts.)
In his recent call to investors, Pesicka said its factories in Mexico and Honduras, as well in the U.S., gave the firm a geographic edge, meaning it could deliver critical PPE more quickly to the U.S. buyers than rivals who use mainly Asian suppliers. Pesicka characterized his Central American and U.S. facilities as based in “the Americas.”
“If you can manufacture the product in the Americas,” he said, “if you can quickly get it there, and you have control of that supply chain from manufacturing to supply to distribution to the customer, [that] makes a big difference on ability to serve our customer during peak demands.”
At the White House meeting, Pesicka had told Trump how his company had ramped up American production, “where we are now manufacturing an additional 40 to 50 million masks per month to get into the U.S. health-care system.”
Even so, he said then, the company was struggling with the rapid increase in demand for masks, noting that one New York hospital, which he didn’t name, had gone from using up to 20,000 masks a week to more than 200,000.
“So you multiply that times the entire U.S.,” plus foreign demand, the need “is much greater” even than the increased production, Pesicka concluded.
In his remarks Thursday, Trump told the assembled Owens & Minor warehouse employees that the increased purchases will make the U.S. more ready for any future epidemics. But as he has in the past, he predicted the current crisis would ease by fall.
Owens & Minor seems somewhat more cautious.