Unmasking The Truth: Insider’s Account Of Sourcing Face Masks From China

After weeks of lockdown here in Shanghai, out of the blue, we suddenly received a humanitarian call: “Can you find a way to move 6 million coronavirus protective masks from China to the U.S. by next Tuesday?”

Considering that our working lives had been reduced to a constant stream of webinars and Zoom video meetings as so much of our industry–the aviation trade and the finance that supports it–had been grounded, we were all too ready to take up the challenge.

We made calls to all the usual suspects and had to ask each one at least twice whether they were quoting monthly rentals or per flight. Yes, $1.3 million was the current charter rate for a one-way load, including repositioning, between Shanghai and Los Angeles–a 300% increase from pre-crisis levels. The massive price hike was attributed to heavy demand from customers around the world and a finite supply of aircraft that cannot easily be increased and the inevitable product of outsourcing.

Passenger aircraft that normally move over half of the world’s cargo are simply not flying at the moment. Cargo aircraft, which had been in the doldrums, are suddenly in high demand, and all cargo conversion slots are effectively sold out for the next 12 months. To put this in perspective, the value of the aircraft had become the equivalent of three weeks of charter revenue, fuel, landing and crew costs included. I wondered if now was the time to buy a freighter of my own.

The pandemic has put deal flow in a deep freeze, with the capital markets and the once “hot” asset backed securities market having ground to a halt, with investors facing a real prospect of substantial loss, with aircraft in default having no prospect of re-leasing and no buyers. Even the most experienced and well-funded of managers are likely to struggle, and as for the rest, I am waiting for the dominos to fall.

Banking finance (other than warehouse facilities that are still valid) is almost non-existent at workable rates, and the plain vanilla nature of financing these assets is a distant memory.

Maybe I was bored or I needed to be involved for the greater good, but I offered to help with the mask procurement and logistics. There is definitely the sense that we are all “in this together,” running through me at present, despite my Darwinian beliefs that I so often try to pass to my offspring. So, I marched on to prove my humanitarian credentials.

But little prepared me for the gold-rush mentality that had taken hold in China. I scanned the press and read up on the rush for masks; the many pitfalls of the trade. After numerous complaints emerged about personal protective equipment (PPE), the Chinese Ministry of Commerce had quickly published an approved list of suppliers, which the rest of the world quickly made rich, so my hunt quickly went off-piste.

The scene reminded me of the Dutch investing in tulip bulbs, with people prepared to mortgage their futures to transfer funds to a Hong Kong bank account for an entity they did not even know the name of prior to the call. Companies that had previously dealt in stone, lighting fixtures and furniture were now traders in face masks. Alibaba even had a section for this new currency of the moment, bitcoin beware. 

We hired a man on the ground who arranged to visit a factory that appeared impressive on their website. He flew to the location and upon arrival at the address conveyed found himself standing in the middle of a parking garage. In front of him were 10 million masks that had been rejected by another client as they were not compliant. They were offered to us numerous times, but we opted out. One man openly admitted that the factories producing masks had effectively been given a license to print their own money. 

After countless calls, discussions with lawyers, accountants and friends, we finally found what felt like the sacred scrolls, 6 million masks through an agent, from a large factory. About 24 hours into the negotiation and checks by some respectable advisers, and we eventually discovered the man at the factory was in fact another broker asking us to transfer millions of dollars to seal the transaction via his Hong Kong company, but we would need to make the payment to his personal account.

I am ashamed to say, that I sat through hours of calls, where we were seriously debating whether to transfer the funds before the ice around the part of the brain that reasons finally began to thaw. What tipped the scales for us to back out of the deal was not the payment mechanism, which looked as if it had been arranged by Saul Goodman, the lawyer to the mob, in Netflix’s “Better Call Saul.” The deciding factor was that the important accreditations given could not be verified. I won’t even get into the minutiae of quality, weight and number of layers of fabric used in the masks, so far as to say, I am not currently wearing one unless it’s fully vetted.

The seller could not guarantee customs clearance or an export license to the U.S. There were additional layers of requirements needed, and not to mention the internal logistics issues of getting to the airport facilities on time for the delivery flight. 

“Nobody wants to sell to the U.S.” we were told, “too scared.” Had the President threatened sanctions? Was America being punished for something? I couldn’t understand many of the claims that were given. I do believe that much of what we heard had to do with negotiating for a better price, as the official government agencies appeared to be supportive of our efforts.

At one point, we were even considering the option of flying the cargo around the world to get it into the U.S., but then discovered that it would cost $2.6 million. Soon, only the Khardasians would be able to afford these masks.

So here is my advice, until more regulated factories are built locally, stay at home and wash your hands to save the economy.

— With Tasos Michael, CEO of Inception Aviation Holdings Limited.