May/June 2006
Record-shattering attendance, a swanky Vegas venue, invaluable networking and educational opportunities, and so much more characterized this year’s convention. Here’s our annual write-up on the biggest scrap show on earth.
Records are made to be broken, as the saying goes. This year, ReMA did more than break the previous attendance record at its annual convention and exposition—it shattered it with a total of 4,285 registrants. That’s about 800 more people than the previous ReMA convention record (which, for you history buffs, was about 3,400 people at the 1998 show in San Francisco). Attendees came from all 50 states, Puerto Rico, and the District of Columbia, as well as 35 other countries, giving this year’s ReMA gathering the broadest international scope ever.
What made ReMA 2006 such a record-breaker?
Perhaps it was the return to Las Vegas after a year away in New Orleans. Perhaps
it was the excitement of a new Vegas venue, the Mandalay Bay Resort & Casino. The solid scrap markets certainly had something (OK, a lot) to do with the convention’s success. And you can’t discount the allure of the convention’s networking and learning opportunities as well as the ever-popular ReMA exposition, the largest display of recycling-related equipment, products, services, and technology in the world.
Whatever the reasons, the 2006 ReMA convention was one for the record books and one with additional historical significance, as the association elected a new slate of national officers. Frank Cozzi of Cozzi Enterprises Inc. (Burr Ridge, Ill.) became ISRI’s new chair April 6, capping his three decades of service to the association. During his two-year term, his fellow national officers will be Chair-Elect George Adams of Adams Steel (Anaheim, Calif.), Vice Chair John Sacco of Sierra International Machinery LLC (Bakersfield, Calif.), and Secretary/Treasurer Jerry Simms of Atlas Metal & Iron Corp. (Denver).
ReMA 2006 was also historic for marking the first presentation of the association’s new Design for Recycling® award. (Read about the winner on page 92.) Also new were special workshop tracks on electronics recycling and on ISRI’s Recycling Industry Operating Standard, or RIOS. The electronics sessions, though open to full convention registrants, constituted an Electronics Recycling Business Summit e-recyclers could attend separately as part of a special convention package. The four RIOS workshops reviewed the quality, environment, and safety and health aspects of the standard, with a special look at applying RIOS and best management practices in e-recycling operations.
Those workshops were only a fraction of the action at this year’s convention, which included keynote breakfast speakers and entertainers, commodity spotlights, nonindustry programs, networking social events, and much more. If you couldn’t do it all (and who could?), the following highlights will fill in the blanks.
Keeping Up with Commodities
No Crest for Copper in Sight. At the copper spotlight, Bob Loewen of Robert J. Loewen & Associates (Scottsdale, Ariz.) gave a historical perspective on the reliability of price predictions. “I checked the 2001 spotlight,” he said, and for 2006, “the price of copper was forecast to be 75 cents a pound!”
That said, with primary copper at $2.52 a pound—more than three times the predicted level—moderator Michael Friedman of Scrap & Waste LLC (Louisville, Ky.) asked the audience members which direction they believed the metal was headed. Most indicated they expect a drop in prices, but the spotlight’s four panelists took the opposite view.
Despite record prices now, copper is likely to go substantially higher in the next 18 months, to at least $2.60 a pound, possibly reaching $3.60 a pound, said Herbert Black of American Iron & Metal Co. Inc. (Montréal). He predicted that “until the shorts get squeezed out of the market, it won’t go down. It will take a long time, maybe a year or two, until the market cracks. I have never before witnessed such a fundamental market.”
“There seems to be a lot of depth, a lot of dynamics in the market,” said Timothy Strelitz of California Metal-X (Los Angeles). “On the West Coast, we pay what we have to pay to buy copper units for the orders we have. We really don’t see Asia as being so dynamic at the moment. Today we have a worldwide boom, and I don’t see it ending soon.”
With the market on an uptrend for more than a year, “I don’t know where the top will be,” said John Gross of Scott Brass Inc. (Cranston, R.I.). “Take your pick of the number.” Though he’s not bearish, he said, “history does repeat
itself, and something will occur that we can’t predict that will change the market.”
Gross agreed that getting scrap units has been difficult, and he saw nothing on the horizon to change that. “Our inventory of copper scrap is at absolute minimum levels, with only enough to operate three days without incoming material,” he said.
In summary, Loewen said, “We’re in for a good time in the copper market for the next year and a half.”
Funds and Fundamentals Drive Aluminum. Aluminum prices have increased from about $1,700 a mt in January 2001 to almost $2,700 a mt earlier this year, thanks in part to heightened investor interest in commodities, said Robin Bhar of UBS Ltd. (London) at the aluminum spotlight. Fund managers have been investing in hard assets to seek superior returns compared with more traditional financial assets and to diversify their portfolios, making them more resilient to external shocks. Capital will continue to flow into hard assets, he predicted, with $30 billion of investments expected in commodity index products in 2006 and another $35 billion in 2007.
Metals, including aluminum, will remain “stronger for longer,” Bhar said, for several reasons:
• Energy costs are expected to remain high, which will keep commodity prices high.
• Asian countries, especially China and India, will continue to exhibit strong demand for metals.
• Fund managers are still generally underinvested in commodities.
Another positive is that aluminum is a “late-cycle metal” that tends to underperform early in a positive business cycle and outperform later in the cycle—such as now, Bhar noted. Investors tend to buy metals that underperform because the balance of risk and reward is better.
Other key market drivers in 2006 will include synchronized global economic growth, looser central bank monetary policies, a lack of capital investment in new primary aluminum capacity, and the further industrialization of China and Southeast Asia, Bhar said.
China has been the key driver of aluminum in recent years, said Stephen Johnston of Alcan Aluminum Ltd. (Montréal). Until 1992, China produced less than 1 million mt a year. Last year it produced 7.7 million mt, and it’s on track this year to produce 8.7 million mt—equal to the combined aluminum production of Russia, Canada, and the United States, he noted.
In the past two years, China shifted from being a net importer to a net exporter of primary unwrought aluminum, shipping 651,000 mt in 2004 and 682,000 mt in 2005, Johnston said. At the same time, its aluminum scrap imports have grown from 1.2 million mt in 2004 to 1.7 million mt in 2005.
Though China currently produces more aluminum than it consumes, the long-term outlook suggests curbs on its production. The Chinese government views aluminum production as consuming much-needed energy for other parts of the country’s economy. As a result, Bhar explained, the government is discouraging the “overinvestment in smelting” through export taxes and the abolition of toll smelting.
In the United States, aluminum consumption has been growing 3.9 percent a year, with the strongest sector being castings, mostly for transportation uses, Johnston said. U.S. castings consumption has grown from about 21 percent of the market in 1991 to about 28 percent in 2005—an annual growth rate of 6.6 percent, he said.
Ongoing fund investments and improving market fundamentals will boost aluminum’s price from its 2005 average of 86 cents a pound to $1.10 a pound this year and 95 cents in 2007, Bhar predicted.
In terms of supply, aluminum could see a shortfall of about 100,000 mt in 2006, shifting to a “fairly minor” 300,000 mt surplus in 2007, he said. The anticipated new primary supply of 1.2 million mt won’t be enough to make up for shuttered capacity and growing demand, Johnston said. Despite recently rising inventories, aluminum prices haven’t decreased, mainly due to supply issues, he added.
Going forward, factors that could disrupt the market include demand shocks caused by the avian flu, an economic slowdown in China, inflation in the United States, higher oil prices, and tighter monetary policy by central banks, Bhar said. In addition, primary aluminum supply and inventories could grow much faster than expected.
Reviewing Issues and Opportunities. As an aluminum scrap processor and a consumer, Gary Curtis of Wise Recycling LLC (Linthicum, Md.) brought a unique perspective to the aluminum spotlight. The two parties share many challenges and opportunities, he said.
One opportunity for aluminum processors and consumers is to secure wider spreads in their transactions. Greater margins enable both groups to manage the increasing costs of doing business and post a healthier bottom line, Curtis said. For consumers, spreads between virtually every type of aluminum scrap and P1020 secondary ingot have widened between January 2003 and December 2005. As a processor, Curtis said, he could argue that the spreads are too wide, but as a consumer he could assert that they aren’t wide enough.
Another shared opportunity has been the greater availability of aluminum scrap, in part due to increasing demolition and revitalization projects in urban areas, he said. Processors and consumers can also benefit from freight synergies, such as backhauls, especially considering today’s high fuel prices. The growing use of long-term scrap supply contracts is an opportunity for both processors and consumers, too, Curtis added. “Once you resolve the price issue,” he explained, “both parties can spend more time focusing on logistics issues, quality issues, and freight synergies.” But another opportunity—the ability to sell to emerging markets, such as India, Turkey, and China—favors scrap processors, sometimes at the expense of domestic consumers, Curtis said.
As for challenges, aluminum scrap processors and consumers both face increased working capital demands; rising fuel, energy, and freight costs and surcharges; and consolidation among processors and consumers, which can shift the market dynamics and raise credit concerns, Curtis said.
The Age of Steel Profits . The global steel industry has seen two profound changes in the past four years: growth and increased pricing power, said Mark Parr of KeyBanc Capital Markets (Cleveland) at the ferrous spotlight.
In terms of growth, world steel production has increased steadily since 2002, reaching a record 1.13 billion mt last year. China in particular has increased its steel output from 120 million mt in 2000 to about 370 million mt now, reported Karlis Kirsis of World Steel Dynamics (Englewood Cliffs, N.J.). Steel output is expected to continue growing to meet the industrial demands of developing countries.
As for pricing power—steelmakers’ ability to raise the prices of their products—that’s “something the market really never had until 2004,” Parr said. Several factors combined to cause a “massive steel price eruption” in September 2004, when hot-rolled band reached $625 a mt from $250 in 2003, Kirsis noted. Prices have receded since then but have remained strong, with the result being “vastly improved profits for steelmakers,” Kirsis said. He declared that “the industry has entered the age of profits. In this new age, profitability will hit record highs in strong markets and will not fall back to the financially destructive levels that we had witnessed previously.”
Parr agreed, adding that “2004 was the year the industry decided that it had pricing power; 2005 was a test and an inventory cycle to contain it. That really has set the stage for an outstanding 2006.” In his view, several key trends point to ongoing strength in the U.S. steel industry:
• Orders and steel shipments have begun climbing again, suggesting that positive momentum is poised to return to the market.
• Inventories that accumulated in the second half of 2004 didn’t weaken prices, thanks to production discipline by producers last year.
• Service center stocks, which were lower in the fourth quarter of 2005 than in the fourth quarter of 2003, have recovered enough to prevent a recurrence of the severe shortages in 2004.
• Steel imports have increased from unsustainably low levels. In fact, Parr said, “the industry needs a significant increase in imports just to get by. We would have to have a 40 percent or higher increase in imports of flat-rolled products before we would really start having a problem with destabilization of pricing. There’s a lot of room here for imports to grow.”
• Strengthening Chinese prices have been supporting upward domestic steel prices in the second quarter of this year.
Other supporting factors, Parr noted, include record backlogs at domestic mills, the perception of tightened supply due to the labor lockout at AK Steel, and strong demand to aid hurricane repairs. According to Kirsis, the market could be on the brink of another steel price eruption, with steel prices rising “way into the summer.” By June, Parr added, the hot-band price could be $550 to $600 a short ton.
Ferrous scrap and other raw steelmaking materials have benefited from the stronger steel market, seeing higher prices and short supplies. Those trends will continue, with scrap especially tight, Kirsis said. “The global supply of obsolete steel scrap may not be adequate at a reasonable price in the next decade.” Ferrous scrap prices, he added, might hit $270 to $300 a ton this summer, though they could collapse afterward, as they did in 2004.
Speaking as a scrap processor and steel producer, John Carter of Schnitzer Steel Industries Inc. (Portland, Ore.) agreed that global industrial growth and consumer purchasing will keep driving steel production and demand “for some time to come.” He warned, though, that if steel gets “overpriced” in the market, users could seek substitutes.
In the scrap market, the dwindling U.S. manufacturing base is whittling down the domestic reservoir of industrial scrap, Carter said. In the long run, that could produce a scrap shortfall, leading to higher domestic scrap prices.
Noting one final trend, Carter said strong demand from domestic mills has made it more lucrative for Schnitzer to sell domestically, a practice “that’s truly unusual.” The longevity of that trend will depend on the amount of steel product imports, which could eventually weaken the domestic market.
A European Steel Perspective. Crude steel production in the 25 European Union countries totaled 186.4 million mt in 2005, down almost 4 percent from 2004, said Christian Rubach of Interseroh AG (Köln, Germany).
Ferrous scrap consumption in the EU was 100.6 million mt in 2005, also down about 4 percent from 2004, Rubach said. EU countries exported 8.9 million mt of ferrous scrap in 2005 against imports of 7.4 million mt, both down from the 2004 figures of 9.5 million mt exported and 8.2 million mt imported. Turkey is the biggest purchaser of EU ferrous scrap, at 2.8 million mt, followed by India at 2.1 million mt, he reported.
The EU steel industry is highly concentrated, with five companies producing about 70 percent of European crude steel, Rubach said. All signs indicate that the consolidation process will continue. According to Deutsche Bank Research, in 10 to 15 years steelworks with annual production capacity of more than 100 million mt will dominate the world steel market.
The EU ferrous scrap industry also has been consolidating. The seven largest EU firms handle 4 million to 10 million mt each. “I predict that in the next one or two years, a lot of mergers and acquisitions will follow and form a totally new landscape,” Rubach said.
Globally, various reports predict steady growth in ferrous scrap consumption. A McKinsey report, for instance, says scrap usage could grow 20 percent by 2013, while the Iron and Steel Statistics Bureau predicts a 26 percent increase in scrap consumption, to 425 million mt a year, by 2010, Rubach said.
Nickel and Stainless Are Looking Bright. The positive outlook for the world economy, coupled with other factors, “point to another strong year for the nickel market in 2006,” according to Santo Ranieri of Falconbridge, Ltd. (Toronto), who forecast that “nickel prices should stay above long-term averages.”
The United States and China are the key drivers of global growth, Ranieri said, and their continued growth should mean a continuation of the healthy demand for metals. In comparison, he said, “the Japanese and main European economies will improve modestly.”
Ranieri said he believes the fourth quarter of 2005 was the trough for this stainless steel production cycle, and the first quarter of 2006 will see an improvement as the industry restocks. “We have definitely seen signs of this happening, which gives us reason to be optimistic moving forward,” he said. “With the increase in stainless steel production activity, scrap is tighter and prices are higher.”
For nickel, Ranieri said the dramatic growth of the Chinese market is a positive factor. “China will be a main driver of future nickel demand,” he predicted. “China’s ability to increase nickel production domestically is limited due to its resources,” he explained, therefore it will continue to rely heavily on imports.
He forecast a 6 percent increase in nickel demand this year, with “healthy demand across all geographic regions in all market sectors.”
Jason Schenker of Wachovia Corp. (Charlotte, N.C.) concurred with Ranieri’s strong growth outlook for nickel in the United States and globally, which he attributed to the reconstruction of oil rigs and the production of aircraft, boats, and consumer goods.
Though he sees energy prices moderating, he predicts they will remain high, which he said is likely “to engender further interest in hybrid vehicles.” Citing the recent statement by Toyota Motor Corp. (Tokyo) that it intends to turn all its vehicles into hybrids, Schenker described how this might affect the market: A hybrid battery contains an estimated 150 pounds of nickel, and Toyota manufactured 6.2 million vehicles in 2005, thus it would have required 422,000 mt of nickel to make that many batteries—which equals 28 percent of cathode production in 2005. “From this scenario, the implication for nickel demand is significant,” Schenker said. “And this is just one auto company. If this goes forward, even if it goes gradually, the upside risk to nickel prices could be massive.”
Yogesh Shah of Recoup Industries Inc. (Edison, N.J.) also had a positive outlook. China and India have continued their phenomenal growth, he said, and they are making headway in the use of stainless steel. “China is expected to double its stainless steel consumption to some 10 million tons by 2010,” he said. He also noted, however, that 90 percent of China’s stainless steel imports come from Asian countries, most notably South Korea and Taiwan, and he concluded that “for stainless steel, the future action is in Asia.”
Meeting the Global Paper Demand. The United States must “link its untapped supply of recoverable paper to the growing global demand,” said Pete Grogan of Weyerhaeuser (Federal Way, Wash.) at the paper spotlight.
U.S. paper recovery has increased from 27 percent in 1990 to 50 percent today, an increase Grogan attributed to local government efforts, “but the number of residential recycling programs has not increased significantly over the past 10 years,” he noted. About 36 million annual tons of recyclable paper are still being landfilled, he estimated,
including 51 percent of all office paper. Untapped sources include small and home offices, multifamily housing units, and entire cities that don’t providing recycling services.
Another challenge is getting the recovered paper from the United States to international markets. Grogan noted five forces influencing this issue: “rising rate levels, accessorial charges, ocean carrier consolidations, vessel operating costs, and recovery paper locations.”
World demand for recovered paper between 2002 and 2010 is forecast to be 65 million mt annually, Grogan said. About one-third of the demand will be coming from China (22 million mt), followed by Europe (20.5 million), the rest of Asia (10 million), Latin America (4.6 million), and the United States (3.4 million).
By 2020, China will likely consume 20 percent of the world’s recovered paper, Grogan predicted. The country lacks significant domestic timber resources, he noted, but “China is the second-largest producer of paper and paperboard in the world and also dominates the global trade in recovered paper.” The country also has the world’s largest paper recycling mills and container ships, he said.
China has a large appetite for imports and exports, Grogan said. It’s investing $50 billion in port infrastructure and $242 billion in the construction of intermodal terminals. “The country is also building strategic relationships with all sea lanes in the world,” he said.
Grogan believes China’s paper recovery rates are much higher than previously assumed. Street collectors, who typically purchase materials from residents in high-rise complexes, are the norm. “Based on my field observations in the streets and at landfills, I estimate that there is an 80 percent diversion of paper products from landfill,” Grogan said. This contrasts with most published sources, which suggest the diversion rate is only about 35 percent.
Tracking Trade Issues
Rail Realities. The railroad-scrapyard relationship was the focus of the first of two workshops on transportation in the scrap industry.
U.S. transportation needs continue to grow, said Tom Pellington of The David J. Joseph Co. (Cincinnati). The country’s total transportation infrastructure handled just under 16 billion tons of freight in 2005, and another 10 billion tons is expected by 2020. Much of the growth is in intermodal transportation, he noted.
At the same time, the supply of open-top gondola cars is shrinking, Pellington said. He estimated that 70 percent of such cars are available for moving scrap, and the industry is “competing for those assets.” But by 2010, an estimated 20 percent of those railroad cars will go out of service. Though the railroads will buy new cars and repair existing ones, Phil Bedwell of OmniSource Corp. (Fort Wayne, Ind.) predicted that demand will exceed supply without the addition of some private fleet growth. He recommended talking with railcar builders about receiving new cars and participating in car bidding opportunities.
The scrap industry does not align itself very well with the railroad industry, Pellington said—“cars are currently sitting in scrapyards waiting for orders.” To get better service, he said scrap processors should become ratable, consistent railroad customers; build relationships with key personnel; actively participate in transportation-focused organizations; and “communicate, communicate, communicate.”
Bedwell also emphasized communication with mills and railroads. Be a squeaky wheel, he said, and let railroads know far in advance about your needs.
Information collection is important as well. Know the time schedule for switching, know what is being loaded ahead of time, and “trace cars and keep consumers informed of the delivery status,” he said. Further, scrap processors should load and unload cars quickly, maximize their loads, and be proactive—help yourself by cleaning out dirty railcars instead of rejecting them, Bedwell added.
Cooperate with railroads and realize they’re your lifeline for moving products to market, he urged, but always have an emergency alternative for moving your freight if rail service is interrupted.
Representatives of two railroads spoke about how they plan to address current and future rail needs. Shelley Mast of CSX Transportation (Jacksonville, Fla.) reported CSX is purchasing 300 locomotives between 2005 and 2007 and hiring and training additional crew. The company has started to partner with the federal and state governments, which are providing funding for capacity projects, she said, and it’s looking for opportunities to add more local service in strategic locations.
Despite an aging fleet, CSX continues to focus on initiatives that will increase car availability, Mast said, touting its auction where customers can bid on monthly service. Also, CSX has improved its train velocity by 1 mph over the past several years and reduced “dwell time” in yards 20 percent.
The CSX Web site now provides more timely information, including status reports on whether cars have left the yard, Mast noted. Further customer service improvements include an around-the-clock service center geared toward resolving issues and user ID and pin numbers for improved customer security and better information collection.
David Garin of BNSF Railway Co. (Fort Worth, Texas) listed several factors that contribute to railroad growth, including containerization, coal production, fuel costs, driver shortages, highway congestion, and agricultural trade growth. “How you handle and invest in the growth is key,” he added.
His company is interested in purchasing multiuse cars with low engine miles and high utility, such as 66-foot gondolas with a two foot bulkhead. “There is a strong demand for railcars in all markets and the price of cars is going up,” he said.
BNSF also is focusing on expanding capacity through velocity. The company is in the process of surveying 4,500 customer locations and has found that 30 percent of these facilities are blocking the main line to be switched by the railroad. BNSF is working with customers to become more efficient and spend less time switching each customer, he said—an effort the company expects to complete within six months.
Truck and Ship Trends. The second transportation workshop addressed trucking and shipping trends. Trucking deregulation in 1980—and the ensuing competition it caused—are the root of some of the long-term problems in the transportation industry, said Bruce O’Neill of Jupiter Transport Services (Jupiter, Fla.). The problems include driver turnover and shortages, high operating costs for both wages and equipment, hours-of-service changes, and volatile fuel prices. Fuel price swings have driven many small- to medium-sized companies out of business because they couldn’t pass along the fuel surcharges to their customers, which has led to an estimated shortage of 150,000 trucks, O’Neill said.
Moving forward, O’Neill recommended that scrap processors make alliances with brokers and traders, make their freight rail-friendly, implement reasonable fuel surcharges, and partner with their rail provider.
Global Recycling Transportation LLC (Charlotte, N.C.) responded to such challenges by forming its own transportation company. Global’s Steve Gilbert said the company weighed the advantages of using outside trucking vendors—no investment, no overhead, minimum staffing, and no licensing or regulatory issues—with the disadvantages, which included persistent delays, poor service, cost fluctuations, vendor abuse, lack of quality control, lack of vehicle availability, and market unpredictability. The last straw? “Our scrap business was subjected to an immediate fuel-charge demand by our hauler in the wake of Hurricane Katrina,” Gilbert said.
He reviewed the steps involved in launching the trucking operation, including capitalization, insurance, regulatory and licensing requirements, legal issues, developing service routes, hiring and training employees, maintaining trucks, and keeping records. The result? “So far, service reliability has increased by 25 percent and the profitability is there,” Gilbert said. “While it’s been a very steep learning curve to vertically integrate this service with our existing scrap business, this will allow our company to grow.”
Shifting from the road to the sea, Ken Uriu of the Port of Long Beach (Calif.) described trends in shipping growth and the port’s response. The ports of Long Beach and Los Angeles together handled 14.2 million 20-foot equivalent units (TEUs) in 2005—the largest volume in North America and fifth-largest in the world. “The two ports are projected to grow to 36.2 million TEUs by 2020,” Uriu added. Scrap suppliers are contributing significantly to the region’s exports, with metal scrap being fifth and waste paper 17th in export volume along the entire West Coast.
The port has attempted to remedy the congestion such growth has caused by adding 5,000 casual workers to the labor force. “We also implemented technology improvements such as optical readers at the terminals, additional rail labor and equipment, and Pier Pass,” Uriu said. Pier Pass provides a negative incentive for daytime delivery. As a result of such changes, “free time on imports decreased from five to four days and free time on exports declined from seven to six days,” Uriu noted.
The port’s continuing challenges include relieving highway traffic congestion and the associated environmental issues and increasing on-dock and near-dock rail capacity, he added.
India Is Open for Business. Though India remains a Third-World country, it also has one of the most vibrant free economies in the world, with 1.1 billion citizens and an annual growth rate of 7 percent to 8 percent, said Vikram Kochar of Universal Metals Inc. (Arlington, Va.) at the “Trade With India” workshop. What’s more, according to a 2003 study by Goldman Sachs, India will be the fastest growing of the world economies over the next 50 years.
India has the fourth largest GDP in the world—$3.7 trillion in 2005, up 7 percent compared with the previous year, Kochar noted. And the country’s booming economy is attracting a huge amount of foreign commercial investment, $5.3 billion in 2005 alone.
Despite its positive economic trends, India faces significant roadblocks, including a crumbling and inadequate infrastructure, pollution, and a heavily bureaucratic and complex government system, Kochar said. Given these and other challenges, he said, India must take the following steps to ensure its future economic growth:
• Redevelop its infrastructure. India needs to invest about $150 billion in its ports, roads, power plants, and the like.
• Increase its industrial base. Unlike other developed nations, India has moved from an agricultural society to a service economy, bypassing its industrial stage, Kochar said. As it focuses on that stage, it will need more raw materials, including scrap, to meet its needs. The Indian government is helping by setting up economic development zones, increasing its industrial investments, and easing foreign investment and privatization policies.
• Alleviate its burdensome tax policies. India must continue to lower its import and customs duties, tariffs, and taxes on various commodities and products.
• Increase its global trade. Currently, India’s exports total about $76.3 billion, while its imports amount to $99.8 billion. For further trade growth, India needs to continue making market-oriented economic reforms, such as liberalizing foreign investment policies, reforming and modernizing its financial sector, making significant adjustments in its government monetary and fiscal policies, and safeguarding intellectual property rights, Kochar said.
• Strengthen relations with the United States. The United States is already India’s largest trading partner, with $21.7 billion of bilateral trade, and several factors favor closer ties between the two countries, Kochar noted. For one, India is the most pro-U.S. country in the world, with 71 percent of Indians holding a favorable impression of the United States. Further, India is English-speaking, has a similar worldview, and is a “noisy, open society with a chaotic democratic government”—much like the United States, he said.
For scrap recyclers, “the good news is that India is open for business,” and it’s a great home for all types of scrap, including ferrous, copper/brass, aluminum, lead, and stainless, asserted Tom Mele of Connecticut Metal Industries Inc. (Monroe, Conn.).
Geographically, ferrous scrap consumers are concentrated in the West in Gujarat, down the Western Coast into Mumbai, with clusters in the Punjab, outside of Calcutta, and some small ones in the South, Mele said.
India’s nonferrous scrap consumers are spread out, with aluminum buyers around Mumbai into Gujarat, the brass business centered in Jamnagar and north of New Delhi, and stainless consumers scattered around the country, Mele said.
Shipbreaking takes place along the West Coast in Alang, Pipavav, and Mumbai. These operations primarily cut up ships to provide steel plates for the rerolling business, Mele noted.
For the uninitiated, selling scrap to India can be daunting. Fortunately, scrap sellers have options, Mele said, outlining five trading approaches:
• Sell through a domestic trader. In this case, a U.S. exporter will buy your scrap, pay you with a U.S. check, help you load a container—and “that’s the last you’ll see and hear of it,” Mele said.
• Sell directly to a trader in India. This approach requires “a little more cultural sensitivity” as well as strong negotiating skills. “Americans can perceive the way Indians price things as insulting and offensive,” Mele said. “You have to get past that.”
• Forge an Indian agent agreement. Here you establish a commission-based relationship with an Indian trader. The trader finds an Indian consumer for your scrap, introduces the two of you, and receives the agreed-upon commission for the transaction after the consumer pays you, Mele said.
• Sell directly to Indian consumers. If your scrap company is big enough and has enough material, it could sell directly to Indian consumers, though “banking becomes more complex, and you’ll have to spend more time in India working out the details,” Mele said. That said, Indian consumers are “more than anxious to set up long-term, solid relationships with suppliers in the United States.”
• Establish a scrap processing operation in India. Having a physical operation in India “will give you an entree into a market that will do nothing but grow as the years go forward,” Mele said, adding the caveat that you might not be able to own 100 percent of the operation.
Getting Paid for Foreign Trade. When selecting a payment method for international trade, keep in mind there’s an inverse relationship between the risks for the exporter and the risks for the importer, said Jane Hay of U.S. Bank (Minneapolis). Cash in advance is a no-risk venture for the exporter, and sometimes it’s the best option, she said. It’s also the least expensive option for both parties. Conversely, allowing the importer to open an account or credit line makes the exporter assume all the risk. Methods that balance the risk between the two parties are the commercial letter of credit and the less-familiar documentary collection.
A letter of credit is a pre-export guarantee, Hay said. It can protect companies selling into otherwise high-risk foreign markets because it’s irrevocable and it relies on payment from the customer’s bank, not the customer. LCs cost more than cash, and there’s a “perceived hassle factor,” Hay said, but they offer certain assurances on both sides of the agreement.
Negotiate the price and payment and delivery terms before the buyer requests the LC, Hay advised, because there’s a charge to make changes afterward. Once the buyer gets the LC, compare it to the terms you agreed upon, and insist on changes if it’s not accurate because discrepancies can delay payment.
The process of presenting documents is not necessarily a transaction between the exporter and the advising bank, Hay said. You can have the buyer specify in the LC that you have the right to use any bank. An examining bank can scrutinize documents on your behalf, correct them, or otherwise help facilitate payment.
To collect payment, the exporter’s bank makes the claim on the LC-issuing bank. In a sight draft, the bank pays within 14 to 20 days. On a time draft, the bank creates a “banker’s acceptance” based on the credit quality of the issuing bank and pays after a certain number of days. Sometimes the exporter’s bank will agree to discount the banker’s acceptance and pay immediately on a time draft, so Hay recommended getting a quote on the discount rate and determining whether it’s worth the cost.
Companies that use a lot of LCs might want to start using a bank’s Web-based tool for collecting the necessary information, which can result in faster payment, or even outsourcing the paperwork to a separate company, Hay said.
A form of payment rarely used in scrap trade is the documentary collection, Hay said. She described it as a bank-assisted open account: The seller ships the product directly to the buyer, but the documentation goes through the bank. This method is suitable for less-risky countries and with customers who have good credit. There is a risk the buyer will refuse the shipment, but it’s worth considering, particularly for sight drafts and ocean shipments, she said, because of the relatively low costs and ease of documentation.
The payment method you should select depends on many factors, Hay said, including the size of the order, your international experience and tolerance for risk, the uniqueness of the product, the industry and cultural standards, your cash flow needs, your relationship with the buyer and what it will agree to, and what you can afford.
Management Dollars and Sense
Making the Best of Customer Bankruptcy. Though media reports focused on its negatives, the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 puts vendors in a better position when their customers declare bankruptcy, according to three panelists from the Cleveland law firm Thompson Hine LLP.
A vendor now has 45 days to reclaim its goods after customer receipt of the items or, if that period overlaps with the bankruptcy declaration, up to 20 days after that point, Mark Weintraub said. But he pointed out some caveats: The goods must be in the customer’s possession, they must be identifiable, and they can’t be commingled with other goods. You have no protection against the customer commingling, consuming, or selling your goods, Alan Lepene noted, thus if you’re concerned about such activity you should send the customer a written request not to do so—or even get a restraining order. Even with a reclamation request, there’s no guarantee you’ll get your goods back because certain secured creditors and third-party purchasers might have higher-priority claims.
The new law also expands the vendor’s ability to claim administrative expenses to replace the value of goods not returned or paid for that were shipped within 20 days of the customer filing bankruptcy. Robert Folland said making such a claim is easy: Just send a form letter to the customer. The money you’re owed “might not be worth a lawsuit, but writing a letter doesn’t cost much,” he said.
The panelists also addressed the ramifications of having the debtor declare your company a critical vendor—one that’s essential to his business operations and that refuses to supply goods during the bankruptcy proceedings until its prior claims are paid. Lepene suggested that the new administrative expense provision makes it less important to get on the critical list.
The most troubling thing for a vendor, Lepene said, might be a bankruptcy preference action, when bankruptcy trustees send you a letter demanding that you return money you received from the debtor in the 90 days before it filed bankruptcy. The rationale for this demand is that the trustees assume the debtor was insolvent when it made that payment, and the payment gave you better treatment as a creditor than you would have received during the liquidation and distribution of assets.
When you get such a letter, “don’t write a check,” Folland said. “Quite frankly, these letters are fishing expeditions.” You are not legally obligated to respond, and “sometimes, if you do nothing, there’s never any follow-up.”
If the trustees follow up with a suit, however, he recommends getting bankruptcy attorneys involved. They can “cut out 50 to 90 or 100 percent of the liability,” he said.
Fortunately vendors have several defenses against preference actions. The first is the “contemporaneous exchange” defense, meaning the transaction was essentially cash on delivery. The second defense, that the debt was incurred during the ordinary course of business, is somewhat easier to prove under the new law. Whereas previously vendors had to prove the transfer was made in the ordinary course of business and that the payment was made according to ordinary industry terms, the new law only requires proving one or the other. Vendors can invoke a third defense, “subsequent new value,” if they provided a product or service after the supposed preferential payment and never received payment for it. The new law also bans preference actions for less than $5,000 and stipulates that if the suit is for between $5,000 and $10,000 it must be brought in the vendor’s jurisdiction.
The Basics of Borrowing. Today’s financial markets are totally different than they were 10 or 15 years ago, said William Mattison of Financing for Industry Inc. (Jamesburg, N.J.). “While lending institutions are more cautious today, in the last three or four years I’ve never seen a more liquid market for money,” he said.
Historically, he said, the most underserved markets are small- to middle-sized companies with $2 million to $150 million revenue, which would include many scrap processors.
Listing possible lenders, Mattison pointed out that “some of the best loans you can get are from the Small Business Administration.” He called the SBA 504 “the best loan going.” It provides up to $10 million for manufacturers to use for new real estate and equipment purchases. He also recommended the SBA 7A, with a $2 million limit borrowers can use for any purpose.
In contrast to the SBA, he said, “banks can be difficult to deal with directly, are much tighter in due diligence, and to get an answer requires multiple levels of approval, which may take months.” He cautioned borrowers “to be careful of blanket liens” that many banks insist on.
Another lending option—large nonbank commercial lenders such as GE or CIT—offer two advantages, Mattison said: they don’t require a deposit relationship, and there’s a shorter approval cycle. With so many different kinds of lenders available, if you’re not sure of the right lender to approach for your loan, retain a consultant to help you, he advised.
Mattison also reviewed the pros and cons of several types of loans. He cautioned attendees about bridge loans, which are primarily used for commercial real estate. Because they’re expensive—typically offering a 12 percent to 14 percent interest rate—he advised against them unless you have no other alternative. He also warned against “factors” that can cost from 18 percent to 25 percent and higher. For those trading in commodities, purchase-order financing loans can be attractive, he said. And he recommended that scrap processors look for state and local grants, which are increasingly available for recycling.
Lenders are looking for “the four Cs,” Mattison said: cash flow, collateral (real estate and equipment), credit (corporate and personal), and character (of the owner/manager). Also important are “good accounting internally, a good controller or CFO, and accountant-prepared statements,” he said.
When preparing a financial package, he suggested providing the following:
• Key historical information, including a discussion of any losses, and management background;
• Current information, including financial statements, three years of tax
returns, and personal financial statements of major stockholders; and
• A description of how the loan will affect your business, with month-by-month financial projections for two years (both income statement and cash flow) and the sources and uses of funds.
When communicating with the lender, honesty is the best policy, he said. Emphasize the positive, and mitigate the risks. And get your point across quickly. “Don’t write a book,” he said. “Five to 10 pages is long enough.”
New Approaches to Municipal Partnerships. How can public-private partnerships increase curbside recycling? Panelists at the “Municipal and Community Partnerships” workshop had a variety of answers.
The question is becoming more pressing, as Steve Thompson of the Aluminum Association (Ashland, Va.) made clear. Aluminum recycling rates peaked at 67 percent in 1992, dropping to 51 percent in 2005. “Each rate point decline represents 30 million pounds of lost opportunity,” he said. This provided an incentive for the Aluminum Can Council, a three-year-old partnership of the association and the Can Manufacturers Institute, to “determine the sources of recycling leakage.”
For the council, partnerships have allowed it to collect more and better data on curbside recycling in exchange for providing communities with free public relations resources. Through its work, it has learned that nearly half of U.S. households have access to curbside recycling, but only half of those participate. “Diligence to properly recycle within the household” is one key to boosting curbside success, he said. It turns out that people are motivated to recycle to set a good example for their kids.
Research has also shown that bigger bins translate into better curbside tonnage and lower program costs per ton, and that pay-as-you-throw programs, which charge households for trash collection based on the amount they generate, also boost recycling tons. Public education efforts for recycling can pay for themselves, Thompson said, but he advocated focusing on valuable recyclables to optimize program revenue.
Public information is a primary goal of Denver’s public-private recycling partnerships, said Charlotte Pitt of the city’s solid waste management division. Her division began to require that its vendors add education components to their recycling service and container contracts. Beyond such vendors, the division has partnered with 10 organizations, including Coca-Cola (Atlanta) and the Aluminum Can Council. When approaching potential partners, Pitt said, “the city tries to form a mutually beneficial relationship. Make sure to offer something that is needed, and be creative and flexible.”
In New York, public-private partnerships are helping the city recover from a major blow to recycling in 2002, when Mayor Michael Bloomberg cut funding for plastic and glass recycling during the fiscal crisis that followed the Sept. 11, 2001, terrorist attacks. “Computer take-back programs with companies like Circuit City and Dell are starting to emerge, and e-waste management programs are gaining momentum,” said Carmen Cognetta Jr. of the New York City Council.
Ron Gonen of RecycleBank (Philadelphia) described his company’s different approach to partnering with municipalities: RecycleBank pays households for their curbside recycling. “Municipalities avoid paying for such materials to be landfilled, and there is a multi-billion-dollar industry that is willing to pay for that material,” he explained.
RecycleBank provides households with a 35-, 64-, or 96-gallon recycling cart embedded with a computerized identification chip. As trucks collect the materials, they record household participation and weigh the materials with a scale on the truck’s semiautomated tipper arm. Based on the amount of material they recycle, “households can earn up to $400 per year and redeem the dollars at 100 different stores ranging from Home Depot and Starbucks to grocery stores and movie theatres,” Gonen said.
Community results to date are promising, Gonen said. In most neighborhoods, more than 90 percent of households participate. Recycling rates range from 50 percent in wealthy or middle-class neighborhoods to about 35 percent in poor neighborhoods.
Eye on Electronics Recycling
The Business of Electronics Recycling. Electronics present some unique opportunities and challenges to the scrap recycling industry, according to panelists at the first event of the Electronics Recycling Business Summit, a special track ReMA offered to convention attendees and separately.
Though electronics ultimately do break down into the traditional recycled commodities, today’s greatest opportunities are in refurbishing and reselling these high-value items, said moderator Steve Skurnac of Noranda Recycling Inc. (Toronto). “Marketing for reuse is essential to profit in e-scrap,” said panelist Josh Turchin of Green Earth Recycling (El Cajon, Calif.). “The rest of the world has a seemingly insatiable hunger for American castoff technologies, and we appreciate the added margins, as well as the energy savings, which marketing for reuse confers.” He described some of the steps his company takes to evaluate, refurbish, and remarket electronics, which it sells primarily in Mexico and Guatemala.
“Software licensing is one of the necessary parts of getting a computer back into service,” said panelist Jim Lynch of CompuMentor (San Francisco). The Microsoft Authorized Refurbisher program he helped create in 2002 allows qualified refurbishers worldwide to purchase licenses to Windows 98, Windows 2000, and Microsoft Works software at rock-bottom prices so long as they donate a certain number of refurbished computers each year to schools and nonprofits.
Lynch explained that companies can enter the refurbishing business in a “low-tech, almost no capital kind of way,” and that even though refurbishment is labor- and time-intensive, the work lends itself to “using very low-cost, sheltered workforce labor,” such as the developmentally disabled.
Turchin urged electronics recyclers to emphasize the environmental benefits of their work, noting his business “has been guided as much by the public relations value that our efforts can generate as by the demand from consumers, who are quickly running out of space for all their new gadgets.” He suggested that by partnering with electronics manufacturers and retailers, recyclers “help give teeth to claims of environmental dedication.”
The third panelist, Darren Arola of MBA Polymers Inc. (Richmond, Calif.), described his company’s downstream processing of plastics. The company’s three plants in California, China, and Austria mechanically separate plastics by type and grade to create virgin-quality feedstocks for manufacturers.
The composition of the plastics recycling stream varies based on the source, such as automobiles, durable goods, or electronics, he said. Manufacturers are “looking for virgin material of a specific type with specific mechanical properties,” he explained. “If you’re starting with something different, you may not be able to get there. Your source materials dictate what you can supply or sell,” and your ability to succeed will depend on whether there’s a market for what you can produce. Other challenges to plastics recycling include finding high-yield source materials and ensuring product consistency over time.
The panelists noted the logistical problems e-recyclers face in getting the public to hand over the goods as well as the regulatory challenges, particularly in the European Union and a few U.S. states. Further, electronics recyclers face greater demands for accountability, Skurnac said. Customers want to know how and where the items were processed, how to evaluate vendors, a company’s standards and certifications, and whether a company has faced regulatory issues or fines. Even so, he said, greater environmental awareness will create greater business opportunities. “We’re not talking about a small marketplace anymore—there are very serious volumes of material to be handled in a responsible way.”
Seeking a National E-Recycling Solution. For electronics recycling to work in the United States, “we need to develop a strong and efficient national, harmonized conservation and recycling plan,” said Marc Pearl of the Consumer Electronics Retailers Coalition (Washington, D.C.) at the workshop on e-recycling legislative and regulatory issues.
The alternative—a patchwork of e-recycling laws on the state level—would be “administratively inefficient and incredibly costly,” he said.
Thus far, the state legislative approach to e-recycling has been “all over the map,” Pearl said. Last year, 24 states introduced more than five dozen e-recycling bills and enacted five. This year, 17 states already have introduced more than three dozen bills. “The problem is different states, different products, different fees, enormous consumer confusion, and increased costs for all stakeholders,” Pearl said.
Some groups, such as the Northeast Recycling Coalition, are promoting regional e-recycling solutions that promise to be “much better for consumers, easier for retailers to administer, and incredibly easier for recyclers,” Pearl said.
The consensus position, he said, is that the United States needs a national e-recycling system that will
• encourage manufacturers to design environmentally friendly products;
• provide a consumer-friendly system that encourages reuse, refurbishment, and recycling;
• not create a new bureaucracy; and
• involve all stakeholders in a true product-stewardship approach.
“All the stakeholders must come together to get this process going forward,” Pearl said. “We’ve got to stop pointing fingers at one another. We need to work in consensus.”
Scrap recyclers must take the lead in promoting an e-recycling solution, Pearl added. “ISRI has to take the bull by the horns and say, ‘We’re in this business not to get government handouts. We’re in this business because there’s valuable product in those devices when they reach their end of life. We want to be part of the solution.”
Renee St. Denis of Hewlett-Packard Co. (Roseville, Calif.) concurred. “Recyclers must be part of the legislative process because legislators desperately need their informed perspective on these recycling issues,” she said.
Speaking from an electronics manufacturer’s perspective, St. Denis agreed that “there has to be a legislative framework. Please put some rules in place so we all know what we’re doing.” The key, she said, is to base any proposed e-recycling solution on “choice, options, [and] flexibility to allow free markets to work to serve the customers the way they need to be served.”
Any e-recycling system must address customer concerns about data security, privacy, and the potential for mismanagement of their end-of-life electronic products, St. Denis added. And if the system is fee-based, consumers expect such fees to be manageable and for them to decrease over time.
Export Issues for Electronic Scrap. Is electronic scrap waste—or even hazardous waste? The answer to that question is fundamental to international trade in end-of-life electronics.
The good news is that “governments are consumed with the e-waste issue,” said Paul Hagen, an attorney with Beveridge & Diamond PC (Washington, D.C.), and they are diverting more end-of-life electronics from the waste stream. Unfortunately, they are taking conflicting approaches to export regulation. The United States, Canada, and a few other countries want to encourage the movement of these goods because of the environmental and economic benefit. Other governments say “anything with a circuit board is a hazardous waste, we don’t think it should move around, and we intend to make it impossible or difficult to do so,” he said.
The biggest concern is the 1989 Basel Convention, which governs the cross-border movement of waste among 166 countries. The United States never ratified the agreement, thus it can’t trade waste with Basel signatory countries unless they’re in the Organization for Economic Cooperation and Development, which has a later agreement, or unless they have separate bilateral agreements with the United States, such as Canada and Mexico.
So does Basel apply to trade in electronic scrap? The treaty is “ambiguous” on that point, Hagen said. According to one interpretation, anything that contains lead, cadmium, or mercury is a hazardous waste unless you can prove otherwise—and there’s no uniform test or standard of proof. Eventually each country will have its own definition of hazardous waste and its own testing procedures.
The Basel Mobile Partnership Initiative, a coalition of nonprofits, governments, and mobile phone manufacturers and networks, has developed a set of best practices for cell phone collection, refurbishment, and recycling, but the trade component is still under negotiation. What’s worrisome, Hagen said, is that several participating countries consider used cell phones—even those destined for refurbishment and resale—hazardous waste. A proposed interim approach offers greater transparency in exchange for looser restrictions on the trade of cell phones to be refurbished.
A similar coalition is expected to begin addressing computer recycling issues later this year.
Ultimately, Hagen said, countries will have to confront the inherent tension between the desire to increase recycling and the desire to restrict trade in potential hazards. “If you want to promote recycling, things have to move around, and the international rules for doing so aren’t terribly helpful,” he said.
Panelist Mark Matza of Fortune Plastic & Metal Inc. (Jersey City, N.J.) warned e-recyclers to thoroughly investigate the brokers and other companies with which they work internationally to ensure the material is properly handled and that it’s not exported to countries with lax regulations. He described a situation one company faced when working with an unscrupulous broker in China, which ended up costing it $750,000 to clean up an alleged hazardous waste.
“Fortune exports material we can’t find an economic home for in the United States, and only to China, where we can control what happens to the final outcome of that material” at one of the company’s Chinese facilities, he said. When exporting, he advised, ensure the other company has the proper business registrations, a legal representative, an address, insurance, a tax ID number, and references.
Matza listed permits cancelled and shipments blocked last year by one Chinese regulatory body, AQSIQ, because the scrap was contaminated or contained electronics items the country doesn’t accept. “If material like this were coming into your scrapyard, you’d be just as unhappy as they are,” he said. Even Hong Kong, which operates separately from the rest of China, initiated 52 prosecutions out of 83 loads the government inspected in 2005.
Panelist Carlos Rovelo of the U.S. Department of Commerce spoke about trends in U.S. trade with China and Mexico. Noting that Long Beach, Calif., is the hub for 80 percent of the trade from the United States to Asia, he asked, “What happens if we have a [Hurricane] Katrina in Long Beach?” For that and other reasons, he said, the U.S. and Mexican governments are working to develop the facilities in Manzanillo, Mexico, as an alternative hub for Asian trade.
Overall, those interested in trade with China, Mexico, or any other country should familiarize themselves with the culture, he said, and “be open to the other.”
Working Safely…or Not at All
Commit to Safety. “There is no excuse for not being accident-free,” exclaimed speaker Billy Robbins in his lively president’s breakfast presentation, “Hooked on Safety.”
Instead, he said, there are lots of rationalizations, including his favorite: “We’ve got such dangerous jobs in our industry.” His response? “I’ve never seen a dangerous job, I’ve only seen hazardous jobs.”
Robbins implored scrap processors to make a daily commitment to being accident-free. “You have to believe it’s possible,” he said. “You have to have the vision. Motivate yourself. Change your attitude, and accomplish your goal of zero accidents. It will make your life better.”
Speaking from experience, Robbins said “safety is about people, and while we don’t think about it, accidents hurt people, and that changes people’s lives.”
Conversely, “if you have safe employees, you’ll have happy employees,” he said. “Happy employees are more productive, and that makes you more profitable. Lead by example and take your people where they need to go—to an accident-free workplace.
“It’s a big goal, and it won’t be accomplished overnight,” he said, “but it can be done. You can do it. Make the decision now.”
The Attendees’ Perspective. After the breakfast, CBS News White House Correspondent Jim Axelrod moderated an interactive roundtable that used tabletop polling devices to assess how attendees feel about workplace safety issues.
When asked “where is the greatest liability?” the responses were nearly evenly divided between employees (48 percent) and transportation (47 percent). The greatest problem, the greatest threat to scrap processors, is their trucks on the road, said panelist Monica McNally of RecycleGuard Insurance/Willis of New Hampshire Inc. (Portsmouth, N.H.). Robert Bjerg, an attorney with Seigfreid, Bingham, Levy, Selzer & Gee PC (Kansas City, Mo.), agreed. He urged processors to pay their drivers by the hour and not by the load so they won’t rush and will take the time to be safe.
Bjerg also emphasized the importance of training and education, and he suggested that “all scrap processors should implement a drug and alcohol testing program with zero tolerance.”
One surprising note was that 36 percent of attendees said their firms have no policy on allowing children into their plants. Only 8 percent said they do not allow children; 36 percent said children are sent to the office.
When 61 percent of attendees said they “have a safety program but don’t get through to all employees,” Joe Bateman of Mervis Industries Inc. (Danville, Ill.) said scrap processors “have to change attitudes—the way our employees think.”
The panelists agreed that the leadership on safety must come from the very top. Upper management must exhibit the safe behaviors it expects from its employees and must make its commitment to safety clear. Darrell Wooster of Mercer Group International of New Jersey Inc. (Trenton, N.J.) said his company holds supervisors accountable for the safety of their employees. “Every employee has value,” he said, “so bonuses and raises for supervisors are based on the safety performance of the employees they supervise.”
Living Through a Lawsuit. It’s a scrap company’s worst nightmare: A piece of metal flies out of a truck and kills the driver of another vehicle. For five years Bjerg has been defending a company sued after such an event. A lawsuit is “extremely stressful, emotional, expensive, [and] time-consuming; it can destroy a business; and it’s extremely unpredictable,” he said. “No rational person would choose litigation if given a choice.”
Unfortunately, Bjerg said, even with good hiring, training, policies, procedures, and equipment, accidents still happen, which can lead to lawsuits. The good news is that “if you can look back and say, ‘We did everything we could’” to ensure safety, he said, “that will sustain you emotionally” during the suit as well as help your case.
How can you protect yourself against lawsuits? Bjerg offered these suggestions:
• Know the applicable federal, state, and local regulations for transporting scrap. Your general counsel and ReMA can help.
• Keep detailed records of hiring, training, safety meetings, trip logs, and more. Bjerg said in this case the firm had 10 reports of pebbles or small pieces of scrap hitting people’s windshields,
but the reports didn’t note that the incidents were minor and didn’t result in injury.
• Have safety policies and procedures in writing—and follow them.
• Appoint a safety director, and make it someone who’s both talented and articulate. The safety director will be your second-most-important witness after the driver, Bjerg notes.
• Make sure you have enough insurance and that you understand your coverage.
If you do face a suit, “don’t give up control,” Bjerg said. Remember that you are the defendant, even if the insurance company is paying the bills. Insist on getting a lawyer with industry experience for big cases, and get your general counsel involved to look out for your interests. Don’t talk about the case in the media, and instruct your employees to keep silent as well—“you can’t win the case in the media,” he said. Do not destroy or alter records, even if you have the best of intentions. And be willing to learn or change. “This company’s rule now is that every load will be tarped,” he said.
A Lawyer’s Overview of OSHA. When it comes to OSHA and other workplace regulations, educate your supervisors and know your rights, said attorney Mark A. Lies II of Seyfarth Shaw LLP (Chicago).
Because the law considers them agents of their employer, supervisors can create legal liability for a company by their negligent or intentional acts, Lies cautioned. This makes it imperative to train them in state and federal employment laws. “The supervisor has to know his rights and responsibilities. An employer’s failure to train supervisors is no defense,” he said. Potential legal liabilities could come in the areas of workers’ compensation, OSHA, civil, criminal, or the newly developing area of whistleblower laws.
Lies reminded scrap processors that, with many different categories of employers and employees on a job site, and with the expanded liability under OSHA’s multi-employer workplace doctrine in place, “each employer is potentially
responsible for the safety and health of another employer’s employee under certain conditions.” He pointed out that this doctrine “has some teeth in it. It also has criminal ramifications.” He recommended reviewing CPL 2-0.124 at www.osha.gov to learn more.
Lies took a pragmatic look at employer enforcement of OSHA regulations. “Realistically, the employer should anticipate that employees may well violate OSHA safety and health regulations,” he said. “If, however, there is evidence of competent, effective training and enforcement, for both managers and nonmanagers, the employer can avoid potential liability for citations if OSHA observes a violation by utilizing the unavoidable employee misconduct defense.”
To establish this defense, he said, “the employer must show he had a safety or health program for the specific hazard, that the employee was trained, that the supervisor observed the employees at work and disciplined violators, and that the supervisor had no reasonable means to know and correct the violation.”
Supervisors must be in the scrapyard walking around and looking at what employees are doing, he said, not sitting in the office. He also listed three other defenses to OSHA liability.
“You must be prepared to respond to an OSHA inspection, especially those involving fatalities or serious injury, without waiving important legal rights,” Lies said. This means supervisors must know the rights of the employee, the employer, and OSHA. Not knowing these rights can be extremely harmful to the firm, he warned. For example, the employer has the right to limit the inspection to the specific complaint or accident and to accompany the inspector.
He cautioned that unless a person is arrested, OSHA doesn’t have to warn that person of his or her Miranda rights—most notably, that what you say to the inspector can be used against you later. “There is no obligation to speak to an OSHA inspector,” he emphasized. “If information is provided, the individual may be at risk if the statements constitute admissions of violations of regulations, such as failure to develop programs and train employees.”
And don’t forget about your right to an attorney, Lies said. “While many employers may be hesitant to consult legal counsel in an OSHA inspection because of concerns about cost or the message being sent to OSHA by involving an attorney,” he said, “this mindset can be risky. By selecting counsel who are familiar with occupational safety and health law and conferring with them, both the employer and management can avoid conduct which may
result in criminal liability.”
Communicating in a Crisis and Every Day. Every business needs a plan for communicating with its various stakeholders—including employees, suppliers, and customers—on a regular basis and in response to an unexpected event, said Tom Mira of Mira Communications (Newport Beach, Calif.). “Determine what you want to say to all of the people you have to deal with in good times so there is a communications process in place in the bad times,” he said.
Mira stressed the importance of keeping employees informed about company news and activities. “If employees are worried about what’s going on in the company, they become distracted,” he explained. “Such distractions can result in a ‘momentary lapse’ that can lead to an accident. Your safety person’s job is to help them avoid such lapses through ongoing communications so they can be focused on their jobs.”
Mira urged recyclers to develop a crisis communications plan. “Think about something that could reasonably happen in your scrap plant and then plan how you would deal with it,” he said.
Such a plan can help put a crisis in context, he pointed out. “Describe what you’ve been doing in the past—the quality and safety programs you have in place that should be a part of your corporate culture. This way, if a crisis occurs, you have something in writing as a guide to tell people about the positive aspects of your company.”
One “enormous mistake” companies make in crisis communications, Mira said, is designating the company owner or CEO the sole spokesperson. “If he or she is seen as an idiot by the media, who goes next?” he asked. “How will someone down the line explain away a misstatement or lack of knowledge about the situation?” For a crisis that
involves a serious injury, an explosion, a fire, a charge of sexual harassment, or something similar, have the quality or safety officer respond to the media first, he advised. “After that individual has handled the questions, then bring the top guy out, but be sure he’s briefed in advance.”
And be wary of how you respond to questions when you don’t know the answer, he said. “Don’t say you’ll get the answer, say you will check into it,” he said. “If you commit to getting the answer and then find it’s not in your best interest to pass the answer on, you’re breaking your word. ‘Checking into it’ does not carry that obligation.”
HP Gleans First DFR Award
Hewlett-Packard Co. (Palo Alto, Calif.) received ISRI’s first Design for Recycling® award, presented at the chair-elect’s breakfast April 6.
ReMA recognized HP for its “documented efforts to reduce the use of hazardous substances, to simplify component design, and to build computers and printing products for easy disassembly and recycling,” said ReMA President Robin Wiener. Renee St. Denis (above left), HP’s director for Americas product takeback, accepted the award from outgoing
ISRI Chair Joel Denbo, stating that HP has “a commitment to operate as a global citizen and reduce the impacts of our products.”
ReMA created this award to honor companies or individuals that make progress toward achieving the goal of Design for Recycling, a voluntary program that encourages manufacturers to consider end-of-life recyclability at the earliest stages of product design.
Lifetime Achievement Awards
ISRI bestowed its Lifetime Achievement Award on three scrap industry leaders at the April 4 chair’s breakfast: the late Lee Hummelstein of Hummelstein Iron & Metal Inc. (Jonesboro, Ark.), Barry Hunter of Hunter-BenMet Associates LLC (New York), and Sheldon Tauben of Metalsco Inc. (St. Louis).
Lee Hummelstein, who died in March, joined his family’s scrap business after serving in World War II. He followed his passion for scrap for 50 years, until his retirement in 1997. As he grew the business, he had the vision to pursue new opportunities, like entering the steel service center niche. He also invested countless hours in the industry’s trade associations, serving on committees for ISIS (an ReMA predecessor), participating in the association’s Gulf Coast Chapter, and leading NASCO-OP, the industry’s equipment-purchasing cooperative.
Barry Hunter learned the scrap business from the ground up at his family’s operation in Passaic, N.J., until its sale in 1971. He continued his scrap career at other firms, developing his specialty in stainless steel and alloys and his expertise in the international marketplace. Companies and associations alike sought his leadership. In ISIS and ISRI, Hunter led committees in public relations, research, education, and many other areas. He served as president of the New Jersey Chapter and was chairman of the special projects committee during ISIS’ 50th anniversary.
Hunter’s international focus also led him to the Bureau of International Recycling (Brussels). After 20 years as chairman of BIR’s stainless steel and special alloys committee, he was elected president of BIR and served two terms.
Sheldon Tauben, a highly decorated veteran, left his career as a teacher in 1954 to work for American Metal Co. Subsequently he joined Diversified Metals Corp., where he mastered the trading side of the business. In 1976 Tauben opened his own firm, Metalsco. His reputation as a fair dealer earned him the unqualified respect of suppliers and customers.
In his career, Tauben has volunteered with countless trade groups and committees. He wrote books on the nonferrous scrap business and helped develop copper scrap specifications the industry still uses today all over the world. Ever the teacher, he has lectured, mentored, and served as a role model for many in the scrap recycling industry.
ISRI PAC Reaches $100,000 Goal
ISRI PAC raised $100,000 for the second year in a row through its annual reverse raffle drawing at the ReMA convention. This year, the PAC sold all 1,000 tickets, priced at $100 each, before the convention, demonstrating members’ growing support for the organization.
For the first time, the final four raffle contestants chose to split the grand prize—$30,000 in cash. The four winners were Stephen Young of Allan Co. (Baldwin Park, Calif.), Chris Lewon of Utah Metal Works Inc. (Salt Lake City), George Adams Sr. of Adams Steel (Anaheim, Calif.), and David Wallace of Huron Valley Steel Corp. (Belleville, Mich.).
Also, Steve Bolhuis of Beacon Recycling (Muskegon, Mich.) and John Bryant of Southern Metals Recycling Inc. (Wilmington, N.C.) won early prizes of $500 each for purchasing their tickets prior to Oct. 31 and Dec. 31.
Congratulations to ReMA PAC Leadership Council cochairs Jerry Simms of Atlas Metal & Iron Corp. (Denver) and Jim Lawrence of ELG Metals Inc. (McKeesport, Pa.), the PAC Leadership Council members, and the chapter liaisons for another successful year.
ReMA PAC’s mission is to help raise the voice of the scrap recycling industry on Capitol Hill through contributions to candidates for U.S. Congress who have helped the scrap recycling industry or who are genuinely interested in recycling.
To learn more about ReMA PAC or the reverse raffle at next year’s ReMA convention in New Orleans, contact Billy Johnson, ISRI’s director of grassroots/PAC, at 202/662-8548 or billyjohnson@isri.org.
—Jim Fowler, Jonathan V.L. Kiser, Kent Kiser, and Rachel H. Pollack
Record-shattering attendance, a swanky Vegas venue, invaluable networking and educational opportunities, and so much more characterized this year’s convention. Here’s our annual write-up on the biggest scrap show on earth.