New Battery Transport Regulations Add Opportunity to Domestic Cell Manufacturing

In 2010, a UPS Boeing 747 cargo plane crashed near Dubai with the reported cause being a fire initiated by Lithium-ion batteries in the hold. Tragically, the crew of two died. More recently, there has been much debate following a number of well covered documented incidents where Lithium-ion batteries have potentially contributed to disastrous accidents in the cargo holds of planes, trucks and ocean containers.

As of the beginning of December, IATA (International Air Transport Association) has published new rules and guidelines on the transport of Lithium-ion batteries. This comes on the heels of the most recent NTSB report showing the failure in the cell design as the primary cause of the Boeing 787 Dreamliner incident. These new policies and guidelines are designed to potentially enhance the safe transport of quantities of class 9 hazardous materials, of which Lithium-ion batteries fall under.

In reality, while these rules are dedicated to the safety and increased restrictions on the shipping of unregulated, and often poor quality batteries, the truth is that these new guidelines will further restrict the types of transport, control the volume of lithium that can be shipped in a single cargo hold and increase the oversight and verification of the mandatory certifications. It’s fair to assume that these changes are going to increase the cost to import Lithium-ion batteries and dramatically choke the volume coming from overseas.

Consumers will eventually see the increases in pricing on portable electronics, leading to the adage that “Safety comes at a price.” From the glass half-full model this can actually have a positive effect on the North American resurgence of domestic rechargeable cell manufacturing going forward.

Some History

Starting back in the early 1970’s the US research community developed the commercial technology behind Lithium batteries and chose to shun their future practicality under the guise that the cell production costs were too high and timelines for recovery of cost savings were too long for a reasonable ROI.

As Japan launched its commitment into advanced portable Lithium battery technology in the early 1990’s and the common inclusion of these rechargeable cells into the breath of consumer and commercial electronic devices, it became a losing proposition for US domestic electronics manufacturers who couldn’t deliver a complete and competitive solution were forced to fold their tents.

Fast forward to today. As with all globalization models, as costs rise in one market, companies seek lower sources for labor, taxes and logistics, requiring outsourcing to remain competitive and profitable. This is what happened when Lithium cell automated manufacturing eventually transitioned from Japan to South Korea and intern, migrated into China. Ironically, China manufacturers are actually finding incentives to outsource to Vietnam. In perspective, at one time the US had more than three hundred battery manufacturers and today there are less than fifteen.

From the perspective of a consumer device manufacturer who requires advanced rechargeable batteries to make their products work harder and last longer, they are required to use Lithium-ion technology and subsequently source these cells from Asia where 99.9% of all rechargeable Lithium batteries are produced. This has meant that to be cost effective in production, they needed to locate device assembly near to the power source suppliers, which aided in the export of manufacturing jobs away from North America.

Ironically for Nevada, with the Tesla/Panasonic commitment, the mineral resources within the state such as Lithium, Magnesium, Vanadium, Copper and Sulfur are ramping up to meet the increased demand. The same is true in Idaho for Cobalt and Canada for Graphite. All of which will allow battery cell manufacturers to source raw materials on the continent through a infusion of new companies within the supply chain to process and prepare for production. It also means more jobs in the mining industry.

While it’s simplistic to assume that consumer electronics manufacturing in large scale will return to the US for lower costs, there are new needs to support the domestic model. Both electric vehicles being built in North America and large stationary demands for energy storage in wind and solar installations, as well as local grid supplements will require cells and packs that are sourced locally.

Even as gas prices decline, local commercial delivery routes and residential commuters can still find significant savings of as much as 98% even on $2.00 per gallon switching to a plug-in vehicle. As a benchmark reports indicate that a Tesla Model S costs an average of $7.95 for a full charge which provides 265 miles. That’s $0.03 cents per mile.

Today’s Challenges

The new IATA regulations are designed to address these lithium battery mishaps and logistic loopholes. Part of which is the lack of documentation verification and certification enforcement.

As consumer and commercial electronic-based product development goes through its sourcing requirements, it’s fair to assume that buyers are seeking lowest bids for parts and assemblies, while balancing in quality. Like virtually all products, there are companies offering ranges of lower quality and extremely low pricing to higher quality at premium rates. This applies to batteries too. It is also important to note that not every cell coming off a production line is perfect, leaving manufacturers to offer various grades.

While Japan’s battery production has been considered at the premium level with companies such as SONY, Panasonic/Sanyo, GS Yuasa, Hitachi and NEC are producing consistently high quality cells, South Korea’s Samsung SDI and LG Chem and have developed similarly high quality but often at more competitive pricing.

China on the other hand, built their battery industry to primarily service the 1.3 billion residents in the domestic market and feed the electronics manufacturing supply chain. Even the largest brands in China such as BYD, A123/Wanxiang, Lishen, BAK and Tenergy built massive factories to produce greater than 80% of their cells for domestic products and often set quality standards to reflect the mainland consumer appetite.

China’s implantation of international safety standards, certifications and manufacturing practices developed more slowly and only as export demands increased. As global buyers sought suppliers within China, more than two hundred companies over a period of the last ten to twelve years, grew into a major industry for the mainland. Located predominantly in Guangdong province, this collective is made up of a wide range of cell producers, distributors, brokers, re-packagers and pack builders.

China’s industry growth has not been without growing pains and there have been a number of major consumer incidents where domestic battery products caught fire, exploded, leaked or inflated and eventually burst, to where individuals where hurt. There were reports of major safety issues ranging toxic air pollution in mining to factory explosions with personnel injuries, and even an electric taxicab that caught fire and killed a passenger. Today, many China and Korean manufacturers have reached the capability to produce a top quality cell at very competitive pricing levels.

By no means is this commentary meant to single out one country or one supplier over another as being the source of questionable cells. The majority of the lithium battery manufacturing and distribution network are extremely concerned about quality and safety.

As international buyers sought out alternative suppliers, when approached many of these Chinese domestic manufacturers added international sales as a business segment and started promoting through B2B and B2C websites (Made-in-China and Alibaba) globally. The challenge for many is that to secure these sales, battery samples would have to be produced and shipped. Typically, small quantities travel by air and larger quantities go by ocean cargo.

In the early years, prototype and “Sample” quantities managed to avoid volume transport regulations and certifications, but this loophole rapidly closed as the abuse of the sample quantity terminology climbed from a dozen to hundreds and into thousands.

Having stated this, there are still suspected companies who circumvent certain safety regulations by associating existing UNDOT38.3 (United Nations Department of Transportation) certificates with alternate or different sized cells, suggesting that the shipment has actually passed safe shipping tests. Customs officials are not aware of the technical details and often gloss over the differences. In other instances suppliers depend on third party shipping and logistics providers who tack on premium service fees in exchange for taking the risk. The fine if caught in the US is $50,000.00.

Regulations for the transport of Lithium-ion batteries strictly forbids cargo shipments on passenger aircraft into, within or out of the United States. Electronic devices where the official battery pack for the device is already installed (within the equipment) may be shipped with the proper certifications and packed to weight limits. Lithium-ion batteries can be transported on cargo flights, in rail cars, trucks and vessels who have expressly outlined their own packaging requirements and volume limitations.

According to post accident reports from the NTSB, most often investigations show that the cells have not been packed safely enough to avoid short circuits, which intern causes overheating. Lithium cells expand under high heat and pressure and eventually leak gaseous chemicals and in some cases explode causing fires. Known as “Thermal Runaway” the real risk is when a large number of cells are packed in single containers or pallets. The thermal reaction of one can easily create a chain reaction to one or more cells sitting directly adjacent.

Testing and Certification

For further clarification, by law to transport Class 9 hazardous materials, specifically Lithium-ion batteries, both the individual cells as well as the complete pack (which is often made up of a number of identical cells itself) must go through the UNDOT38.3 certification process and pass a barrage of safety tests. These tests evaluate altitude pressure, stacking, shock, puncture, drop, stress under temperature, overcharge and purposely shorted. They also tested against associated temperature such as when a battery overheats.

There has been a greater demand for independent testing labs which has forced the growth of these facilities throughout Asia. Companies such as Pony Testing Labs in China who offer UNDOT 38.3 transport testing and certificates have expanded. A challenge has been for the customers who are not willing to foot the bill at the prototype and testing stage, first for the certification of the individual cells and then eventually the certification for the assembled pack.

There is a tug of war that goes on between the supplier and the buyer over the cost responsibility during the early stages and there is little incentive for the Asian battery source to automatically certify simply because a majority of the lower price/quality suppliers don’t really consider the certifications of value. For them transport throughout Asia to the majority of their customer base is not a problem.

How this relates to a potential benefit for US based battery and electronics manufacturing is where the confluence of increased labor costs, materials, transport and logistics may mean that potentially, manufacturing consumer and commercial electronics can become more cost effective, in the U.S., especially when automation assembly is involved.

The value for greater volume in battery manufacturing in North America allows battery assembly and certification to be done in close proximity to electronic device production centers and once inserted into the finished product, can be more easily transported to distribution and retail centers throughout the country using traditional truck transport. Tesla and Panasonic’s goal is to transport finished battery packs by rail to the Fremont assembly plant just hours away.

Because the US places a much higher value (as well as the penalties for failure to comply) on the certification process for transport, chances are that North American finished goods will exceed international regulations, which allow for greater export acceptance. As for additional incentives, US based battery and electronics manufacturers who earn GSA, ITAR and other vendor certification programs that allow the sale to city, state, and federal agencies, will find new markets certainly not available to Chinese suppliers.

Staff Training

Companies involved in the manufacturing, distribution, consumer sales and service of products that include Lithium-ion batteries must have their shipping staff complete hazardous goods shipment training and certification and renew every three years. They must also be trained in the proper packing and labeling methods.

Both the staff training and cell transport certification process are important potential revenue streams and integral to the resurgence of the Lithium-ion battery business here in North America. Hence the need for US technical schools and community colleges and universities to teach practical aspects of the Li-Ion technology for job training and creation.

Research and Development

As public and private academic research centers, paired with the industry continue to seek both higher energy density and safer cell chemistry, the US is losing its lead in these efforts, but not by much. Besides the implementation of safer transport regulations, we need to push forward on the development of future rechargeable energy storage with a special emphasis on the use of domestic minerals and processing that can still be competitive in a global market. Like Japan did in the late twentieth century where both the government and private sector banded together to develop this new and important industry into a commercial success, the US must do the same. There is a small window of opportunity to recapture and “InSource” some of what was lost and raise technology manufacturing into these new and important markets.

With automated production processing and large production facilities, such as the Tesla/Panasonic facility, the US is capable of competing with Asian manufacturers. Numerous entities such as Nissan and Johnson Controls are proving that high quality, safe Li-Ion cells can be produced in the US at an equivalent cost. For this to happen, government, universities and the private sector will need to work together to provide the technology, training and market for high quality Li-Ion cells and batteries.

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