January/February 2012
Companies that do both scrap processing and demolition find synergies between them and tout the value of diversification, though the two industries’ similarities and differences can cause their own challenges.
By Jim Fowler
It’s easier than ever for demolition companies to sell material directly to consuming mills. Equipped with mobile shears, balers, shredders, and even nonferrous separators, these companies can process scrap with or without a yard. Getting started in demolition might seem equally simple for scrap processors: They’re familiar with many of the materials demolition firms handle, and some major equipment they already own is suited to both tasks. Despite these overlaps, however, few enterprises seem to market themselves as both scrap processors and demolition contractors. “Less than a handful of companies do both on a major scale,” says David Griffin Jr., president of D.H. Griffin Cos. (Greensboro, N.C.). Scrap companies that have ventured into the demolition industry see this diversification as a savvy extension of their recycling business, and they say they’re in it to stay.
A Deliberate Move
Companies often wait decades before making the leap from scrap into demolition or vice versa. Griffin’s demolition operation, reportedly the sixth largest in the world, began in 1959; it opened its first scrapyard in 1974. Cherry Demolition (Houston) began in 1952 and opened its first recycling center in 1992, though the company processes only the scrap that comes from its own demolition projects. Cycle Systems (Roanoke, Va.), founded in 1916, entered the demolition business “in earnest” in the early 1990s, according to Richard Lerner, the company’s commercial vice president. And Sierra Recycling & Demolition (Bakersfield, Calif.) entered demolition in 1996, after nearly 40 years in the scrap business.
Demolition “was a natural evolution for us,” says Philip Sacco, Sierra’s president. “The machinery we use to process steel and nonferrous metals, these are the same tools used in many ways to take down structures,” he explains. “We were already tooled as a heavy equipment contractor, and using special attachments and techniques, we were able to take down above- and below-ground structures.” Similarly, for Cycle Systems, “many of the industrial plants we were servicing needed demolition work involving equipment removal,” Lerner says. “We were there, and it was a logical extension of what we were already doing.”
Ken Graunstadt, owner of Delta Scrap & Salvage (Oakley, Calif.), points out that “a lot of smaller scrapyards are licensed demolition contractors in California because it complements the business we’re in, and the licensing isn’t difficult.” Graunstadt began his career in demolition, left to start his scrap company in the mid-1970s, and later added a demolition division to create volume. At the time he made that decision, “in California, industry went to hell, and I lost my industrial [scrap] customers,” he says, so he started doing demolition “to make a few extra bucks.”
Sacco believes more scrap companies have gone into demolition over the last 30 years. They understand the value of diversification, he says, “and that their equipment can be used outside of the scrapyard to generate additional feedstock for their operations.” As Lerner puts it, “because of the scrap generation, [demolition] is like a feeder yard for us.” Kevin Elnicki also points out the supply advantages: “Scrap is getting harder to find, so we have to discover different sources for our material.” After working in demolition for his father for several years, he founded Earth Waste Systems (Rutland, Vt.), a scrap and demolition company that also specializes in deconstruction. “Instead of tearing a building down, we try to dismantle our projects and get all of the value and use out of [reusable] products, such as brick, wood, and lighting,” he explains.
For other companies, the appeal came from a difference in the two business models: Demolition work is paid on a project basis. A demolition contract will pay the same whether the scrap value goes up or down. Demolition “was a way to diversify … and to smooth out the cyclicality of the scrap business,” explains Brett Muckle, president of AIM Recycling and Demolition (Ashtabula, Ohio). “With the ebbs and flows in the scrap market, we can take our resources when scrap is slow and use them for demolition jobs.” The company, founded as Ashtabula Iron & Metal Co. in 1946, changed its name in 2004 to reflect its broader business and geographic reach.
One company that has just started to test the demolition waters is Cohen Brothers (Middletown, Ohio), which purchased King Wrecking (Cincinnati) in 2007. King’s president, Drew Lammers, stayed with the company after the acquisition, but it was three years before he pursued new demolition contracts. The concern, Lammers says, was how to enter this niche without stepping on the toes of longtime scrap suppliers. Because Cohen Brothers “had a lot of demolition contractors as customers, our initial decision was not to rock the boat,” he says. “However, some demolition contractors in our area are taking their plate and structural right to a mill. They’re bypassing us, and the only material we’re getting is their not-so-good stuff. Since we have the capability to do demolition, we decided to test the waters to get the scrap. … This would guarantee scrap for both our yards and our mill customers.” Right now, “we are selectively bidding certain jobs,” Lammers says. “The jobs we bid have to be beneficial from the scrap end for us to do the demolition.” The concern, he says, “is our relationship with our customers. We have good, solid demolition companies that bring us all of their scrap, but others are going direct [to consumers]. It’s new to us, and we’re still trying to feel our way through it.”
The competitor-or-customer dilemma has been less of a concern for Earth Waste Systems. “The scrap and demolition sides of our business feed off of one another,” Elnicki says. “The bulk of our business is scrap, so if we aren’t competitive or we don’t get a project on the demolition side, we’ll always seek out buying the scrap from the successful contractor. Even though we’re not the successful bidder, we’ll still get a piece of the job. Even though we bid against them, they don’t have a problem selling us their scrap.”
Muckle sees both scrap and demolition as extremely competitive today. “I don’t know if that’s the nature of our industries, but I think we’re all vying for the same piece of the pie. As manufacturing moves and diminishes, it’s tough. It’s a shrinking pie, and we’re all trying to feed our families.”
The Revenue Picture
As might be expected, scrap companies that later added demolition services still get the majority of their revenue from scrap. Demolition has “never been a real major item with us,” says Delta’s Graunstadt, pegging it at “6 to 7 percent of the company’s revenues. It’s just a complement to running our scrap business.” Lerner estimates that 85 percent of Cycle Systems’ revenue comes from scrap, with 15 percent from demolition, though it varies from year to year, and demolition is an important and growing part of the business, he says. At Sierra, the ratio is 80/20 scrap to demolition, Sacco says, and at Earth Waste Systems it’s 75/25, Elnicki says. “Previously it was 50/50, but I believe our sales volume will continue to be more from metal recycling than demolition,” he adds.
The two companies interviewed for this story that began in demolition seem to get most of their revenue on the demolition side. Of Griffin’s 600 employees, only 125 work in the company’s six scrapyards, some of which are partnerships with other scrap companies. Combined, the yards handle 30,000 tons of ferrous a month: half from the company’s demolition work and the other half from industrial accounts and peddlers. The company declined to specify how much of its revenue comes from each.
Cherry Demolition’s primary recycled commodity isn’t metal, it’s aggregate. “We operate five aggregate recycling centers, the main thrust of which is crushing concrete with steel rebar as a byproduct,” says Rick Cherry, the company’s vice president. “The recycling centers generate about 11,000 tons of rebar annually, half of which is shipped direct to mills.” Demolition contracts generate 60 percent of the company’s revenue; the scrap from those demolition jobs generates the remainder. “The demolition side of the business generates 20,000 to 25,000 tons of scrap annually, of which 70 percent is ferrous and the balance stainless and nonferrous,” he says. The company sells roughly 60 to 70 percent of this material through brokers and ships the remainder directly to mills.
Equipment and Workers
In addition to the commodities handled, the obvious overlap between scrap and demolition is in the equipment—and, often, the workers who use it. At Cohen Brothers, “we have every piece of equipment that a demolition contractor has,” Lammers says, “and if we need something special, we’ll either rent it or buy it. Concrete hammers are the only pieces we don’t use in [processing] scrap.” There is substantial overlap in equipment, Griffin acknowledges—naming shear attachments, magnets, grapples, excavators, and material handlers among those both industries use—but he believes a machine used in demolition will wear out two to three times quicker than one used in a scrapyard. “Demolition is harder on the machine and the maintenance is more intense,” he says. And demolition equipment is becoming more specialized, Griffin adds. (Manufacturers might say they’re modifying their products to fit the needs of each industry instead of making a single product for both.) That’s not a problem from Graunstadt’s perspective, however. “Specialized equipment is not required for what we do” in demolition, he says. “We’re not that aggressive in getting demolition work—we pick the jobs to fit what we have rather than changing to fit the marketplace. We only use the equipment we have for the scrapyard” in demolition work.
As for workers, each scrap company interviewed for this article says it cross-trains its employees to work in both scrap and demolition. “A lot of the skills are identical,” Muckle says. “Our employees love the change of pace from one to the other.” Graunstadt’s experience is the same: His scrapyard workers “love to go” on demolition jobs “because they get out of the yard,” he says. By cross-training workers, when one division is slow the company can move them to the other, Sacco says. “The ability to interchange your resources is absolutely essential and an advantage when you’re an integrated company.” Sierra has diversified beyond demolition into other heavy-equipment work such as oil-field services, soil compaction, well abandonment, road building, and soil erosion control, he points out. “Our farm system is basically the scrapyard. Employees move up from there to the contracting division.”
D.H. Griffin also cross-trains its workers, but it has a separate staff dedicated to each division, with little crossover. The scrapyard workers “occasionally go out and help on demolition jobs, but most of the time we try to keep our demolition guys doing demolition and our scrap guys doing scrap,” Griffin says. Even though, he adds parenthetically, “a lot of demolition jobs are scrap jobs.” The company’s safety training is the same for scrap and demolition, however. “No matter what our employees are doing,” Griffin stresses, “our safety policies govern everything, even though some of the scrapyard operations don’t have nearly the complexity of a demolition project.” For demolition, safety training “is ongoing and a big expense,” points out Jay Brenner, Cycle Systems’ CEO. “Expect to devote two days a month for employee safety training” in that field, he says.
The biggest challenge in a company that does both activities is having the right personnel, Brenner says. “The management and supervisory personnel in scrap and demolition have to have different mindsets.” Further, “they each have different skill sets, particularly in dealing with customers. The demolition business is very customer-oriented,” he says. “For example, when we’re tearing out a production line while the [demolition customer’s] plant continues to operate, we have to make sure we have the right people on the job to communicate with the customer to keep things running smoothly.”
Proceed With Caution
Overlapping material streams, common equipment, and workers that easily can do both ... a scrap company looking to diversify might easily decide demolition lies in its future. But not so fast, say these companies. Demolition shares some of the challenges of scrap processing and has some other, unique ones. Cherry says he sees more scrap companies getting into demolition because they’re chasing the scrap, but “not a lot of scrap companies are successful at demolition because of the complications. We see a lot of comers and goers—more goers.” Griffin concurs. “Right now the demolition business is as tough as it’s ever been, and the risk factor is as high as it’s ever been.”
What are those complications? “If you’re a scrap company trying to enter the demolition business, you have to be aware of the environmental concerns—hazardous wastes such as asbestos and PCBs—all the things for which you must be properly trained, certified, and licensed to handle and transport,” Griffin says. “Most scrapyards today have signs at their front gates with a laundry list of items they don’t take,” he points out. “It’s usually 25 different things. Well, there’s a chance that 15 of those 25 things are in a demolition project. When I put my scrap hat on, [I can say] we don’t handle those items, and we don’t want to handle them. It’s someone else’s issue. …. However, when I put my demolition hat on, I can’t go to an owner and say, ‘Hey, when you make all this stuff disappear, I’m interested in talking to you about tearing your building down.’” D.H. Griffin has “more than 150 employees trained in asbestos and hazardous waste removal” to address those issues, he says.
With the differences between the demolition and scrap business models, “it’s absolutely a challenge to do both,” Sierra’s Sacco says. “The nature of the scrap business is pounds and tons. The nature of the contracting business is cost per hour and utilization of knowledge as to how to handle material based on either its cubic density volumes or [weight]. It’s a challenge because you must seek revenue for your services.”
Even with that difference, one commonality—the scrap—means a market downturn can affect both. “With the value of scrap, and the way prices can swing, you can really get hurt on a job if the market moves away from you,” Griffin says. He gives this example: “[You get] a demolition job in June, with scrap at $400 a ton, but when you get to tear it down in December, the price has fallen to $200 a ton. The toughest thing for us on the demolition side is that burden. On the scrap side, [we’re] buying every day, so if copper drops 20 cents today, we can change the price at our scale tomorrow morning. But if you have 200,000 pounds of copper in a plant you’re getting ready to take down, and the price of copper was $4 a pound when you bid the job, and then it drops—well, right now, the demolition business is not for the faint of heart. In major jobs, a demolition contractor can have million-dollar swings in a month. … Our average job is three to four months, and we’re on numerous projects now that will take a year and involve anywhere from 10,000 to 40,000 tons of scrap.” What makes it work for his company, Griffin says, is scale. “Moving the tonnage that we do on both sides of the business has helped us develop additional relationships with mills and buyers that probably wouldn’t have happened if we were just a demolition contractor.”
Others have taken the opposite approach: They keep demolition a small part of the business. Graunstadt says his typical demolition job is five days or less, for example, and ideally it involves scrap recovery. Delta’s demolition division generates less than 1,000 tons of scrap a year, while the scrap business handles 10,000 to 11,000 tons of ferrous and nonferrous in that time period. “We’re more service-driven than market-driven and, by design, our demolition business has stayed pretty even,” he says. “We don’t push it really hard. We treat demolition as a lurking opportunist.”
For Lammers, “efficiency is the key to success in scrap and demolition. You can’t double- and triple-handle material in the yard or on the job site. Your operators have to be experienced in bringing a structure down and separating the material correctly.” But for AIM’s Muckle, success comes from service. “We’re selling our company, our personnel, and our capabilities—that’s the same for both industries,” he says. “We’ve marketed ourselves as a one-stop shop. We handle the scrap end of the business for numerous industrial accounts, and being able to offer them either a selective or complete demolition capability allows us to be a smarter choice for those customers.” Cycle Systems’ approach is similar. “We’re a quiet company when it comes to these services,” Brenner says. “It’s one of many different variants of our business. You have to expand these days to assist your customers in whatever their needs are.” Demolition is just another way to serve them, he says.
Jim Fowler is retired publisher and editorial director of Scrap.
Companies that do both scrap processing and demolition find synergies between them and tout the value of diversification, though the two industries’ similarities and differences can cause their own challenges.