CPSIA - Unpublished Article Highlights CPSIA Benefits Felt by Testing Companies

Intertek Presses Toy Rules as U.S. Scrutiny Aids Testing Firms

2011-02-02 05:00:02.1 GMT

By Mark Drajem

Feb. 2 (Bloomberg) -- When the U.S. Consumer Product Safety Commission last May proposed rules on how toymakers must test their products, Toys R Us Inc., Lego A/S and retail groups urged
the regulators to ease off.

One company took a different tack.

London-based Intertek Group Plc, the world's largest consumer-goods testing company, argued that the rules should be expanded to require manufacturers to submit to further "engineering, chemical and biological analysis," to ensure that the design of any toy is safe.

The filing demonstrates one consequence of increased government scrutiny of product safety: For Intertek and other testing companies such as Bureau Veritas SA and SGS SA the very rules that manufacturers and retailers say burden them with undue costs and paperwork mean more business.

"It's just another opportunity to test," said Larry Lynn, compliance manager at Learning Resources Inc., a Vernon Hills, Illinois-based maker of educational toys such as the Zoomy handheld microscope. The company estimates its testing costs jumped 10-fold since 2006.

"All the labs have seen a significant increase in the business because of the requirements of the CPSC," said Rick Locker, a lawyer for the Toy Industry Association in New York. In the first months after a previous law went into effect in 2009, testing costs tripled, he said. While the expenses and delays have receded, pending new requirements mean "you could see that issue come back again," he said in an interview.

Back to Edison

Intertek, which traces its corporate heritage to Thomas Edison's Lamp Testing Bureau, has more than 1,000 labs in 100 countries. In addition to analyzing consumer products such as apparel and toys, it tests or certifies chemicals, foods and minerals. It earned 103.7 million pounds ($167.3 million) on revenue of 652.6 million pounds in the first half of 2010, its most recent published results.

The U.S. testing requirements followed a rash of recalls in 2007 of Chinese-made toys, sold by companies such as Mattel Inc., which were found to contain lead paint. In response, Congress passed legislation in 2008 mandating that all toymakers curb lead and other harmful materials in their products and redouble testing.

While the rules apply to toys sold in the U.S., much of the testing takes place in China and Hong Kong, where many U.S. toys are made. The U.S. imported $25 billion in toys from China in 2009, making it the third-largest category of imports from the country, behind computers and household goods such as clocks.

European Testers

The largest consumer-testing companies are based in Europe. Among the bigger ones in the U.S. are Northbrook, Illinois-based Underwriters Laboratories Inc. and Consumer Testing Laboratories Inc. in Bentonville, Arkansas. Both are closely held.

Intertek, Bureau Veritas and SGS, the world's three largest testing companies, all say their revenue jumped after the new toy requirements began in January 2009. Intertek's revenue from consumer-goods testing in the first six months of that year climbed more than 20 percent, almost double the overall company revenue growth, to 162.5 million pounds.

Its profit margin in consumer products was 33 percent, double that of the company as a whole. Intertek has more than doubled in London trading since the U.S. law took effect, and has risen 45 percent in the past 12 months.

Both Bureau Veritas, based in Neuilly-sur-Seine near Paris, and Geneva-based SGS are bigger than Intertek in revenue from all testing. Bureau Veritas shares have increased 54 percent in the last year. SGS, the world's biggest overall product inspector, is up 15 percent.

Growth Ahead

While Intertek's consumer-testing revenue fell 0.4 percent to 161.9 million pounds in the first half of 2010, the company predicts a U.S. requirement that a government-certified, outside testing company examine each children's product will boost profits again over the next two years.

The new U.S. rule, as well as a European Union initiative in toy safety, "present further opportunities for growth in 2011 and 2012," the company said in a presentation to investors in August. The Consumer Product Safety Commission voted yesterday to delay the next round of testing requirements until 2012 from later this year as initially planned.

Anticipating an increased need for testing, Intertek has introduced computer software for sale to manufacturers so they can meet the analytical and paperwork requirements the consumer-safety agency is scheduled to implement.

Intertek also is making sure its voice is heard in Washington. It hired former CPSC chief of staff Joseph Mohorovic as a vice president, and paid the firm of former CPSC chairman Hal Stratton $240,000 last year to lobby on its behalf, according to government records.

No Regrets

Gene Rider, president of Oak Brook, Illinois-based Intertek Consumer Goods in North America, said a combination of increased consumer awareness and growing global outsourcing is sparking demand for Intertek's testing services.

"One of the misconceptions is that regulation drives our revenues," Rider said in an interview. "All the rules are asking manufacturers to do is to demonstrate good manufacturing practice."

As for its petition to the CPSC, Rider said he has no regrets. Most recalls are caused by design flaws, not faulty materials such as lead paint, and those won't be found without new government requirements, he said.

"It's all about designing the product to avoid injuries or fatalities," Rider said.

To contact the reporters on this story: Mark Drajem in Washington at +1-202-624-1964 or mdrajem@bloomberg.net.