September/October 1991
Bridging the Scrap Gap
Connecticut Metal Industries has established itself as an independent specialist in aluminum packaging scrap. Its secrets? Quality suppliers, efficient processing, conservative growth, and a few novel ideas.
By Kent Kiser
Kent Kiser is associate editor of Scrap Processing and Recycling.
From the outside, Connecticut Metal Industries Inc. is quiet and unassuming. The international scrap aluminum processor and broker's trading office is in Monroe, Conn., a small rustic town in the southwestern comer of the state. The office is tucked away in the back of a quaint New England shopping complex, and a small sign is all that indicates that the firm is located on the second floor above a clothing consignment store.
Inside, however, the scene is different. The seven-person office is abuzz with the sound of phones being dialed and deals being made. Thomas Mele, the firm's president, and William R. Bailey Jr., vice president, share an office, with desks only feet apart, which gives them the chance to discuss trades moment-by-moment. "Three containers in Venezuela," Mele says to his partner. "You want to bid on them?" "Sure," Bailey replies. During another conversation, Mele calls to the traffic manager, "What's the freight from Boston to Chicago?" At another moment, Mele or Bailey might be talking to the plant manager at the company's five-person processing facility in New Jersey.
Welcome to Connecticut Metal's world of aluminum packaging scrap, which encompasses not only beverage cans, but also aluminum aerosol cans, bottle caps, toothpaste tubes, and medical tubes, most of which it purchases from manufacturers as prompt scrap or product rejects. Asked what gives his small, six-year-old company an edge, Mele answers, "We're the independents. We're not constrained by the policies of a larger corporation as to where we can sell, when we can sell, or what we can do, so we have a lot more flexibility than anyone else out there.
Finding a Niche
Connecticut Metal chose to specialize in aluminum packaging scrap for two reasons: First, specialization was the best way to compete. "If we dealt with a variety of traditional scrap materials, we would have had a very difficult time," Mele says. "But we found a market niche that no one was exploiting." Second, Mele and Bailey knew the aluminum scrap trade. Mele had worked for several retail buyback divisions of Reynolds Metals Co. (Richmond, Va.) from 1974 to 1980, after which he established his own processing operations in New Jersey and Connecticut. Bailey had worked as an aluminum trader for two New Jersey firms as well as at a secondary aluminum smelter.
Connecticut Metal handles mainly used aluminum beverage cans--"the shining star of recycling," as Mele calls them. The company buys cans from hundreds of sources, including individuals who visit the public buyback center at its processing facility; municipalities in New Jersey, New York, Massachusetts, and Connecticut that have curbside collection programs; retail buyback trailers in public spaces in New Jersey; and beverage distributors and manufacturers in bottle-bill states such as New York, Massachusetts, and Connecticut. "We get material from many, many more different layers than your average scrap processor," Mele says. "We're a bridge between the scrap community, the environmental community, and the solid waste management community. It's a unique position. " The company also buys cans internationally--from Mexico to Canada and the Caribbean to England--but most Of its material comes from North America, predominantly east of the Mississippi River.
Establishing Quality Suppliers And Consumers
Mele and Bailey have made it their goal to constantly monitor and improve their supply base. For instance, the company's 20 retail buyback trailers in New Jersey, which are usually placed in shopping mail parking lots, have traditionally been a strong source of cans, but they were often a drain on the company. "On a Saturday, we had anywhere from $30,000 to $50,ooo in cash spread an over New Jersey with part-time employees in parking lots,” Mele explains. "Our knees would knock until 1:00 when the drivers started coming in with their cash boxes.”
The company’s first plant manager proposed a new approach: Let the can buyers operate the trailers as their own small businesses. Connecticut Metal would provide trucks, insurance, scales, and seed money. In exchange, the buyers would purchase cans from the public using their own money, and Connecticut Metal would then pay them a wholesale price for the cans. The idea worked. The company immediately got 15 part-time employees off its payroll and reduced its financial worries.
Connecticut metal also augmented its foil business by working with Exalloy Metals Inc. (Mississauga, Ontario), which has developed a process to separate aluminum foil from plastic. The foil comes from manufacturers who make peel-off lids for such products as yogurt and juice containers. "We do a lot of cooperative work with other processors to develop ideas and processes that work for both of us," Mele says.
Developing a supply base is important, but Mele and Bailey put an even greater emphasis on the quality of their sources. "We're very fussy about whose material we'll represent, which is really what we're doing," Mele observes. "We're taking someone's material and representing it to a mill, so we only want to handle quality material. If someone ships us something that isn't up to par, we're not anxious to do business with them again."
On the consuming side, Connecticut Metal sells to "absolutely everybody," Mele asserts, though its consumer base changes each month, depending on where the best price is. "We explore every potential market for cans on the planet," he says. "We'll chase the vaguest of leads down to see if we can find a creditworthy, reasonable mill to ship material to." The company will send material halfway around the world--to Pakistan, for example--if the market merits. As an East Coast firm, however, the bulk of its export and import business is with Europe.
Starting Small, Staying Small
Connecticut Metal began in 1985 as a two-man operation in a loft office that had no air conditioning, which forced Mele and Bailey to go to work in shorts. They had facing desks and one trash can between them, and they typed their own invoices. "We were at the office until 1 1:00 every night, eating potato chips and drinking soda for dinner," Bailey recalls. The company happened to open during the 1985 recession. "It was the worst market I'd ever seen," Mele says, but he believed, "If you make a good package even in a tight market, you'll command a premium for it"--a credo the firm still follows today.
The company managed to double its revenues each year, while also expanding its customer base and increasing its staff, not to mention its office space. Though Mele still considers the trading office "tiny," he proudly points out that the firm will be moving into new quarters this fall, with three times as much space-and separate offices.
Connecticut Metal has employed more than its current 12 people, but it credits improved efficiency with helping it keep its payroll down. "Starting anew company is a real learning process," Mele observes, “and good people are key. As we've gone along, we've gotten good people to stay with us." Mele's 69-year-old father even helps out, serving as the firm's financial controller three days a week. "We're the only company in which the son taught the father the scrap business," Mele jokes. The elder Mele, a retired New York policeman, has also become the resident wizard on the company's Shared Logic computer system.
Can-Do Processing
Connecticut Metal's processing facility, named All-Container Recovery Inc., is located 100 miles away in Piscataway, N.J., on the grounds of Bethlehem Steel's former Buffalo tank complex. The facility sits on 2 1/2 acres and has only 10,000 square feet of covered space, but its small size belies its processing capacity. A steady stream of trucks and retail customers roll onto the lot, and the building reverberates with the clatter of cans being dumped, scooped, conveyed, shredded, and densified. The plant's three hands-on employees can be found stacking densified bales, running the buyback center, or zipping around in one of two Bobcat front-end loaders or a TCM forklift.
The retail buyback is at one end of the facility, next to the cashier's office. A chalkboard indicates that the buyback accepts not only cans but also small quantities of household scrap, including stainless steel, copper, brass, auto radiators, aluminum turnings, and lead. The company maintains a homemade baler and an old alligator shear to process this scrap and bale foil.
Both Mele and Bailey like to spend time at the processing facility, and one of them is there almost every day of the week. Bailey enjoys running the buyback center from time to time to get feedback from the public and find out what market conditions are on the street. He tells stories about some offbeat suppliers, such as the local nuns who drive up in a pickup truck and unload their cans in their habits. Mele says, "It's a part of the business we love, the hands-on aspect. We're real hybrids. We're processors that are brokers more than we're brokers that are processors." By understanding both sides of the business, Mele and Bailey can relate equally well with suppliers and consumers. "AR the problems that they have, we have," Bailey says.
Next to the buyback, the company has a 150-horsepower aluminum shredder. Shredded aluminum carries a 1- to 2-cent premium because it is more furnace-ready than unshredded cans, but the process is electricity-intensive, which erases the premium, Mele notes.
Most material is currently shipped in densified bales, using a CP Manufacturing Inc. densifier. That will change soon. Densified bales used to carry a 1-cent premium, but that premium has disappeared, Mele notes. In response, the company is installing a 20,000-pound-per-hour baling press from C and M Co. The machine will give All-Container Recovery more processing capacity-approximately 180,000 pounds per day-and enable it to process material faster. "The market is leaning toward baling," Mele says. "The majority, if not all, of what we'll be processing will be bales." The baler will be installed next to the densifier, and both will be fed by the same conveyor. The firm plans to discontinue shredding after the new baler arrives, but it will keep the shredder "hooked up" for special orders.
The new baler will also allow the company to start handling steel and bimetal cans, which Mele calls "a major expansion." He considers steel can recycling to be in its infancy, so the company plans to “walk, not run" into the new market. "I think it could be a good business if steel mills get organized and adopt the philosophy that the aluminum smelters have had all along, that recycling is a necessity of doing business," he notes.
Watching All-Container Recovery operate, it's obvious there is no excess fat. Being small has its advantages in increased efficiency, Bailey says In particular, the company's small interior space forces it to process incoming material immediately rather than letting it back up or become 46 comer scrap" that never gets processed and represents negative inventory, he notes.
Paul Reaser, the plant manager, has been with the company almost five years and he, too, likes the company's personal size, especially after being a line worker in a truck assembly plant. “You’re not just a number or a person on the line here," he says. "These guys give me a lot of line." His catchall position includes everything from fixing equipment to monitoring the cash flow to driving tractor trailers. As he says, "I'm everywhere."
Keeping Profits Rolling
Traffic Manager Rick Stoliker knows his mission: "I have to make sure the transportation costs don't eat up the profits.” In just three years with the company, he has managed to get great service and great prices from the firm's trucking contractors, Mele says. Stoliker's secrets? First, he only deals with a few trucking companies, which reduces his administrative headaches and increases the firm's business clout with each firm. Second, he deals with mid-sized trucking companies rather than large ones. "To J.B. Hunt, I'm just a fly," Stoliker says. "But to a mid-sized carrier, Connecticut Metal is an important account, and we get better response and service."
Stoliker is a tough negotiator. His voice booms through the trading office as he barks at truck dispatchers. "Don't tell me any fairy tales," he chastises one. Stoliker has been on both sides of the trucking industry fence: "I used to be with trucking management," he says, "but now I'm the customer." He knows that prompt payment is invaluable to trucking companies, so he uses what he calls Connecticut Metal's exemplary payment record to his advantage. For example, during the fuel price hikes following the invasion of Kuwait, trucking companies began levying fuel surcharges on their customers. Stoliker took a hard line against the charges from the start, and he notes proudly that Connecticut Metal never had to pay any extra charges. He is also adept at getting reduced per-mile rates on certain "lanes," especially on backhaul runs. Since scrap flows counter to the flow of finished goods, Stoliker can find reduced rates on trucks that are returning from deliveries. He deals almost exclusively with trucks rather than rail because, as he says, "the service is just not there with the rails."
After working for several larger companies, Stoliker enjoys being a one-man department and seeing the results of his work. "If I save $20 to $30 on a certain lane, and you multiply that by 20 or 30 movements a year," he says, "you get to see something." He also likes the company's small size. "Here, it's like a small lifeboat. If everybody doesn't grab an oar, you end up not getting anywhere and it's very noticeable."
Monitoring the Market
Mele and Bailey say that Connecticut Metal could easily triple its size, but they have intentionally prevented such expansion, asserting that they are very conservative in terms of growth and do not want to be beholden to an outside source of capital. Mele explains, "We always want to be on a sound financial footing. We've seen a lot of people that just Put growth first and everything else second. We'd rather have money in the bank than new equipment on the floor." Operating the business without debt is a priority. "It comes down to caring about the business and not the numbers," Bailey explains.
The company is cautious, in part, as a result of today's unpredictable legislative climate. Mele is particularly concerned about the possibility of a national bottle bill, which he calls "the scariest piece of legislation for scrap processors. " He saw firsthand how scrap processors-including his company-were taken out of the recycling loop when Connecticut, Massachusetts, and New York passed deposit laws. Connecticut Metal located its processing facility in New Jersey in large part because New Jersey is not a bottle bill state, which means more plentiful can supplies. If a national bottle bill is passed, Mele says, beverage distributors and manufacturers will likely take over the collection and processing of cans, making his processing facility “redundant.”
Instead, Mele is a strong supporter of curbside collection programs, calling them "great opportunities" for scrap processors. When New Jersey implemented its curbside program, for instance, the company's volume quadrupled in 18 months. "A great part of our business is aluminum that's been extracted from the solid waste stream," he notes. Curbside programs expand scrap supplies by tapping into material that scrap processors rarely reached before, Mele asserts, adding that such programs can make it worthwhile for scrap firms to open their own material recovery facilities.
Curbside collection programs have increased the supply of material so much in certain areas that "there is no competition because there's enough for everybody," Mele says. He also notes that such programs provide some "insulation" during recession by guaranteeing reliable supplies that are not price-sensitive. "The source of material is going to change," Mele observes. "A larger and larger percentage of what's collected is going to come off curbside.
Staying With What You Know
After just six years in business, Connecticut Metal is confident enough to advertise itself as "America's leading independent can recycler. " There's no denying that the company found a niche, developed it, and managed to make the market its own. But Mele and Bailey are far from becoming complacent, and they refuse to fall prey to grandiose growth plans. "I don't know whether I'd call us a success," Mele says. "I don't know whether we're there yet. And we're not on a march to the sea to expand and acquire dozens of retail establishments."
So just what are the company's goals? "We prefer to stay with what we know and make further inroads into this market," Mele explains. "Neither of us is too concerned about success. We could both have jobs in a trading house in which we would wear a suit and tie every day, handle millions of dollars, and get a great salary--but it wouldn't be as much fun.” •
Connecticut Metal Industries has established itself as an independent specialist in aluminum packaging scrap. Its secrets? Quality suppliers, efficient processing, conservative growth, and a few novel ideas.