November/December 1993
The business of scrap recycling is worlds different today than in previous decades. This final segment of our 50th anniversary series examines the regulatory and market changes that have brought about this transformation.
BY KENT KISER
Kent Kiser is associate editor of Scrap Processing and Recycling.
Once upon a time, the scrap recycling business, like many other industries, was essentially unregulated. "When I came into the business in 1946," recalls Fred Berman, chairman of Berman Brothers Iron & Metal Co. (Birmingham, Ala.), "the biggest problem was making a buck, not worrying about regulations." Prior to the 1960s, in fact, the industry faced little more than the occasional price and export controls, wage and hour laws, proposals to deter scrap theft, and zoning restrictions. What other "regulations" existed were largely self-imposed—a matter of following one's instincts to do the right thing—or offered as recommended practices by the industry's trade associations.
Today, the fairy tale era of nonregulation is only a sweet memory. As Noah Liff, chairman of Steiner-Liff Iron and Metal Co. (Nashville, Tenn.), states: "Now, government regulations absolutely dominate all aspects of our business." These regulations have changed the face of the scrap business forever and placed increasing burdens on recyclers in terms of paperwork, managerial time, and monetary expenses. While the most dramatic developments have been on the environmental front, other changes have occurred in the areas of labor, safety, and general business management.
Laboring Over Labor Issues
Some of the earliest federal regulations that affected the scrap industry dealt with labor issues. The National Labor Relations Act of 1935 gave workers the right to organize and bargain collectively, and many scrap plant workers were targeted for unionization due to their direct relationship to the steel industry. In addition, the Social Security Act, also passed in 1935, put new financial and accounting demands on employers.
These laws were soon followed in 1938 by the establishment of a national minimum wage—25 cents an hour, which was already a common salary for scrap plant workers to earn. By 1950, the minimum wage had climbed to 75 cents an hour, and today it stands at $4.25, though the majority of scrap plant employees make well beyond that. "We have nobody earning anywhere close to minimum wage," says Arnold Gachman, president of both Gachman Metals & Recycling Co. (Fort Worth, Texas) and the Institute of Scrap Recycling Industries (ISRI) (Washington, D.C.). "Our wages are higher today because they're market-driven."
Throughout the decades, the number of employment regulations facing all industries has mushroomed as workers have demanded higher wages, better benefits, safer working conditions, and broader rights. For evidence of this trend, look no further than the passage of the Occupational Health and Safety Act, the Americans With Disabilities Act, and the Family Leave Act, as well as the formation of the Equal Employment Opportunity Commission and the enforcement of work-related sexual harassment laws. Employee-related issues have become so prevalent—and so time-consuming—in fact, that many scrap firms now employ a dedicated personnel/human resources manager, something that even some of the largest firms didn't have much need for just a decade or so ago.
While regulations have certainly dictated labor changes in the scrap industry, market factors have also played a role. In short, recyclers realized that to be as productive and, thus, competitive as possible, they needed the best employees available. "With the higher rates we're paying for labor these days," noted Berman in a 1968 issue of Scrap Age, "it becomes imperative that we have the best-trained and most-qualified people on our payrolls."
Today, in their efforts to attract and retain the best employees, many recycling firms offer an impressive array of benefits—"things that would have been unheard of when I entered the business in the late 1930s," says Seymour K. Padnos, chairman and chief executive officer of Louis Padnos Iron & Metal Co. (Holland, Mich.). What kind of things? How about profit sharing, paid life and health insurance, pension plans, on-site literacy and computer classes, scholarships for children of employees, monetary production and safety awards, English language courses, uniforms, picnics, and employee lunch rooms and showers. There are also scrap companies that will pay their employees' continuing education expenses if they take courses that will be helpful to the business, firms that reimburse employees who work out at a health club on a regular basis, and plenty of variations on the many themes.
The downside to all of this is that "labor costs have gone through the roof," as one recycler states. These costs, as well as regulatory limitations, in fact, have prompted some companies to seek ways to limit their number of employees through mechanization, reorganized labor forces, and other strategies.
Still, the benefits of treating employees right far outweigh the disadvantages, recyclers have learned. "We have very little turnover, our productivity is high, and our accident rate is low," says Liff, whose firm offers a number of innovative benefits and employee motivation practices. Offering great benefits has also diminished the role of unions in the scrap industry, some claim. "The scrap industry is much less unionized today than in the past," Padnos says. "Management has become more enlightened and we've beaten unions at their own game by giving employees what the unions would ask you to give them."
There's one other element to these labor changes, and it is simply the people-focused nature of most scrap businesses. "I recognize that my business has a professional side and a human side," Gachman says, "so I try to respect every person and give them as much opportunity as possible."
Playing It Safe
Talk with scrap executives today about safety, and they'll say things like "It's an everyday concern" and "It's a constant awareness." In this age of high workers' compensation insurance costs, potential injury lawsuits, machinery-intensive operations, and government regulation, recyclers can't afford not to have safe plants.
In the old days, "there was emphasis but ignorance in the industry regarding safety," says a scrap veteran. "Companies didn't know what to do to be safer." Many pieces of processing equipment had no protective guards, in-plant mobile equipment didn't feature backup beepers, and employees weren't required to wear safety apparel such as hard hats, protective goggles, and ear protection.
As the industry became more mechanized in the 1940s, scrap recyclers saw the need to take more safety precautions. "The more machinery you put to work, the more careful you have to be," Padnos says. By the end of the decade, the industry's trade associations were encouraging recyclers to improve their safety practices and, to this end, sponsored annual "Safety Week" programs and recognized companies with excellent safety records.
Then came the Occupational Safety and Health Act in 1970, which required employers to keep records and submit reports on occupational deaths, injuries, and illnesses, and created the Occupational Safety and Health Administration (OSHA) to oversee the law. "Though ostensibly a paperwork headache foisted upon them by the government," said Scrap Age in 1978, "many scrap processors discovered that such detailed injury record-keeping enabled them to discover a pattern of illnesses or injuries and take steps to prevent recurrences."
Since 1970, safety has become a religion for many in the scrap industry, who have learned that safety has a direct connection to productivity and, thus, profitability. Many companies have implemented elaborate safety/accident-prevention programs to reduce their lost-time injuries, forming safety committees and teams, holding regular safety meetings, drafting company safety manuals, providing safety training programs, requiring employees to wear safety apparel, demanding rigorous plant housekeeping, and offering rewards to employees with the best safety records. "We give employees an incentive to work safely," says Padnos. "We'd rather pay our people than pay premiums to an insurance company."
The results speak for themselves, as many firms can boast going more than a year without a lost-time accident. The main benefits of these efforts—in addition to preventing injuries—is that they boost employee morale and reduce workers' comp costs. The enviable safety record achieved by M. Lipsitz and Co. Inc. (Waco, Texas), for example, enables the company to pay 82 percent less than the state's standard industry rate for workers' comp insurance, and other scrap firms have similar success stories.
In coming years, the industry's emphasis on safety is sure to intensify as government safety standards continue to ratchet tighter. Congress recently increased penalties sevenfold for noncompliance with the federal safety law, not only raising the dollar levels of the penalties, but setting projected revenue goals for OSHA. Attempts are also under way on Capitol Hill to revise the law to include more general safety principles and place additional responsibilities on employers.
Bearing the Environmental Burden
Environmental regulation. To many—even most—in the industry, those two words sum up the biggest threat in recent decades, and perhaps ever. As one executive asserts: "Environmental conditions control our industry."
Things were not always this way, of course. Through the 1950s, the scrap industry had few environmental worries. That began to change in the 1960s, however, as air pollution became an issue, prompting recyclers to curtail their then-commonplace practice of open-burning of insulated wire and auto hulks.
Soon after came the Highway Beautification Act of 1965—also known as Lady Bird Johnson's "War on Ugliness"—which sought to not only get abandoned cars off the streets, but also to spruce up "unsightly" industrial areas—including scrap operations. Recyclers responded by stepping up their car recycling efforts and launching a voluntary "green screen" program in which they erected fences and landscaped around their operations. "Those folks have been wonderfully cooperative," said Lady Bird Johnson at the time. "It's just wonderful the way they're cleaning up the landscape."
By the late 1960s, it was clear that the environmental age was here to stay and that environmental protection would become a highly politicized issue. As I.D. Shapiro, then-president of United Iron & Metal Co. Inc. (Baltimore) noted in a 1968 edition of Scrap Age: "We can no longer be blind to the fact that the public demand for cleaner air, pure water, better cities, and a more beautiful countryside is being heard in our city halls, our state houses, and in the United States Congress. And we are at the center of much of this controversy."
The formation of the Environmental Protection Agency in 1970 marked a milestone in the environmental regulation era, and afterward the federal government passed one environmental law after another—the Clean Air Act in 1970, the Clean Water Act in 1972, the Resource Conservation and Recovery Act (RCRA) in 1976, and the Comprehensive Environmental Response, Compensation, and Liability Act—commonly known as Superfund—in 1980, to name a few. In response to this turning point, in 1971, Calvin Lieberman, then-president of Ace Steel Baling Inc. (Toledo, Ohio), warned his fellow recyclers of this threat in the pages of Scrap Age: "Legislation can put anyone and everyone out of business, and at the very least cost you a tremendous expenditure of financial resources in combatting illogical and improper laws and regulations."
Still, thanks to legislative delays, the scrap industry didn't feel the full effects of these laws until the early to mid-1980s, when it became apparent to many that some of these laws were being interpreted and implemented in ways never intended. Who could have anticipated, for example, that scrap would be considered "waste" under RCRA, or that the Superfund net would be cast so broadly as to hold recyclers liable for "arranging for the treatment or disposal of a hazardous substance"? "It's a nightmare," says Gachman. "Nobody in their wildest dreams could have imagined this. It's gone way beyond the intent of the law."
Today, environmental laws are financially straining scrap companies on two fronts: First, the costs of environmental compliance can be astronomical, with money being spent on environmental consultants, hard-surfacing and roofs for operations, radiation detectors, state-of-the-art baghouses and storm water collection systems, and more. "I'm all for a clean environment," Liff says, "but the reality of the situation is that compliance is a very, very expensive experience. It's to the point where our environmental costs are almost approaching our production costs." Liff estimates, in fact, that Steiner-Liff spends approximately 50 percent of its investment capital and devotes a third of its staff time on regulatory compliance, including environmental matters. "These are investments that don't make you a nickel, and they have little to do with increasing efficiency and productivity," he says. As Berman notes, "You can spend so much time on these things that you hardly have time to look after your business."
Second, some recyclers have had to pay for site remediation or settlements as potentially responsible parties under Superfund. "These laws may put a lot of people out of business, and only the strong will survive," says Tom Salome, president and chief executive officer of M. Lipsitz. Thus far, most recyclers have simply absorbed these expenses, seeing them as a necessary evil of doing business today. Eventually, however, they may have to start passing these costs on to their consumers as other industries have done, Salome suggests.
The threat of liability could also change the way recyclers work with their suppliers, and some scrap executives predict that suppliers may soon choose to work with particular recycled based not so much on price and service as on which firm can guarantee environmentally sound handling of the material.
An unfortunate—and ironic—result of the myriad environmental regulations is their negative impact on the recycling of obsolete scrap. "The more regulations there are, the more counterproductive it is to get material off the street and get it recycled," Liff explains. This is because some recyclers may stop recycling certain materials due to the potential environmental liabilities related to those materials, and because some recyclers may be driven out of business by the high costs of compliance, thus reducing the number of buyers of obsolete material. The irony is that the very regulations that are supposed to protect the environment can add to the problem by discouraging the recycling of certain materials.
In the face of these regulatory challenges, recyclers express mixed feelings about the industry's future. "If idiocy prevails, the government could regulate the industry out of business," says Berman. "You have to watch everything the county, state, and federal governments do to make sure they're not putting scrap processors under impossible restraints."
On the other hand, Gachman says, "Reason and good sense normally prevail, and I think that's what should and could occur in this situation." Or, as Padnos adds philosophically, "This too will moderate, it will become livable, but God forbid you should be one of the examples."
The Art—and Science—of Business Management
To keep pace with these regulatory changes—and remain competitive—scrap executives have had to change their management approaches. While operating a successful recycling firm is surely an art, it has—by necessity—also become more and more of a science, often based on the precepts of total quality management.
In the early 1900s, most scrap businesses were imprecise, seat-of-the-pants, unmechanized operations. Few, if any, recyclers knew their exact costs of operation or had a strategic plan, and even fewer worried about the dynamics of plant layout, quality control, and employee motivation.
In the 1940s, however, as the industry became more machinery-intensive and began handling a larger volume of material, the importance of effective management became clear. In response, the scrap industry's trade associations began offering management training seminars, but it wasn't until the 1960s that recyclers seemed truly awakened to the idea that they could run their businesses using the same advanced management techniques as other industries. To push this trend along, Scrap Age began running a "Scientific Management" column in 1967 aimed at "helping business firms to achieve their maximum profit potential through scientific management."
Over the years, running a top-notch operation has meant modernizing and automating as many functions as possible. At first, the scrap industry had to overcome what one observer called "technertia," defined as a slowness to adopt new technology, but eventually recyclers saw that automation was the catalyst to efficiency, and efficiency was the key to profitability. Scrap processing operations were no longer "junkyards," but, rather, manufacturing plants without a roof.
Since the 1960s, scrap executives have continually refined their management techniques, often borrowing ideas from other industries. The growing use of computers and on-line information services, greater mechanization, and implementation of statistical process controls in processing operations all point to more precise management. Nowadays, in fact, many firms even track the downtime of every major piece of equipment and monitor production every hour on the hour. To keep up with these demands, most recycling firms employ a plant manager who ensures that all operations run smoothly.
While this focus on management techniques certainly has its advantages, there's at least one drawback. "We've taken the romance out of the business," says Gachman. "Work used to be fun, but now everything is so formalized. You've got computers, you have to fill out a million reports, you have to analyze everything before making a commitment, and there are many more rules to abide by."
Considering all of these regulatory and business challenges, one wonders how recyclers manage to operate these days. "Very, very carefully," Liff answers, adding, "The regulations are here and we have no choice but to comply." Indeed, the regulation-free scrap industry of yore is gone forever, so recyclers must adjust to the current demands of the business while also preparing for future challenges. And though the business is no fairy tale any longer, the hope is that the future will nonetheless find recyclers and the entire scrap industry living happily—and prosperously—ever after. •
The business of scrap recycling is worlds different today than in previous decades. This final segment of our 50th anniversary series examines the regulatory and market changes that have brought about this transformation.