ALA Webinar on Government Shutdown and Supply Chain Impacts

• WASHINGTON

Rapidly approaching its sixth week, the government shutdown is greatly impacting all facets of life in our country.

Military service members and their families are among the most affected, and the military stores that serve them — the commissaries directly — are facing great challenges.

In the latest webinar presented by the American Logistics Association (ALA) on the morning of Oct. 24, president Steve Rossetti spoke with DeCA Director/Chief Executive Officer (CEO) John Hall and Acting Executive Director of Sales, Marketing and eCommerce Jim Flannery, alerting attendees about the ins and outs of the shutdown, and its impact on the agency and its supply chain.

OPENING REMARKS

“Right now, we are in day 24 of the shutdown,” Rossetti said. “The longest shutdown during the first Trump Administration was 34 days, and we are creeping up on that record, unfortunately.

“There are effects as the shutdown lingers. Effects start to multiply and build in a whole range of areas, some that are national, and some that are very near and dear to us.

“The Defense Commissary Agency depends on appropriations for covering operational costs. The appropriations have expired, except that DeCA has the authority to tap into the reserve funds, and we will hear about the status of those reserve funds.”

Rossetti told attendees that there were “a couple of points that needed to be made” related to the status of the shutdown.

“Yesterday, the Senate held a series of votes trying to deal with the impacts, and both key votes failed,” he reported. “One was to pay the military, and that vote failed, and the other was to pay federal civilians, and that vote failed.

“The Senate is adjourning today. They won’t be back until next week. The House won’t reconvene probably until Tuesday, Oct. 28, and that might be just an informal return to the House.”

Rossetti said that there will be ongoing negotiations on several fronts. “The sub-tier issues of paying the troops and paying federal workers, and dealing with the federal worker crisis associated with the shutdown,” he said.

“There are ongoing negotiations between the White House and the Congress,” he noted. “There are discussions taking place in the Senate over the key issue, which is the Democrats insisting that there will be remedies for the health care funding reductions that were associated with ‘The Big Beautiful Bill’ a couple of months ago. So those overall negotiations are ongoing.”

Currently, with the Senate adjourned, with the House not returning for a formal session for a while, Rossetti noted, “We are looking at the shutdown extending at least for another four or five days, and the prognosticators here in Washington are not able to predict when it will culminate, so hopefully, we will break the fever on this shutdown soon.”

HALL

“To put ‘run out of cash’ in context, we have the appropriated fund account, that in DeCA’s case, will carry over from prior years,” Hall explained. “That is what we use to operate the agency.

“We have a resale account, and that is what we use to buy and sell goods, and that account, as long as our stores are open, there is no effect, until stores close.

“We have a surcharge account, and that is separate … that is 5 percent of the sales that we generate to help us to maintain our stores.”

In the appropriated fund account, Hall told attendees, Hall noted, “We have enough cash on hand to keep our stores open through Dec. 4. So we would start to close stores on Dec. 5.

“However, we have received guidance from the Department to keep our stores open, OCONUS stores open, and isolated stores in CONUS, even when we run out of cash. That includes all the stores in Hawaii and the one store we have in Puerto Rico, and food desert locations in CONUS, which includes Bridgeport, Kodiak, Fort Greely, Fort Irwin, Dugway PG, Fallon, Jacksonville, Los Angeles, Whidbey Island and Anchorage.

“With that, we would shut down, on Dec. 5, 168 stores and we would have 67 stores remain open.”

Hall said the “caveat” for the OCONUS stores is, “We only have cash to transport goods through the end of December, and unless we get some cash from the Department or some other source, we won’t be able to ship goods to OCONUS locations after Dec. 31.

“We project that those stores could remain open only until about mid-January … that’s kind of a soft number and we really don’t know, because we are going to plus-up the stocks in those locations to see if we can keep them open past those dates.”

Hall reiterated that Dec. 4 would be the last day of stores opening in CONUS minus those stores that were previously mentioned, and on Dec. 15, the remainder of the stores would close “unless we get some sort of cash to keep those stores open.”

In lieu of all of this turmoil, the DeCA director noted that his guidance to “Team DeCA” is for them “to maintain as ‘normal’ operations as possible, through the Wednesday before Thanksgiving.

“My definition of ‘normal’ is full sales,” he explained. We want to continue to place these orders to ensure full shelves and serve our patrons for the Thanksgiving period. That means we start curtailing orders, shipping orders on or about Nov. 14. You will see that from us as we go forward.”

Hall told attendees that the agency “is working different actions” to extend those dates, “but so far, we have not gotten anything, and getting any additional cash to keep us operating past those dates is problematic.

“But the fact that our resale account is in good shape, those orders that we place with you, we will have the ability to pay. You should not have any concerns about our ability to pay for the orders that we submit to you up until the time we close our stores.”

FLANNERY

“The one thing that I would like to add is that internal team has done all kinds of yeoman work trying to convince folks of the importance of keeping the commissary open to deliver the military benefit,” Flannery explained.

“Look, we hope that this doesn’t happen, but if it does, how are we going to manage that process? The most consistent question that I have received is are we going to be able to pay for goods purchased until we shut down, and the answer is clearly yes.”

Q & A

Rossetti, Hall and Flannery then held a roundtable discussion, answering general questions and queries from attendees related to the government shutdown and DeCA’s operations if it continues.

OTHER MEASURES

Rossetti: We are your friends. We are partners in ensuring that the right stuff gets to the right folks at the right time … the planning is critical, as you well know, in the more delicate and perishable commodities.

Can you shed any light on the other measures that you are considering? I know that you probably have a lot of options … there are a lot of deliberations with the Pentagon … but can we get maybe a peak into some of the things that are being considered?

We are very aware of some of the payment terms issue … are there other measures that you can shed some light on that we might like to know for our planning purposes?

Hall: “Internal to DeCA, there are measures that we have considered, but they all are giving us only a day or two of additional operations. I stopped TDY and some other things … overall, that gives us maybe a day or two or three, so it’s really not much we can do with it at DeCA.

“We are asking the Department for authority in keeping all of our stores open. What that would mean would be when we run out of cash … cash to pay our people, to pay our operating expenses … but that in itself presents challenges.

“Expenses I have to pay … I could pay our people once they came back to work like the rest of the government is doing … supplies, bags, utilities, all of these things where operating expenses add up to $50 million a month from the Department just to keep all of our stores open, even if we don’t pay our civilians.

“That really is the big lever that we have to pull in Congress to get our operating expenses that would lead us to continue to operate our stores.”

Flannery: “I want to plant a seed in everybody’s mind, the importance of the messaging. So let’s just take our 168 stores … if you just take those stores, we are taking the military benefit from 25 percent to zero.

“Over 1.4 million households that shop monthly … those households, if you take a look at the savings that we are providing them, they would have to spend $1.3 billion more on an annual basis, in commercial groceries, to feed their families.”

Hall: “This is the message I am giving to the DeCA Board of Directors. We will see if they can help us, in some matter politically. That is a really important message that we are shouting from the rooftops.

“The average family of four that routinely shop in our stores save about $4,000 a year, so at the end of the year, that’s $4,000 less that they have for household expenses.”

TRANSPORTATION FUNDING ISSUES

Rossetti: Can you elaborate on this issue? You said that transportation funding would run out at the end of the year.

If you reach the end of your funding stream, and overseas stores are designated as excepted or critical, would there then be some relief forthcoming on that transportation funding deadline, because they are then designated as essential?

Hall: “I will ask the department for that, but they are looking at it.

“But essentially, before the end of December, just for transportation alone, it is about $12 million a month as we supply our OCONUS stores. So we need that money to continue to shipments into January.”

Rossetti: “So right now, it is pending. The decision to extend to the end of December, that is a decision that is with the Department.”

Hall: “Yes, but there is other funding that I need as well to pay additional utilities and all those things to keep those stores open, but it is the biggest single bill that needs to be restored.”

FURLOUGHING WORKERS

Rossetti: Are you considering the option to furlough commissary workers … in other words, have them continue to come to work in an unpaid status, in which case, they would be made full after the shutdown, in order to give you a longer runway to extend your cash?

Hall: “It is out there, but it won’t extend our cash. That is exactly what would happen in our OCONUS stores as of Dec. 5.

“They would come to work, but they would be in a non-pay status. If I get the authority to offer the rest of our stores that way, we would also go that way.

“Right now, we are all getting paid, but as of Dec. 5 … my goal is to get all of our stores excepted to open, but that is a big bill, a $50 million bill, and that is just operating expenses. That isn’t the pay solution.”

CONTRACTS

Rossetti: How are contracts affected … shelf stocking and those types of things?

Hall: “Shelf stocking … what would happen after Dec. 5 that we will have to consider a stop-work order on that contract, at which point the only way to continue to stock our shelves is to let our own personnel do it, and the only way we could do that is to limit store hours.

“I can’t put more people in the stores, I can’t expand the hours they work, so I have our Store Operations Team looking at that.

“Let’s say we have a contractor in a particular store works 1,000 man hours a week to stock shelves. The only way we could absorb that is to limit our store hours, so instead of opening up at 9 a.m. in the morning, we might open at 11 a.m. or 12 noon as our organic personnel would stock shelves.

“We can keep our stores open, but we would have to keep them open less time, and we are working on an analysis of that right now.”

PAYMENT TERMS

Rossetti: We had a discussion the other day about the Notice to the Trade that came out on payment terms. Do you have any preliminary results or do you have an indication of how that might help you to extend your runway?

Flannery: “The team is continuing to work that. We have had a number of companies coming forward and telling us that they were willing lean in with you.

“All of that, not 100 percent, but for cases necessary that would allow us to stay open until Thanksgiving. Again, those are a couple of dates that we are counting on.”

COMMODITIES

Rossetti: When you talk about how you have to start ratcheting orders beginning on Nov. 14, what types of commodities are you looking at; would these be the more delicate perishables items, semi-perishables … can you shed some light on what we might anticipate if the shutdown doesn’t end and we start ratcheting back in mid-November?

Hall: “Grocery, I’m not worried about. Frozen, I am not worried about too much, but the perishables items …

“Based on the guidance that I have given for full shelves and chill, we are calculating the amount of shrink that we are basing on the guidance.

“But we do believe that once we announce that we are going to close, there might be a rush.”

Flannery: “We are thinking in terms of we are sprinting through Thanksgiving. So business as usual, meeting the needs of our patrons, let them enjoy the Thanksgiving gathering that they normally would, and then right after Thanksgiving, the first part of December, start winding down.”

IMPACT ON SNAP, WIC, OTHER PROGRAMS

Rossetti: These two programs are teetering now. The governor of Virginia just declared a state of emergency on SNAP payments, but there are reports that 23 states will start running out of cash for SNAP.

A lot of our folks depend on SNAP and WIC. Could you comment on that — is it just something DeCA will deal with, something that will just exacerbate the stress that military families, veteran families are experiencing during the shutdown?

Hall: “It will exacerbate the stress … there are other things that will be impacted. We support child development centers on installations, which, for the most part, order from us. If they are open and we are closed, they are going to be paying more money.

“Army kiosks … if we shut down on Dec. 4 or Dec. 5, Army kiosks that currently order from us will have to stop ordering and seek other sources.

“The donation relief programs that we support … we have bags in our stores … some of the stores are leaning forward and donating more than they would normally. Those programs will obviously end.

“The worst loss is the loss of 25-percent savings, but the secondary impact is on all of these other programs that we support that help military families.”

COMMUNICATION TO INDUSTRY

Rossetti: As you get to the point where you might have to start dialing down in terms of ordering, could you comment on how that signal would go to industry.

When would we start to get indications that things will be ratcheted back or will it just be cut off or is there a system that can be put in place, some type of routine communication we can have to our suppliers so that we can give them some early warning of when this ordering may start to be curtailed?

Flannery: “Unless things change, as I put my hat on as a supplier, we should think in terms of DeCA’s ordering from the distribution center, and going back, it is going to be curtailed right after Thanksgiving.

“I really encourage this entire community … that doesn’t mean that people are not going to eat macaroni and cheese, they are just going to shift where they purchase at, so you are all going to have to go through that this $5-billion business, all of a sudden, is put on stop, where are those dollars of grocery purchases going to relocate.

“If the government reopens before then, this is a great prep exercise, painful as it is … if we get through Thanksgiving, and the government is not open …

“Again, we can put product in our stores that have a long shelf life. They are not going to go away. Why worry about it getting backed up at the distribution centers, fresh is where we need to make the priorities.

“We are going to continue to feed OCONUS, so any of the immediate shutdown, we want to follow that inventory to the East and West coasts to continue to support OCONUS.”

MESSAGE TO SUPPLIERS

Rossetti: Our comments are largely applauding DeCA for having this communication and also some of the comments are reminding the agency that certainly the more planning that we can get on this, that will reduce costs, because planning factors into issues, including inventory, transportation, programming and so forth.

Not only is it going to be an availability issue, but it is going to be a cost issue, and the more information we get, the better we can plan and conserve resources to keep prices low.

I think that this underscores the importance of communication.

Flannery: “I will tell you what I ask the supply community not to do. Don’t second guess the timing. We want to sprint through Thanksgiving, so that the worst thing that can happen, in my mind, is that people saying, ‘OK, I want to start running down my inventories now,’ which may impact the Thanksgiving experience.

“At the end of Thanksgiving, we will pay you for your goods, and we will take the risk of shrinkage. But what I don’t want people to wrap their minds around is to begin second guessing where we are going and winding down their inventories ahead of the Thanksgiving period.”

Hall: “We might be closing the Wednesday before Thanksgiving. We want to serve our customers as well as we can, just as if we were in normal times, and then we will figure out what we will do with the items that we have that haven’t sold.

“I might not be quite as concerned as I otherwise would be. I think we are going to have a run. Once we announce that we are going to close, we are going to have a run on our stores.”

LABOR COSTS

Rossetti: There was a report yesterday about Germany picking up some of the costs for labor in the country for foreign national labor and some U.S. labor.

Have you been monitoring this, and do you have any light you can shed on that?

Hall: “My understanding is that it is only for non-working capital fund activities. They have not offered anything else, but that can change.

“In general, this is a big Department issue. There are other agencies that have local nationals, and trying to figure out things. That is a Europe issue for us; Japan and Korea pay our local nationals, so it is limited to Europe.”

STORE HOURS

Rossetti: Will cutting back hours now help keep the stores open longer?

Hall: “That is one of the internal measures that we looked at, and as I have said, anything that we can do within DeCA gets us, at the most, three days. I really don’t want to do things like that. If we were to cut back half, maybe, but that goes against my intent to keep formal operations for Thanksgiving.

“So, it really doesn’t help us, not much at all.”

SLOWING THE CASH BURN

Rossetti: How can industry slow the cash burn, and would that include temporarily assisting with the cost of vendor stocking to keep the doors open longer?

Hall: “We would have to look into the legalities and all of that. That might apply if we were to keep our stores open with our non-pay status. If we then had some way to keep our shelves stocked without us stocking them, then we could keep longer hours.”

Flannery: “We are pulling all of those threads, all of those things, we are continuing to do that. If we can get to the point where we can keep our stores but get rid of the CA contractors … one of the approaches is shortening the hours.

“Again, there is not a lot of science in here. Our in-stocks rates are about 97 percent; my guess is that even if we tried to do this with our people, not only running the stores but taking a few hours to unload, we would probably lose our in-stock levels, which might fall to the 60s or 70s.

“The idea of having industry, or the installations having to pull the shelves, we would have to look into that.”

MORALE

Rossetti: How is morale at the agency?

Hall: “At the agency right now, the fact that we are working and getting paid versus most federal workers not working, or are working and not getting paid, morale is pretty good. I think that as we get closer to the very possible shutdown of our stores, we will have to be concerned about it.

“Right now, everyone considers them fortunate that we are a working capital fund activity, we have not furloughed any person yet, everybody is working and getting paid, so morale is pretty good.”

CLOSING THOUGHTS

“I have had 48 years in this industry and I have never touched anything like this in my life,” Flannery noted. “I appreciate everyone’s efforts down this road.”

“Just to echo those comments, we are operating without a playbook here,” Hall said. “Normally, you have a playbook and it tells you what to do and how to act, but we would appreciate if any of you have any thoughts on what we might do in DeCA … reach out to us, we will be glad to listen to you.”

“Please pass along our thanks and appreciation to the Defense leadership,” Rossetti said. “They are juggling a lot of balls to deal with this crisis. They certainly have many, many requirements in front of them, but it looks as though to the extent that they can given the cards that they have been dealt, they have stepped forward to protect and preserve the commissary benefit.

“That is a testament to your leadership, and Sec. Hegseth’s leadership in terms of recognizing the importance of the benefit.

“Pass on our thanks to the thousands of DeCA employees that continue to toil in the vineyards, making sure that this system continues to deliver the benefit. Your success is our success. We are here. We are open to dialogue on any measures that are needed to make sure that we extend the runway on your ability to keep open and keep delivering the benefit. The statistics that you presented are very key in helping our families through this crisis. We are your partners, and we are here to help.”

Rossetti also noted that through this crisis, “A lot of our companies have been donating to benevolent efforts to aid the troops and families and veterans during the shutdown.

“If this shutdown persists, we will continue to work with you and benevolent organizations, and will encourage our member companies to step forward to assist the organizations and the commissary agency in terms of orchestrating efforts of relief to some the families.”