As the holidays approach, many retail companies will see an influx of product returns due to extremely liberal return policies geared to attract customers. Retailers’ employees, though, don’t always recognize the potential hazards inherent in some consumer products. As a result, they may unknowingly violate federal laws and regulations, and put many at risk. Improperly shipping hazardous materials during the reverse logistics phase of the supply chain is an all-too common issue facing many of today’s largest retailers.

Hazardous Material Shipping Risks in Reverse Logistics

Wikipedia defines reverse logistics as “operations related to the reuse of products and materials” or, more precisely, as “the process of moving goods from their typical final destination for the purpose of capturing value, or proper disposal.”  The reverse logistics process includes the management and the sale of surplus as well as returned equipment and machines from the hardware leasing business. Normally, logistics deal with events that bring the product towards the customer. In the case of reverse logistics, the resource goes at least one step back in the supply chain, such as when goods move from the customer to the distributor or to the manufacturer.

Federal shipping regulations, including the U.S. Department of Transportation’s Hazardous Materials Regulations (HMR), apply during all phases of the logistics process, including product returns and disposal. However, these rules are not necessarily front of mind for workers that are a part of these operations.

“Many of those involved in reverse logistics don’t realize that these shipments are actually in commerce, and thus subject to the HMR,” said Gene Sanders, a hazmat training and consulting professional. “They treat them as if the non-commercial, personal use exclusion is still applicable.”

Many commonly shipped consumer products are classified as hazardous materials under the HMR.  Some have more readily apparent risks, such as aerosols, paints, concentrated cleaning products, office supplies and pesticides. Others might not be as obvious. Most consumer electronics, including televisions, cameras, mobile handsets, computer monitors, and printers, contain hazardous materials. Batteries also carry risks and must be shipped with unique safeguards.

Despite their inherent dangers, the hazards of these products are frequently overlooked during product returns. Common violations for retailers include:

• Shipping hazardous materials as general freight;
• Grouping incompatible hazardous materials together in a return shipment; and
• Shipping recalled and returned products that have become hazardous materials since their initial purchase (e.g. lawn mowers that contain residual fuel).

The challenge to retail companies can be daunting because many do not have properly trained personnel to maintain compliance with complex and frequently changing transportation regulations. That’s partly due to a lack of awareness among store associates, many of whom are working in part-time, seasonal, or high-turnover positions. Oftentimes, they have not been fully trained in hazmat regulatory compliance or such instruction has been overlooked altogether.

Failure to train employees and put appropriate procedures in place can subject companies to the threat of penalties, lawsuits, employee injury and property damage.  In recent years, major retailers have incurred significant fines or agreed to multi-million dollar settlements because of issues with their reverse logistics operations:

• The Los Angeles Times reported in February 2011 that Target agreed to a $22.5 million settlement as a result of improper handling of hazardous materials returned by customers.
• The Federal Aviation Administration proposed a $140,000 civil penalty against K-mart in November 2010 after employees improperly packaged product returns that contained hazardous materials, according to an FAA press release.
• Wal-Mart agreed to pay $27.6 million to settle allegations that it improperly handled and disposed of pesticides, fertilizers, paints, aerosols and other chemicals at stores and distribution centers, the Associated Press reported in May 2010.

It’s extremely important that reverse logistics operations for retailers be fully compliant with hazmat laws and regulations, not only at warehouses or return centers, but also at the retail store level.  Monetary penalties are certainly a strong deterrent to violators, but there are other potential consequences as well, Sanders said.

“Motivating people to comply with hazmat transport regulations cannot focus solely on fines and penalties,” he said. “Harm to people, property and the environment should be motivational factors, and so too should be avoiding the tarnish to a corporate image that every incident brings.”

Maintaining Compliance with Reverse Logistics and Product Returns

By taking a number of steps, retailers can help their reverse logistics operations achieve better regulatory compliance:

Promote Safety. The most effective way to ensure regulatory compliance, avoid penalties and add significant financial value to a company’s bottom line is to develop a positive safety culture. Promoting such an environment can result in lower risk that minimizes the potential for accidents while maximizing efficiency.

Define Lines of Safety Accountability. This includes direct accountability on the part of senior management and each manager in the chain of command down to individual employees with safety responsibilities.  It is necessary to set and measure performance outcomes in order to determine whether the operation is performing in accordance with expectations, and to identify where action may be required to enhance performance levels to meet expectations. If employees behave safely, there is much less chance of an unwanted injury-causing incident.

Implement An Effective Employee Training Program. Employees that handle returned consumer goods, whether at a customer service desk, in a stockroom, in transportation, or at a returns center, should receive job-appropriate hazmat safety training.  Employees need to be able to recognize “red flags.”  For instance:

• If a package potentially contains hazardous materials, an employee should raise their concerns to a manager or supervisor.
• Employees should become familiar with returned products most likely to contain hazardous materials, such as lighting, aerosols, home electronics, cleaning supplies, pet care products, perfumes and nail polishes, and lawn and garden care products—to name just a few. All such returns should be handled accordingly.
• Employees need to know that returned consumer goods that are leaking, damaged or expired must be treated as hazardous waste. A hazardous waste program should be in place throughout the reverse logistics operation, including retail store locations and distribution centers. Steps that should be taken include registering as a hazardous waste generator, training employees, designating a hazardous waste storage area, and complying with a number of specific regulatory requirements.
• Employees should pay close attention to packaging. Whether at the customer service desk, in the stockroom, or at the shipping dock, employees need to know they can’t randomly package an assortment of items into any available box.  Returned consumer goods containing hazardous materials must be properly packaged and secured in accordance with DOT regulations before they’re sent to a warehouse or returns center. Companies such as Labelmaster Packing Services can provide reverse logistics kits to simplify the challenges.

Audit the Reverse Logistics Operations. Conducting periodic self- or third-party assessments of a company’s processes and supply chain operations is one component of a positive safety culture.  Periodic evaluations can be used to identify safety hazards; ensure that remedial actions necessary to mitigate the risk are implemented; and provide for continuous monitoring to ensure an appropriate safety level is achieved.  Developing a compliance checklist that identifies gaps and vulnerabilities in the shipping process is highly recommended. If the checklist is kept current with all applicable regulations, it is an effective compliance guide that, when used properly, will minimize a company’s exposure to violations from enforcement officials.

Correct Deficiencies. Trucking companies, airlines, vessel operators and other carriers are required by the HMR to report incidents involving the release of a hazardous material (e.g. a package is dropped and subsequently leaks).  Once an incident is reported by one of these carriers, there is a strong chance that an inspector will be targeting the offending company.  This is particularly true if the release occurs aboard an aircraft, or in a parcel-sorting facility prior to or following air transport.  Numerous violations are issued by the Federal Aviation Administration every year (exceeding several million dollars) as a result of these types of events.

Inspectors use incident data and violation history as criteria for determining who they will visit.  In addition, penalties are assessed on the basis of past performance, and repeat violators are less likely to be able to mitigate fines with corrective actions after the fact. Working toward correcting regulatory deficiencies, such as hiring consultants to develop a stronger hazardous material shipping program, should be a goal of any retailer who has been found out of compliance.

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Reverse logistics operations pose significant challenges to retailers, and many companies are not aware of the exposure and risks posed by such operations. Staying in compliance requires significant time and effort, and companies without internal resources should consider outside help to assess their hazardous material shipping vulnerabilities. Labelmaster Services offers a variety of solutions for retailers, such as creating returned product shipping kits and developing comprehensive training programs for hazmat employees with reverse logistics responsibilities. For more information, please visit the Labelmaster Services Web site.