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Market Update
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Product Recall - International
Printable Version
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How many of our clients would be in the same position?
The quoted below is paraphrased from an account of a recent product recall.
"On April 7, we announced a voluntary product recall of certain glass bottles
of Samuel Adams products. We completed most of the recall activities during
the second quarter with the help of our wholesalers, retailers, and customers and
appreciate the outstanding support they provided during this process.
In our first quarter financial results, we took various charges for this recall, based
on the best available information at that time. Our estimates are now higher
than previously reported, as more data has become available. The after-tax
impact of these additional provisions in the second quarter was $2.8 million.
We estimate that we quarantined, for destruction, approximately 925,000 cases
of product, of which 200,000 cases were held at our warehouses and identified
prior to shipment to our wholesalers.
For the first six months of 2008, to reflect the current known estimated impact
of this recall, we reversed approximately 725,000 case equivalents of shipments,
which translates to approximately $12.3 million of sales credits, and recorded
approximately $8.3 million as recall costs. The after-tax impact of these
provisions was $11.6 million.
The company carries product liability insurance, but does not carry product
recall insurance."
- Martin Roper, Boston Beer Company President and CEO Aug 5 2nd Q earning report extract
noting the total cost of the glass contamination recall would be greater than $20 million.
Despite the reduction in the public profile of recalls this year compared to last, there have been a number of noteworthy
events that have raised the issue of coverage for this very significant economic exposure to U.S. companies highlighted in the
example.
We saw multiple recall losses arising out of the Hallmark/Westland meat plant in California, where the plant was shown to be
grossly mishandling cattle due for slaughter. Customers of the plant were ordered to quarantine huge amounts of product,
which, to date, they have been unable to sell, resulting in significant losses.
In addition, there was massive interruption in tomato and jalapeño pepper supplies to manufacturers and retailers as an
outbreak of e-coli caused significant numbers of consumers to become severely ill. Growers and suppliers are estimated to
have lost many hundreds of U.S. millions as a result of the FDA-ordered suspension of sales on a rolling state-by-state basis.
Finally, there has been a massive recall following a further e-coli contamination at Nebraska Beef. Retailers, such as Kroger,
have been very high-profile in organizing recalls of their private-label product made by the processor, which is a significant
development as retailers have not tended to be in the headlines, given the negative publicity over such events.
Developments in the consumer product segment have been less high-profile, but potentially more significant in the long-term,
with the passage of the Product Safety Act through both houses. It is likely to become a law in the fall, and will dramatically
strengthen the CPSC’s ability to intervene and enforce actions against manufacturers or importers of unsafe consumer
products.
This law flows directly from the spate of recalls last year, especially of toys being imported from China. Amongst the changes,
a far more interventionist regime for imposing recalls and penalties on the importer is likely to be seen in the consumer
product sector.
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Please contact your Lockton Representative for further information regarding any information contained in this
market update.
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