DOE Presentation for CTMAJune 4th, 2007Myrtle Beach

When Packaging Headaches Become Migraines

(1) On behalf of Dean Ricker, Bill Fitzgerald and all of us at Skolnik, I would like to thank you for offering me the opportunity to share the current state of steel drums with respect to the DOE. As many of you know, Skolnik has a long history with the DOE and we value our participation in the effort to safely transport and dispose of nuclear by-products and an array of dangerous goods.

When asked by Ron Natali to present an update on current events within the steel drum community, I suggested that while the steel drum itself, is always evolving, the real focus of a talk should be on regulatory changes effecting steel drums of hazardous materials, and the effects of quality programs within the DOE agencies and facilities. My talk today will provide you with an update on the areas of steel drum design, a review of some relevant regulatory issues, and a look at how the DOE quality requirements and vender issues, once in a while, can cause headaches to become migraines on both sides of procurement.

Slide DESIGN CRITERIA

You all know what a 55 gallon drum looks like – for instance, (2) this oneis the same as this one (3), or this one (4)?

(3 drums, differing weights)

Do you see the difference between these?

(5) tight head (6), open head bolt (7), open head Lever,

In the first 3 drums (8), you are right to think that they all look alike, butwhat you don’t see is that these three drums reflect a global trend to reduce the overall weight of the drum by reducing the metal thickness of the body, bottom and cover. Depending on the metal thickness used in manufacturing, these drums can vary from 25# to 60# - quite a difference in protection - and in this case, thickness does matter!

What is even more surprising is that despite the difference in weight and wall thickness, it is likely that all three containers (9) could have the same or very similar DOT/UN ratings.

Let me explain: The original regulations for transport of dangerous goods were Specification Standards. For steel drums, terms such as 17E, 17H and 17C were used to describe specific design details that, when manufactured, yielded a compliant hazardous materials drum. In use for almost 50 years, manufacturers began to complain that these Specification Standards did not allow for manufacturing or material improvements, and the result was the introduction of POPS – Performance Oriented Packaging Standards. Under POPS, the UN

basically said, make the drum out of anything you want, any way that you want – it just has to pass the designated tests. (10) If it’s a paper bag and can pass the tests, then the package is compliant.

As a result, the trend for the last decade in steel drums has been to reduce the metal thickness to save material cost while not reducing the performance capability. In essence, taking performance testing to the absolute limits, allowing little for marginal error. To illustrate my point about the effects of reduced metal thickness, I would like to perform a demonstration:

20, 18 and 16 ga. panels.

As you can see, in the case of packaging and risk reduction, metal thickness does impact performance. Therefore, with regard to metal thickness, ordering specifications are critical to risk reduction.

(11) REGULATORY ASPECTS

Since most of you work for, or alongside of, the DOE, you can comprehend the effects of regulatory changes on the design, performance and compliance of steel drums. Based on recommendations by the Committee of Experts at the United Nations, and enforced by the US Department of Transportation acting as competent authority, some recent and pending regulatory issues addressed in HM-231 would affect the use of your steel drum supplies.

1. (12) Closure Instructions 178.2(c)

Certainly this is one of the most basic requirements that have been giving headaches to many packagers and shippers. What was once a common-sense art, has now become a scientific process that is very difficult to define and repeat. Furthermore, as our manufacturing technology changes and Closure Instructions are occasionally revised, this further adds to the headaches suffered by both the DOE and their venders. Some manufacturers are loath to write a competent instruction, while the DOT expects that the closure process be followed with exacting detail. It’s appropriate to have proper instructions for closing, but since the steel drum is not a finely machined, highly tooled product, the closure system – while capable of amazing security - can be influenced by elevation, temperature, humidity, compression and, of course, the “human element.” To this end, the DOT established a test laboratory at Tobyhanna, PA, where they retest all types of DOT packagings to verify that they perform as marked. As you know, the in-field record of packaging failures in the US is very low, yet the results of the testing at Tobyhanna suggests that all packaging types are failing at surprisingly high rates. Personally, I have worked with DOT and the Tobyhanna staff to understand the reasons for so many failures at Tobyhanna when the self-certifying manufacturer’s and 3rd Party Testers are experiencing successful tests. For instance, with Closure Instructions, the lack of clarity and inaccurate procedures are seen as principle causes of the laboratory failures.

Currently, DOT requires packaging manufacturers to only notify persons to whom packaging is transferred of “all requirements not met at the time of transfer.” In recent legislation, HM-231, DOT proposes to revise this section to ensure that closure instructions “…provide for a consistent and repeatable means of closure that is sufficient to ensure the packaging is closed in the same manner as it was tested.” For example, if we use a Snap-On Socket wrench to secure the cover after manufacture, the filler would have to use the same tool. If we close with vertical compression, the filler would have to do the same.

Skolnik opposes this proposal, as we are concerned that the proposed new language would result in fillers being required to perform the closure function in “the same manner” as when the package design type was tested. This would mean that packagings would have to be closed in precisely the same manner as they are in test laboratories – a practical impossibility in most cases. Given that industrial packaging operations run the gamut from high-speed lines that are fully automated to slower lines that are manually operated and dependent upon employees to perform the closure function, it is unlikely that fillers could duplicate the actual conditions in which packages are closed by testers.

2. (13) Closure Instruction Notification 178.2 (c)

Currently, DOT only accepts printed documents as the means of complying with this section. At a time when e-mail is the predominant means of business-to-business communication, it only makes sense that

electronic notification via e-mail should also be authorized. We believe this subparagraph should be revised to authorize the use of electronic means (e.g., email) to provide closure notification to shippers. Furthermore, in most cases, notification is sent to the buyer of the drums and the closure instructions are often not passed on to those who are actually closing the drum. While DOT has not addressed this point, we believe that email would assist the circulation of the Closure Instructions.

3. (14) Marking of Packagings 178.3

DOT wants to allow steel drum manufacturers to apply a durable marking on the top or side of a steel drum which identifies a lower performance capability than is indicated by the permanent mark found on the drum’s bottom head. This means that you could receive a drum in which the bottom embossment might be a 1A2/X400/S and the durable side mark could be a 1A2/Y200/S. I find such a proposal disturbing because this could only detract from the marking clarity, as there would be inconsistent marks on a single drum.

4. (15) Marking of Packagings 178.503

DOT will authorize the application of a durable UN mark that varies slightly from the examples given in 178.503, but which nonetheless conveys the intended meaning of the mark. This issue became relevant in 2002, the result of Sandia National Labs requesting an interpretation from DOT regarding the use of a stenciled circle around the UN letters which

results in a broken line. DOT responded that it was not compliant. The result has required that, for us, a separate process has been needed to ink stamp the circle – even though all the remaining letters of the marking are stenciled with broken lines. In 2005, Skolnik began pursing the reversal of the DOT position in conjunction with the Dangerous Goods Advisory Council (DGAC). On Oct. 11th, 2005, DOT offered to accept the stenciled circle. We’ll talk more about this in a few minutes.

(16) In addition, DOT is proposing to revise the current regulation and stipulate that these letters appear “exactly” as depicted in 178.3(e)(1)(i). Although their intention is to prevent gaps in the letters, the impact of the proposal would be far greater. If enacted, the provision would make illegal any mark in which these letters appear in any way other than shown in the example. This would mean, for example, that spacing, font style, etc., would have to conform precisely to the example.

We are grateful that DOT has reversed this requirement, (17) (but we believe that the agency should simply authorize the use of stencils and apply a performance standard to the effect that the circle around the “UN” letters be recognizable as such from a normal reading distance.

(18) The DOE Effect

Turning to the issues relative to the DOE, there are approximately 60 million steel drums manufactured and reconditioned annually in the US. Since most of

the DOE facilities specify new drums, let’s focus on the newly manufactured 30 million. In the last decade, the steel drum manufacturing community has shrunk due to company mergers and closures. While there were about 60 manufacturing companies in the US in 1990, today there are less then 10. And of these 10, only 3 are primary venders to the DOE.

The DOE purchases less then 1 million steel drums per year, However, given the trend that I described earlier, DOE purchases the largest quantity of “heavy gauge” (1.5 and 1.2 mm) drums of anyone in the country. Therefore, I am happy to say that it appears that the value of the thicker steel is understood at the DOE. With that said, and with the knowledge that Skolnik has been a supplier to the DOE for over 2 decades, I cannot remember an incident that was brought to our attention regarding the performance integrity of a steel drum. In fact, unlike the points that were discussed earlier, our experience shows that the issues relative to the DOE and steel drums focus almost entirely on regulatory compliance and document control. The conventional steel drum community is mostly focused on principles of high-volume manufacturing and turn away from projects which have typical DOE requirements. The result is that DOE has few options when seeking requests for bids on upcoming projects.

The requirements of annual audits, quality programs such as NQA-1, and a document trail longer then the Yellow Brick Road have made DOE drum procurements the “poison fruit” of our industry. However, the attitude at Skolnik has always been

that these requirements make us better as a company, and valuable as a vender to all the DOE facilities.

With that said, it is the paperwork or documentation related issues relative to the DOE that have turned some of our small headaches into migraines. I would like to share with you, the type of issues that, in the last 6 years, have created the biggest “migraines” within Skolnik. Please note that in my opinion, the reasons for the DOE position were absolutely valid – however, I believe that the levels of attention given to these issues were disproportionate to the question of product integrity for each situation.

(19) It was Friday February 9th, 2001 when I received an email from a DOE employee stating “I've discovered recently during a review of a client's packages that most all of their UN spec drums displayed inappropriate UN cert markings.  Either the certifications are not complete or are inappropriately displayed.” He went on to tell me that as technically non-compliant packagings, he was going to send out a “Red Alert” to all the DOE facilities and that in his estimation, this could result in repackaging costs for the DOE that could exceed a cost of $6 Billion.

Going back to what I stated earlier about the issues being disproportionate to the potential question of product integrity, let me explain the cause for this statement.

In 178.503.(e), examples of the symbol used to indicate that a container is UN certified shows a

circle with the letter u and n vertically positioned. There is no verbal description for the lettering, just the illustration.

(20) 178. 503(a) states that, “A marking may be applied in a single line or in multiple lines, provided the correct sequence is used.” It then goes on to state that “A packaging conforming to the UN standard must be marked as follows,” and lists items 1-9 which are the marking information sequence. They are:

First line:The UN SymbolThe packaging ID code (1A1, 1A2)The letter indicating performance standard,The specific gravity or mass,For liquids, the test pressure in Kilopascals (kpa),

Second Line:The last two digits of the year the drum was manufactured,The Competent Authority mark, USAThe manufacturer’s symbol or M-number, SDCCThe metal thickness

Prior to the Performance Standards, DOT open head drums could be used for Solids or Liquids using the same marking, usually a 17C or 17H. With the new UN standards, that same drum would have to undergo a separate liquids and solids test, and those marks would be permanently embossed into the bottom head.

(21) tested separately and marked for both liquids and solids. DOE welcomed this option, as it allowed for reduced inventory and the continuation of liquid or solids usage similar to the 17C series. When marking these drums, since the last 4 items of the mark were the same for both the liquid and solid marks, we embossed this drum with the first line of the liquid test criteria (1-5), then the first line of the solids criteria (1-5), and then embossed the second line identification information that was the same for both marks (year of manufacture, USA, the Skolnik mark, and the metal thickness). In the case of the marking, the DOE representative claimed that each complete mark required the repetitive information to be embossed in sequence. Therefore, by having a third line apply to both marks, one of the two markings was non-compliant.

(22) The second non-compliance refers back to the illustration of the UN symbol. The DOE representative was claiming that some manufactures were using the Upper Case UN letters, rather then the lower case UN – and thus, the marking was non-compliant.

While technically, the DOE representative may have been able to convince the DOT of a non-compliance issue, we thought it was unlikely that the Federal government would spend $6 Billion on repackaging drums whose non-complaint violation was an upper case U and N. Furthermore, the DOT thought both issues were insignificant. However, in order to correct these issues for full compliance, Skolnik was one of 3 companies involved in these two non-compliance issues and together, we applied for a

(23) Special Exemption from the DOT to accept all containers made using the upper case UN and those that had the single second line embossment. The Exemption was issued. In the end, Skolnik, alone, spent more then $25,000 in legal fees on this matter.

(24) Another recent issue that turned a headache into a migraine resulted from the letter I mentioned earlier that was written to the DOT by Sandia National Labs in 2002. In it, (25) Sandia asked DOT that if stenciling is used to apply the UN mark, can the line be broken around the “un.” DOT responded that no, the line had to be solid.

While in this case the interpretation from the DOT was, in my opinion, wrong, the result was that for many DOE agencies, and venders to the DOE agencies, we had to comply with the design specification and ink stamp a solid circle over the stenciled circle that accompanied the marking. Since applying an ink stamp to a round metal surface is a difficult task, the results were usually smeared, unclear and had to be removed and restamped several times.

In 2005, I decided to put an end to the madness and through the Dangerous Goods Advisory Council (DGAC) we proposed to the DOT that they review their original letter to Sandia Labs and allow the stenciled mark – especially since the remaining portion of the mark was stenciled. DOT initially refused to recall their interpretation, and DGAC took the matter to the Committee of Experts at the UN. Upon seeing the proposal, the Committee was

outraged that they should be bothered with such a request. The DOT then chose to review the request and did allow the circle to be broken as long as the line to gap ratio did not exceed 10%.

Notice that in both situations that I just discussed, the integrity of the container was never an issue. These were cosmetic concerns that, in my opinion, provided no additional safety to the DOE applications while costing Skolnik 10’s of thousands of dollars in legal fees, staff time and production loss.

(26) Another event that I am sure, many of you are aware of, was the discovery in January 2007, that for a six month period in 2006, Skolnik had performed an incomplete stack test on several drum types that had been bought by Savannah River. On Jan. 16th, I received a call stating the problem and that this could result in all the drums Skolnik had sold to the DOE being “exhumed and returned for repackaging.” Migraine!!!

We investigated the claim and found that during a transition of Testing management, our new Test Engineer misread (27) 178.603, the Stack Test, and had been Periodic Retesting for the UN and 7A using one sample – which is correct for the more extreme 7A test, whereas the UN requires 3 samples.

Immediately we sought our legal counsel for options. Since the drums in question had been successfully Design Qualification Tested in previous years, and since most of the drum types had also successfully passed the current 7A extreme testing – we chose to

apply to the DOT for an Approval of Equivalent Packaging. The application was submitted on January 18th, and within 2 weeks, DOT had issued their first Approval. (28) With some minor modifications, the final Approval was issued on February 12th, 2007, less then 30 days from the initial contact.

Meanwhile, in the month that passed during the drafting of the Approvals, an ORPS report had been sent to all DOE agencies informing them of the incomplete Stack Test situation, and further claiming that Skolnik was selling drums in which the certifications had expired. While we are not sure where the second issue came from, it now had been emailed around to all DOE facilities and the calls started coming in to Skolnik. Within days, we responded to numerous DOE emails and callers wanting explanations and scheduling audits. Though the DOE agency did realize that their accusation was incorrect and printed a retraction of the second claim, it was too late and Skolnik suffered the consequences.

In February, Dean Ricker, our VP of Sales, and myself met with the Savannah River staff to review the occurrence and create a follow-up Corrective Action Report. Savannah River was impressed with the speed of our reaction, the responsiveness of the DOT to our request, and the intent on Skolnik’s part to protect DOE compliance. This was an expensive one for us, about $50,000 of legal and associated expense.

(29) As suggested in the title of my presentation, there is good cause for high stress factors to be a part of a DOE vender relationship. As I mentioned earlier, the number of domestic steel drum manufacturers has dropped from 60 to 8 and the number of drum manufacturer’s serving the DOE has dropped from 60 to 3. Skolnik is one of the three. We are an independently owned, small business and have chosen to step up to the design, regulatory, quality and documentation challenges that accompany DOE procurement. At Skolnik, our DOE business is critical and being a qualified vender for over 2 decades is an accomplishment. We believe that safety and container integrity is critical to your success and we support you. We also believe that honesty, quality and partnering with DOE, is critical to our success. There have been many headaches, and some migraines, and I hope you understand that my intention today is to enlighten you on the issues that we face as a company, and as an industry in supporting the needs of the DOE.