Import safety spotlight on Lumber Liquidators

   Lumber Liquidators is strongly denying charges it sold laminate flooring from China with high levels of the chemical formaldehyde. The case, combined with an ongoing government investigation into whether the company purchased illegal wood supplies from Russia in violation of the Lacey Act, raises questions about the company’s compliance with import safety and environmental rules, as well as its quality control measures for overseas suppliers.
   CBS News magazine “60 Minutes” reported that Lumber Liquidators is selling laminate flooring with dangerous levels of formaldehyde, a known carcinogen, in violation of California health standards for emissions in wood flooring. 
   Formaldehyde is used in the glues that bind wood particles together in laminated products.
   Testing done by labs hired by a lawyer and community activist representing upset homeowners suing the company found that samples of wood flooring from stores in California contained six- to seven-times the state standard for formaldehyde and some were close to 20-times higher than the allowable level. The plaintiffs are backed by Wall Street investors who believe Lumber Liquidators’ stock is overvalued and are shorting it—borrowing and selling shares in hopes the price drops and they can repay the shares at the lower price. Fears that the company will be found liable for large damages could potentially hurt the value of the company’s stock.
   “60 Minutes” bought boxes of laminate flooring in several states and had them tested. Only one of 31 boxes complied with the California emissions standard for formaldehyde. Some were more than 13-times above the limit set by the California Air Resources Board. 
   The CARB standards are set to become national this year under a new federal law.
   Lumber Liquidators issued a statement defending itself and challenging the “60 Minutes” testing methods.
   “We comply with applicable regulations set by CARB, which is currently the only regulator of composite core emissions. Although the CARB regulations only apply in California, we adhere to these standards everywhere we do business. Every manufacturer of fiberboard cores used in our products is certified in accordance with CARB regulations. We have documentation to support each step of our production process, including vendor agreements, vendor invoices, CARB certificates, and test results, to serve as further proof that our processes, practices and products are compliant across the board,” the company said, adding it has also conducted independent third-party tests.
   “We believe that ‘60 Minutes’ used an improper test method in its reporting that is not included in CARB’s regulations and does not measure a product according to how it is actually used by consumers. Our laminate floors are completely safe to use as intended,” the company said.
   The CBS News program said former Lumber Liquidator employees, suppliers and competitors also informed it that the company’s Chinese-made laminates are not being made to California standards. It used undercover investigators with hidden cameras to visit three of Lumber Liquidators’ contract manufacturers in Changzhou, where it said mill employees openly admitted they used core boards with higher levels of formaldehyde to save 10 to 15 percent on the price and that they falsely labeled the company’s flooring as CARB 2 compliant, meaning it meets California emissions standards and the new U.S. federal law.
   “These attacks are driven by a small group of short-selling investors who are working together for the purpose of making money by lowering our stock price,” the company said. “Their motives and methods are wrong and we will fight these false attacks on all fronts… We stand by every single plank of wood and laminate we sell all around the country and will continue to deliver the best product at the best price to our growing base of valued customers.”
   The fast-growing flooring retailer recently opened an advanced testing facility within its new distribution center in Toano, Va. The company said its network of labs in the United States and Asia perform full-scale product evaluations and testing using a nine-step process.  
   Sen. Bill Nelson, D-Fla., asked three federal agencies to independently test the company’s products and investigate whether the company made potentially false marketing claims about its products’ compliance with safety standards.
   Meanwhile, Lumber Liquidators is under federal investigation for allegedly buying illegally harvested timber from Russia. The U.S. Immigration and Customs Enforcement and Fish and Wildlife Service raided its headquarters in September 2013 and the company said in its Feb. 25 annual report that the Justice Department is considering filing criminal charges against it.
   The Lacey Act is intended to help preserve protected plants, trees and wildlife in other parts of the world by making their importation, or products made with such plants or animals, into the United States illegal. In 2008, Congress amended the law to cover plants and trees for the first time to reduce global demand for illegally obtained timber products. In addition, more stringent rules were adopted for importers to accurately describe the exact type of wood or plant product on their import declarations. 
   Lumber Liquidators also could pay extra duties on previous purchases of multilayered wood imports from China. In January, the International Trade Administration issued preliminary antidumping duty rates after an investigation determined that certain Chinese suppliers were selling the engineered hardwood products at below market value. A final ruling is expected in May, but as it stands companies that bought products from those Chinese suppliers would be subject to an 18.27 percent duty, compared to 5.9 percent under an initial rate review. The company said it would incur a loss of about $5.7 million this year on purchases for the period and there could be an additional $6.3 million liability if the rates remain in effect for subsequent shipments through the end of 2014.
   The retailer is beginning to set aside money to pay the extra duties and is already looking at sourcing products from different suppliers this year and diversifying its supplier base over multiple countries.

This column was published in the April 2015 issue of American Shipper.