January/February 1993
Since its inception, the scrap recycling industry has provided an invaluable service to communities and the economy. Here's a look at how the industry's players have changed over the years and where they're headed.
BY KENT KISER
Kent Kiser is associate editor of Scrap Processing and Recycling.
As the saying goes, change is the only constant in life, and the U.S. scrap recycling industry has certainly seen its share of change since its birth in the late 1800s. In little more than a century, the business has grown from the one-man, shoestring operations of its "junkmen" founders to the multi-million-dollar conglomerates of today's scrap recyclers. As the business has grown, the industry's players—encompassing individuals, recycling companies, and their competitors—have changed along with it.
The origin of the scrap business is drawn straight from the pages of a Horatio Alger rags-to-riches tale. The story begins mainly with Jewish and Italian immigrants—hard-working, frugal, resourceful entrepreneurs fleeing the tyranny in their homelands and seeking to establish a foothold in their adopted country. In those early days of America 's industrial revolution, their feet or a horse and wagon were their transportation, their hands and some rudimentary tools were their equipment, their business was primarily local, and their success depended almost entirely on their ambition and shrewdness.
In addition to scrap metals, they collected a potpourri of secondary materials, including paper, rags, bones, leather, hides, furs, glass, burlap bags, rubber, and more. "Through sheer guts and perseverance, they convinced some consumers that this material called `waste' could actually take the place of much more expensive primary materials," said the late Sidney Danziger, formerly with Alloys & Chemicals Corp. (New York City) and a past president of the National Association of Waste Material Dealers (NAWMD), an ReMA predecessor organization, at a 1968 industry meeting. "For all practical purposes, that was when the secondary materials industry was born.
"As they prospered," Danziger continued, "expanding from the peddler business into small yards and then into much larger yards and warehouses, they improved their methods of sorting and grading, developed mechanized handling operations, constructed laboratories, went into smelting businesses and many other diversified operations. In this way they produced natural resources equivalent to a mine aboveground, and not only strengthened the country in war, but in peace as well."
Over the years, these founders became the proverbial self-made men, and they laid the foundation for the scrap industry's future. "Although the adversities were many, the foresighted dealer realized that the use of scrap metal was growing," wrote Bernard Landau, a consultant with M.S. Kaplan Co. (Chicago) and a past president of the Institute of Scrap Iron and Steel (ISIS), another ReMA predecessor, in Scrap Age in 1976. "While no one could predict that the industry would reach the size it has, many could see the trend."
The People Picture
The legacy of these "original recyclers" is still evident in today's scrap recycling executives, who are often the grandchildren or great grandchildren of the company founder. While retaining the best attributes of their forebears—ingenuity, foresight, perseverance, and commitment—modern recyclers have grown light years ahead in terms of formal education and market know-how. For instance, although some of the early U.S. scrap men may have been educated in the Old Country, most arrived with no formal education and no English skills. "My dad's generation never had the time to go to school," notes A. Victor Rosenfeld, chairman of Calbag Metals Co (Portland, Ore.). "They worked so their kids could go to school."
Today's scrap principals, meanwhile, commonly have college degrees in business, economics, metallurgy, accounting, finance, law, engineering, or other related studies. And they've undertaken these studies not just because the topics interest them, but because to succeed in the scrap business they have to know more and wear more hats than their predecessors. After all, the scrap industry has become a globally competitive business based on instant communication, high-tech processes, and stringent quality and regulatory demands.
These demands have also created a host of new management positions in the scrap industry related to quality assurance, human resources, environmental compliance, safety and training, public relations, legislative monitoring, office management, legal counsel, and more. The addition of these new players has brought about an industry that is more management- and administration-heavy, a trend that seems likely to increase exponentially in years to come as the industry sees more and more rules and competition that require even more on-staff expertise.
As a result of this change, many executives say that they find little time to focus on the bottom line because so much energy must be put into concentrating on just staying in business. Noah Liff, chairman of Steiner-Liff Iron and Metal Co. (Nashville) and an ISIS past president, says that his firm's executives devote approximately 35 percent of their time addressing regulatory compliance and other "nonproductive" issues. "The only thing we get out of these activities is that we get to come to work on Monday," he notes. Sandy Cortopassi, president of Overland Metals Inc. (St. Louis), echoes Liff's comments: "In many instances, today's scrap executives are forced to spend too much time behind a desk and not enough time in the plant seeing what's coming in and going out."
The industry has also become more equipment-heavy over the years, which has boosted the technical demands of plant employees. "Plant workers are much more skilled than they were before," notes Fred Berman, chairman of Berman Brothers Iron & Metal Co. (Birmingham, Ala.) and a past president of ISIS. "They have to know more about machinery and operations." It's not uncommon, for instance, to find plant managers with engineering degrees, and even entry-level plant employees must usually know how to operate a computer, as well as several types of automated processing or handling equipment.
The industry's mechanization trend has also vastly increased the processing capacity of most companies, while, at the same time, reducing the number of plant employees needed to process a ton of scrap. That doesn't mean, however, that scrap companies tend to have fewer employees today than yesterday. As Berman notes, "If you're handling so much more scrap, you need more people."
The Changing Corporate Roster
Looking beyond personal and personnel changes, the scrap industry has also been transformed on the corporate level. The 1940s editions of Scrap Age contain ads of many firms that are still operating today. Some of the names have changed, some companies have added or closed plants, and some have changed their focus to become specialists in a particular type of scrap. What counts, however, is that many of the companies are still ticking.
Then again, these old Scrap Age ads are a memorial to companies that have long since closed. While the scrap business is larger now in terms of tons processed, capital invested, and revenues earned, it is smaller in terms of the number of companies, with hundreds of operations folding or becoming part of larger firms. In 1947's The Story of Scrap, the late Edwin C. Barringer, who served as the executive vice president of ISIS , noted that "there are said to be about 4,500 dealers who ship one or more cars of scrap per month, and about 200,000 persons are gainfully employed in the entire waste material industry." Today, in contrast, ISRI—which represents the majority of the industry—has approximately 1,700 members, including domestic and foreign scrap firms as well as recycling equipment manufacturers. Even allowing for nonmember companies, the industry scarcely has more than 2,500 players today, according to ReMA estimates.
The most substantial losses have been in the number of small scrap operations. In the early days, "there was a small dealer anyplace there were a few stores together," says Lee Hummelstein, chairman of Hummelstein Iron & Metal Co. (Jonesboro, Ark.). That is no longer the case, of course. To track this change, simply look back to ISISmembership records of 1968, which provide a representative picture of the ferrous side of the industry at that time. The records show that virtually all ISIS members—1,146 out of 1,176, or 97 percent—were small firms, and a similar situation seems to have existed at NAWMD, which was primarily comprised of nonferrous and nonmetallic recyclers. Compare that imposing percentage to ReMA's current roster in which small companies—those with annual gross sales of $5 million or less—account for just 62 percent of all members. This reduction can be traced to three factors: attrition, buyouts, and growth of small firms into mid-sized firms.
Meanwhile, mid-sized and large scrap companies continue to represent a larger proportion of the industry's players. While mid-sized firms—those with the equivalent of $5 million to $20 million in annual gross sales in today's market terms—accounted for 1 percent of ISIS's members in 1968, they now claim a 25-percent share of ReMA members. And large companies—those with annual sales of the equivalent of today's $20 million or more—made up only 1 percent of ISIS members in 1968, but account for 13 percent of current ReMA members.
Many industry leaders expect the future to favor large and small scrap businesses rather than mid-sized operations. Why? Because large and small firms are often better able to survive today's wildly volatile markets, fierce competition, and steep regulatory costs. Mid-sized companies must compete against both large and small companies while lacking the financial resources of the former and carrying a heavier operation and compliance burden than the latter. The likely result? Large companies will get larger, mid-sized firms will dwindle, and small dealers will be defined more and more solely as suppliers to the large players. "Recycling operations will either be large and take in everything in the market or they will be very small recycling centers," predicts ReMA President Arnold Gachman, president of Gachman Metals & Recycling Co. ( Fort Worth ,Texas ). "Things will be very tough on the medium-sized operators."
The "Conglomeration" of the Industry
While large, multi-plant scrap companies certainly existed in previous decades, as the figures above demonstrate, they have become more dominant in recent years. Some metallic scrap firms, for example, are now large enough to serve as the exclusive broker/supplier for some mill consumers. These scrap conglomerates draw their material from their own numerous satellite plants, as well as from other independent small and mid-sized scrap companies. Some large companies, in fact, maintain scrap processing and recycling operations on-site at some of their consumers' operations. To wit: Tube City Inc. (Glassport, Pa.) processes scrap at three U.S. Steel mills. On the nonferrous side, OmniSource Corp. (Fort Wayne Ind.) operates an aluminum processing facility at the Nichols-Homeshield rolling mill in Davenport, Iowa. And IMCO Recycling Inc. (Irving, Texas) is building an aluminum recycling facility next to Barmet Aluminum Corp.'s (Akron, Ohio ) rolling mill in Uhrichsville, Ohio.
Another notable development over the years—in the ferrous side of the business, at least—has been the trend away from brokerage-only firms and toward brokers/processors, the latter of which are said to have advantages in the market over the former. As Michael Strauss, formerly executive vice president of WECO Trading Inc. (Lake Bluff, Ill.), observed in a 1976 Scrap Age article: "The brokerage houses that have their own preparation plants, and therefore can control their own scrap, are in a much stronger position to demand a greater share of the business at a steel mill than those that must rely on other people to fill their commitments." The disappearance of such pure ferrous brokers as S.R. Robinson and Max Schlossberg Co. supports Strauss's assertion.
In the paper business, a higher proportion of pure brokers have survived through the decades, though the signs ahead are mixed. One positive in the outlook for paper stock brokers is that some mill consumers are bolstering brokerage firms by signing long-term purchasing contracts for raw material. In addition, many small-scale brokers have emerged in the business. As one industry source observes, "the least capital-intensive way to enter the business is through the brokerage end because you don't need to buy a baler, forklift, or truck." In general, however, paper executives say that large pure paper brokers have lost ground in recent decades. A few integrated forest product companies, in fact, have opted to establish their own internal brokerage divisions. Also, paper sources say, some scrap paper generators require a level of service that pure brokers can't provide.
Yet another development has been the acquisition of many large scrap firms by large foreign corporations whose main interests may or may not lie in scrap recycling. David J. Joseph Co. (Cincinnati) was one of the first to go overseas, selling its operations in the mid-1970s to SHV Holdings N.V. (Utrecht, Holland). In the past decade, this trend has picked up speed, as these examples show: ELG Haniel GmbH (Duisburg, Germany) acquired Steelmet Inc. (McKeesport, Pa.); Simsmetal Pty Ltd. (North Sydney, Australia) claimed LMC Recyclers (Richmond, Calif.); and Attwoods Inc. (London) bought Mindis International (Atlanta). These acquisitions have truly ushered the industry into the world of "megabusiness," as can also be seen in the growing number of scrap giants that are now traded on the "big board"—the New York Stock Exchange.
The independent scrap paper business has been undergoing a similar acquisition trend, though most of it has been domestically based. Waste-hauling corporations—and some paper mills—have been expanding their role and presence by purchasing many of the largest private paper recycling firms. To note two: In 1990, Browning-Ferris Industries (Houston) acquired ACCO International Inc. (Houston), reportedly the Southwest's largest independent collector and processor of scrap paper, while in 1990 Waste Management Inc. (Oak Brook, Ill.) bought Durbin Paper Stock Co. Inc. (Miami).
There are both pros and cons to this trend, scrap executives say. On the one hand, the acquired company can benefit from the financial strength and market position of its parent, which can enable the scrap firm to expand its presence in the business. In addition, being part of an international corporation can give the acquired company more access to and perspective on international market information.On the other hand, some recyclers feel that the "conglomeration" of the industry is making the business more impersonal. "With some customers, I don't know who I'm doing business with anymore," one scrap executive says. "The personal touch is damn near gone."
Will this buyout trend continue? Cortopassi says it's waning because investors have "better places to put their money for a return" and proposed U.S. tax reforms could discourage foreign investment in U.S. companies.
Branching Out
Another development in the industry has been the diversification of scrap companies into related as well as unrelated businesses to gain more stability and remain competitive in the ever-volatile scrap market. These ventures encompass processing new commodities, railcar leasing, new steel sales, aluminum smelting, environmental and management consulting, barge and truck services, foundries, real estate, and more. I. Waxman & Sons Ltd. (Hamilton, Ontario), for instance, has forged a partnership with BFGoodrich Co. (New York City) to recycle vinyl and other usable resins in wire-chopping residue. Meanwhile, Sierra Iron & Metal Co. (Bakersfield, Calif.) established an equipment distribution subsidiary named Sierra International Machinery in 1988. And last year, this subsidiary expanded its scope by forming a joint venture with Consolidated Resources Inc. (Columbia, Md.) to market computer hardware and software for the recycling and waste management industries.
In other instances, Cohen Brothers Inc. (Middletown, Ohio) joined with Agrenu Inc. (Cincinnati) to launch Middletown Composting Co., which produces up to 15,000 tons per year of humus from yard debris, paper mill residues, and food-stream byproducts. Also, Axel Johnson Metals Inc. (Lionville, Pa.) and Titanium Metals Corp. (Denver) have formed Titanium Hearth Technologies, a joint venture dedicated to advancing titanium hearth melting technology. And in one of the more colorful examples, Alter Trading Corp. (Davenport, Iowa) used its expertise in the barge line business to enter the world of riverboat gambling. Alter's offshoot company, named Casino American, leases two 200-foot paddlewheelers and one barge, which offer slot machines, blackjack, roulette—the works.
"If we think we're only going to process scrap materials, we're going to be in trouble," Liff says. "We can't limit our vision to that." Why? "Because today," he explains, "the volumes of scrap are competitive, margins are low, and environmental costs are extremely high, so we can't count on making a living exclusively on scrap. We must go into something else allied to it." Liff knows what he's talking about—Steiner-Liff has operated businesses related to textile fibers and nonwoven felt pads, automotive soundproofing, waste hauling, low-level nuclear waste processing and disposal, battery manufacturing, and new steel sales.
Family Ties
Despite the massive changes in the scrap industry, one proud tradition that persists is the family ownership of many companies—perhaps a higher percentage than in any other industrial business. Many scrap companies, in fact, have been passed from generation to generation for more than 100 years. As Barringer wrote in The Story of Scrap: "The honorable tradition of the scrap industry is exemplified by scores of fine old houses, some of them boasting of a continuous record of business of more than 75 years, which have served their communities well and have achieved and maintained an enviable standing with their fellow citizens—which after all is the acid test."
Nevertheless, the number of family owned scrap companies is dwindling. In some cases, a scrap executive may not have any children or other relatives who can—or want to—take over the company. "Many young people see what their parents and grandparents went through to succeed in this business, and they see a better way to make a living," Hummelstein observes. As a result, many firms have sold out, folded, or passed control to nonfamily professional managers.
Some executives claim, however, that the current generation of scrap descendants is showing a newfound interest in the business. One would think that the imposing environmental and economic challenges facing the industry would dissuade would-be scrap leaders, prompting them to pursue other careers. But as Cortopassi notes, "Being a doctor or a lawyer isn't all that attractive either anymore."
Still, no one denies that the next wave of scrap executives will face serious times. "The current problems are tough and will require very strong management skills to resolve," says Liff. For those who take up the challenge, however, "the success is going to be beyond anybody's wildest dreams," asserts ReMA Executive Director Herschel Cutler. "The way to make it is going to be through change."
The Government/Waste-Hauling Challenge
When asked to identify the "industry" players that have affected the scrap business most in recent years, recycling executives answer in unison, "government and waste haulers." Without a doubt, government has disrupted the scrap business by imposing recycling goals and mandates. These measures have dragged down some scrap markets and opened the door for both municipalities and wastehauling companies to potentially compete in the scrap recycling business.
Thus far, most municipalities and waste companies have focused simply on collecting postconsumer recyclables through curbside programs, processing them at privately or publicly owned material recovery facilities (MRFs). Eventually, however, they could vie for traditional industrial scrap, particularly if flow-control measures are implemented in certain regions. "If we're not careful," Hummelstein warns, "they'll get into all facets of the business." Harvey Alter, manager of the resources policy department at the U.S. Chamber of Commerce (Washington, D.C.), agrees, describing the scenario this way: Municipal officials could eventually find themselves falling short of mandated recycling goals, so they will start counting white goods, spent cars, construction and demolition debris, and scrap asphalt in their list of recycled materials. "Intrustion into the scrap business is the next step after that," Alter asserts. Adding to these comments, Berman says, "You have to watch everything that the county, state, and federal governments do. You have to make sure they're not putting scrap processors under impossible restraints or legislating them out of business."
To counter this possibility, Alter suggests, scrap executives must convince government officials to work with existing private recyclers, and even form partnerships with waste companies. Before dealing with government agencies and waste haulers, however, scrap executives must learn one important lesson: They may need to adapt to a new method of doing business—namely, charging to handle certain recyclable materials rather than paying for them.
Wastehauling corporations—and government recycling goals—have already had a drastic effect on the independent scrap paper industry. It's no news that the vast volumes of old newspapers collected by waste firms through municipal recycling programs have wreaked havoc on the industry's supply-and-demand balance. Bernie Gordon, former owner of Gordon Waste Co. Inc. (Columbia, Pa ), describes the problem this way: "Unlike scrap recyclers, waste haulers are paid to collect paper in government recycling programs, and they also save money by avoiding landfill fees. How can a private paper packer compete against that?" Joe Marcus, retired senior partner of National Fiber Supply Co. (Chicago), notes, "Many waste paper dealers have gone by the wayside because of this `recycling' fantasy. It's a catastrophe, and the dealers that remain are badly hurt by `recycling' programs that bring in more material than can be used."
Complicating matters, some waste haulers have signed agreements or formed ventures directly with paper consumers, bypassing traditional paper packers altogether.
Other scrap executives aren't so worried about waste haulers. "The return on sales in the scrap industry isn't very attractive to waste corporations," Liff remarks. "They're publicly traded companies, and the stock market rewards companies based on consistency of earnings and return on assets. As far as MRFs go, I'm not concerned because there's no profit in doing it. If somebody wants to do it, good luck to them."
That Was Then, This Is Now
When scrap veterans reminisce, they say that the scrap business used to be easier, simpler, more gentlemanly. "From where I sit, the best times were prior to today," Berman asserts. "I couldn't make a living in my office now. I'm not a computer person. I'm more the hammer-and-cold-chisel type." In previous decades, says Nate Muskin, former group vice president for Engelhard Minerals and Chemicals Corp., Philipp Brothers division (New York City), "a man's word was his bond, and everybody held to their verbal contracts despite changes in the market." Today, contracts are de rigueur, but this requirement is only a symptom of how the industry's players have become more competitive. "Sometimes loyalty is sacrificed for shot-term profits," Hummelstein asserts. On the positive side, the business has achieved a stature and level of quality and prosperity that would amaze its founders. As Danziger noted in 1968, "The secondary materials industry has made a journey from a struggling, back-breaking unknown in the early part of the century where today it has become an internationally recognized factor in the business life."
So what do these changes tell us? Foremost, they show that the individuals and companies in the scrap industry are fighters and survivors. Despite the waves of economic, legislative, technological, and regulatory changes that have challenged them in the past century, they've always managed to land on their feet. And in the coming decades, the industry and its players will surely continue to evolve, change, and improve. The future, executives concur, will belong to those companies that produce the highest-quality scrap, satisfy all regulations, operate efficiently, and work from a strong financial foundation.
In the end, Liff says, "the people who have the sophistication of management, the computer skills, the education, the commitment to community, and the environmental responsibility—they will be the eventual winners."
Since its inception, the scrap recycling industry has provided an invaluable service to communities and the economy. Here's a look at how the industry's players have changed over the years and where they're headed.