NAVAL SUPPLY DEPOT SUBIC BAY AND PHILIPPINE PRODUCTS IN THE EIGHTIES

By Retired Capt. Steve House, SC, USN

The Philippine revolution that ousted Ferdinand Marcos occurred shortly before my change of command. After assuming command, I received a request from the new Philippine government to attend a meeting at Clark Air Force Base to discuss ways to increase the amount of money the U.S. Navy spent on Philippine products. I said I would attend and a colonel from the U.S. Air Force also agreed to attend, but their purchase operation was “small potatoes” compared to ours.

My staff briefed me that our major purchases in the Philippines included security guards, fresh fruits and vegetables, and some minor service work. We were buying a significant amount of materiel from the U.S. that was readily available from Philippine sources. My general counsel (civil service) lawyer briefed me on the “Buy American Act” that gave preference to U.S. products and prevented Naval Supply Depot (NSD) Subic Bay from buying locally. He said that exceptions were permitted if the U.S. procurement was likely to increase the overall total cost by 25%. The “Buy American Act” stipulated that we were required to include the cost of transportation from the U.S. to the Philippines in our cost analysis. This made it very difficult for our analysis to stay under the 25% threshold.

The meeting with the Philippine authorities was very cordial, but they were mildly upset when they were told about the “Buy American Act.” They said that President Aquino would visit the U.S. in the near future, and she would seek a blanket waiver from the “Buy American Act” for the Philippines. When I said to them that “I don’t think the blanket waiver would be granted.” They smiled and said, “President Aquino can be very persuasive.”

Shortly after President Aquino arrived in the U.S., we received official direction that the provisions of the “Buy American Act” were waived for the Philippines, including the cost of transportation. The only caveat was that Philippine suppliers must meet the quality standards prescribed in the product specification and the delivery schedule. Thus, the “Buy Philippine Products Program” was born. It turned out to be a real game changer for the Philippine economy.

I called my senior staff together and we discussed possible products that we could purchase in the Philippines. We had an office in Manila that did some local purchasing for us, but we had to expand their staff to accommodate increased procurement and contract administration. We adopted the phrase “I love Philippine products” and began publicizing it in Philippine newspapers and on TV. Potential suppliers inundated us with proposals. Our procurement department winnowed many of them out, mainly because they could not meet the U.S. product specification. At times, our buyers had to deal with offers based on “kickback” schemes that were endemic to doing business in the Philippines. Those were quickly rejected, but we ended up with many good ideas. Most that we selected successfully delivered quality products that met U.S. specifications, saved the U.S. money, and put a significant amount of money into the Philippine economy. Few were disappointing.

Some of our successes and disappointments follow:

Canned soda for fleet units and the base were shipped to NSD Subic Bay from the states. A large soda can capability existed in Manila, but it was underutilized because Filipinos preferred their soda in bottles. The company produced a small amount of canned soda for the tourist consumption, so they would have no trouble meeting the U.S. quality standards. The only problem was that they sold cans with throwaway tops that were not allowed aboard ship. The company agreed to shift to “capture tops,” so we signed a contract with them to supply a wide range of canned soda for shipboard and base use. When we stopped buying the canned soda from the U.S. we received some hate mail from a U.S. company that previously supplied the canned soda to Subic Bay. But after we explained the Philippine exception they accepted our decision. Some Sailors complained that Philippine canned soda tasted different. But in a well-publicized blind taste test we proved to their satisfaction that the Philippine canned soda tasted the same. I don’t remember how much money went into the Philippine 50 Spring 2020 economy when we shifted to Philippine canned soda, but it was a big number.

We were buying a great deal of furniture and drapery material to outfit ongoing remodeling of base bachelor housing throughout the Western Pacific. All of the furniture and draperies were manufactured in the U.S. and shipped to the Philippines. We learned that much of it was 90% manufactured by Philippine companies then shipped to the U.S. companies for finishing. The U.S. companies would then sell it to the U.S. government–as “Made in the USA”– and then it would be shipped back to the Philippines or other countries in the Western Pacific. A huge savings was possible if we could buy finished furniture directly from Philippine companies. We hired a retired American “expatriate” in our Manila office that had extensive experience in the Philippine and American furniture industry. He surveyed furniture contractors in the Manila area and began sourcing those that could meet the specifications and delivery schedules. The program was a big success.

Draperies were another story. The CEO of the company that had the contract to manufacture all of the draperies for the U.S. Military in the Western Pacific called us. He said he was coming to the Philippines with his lawyer to complain about losing Western Pacific drapery business. We told him about the exemption for the Philippines, but he wasn’t satisfied. Long story short, he ended up selling just the material to us and letting Philippine companies do the sewing. In fact, he established an ongoing business relationship with several Philippine companies to do his sewing and shipped the finished product to the U.S. for the commercial market.

We were buying bubble wrap that was used extensively in the handling and shipping of expensive electronics. The bubble wrap cost was $25/roll when purchased in the U.S. But when the cost of transporting a roll to the Philippines was added to our cost analysis, the cost grew to $100/roll. We found a supplier in the Philippines who could buy the resin locally that was needed to manufacture bubble wrap. He met our specification and delivery schedule and delivered quality bubble wrap to NSD for $65/roll.

Not all of our decisions were winners. The first disappointment stemmed from a conversation I had with my cousin’s husband during a trip to the U.S. His company was a major supplier of food products to the metropolitan New York City area. When I mentioned the “Buy Philippine Products” initiative he mentioned that his friend was importing tuna fish from the Philippines to the U.S. market. We contacted the tuna fish company in Manila and asked that they send us a few cans of the product they exported to the U.S. for us to try.

We thought we were ready to begin negotiations with the Philippine company. But Navy regulations required that we inspect the Manila canning facility, so we arranged to have a USG inspector from Hawaii fly to Manila to inspect the plant. The company failed the inspection. And because of the Navy inspectors report, one million dollars of Philippine canned tuna fish sat on the dock in California under an embargo. I’ll spare you the details of the report, but it was pretty bad. The Philippine company eventually was reinstated and the embargo lifted. However, we decided it was too risky and we cancelled our plans to buy canned tuna fish from a Philippine company.

Another disappointment occurred in our attempt to help Filipino farmers in Baguio (mountains in the Philippines where they grew fresh vegetables that were sold to NSD). My executive officer met with the collective that represented the farmers and found that the vegetables were beautiful, but they were only receiving 10 cents on the dollar for the vegetables sold to NSD. The remainder of the money was going to so-called Chinese middlemen in Manila who – the farmers said – were adding very little to the end product. The farmers were very enthusiastic about cutting out the middlemen and said they could meet our packaging and sanitary requirements. We gave the farmer collective a small order. When the vegetables arrived, they failed the sanitation inspection and the vegetables were woefully packaged such that they didn’t meet the strict standard for delivery to Navy ships.

It turned out that the so-called Chinese middlemen were very cognizant of the U.S. sanitation specification and packaging requirement. Their hands-on effort was quite extensive and well worth the fees that they charged. In our desire to help the farmers we didn’t do our due diligence prior to making the buy and dropped the ball. The importance of providing quality vegetables to the fleet units and the people on the base was such that we couldn’t risk working directly with the farmers.

One interesting project was when the base commanding officer requested that we purchase about 20 horses for the riding stable to replace 20 horses that were old and no longer rideable. We did some research and found that the best place to buy healthy riding horses in the Western Pacific was Australia. The head of the Procurement Department and a Navy veterinarian flew to Brisbane Australia to negotiate the deal. That was the easy part. They then had to get them to Subic. We eventually negotiated a deal for two commercial cargo flights from Australia to Cubi Point. All went well and the fresh horses were quite a hit at the riding stables. I didn’t ask what happened to the old horses.

Another interesting project began when a representative from an Australian commercial cargo airline approached us and asked whether they could initiate a weekly flight to Cubi Point with a selected range of Australian Commissary-type products for the Navy customers on the base. We coordinated with the officer in charge of the commissary and he said to go for it. It took us about nine months to get approval from our bosses in Hawaii for the commercial plane to land and refuel at Cubi. The cargo company had to post the necessary paperwork and bond to cover any accident that might occur, and pay for fuel that we sold them. The business case analysis was a “slam dunk” because the cargo airline had been flying essentially empty to Hong Kong and full on the return trip to Australia. Products included things that we could not get economically from the states (e.g. fresh milk and ice cream, Sidney rock oysters, unique Australian fruits and vegetables, etc.). The local Air Force Base and the U.S. Embassy in Manila heard about our flight from Australia and began using it as well. We also had an ongoing program with Australian industry to repair Navy owned aircraft components at Australian companies and return them to NSD. The military bureaucracy required us to fly the components to/from Australia via Hawaii, which drove up the overall repair cost and elongated the turnaround time. We finessed the policy with a workaround that required the Australian companies to include transportation in their repair cost and contract with the Australian cargo airline to move the components directly to/from Australia to Cubi Point.

It was unique time to be the commanding officer of NSD Subic. Key to the success was the waiver of the Buy America act that authorized us to procure material and services in a cost-effective manner. The only caveat was that suppliers must meet the quality standards prescribed in the product specification and the delivery schedule. I relied heavily on my contracting department and GS civilian lawyer to weigh in on major procurements. We have made a few mistakes, but the program was a huge success for both the Filipino economy, American personnel stationed in Subic and aboard Navy ships at sea.