Gateway to a New Era: 1998 Convention Coverage

May/June 1998

Take 3,400 people. Add 100,000 square feet of exhibition space, encompassing 157 exhibitors and equipment displays. Include a historic election of national officers. Put it all in the Moscone Center in the heart of San Francisco. And what have you got?

ISRI’s 11th annual convention and exposition, held March 17-21.

The grand event made history by not only being ISRI’s largest convention ever, but also by marking the election of its first woman president, Shelley E. Padnos of Louis Padnos Iron & Metal Co. (Holland, Mich.).

Padnos said that her first objective will be to build a team out of the association’s new officers, which include veteran national officer First Vice President Sam Hummelstein of Hummelstein Iron & Metal Inc. (Jonesboro, Ark.) and first-time national officers Second Vice President Charles “Cricket” Williams of Charles Williams & Son Inc. (Richmond, Va.) and Secretary/Treasurer Joel Denbo of Denbo Iron & Metal Co. Inc. (Decatur, Ala.).

Padnos stressed that her priority will be keeping ReMA relevant throughout the scrap recycling industry’s current and future changes. Her administration will center on the theme “Power Through Professionalism,” which encourages scrap recyclers to view themselves and behave as professionals, respect themselves and others in the industry, and treat themselves and others with civility. “We need to be recognized for our competency, integrity, and marketplace leadership,” she said.

In addition to addressing external challenges such as Superfund, Padnos also plans to make internal changes within ISRI, including reorganizing its committee structure, creating different membership categories, devoting more energy to membership retention and recruitment, modifying its dues structure to reflect the consolidating industry, and more.

An ambitious agenda, to be sure. But Padnos said she’s “energized by the challenges” ahead.

Aside from the historic officer election, the ReMA convention boasted a handful of other firsts: the first convention to be held in a convention center, the first time the hospitality area was held primarily in the exhibition hall, and the first time members had a central location in which to socialize every evening.

What wasn’t a first, however, was the convention’s informative lineup of general sessions, workshops, commodity spotlights, and spouse programs. In case you missed an event, or if you just want to refresh your memory, here’s coverage of the convention’s major meetings.

What’s Up—and Down—in Commodities?

Conventiongoers involved in every major commodity category had their pick of spotlights that presented expert views on the ferrous, nonferrous, and nonmetallic markets.

Aluminum Rides the Automotive Market. “Over the past 25 years, recycled aluminum has become a very important part of the overall industry because of the benefits it provides in comparison to production of primary metal,” said Richard L. Kerr, president and COO of Imco Recycling Inc. (Irving, Texas), at the spotlight on aluminum.

From 1972 to 1996, recycled aluminum production tripled from 1 million to 3.3 million tons, and its share of the industry has jumped from 20 to 35 percent, Kerr said. Likewise, aluminum’s markets have grown, with both the transportation and the container and packaging markets more than doubling in the last two decades to make up 28 and 23 percent of the total market, respectively.

Looking more closely at the car and truck market, Kerr noted that the amount of aluminum in a typical North American vehicle has increased from about 80 pounds in 1986 to an average of 252 pounds. And that trend is likely to continue, with estimates predicting that by 2001 the average in each vehicle will reach 350 pounds, he said. The good news for recyclers, Kerr pointed out, is that about 65 percent of the aluminum used in autos is recycled metal, and he expects that share to increase steadily as more scrap aluminum becomes available. “The automobile is the UBC of the future,” he said.

Kerr also reviewed several trends in the aluminum recycling industry: Integrated producers are now using greater amounts and a wider variety of aluminum scrap than before, and this will likely continue. They’re also making greater use of toll processors through alliances and the like to gain access to additional scrap, he said. Nonintegrated manufacturers and producers of specification ingot are likewise using more and varied scrap, Kerr added. Along with this growth is an emphasis on product quality, he said, adding that “customers are asking recyclers to provide more and better metal.” Accordingly, he said, ISO 9000 registration will become more common and more desired.

The aluminum industry faces several challenges despite its vigor, Kerr noted, including improving cost-effectiveness, reducing salt-cake disposal, and maintaining a competitive edge against PET and other materials.

Lloyd O’Carroll of Scott & Stringfellow Inc. (Richmond, Va.) offered a whirlwind tour of aluminum markets around the globe. “The worst is past in Asia, but the market will be flat for a few months more and then better,” he said, stating that Japan, while in recession now, won’t be in the third quarter of 1998. Korea, he said, has bottomed out and partially rebounded. Indonesia, meanwhile, is a “powder keg that could blow at any time,” said O’Carroll, “but it’s not a huge consumer of aluminum so it doesn’t really matter.” The strongest economic growth in the world is in Europe, he said.

Aluminum castings, mostly for cars, are up considerably, O’Carroll reported, echoing Kerr by saying that “auto castings will drive industry growth. There are many new applications, and this is where big growth is for the aluminum industry.” O’Carroll also said that aluminum’s use in automobiles will increase in Asia and Germany. “This is a global phenomenon,” he stated.

The second-largest market for aluminum is cans, O’Carroll said, noting that since beer consumption is down, beer can recovery has gone down, although the recovery rate for soft drink cans is higher. To battle competition from PET and other containers, aluminum can makers will respond by offering new designs and reducing the amount of metal in each can, he said, adding that aluminum beverage cans will become more widespread around the world.

Sunny Outlook for Ferrous. Ferrous scrap processors and U.S. steelmakers can both look forward to a bright future, predicted John Correnti, vice chairman, president, and CEO of Nucor Corp. (Charlotte, N.C.). By 2000, he noted, half of all steel made in the United States will likely be made in electric-arc furnaces—which are mostly scrap-fed—up roughly 20 percent from 20 years ago. Dismissing predictions of a coming worldwide shortage in steel scrap, Correnti said there are reports of slag piles in the former Soviet Union that stretch 10 miles long by a mile wide, and are 25 percent metallics. If the price of scrap gets high enough, American processors could mine those slag piles, he suggested.

Noting that Nucor’s eight minimills expect to purchase 11 million-plus tons of scrap this year, Correnti emphasized the need for trust between scrap processors and consumers, suggesting that both sides need to be able to depend on each other. “Your word is your bond,” he said, urging processors to neither underspeculate nor overspeculate on the tonnage or grade of what they ship and to be conscientious about shipping on time.

In return, the mills need to unload scrap quickly when it arrives. “The inventory shouldn’t be kept in a railcar,” he said, adding that he blames much of the recent trouble with railroads on the steel industry not turning around railcars fast enough.

Scrap quality must also be improved constantly, Correnti said, pointing out that scrap purchasers at each Nucor plant know which processors send them scrap with the lowest residuals—and they’re willing to pay “a little better price” for that kind of quality. Conversely, he predicted that scrap complements such as DRI and HBI could triple in usage in the next 10 years.

Radioactivity is also a major concern, he stressed, noting that each Nucor mill is equipped with five to 10 radiation detection devices. But the fault for radiation problems in scrap lies with the federal government, especially the Nuclear Regulatory Commission, which has lost track of more than 2,000 radioactive devices, Correnti said.

The ferrous spotlight also focused on steel capacity and consumption issues, with Jordan Estra, managing director of BT Alex. Brown Inc. (New York City), discussing the problem of global overcapacity in steel production and exports. Although Estra predicted that steel consumption will eventually surpass capacity, he warned that the current problems in Asia—which accounts for roughly half the world’s steel consumption—will have negative repercussions in the global steel market. “There are consumer markets growing for steel products in Asia,” Estra reported, but first the region must get through the “temporary setback” in its economies.

Adding that the U.S. dollar is currently “too strong for our own good” as far as U.S. exports are concerned, Estra also offered some good news: “The price of scrap has a better track record than steel,” thanks to the growth of scrap-fed electric-arc furnaces. Although some sources have predicted a coming “collapse” in scrap prices, Estra disputed that forecast. Instead, he noted, the traditional spring and summer slowdowns in scrap pricing might even be avoided this year because of the relatively mild winter, which left many consumers with extra scrap during that period. Thus, ferrous scrap prices may have already experienced their seasonal slump.

Copper Turns Bearish. The forecast for the red metal is iffy, noted Leanne Baker, director of equity research for Salomon Smith Barney (San Francisco), stating that the question today is: “Is there a risk that the market will return to the dismal multiyear recession of the ’80s?”

Though copper prices have decreased to levels not seen since 1993, the third quarter of 1997 “finally showed capacity moving north in a fairly significant way,” she said. At the end of the year, the Western World supply-demand balance was in oversupply by 200,000 mt, she reported.

Several factors will determine whether capacity continues to climb or drops to dangerously low levels. Supply considerations are multifaceted and range from already-announced cutbacks from BHP’s Pinto Valley and Escondida Coloso plants—more than 200,000 mt thus far—to continued supply as new projects gear up. Said Baker, “more than anything else, the light at the end of the tunnel is that major projects are being deferred.”

Though consumption is projected to grow 2.5 percent in 1998, Western World supply is expected to grow faster at 4.3 percent, which could create a surplus of 410,000 mt, Baker said. As such, she sees prices at 80 cents a pound this year and up to 85 cents next year. But the key issue as seen by analysts is whether the recent Asian financial crisis will spread problems to the United States and Europe, where for the past decade more than 60 percent of demand-growth has emanated.

There to address that issue was Gu Liangmin, deputy general manager of China National Nonferrous Metals Import & Export Corp. (CNIEC) (Beijing). China, he noted, is one of the world’s largest consumers of copper scrap because it has a shortage of raw material. As a result, it had to import about 797,000 mt of copper scrap last year to meet its production needs. The vast majority of this scrap came from the United States, Japan, Russia, and Western Europe, with No. 2 being the largest grade purchased. For imports of low-grade copper scrap, Japan is China’s largest source, for its product comes mixed with other materials of value to China.

While China’s copper smelting capability is comparatively low, its virgin refining capability is high—thus, refiners must purchase more scrap and blister to fill the gap between their production capacity of 1.4 million mt and the domestic copper scrap supply of 300,000 mt, Liangmin said.

China’s heavy reliance on imported copper resulted in radioactive material slipping through, causing China to set strict regulations on all scrap imports, including one mandating all imported scrap to be inspected at the source to ensure that no waste has been mixed in, Liangmin noted. While larger corporations have been able to cope with these stricter regulations, the costs have put some smaller firms out of business.

What’s Ahead for Lead? The lead-acid battery industry is going through a volatile period, reported Thomas Parker, metal purchases manager at Exide Corp. (Reading, Pa.). In 1997, replacement battery sales fell more than 5 percent from 1996’s less-than-stellar figures. Meanwhile, Western World lead production (including imports) exceeded consumption by about 53,000 mt last year, Parker said, a figure that should pass 200,000 mt this year.

Lead prices on the LME continued their decline, dropping below 25 cents a pound in early 1998. Other signs of an industry in turmoil included General Motors Corp.’s plans to close its Delphi battery plant in Muncie, Ind., and the recent announcement that GNB Technologies Inc. (Atlanta) is up for sale.

At the same time, the supply of scrap batteries has been tight and expensive, Parker noted, with scrap battery exports to Mexico and Canada contributing to a 1997 decrease in scrap battery availability of about 45,000 mt.

That tightness in the scrap battery market has held lead smelters to just 80- to 85-percent of capacity, said David Cook, marketing consultant for Lake Engineering Inc. (Dumont, N.J.). Nonetheless, he described the U.S. lead recycling industry as “stronger and healthier than at any point in the last 25 or 30 years.”

Overall, he predicted that lead production in the West will increase more than 450,000 mt by 2002, with lead recycling accounting for some 60 percent of that increase. Consumption should rise approximately 500,000 mt in the same period. LME lead prices will “soften” for the next two years before rising to an average above 30 cents a pound five years from now, Cook said, with increased consumption heading the market toward a deficit early in the next century.

Thinking About Zinc. Zinc experienced a true roller-coaster ride in 1997, with spot prices on the LME climbing from roughly 45 cents a pound in January to nearly 80 cents in July before receding to approximately 45 cents by March 1998, explained Daniel Smith, senior metals consultant with Metal Bulletin Research (London).

But while “this volatility has left many in the zinc market confused,” Smith said, there are reasons to be optimistic. For one, he discounted dire predictions about the Asian economic crisis seriously hurting zinc consumption. Yes, Indonesia, South Korea, and Thailand are in trouble, he conceded, but forecasts from the World Bank and other sources project that the GDP for all of Asia (excluding Japan) will rise 2.9 percent this year—compared with 2.6 percent projected for the industrialized world—and 6 percent in 1999, Smith said. Moreover, China’s demand for zinc will remain “robust” while its zinc exports “will be much lower than generally expected,” he said. In fact, Chinese exports should fall to roughly 370,000 mt by 1999—a 30-percent drop from 1997.

Metal Bulletin Research is predicting deficits in the zinc market for 1998 and 1999, leading to a rally in zinc prices by the second half of this year. Prices should exceed 60 cents a pound this year, with spot prices reaching 65 cents in 1999, Smith said.

In the world of galvanized steel—zinc’s largest market—demand for zinc-coated steel sheet is up from 3 million tons in 1960 to as much as 18 million tons today when zinc alloys are included, noted Glenn Kidd, market research manager for sheet products at U.S. Steel Group (Pittsburgh).

But scrap processors won’t automatically see a corresponding increase in scrap from such galvanized steel products, Kidd warned. That’s because many products using galvanized steel—such as automobiles—are lasting longer. 

Likewise, growth areas for galvanized steel, such as appliances, have an irregular recycling history. Some people are still using 35-year-old refrigerators, for instance, while newer models have already entered the scrap stream, Kidd explained. In addition, although the amount of galvanized steel used in residential housing is projected to reach 900,000 tons by 2000—up from 170,000 tons as recently as 1995—the construction of steel-framed houses doesn’t generate much scrap, while the actual houses can last 50 years or longer, he noted.

Nickel, Stainless Face Uncertainties. First, the good news. “Stainless steel is the fastest growing major metal product,” and the trend is expected to continue, which is “a positive sign for suppliers to the industry,” said Christopher Plummer, managing director of Feronomics Inc. (West Chester, Pa.).

Now the bad news. Stainless steel has experienced a significant price drop in recent years, falling 25 percent from 1995 highs, Plummer noted. Last year brought some signs of recovery, but severe price problems persist in the U.S. market due to increased imports—driven by world supply-demand imbalances and drawn by higher U.S. prices—and the expected addition of new melting capacity, he said.

“The stainless industry is in flux,” Plummer continued, pointing to its good growth and strong demand but also to its depressed prices and profits. The outlook for price recovery is further complicated by surging new capacity around the world, he noted, saying that the stainless industry suffers from an “economy-of-scale dilemma” in its production facilities. Today’s new high-production plants represent 5 to 7 percent of total world production, so when a new plant opens it affects other producers considerably. 

To complicate matters further, existing stainless producers haven’t cut back production in the past two years to compensate for increased supply.

In the long term, Plummer said he expects the lower pricing trend to continue, adding that stainless producers may consolidate or develop partnerships and alliances to defend against new producers and will have to cut costs.

For the scrap industry, these trends are positive, he asserted, in that “increased production volume and lower sustained prices should increase demand for stainless steel products, and that’s good for stainless scrap.”

As for nickel, Jim Lennon, a commodities analyst with Macquarie Bank Group (London), stated, “I’ve been following the nickel market for 15 years and can say that there haven’t ever been more uncertainties in the market as there are now.” Among the factors contributing to the uncertainty are new production, an increase of Russian nickel exports, and the Asian financial crisis.

That said, Lennon described nickel as the fastest growing base metal, adding that he expects demand to continue to grow. China will play an important role in that growth, he said, noting that China accounted for 24 percent of the growth in stainless steel imports from 1990 to 1996 and that China and Japan currently consume 45 percent of the world’s stainless steel.

In terms of price, nickel could rally this year to the $3-to $3.50-a-pound range by the end of the year, or it could drop to $2 if a surplus develops, Lennon said.

As for the stainless steel scrap market, Lennon’s view is that there will be no shortage of material, with the Commonwealth of Independent States increasing scrap exports and material held in the hopes of higher prices now hitting the market.

Scrap Paper and the Asian Tigers. The financial crisis in Asia and subsequent currency devaluations have led papermakers in the region to reduce their imports of scrap paper, noted Glenn Womble, vice president of sales for Paper Recycling International (Seattle), and George Chen, president of G&T Trading International Corp. (River Vale, N.J.).

Offering a look at major Southeast Asian countries, Womble noted that Indonesia—the largest importer of scrap paper in the region—purchased 1.2 million mt in 1996, though it could buy 2 million mt in a strong market. Indonesia has been buying most of its fiber from Asian suppliers to feed its mills, which are running at about 50-percent capacity, or 2.5 million to 3 million mt.

Thailand—the second largest Southeast Asian importer of secondary fiber—purchased 500,000 to 600,000 mt in 1996, while the Philippines—the third largest importer—bought 120,000 mt in 1996 to meet its annual papermaking capacity of 700,000 mt, Womble said.

Despite the decreases in scrap paper imports, “these are resilient marketplaces and they will be back,” Womble maintained. For starters, the per capita use of paper in Southeast Asia is low compared with Western nations. As this usage increases in these countries, so will their need for secondary fiber. Also, the current financial crisis won’t last forever. While there won’t be any near-term price increases for U.S. and European exporters, Southeast Asian mills “will have an impact on our market again—but let’s hope it’s sooner rather than later,” Womble said.

Turning the spotlight on Taiwan, Chen noted that it hasn’t suffered as much from the Asian financial crisis as other countries, though it has still seen its currency lose value, its domestic market slow down, and many paper mills lose money and be acquired. This situation caused Taiwan to import about a third less scrap paper from the United States and 17 percent less from Europe in 1997 compared with 1996, Chen said.

Offering some numbers on Taiwan’s paper market, Chen noted that the country imported 1,305,575 mt of secondary fiber in 1997, with 791,607 mt coming from the United States, 357,766 mt from Europe, and 140,945 mt from Japan. Combined with its domestic recovery of 2,594,000 mt and in-mill recycling, Taiwan consumed a total of 4,250,000 mt of scrap in the production of 4,337,000 mt of paper and paperboard in 1997, Chen reported.

Marketing Nontraditional Materials. As Elizabeth Olenbush, principal of EOAssociates (Holbrook, N.Y.), put it, “the scrap industry knows how to make a dollar from what the rest of society sees as waste.” This know-how can be used to extend a company past its traditional markets into some unconventional ones such as scrap tires, stretch wrap, and used motor oil.

On the topic of used tires, Michael Blumenthal, executive director of the Scrap Tire Management Council (Washington, D.C.), reported that of the 266 million scrap tires generated in the United States last year, 75 percent had markets.

Three of the most promising markets, he said, are ground rubber, civil engineering uses, and tire-derived fuel (TDF). Last year, more than 12.5 million scrap tires were incorporated as ground rubber in modified asphalt. Other related uses for the product are athletic surfaces, new tire production, and bound products. Scrap tires have also made headway in civil engineering projects in lieu of sand or aggregate.

TDF, used to power a variety of boilers, is the largest potential growth market, said Blumenthal, noting that the fuel provides 25 percent more heat value than coal without the negative byproducts. More than 83 facilities nationwide use TDF regularly, while another 80 are in the process of testing it as a potential fuel. Blumenthal said figures predict the combined fuel market segment will eventually total 250 million scrap tires annually.

Plastic stretch film used to wrap pallets for transport is another nontraditional scrap material. According to Mike Vatuna, metals director for Trex Co. L.L.C. (Winchester, Va.), scrap companies should see recycling this product as a financial opportunity for several reasons. One is its relative price stability in the past two years, with predictions calling for it to remain steady. Second, the material is easily collected—any company that ships or receives products on pallets will have a ready supply. “You can pick it up when you pick up or leave other products,” he said. Finally, it has a market—from decks to playgrounds to the stairs at Mt. Rushmore. The material is “worth looking into because it gives you another leg to stand on and gives you a leg up on your competition,” Vatuna said.

When it comes to used oil, “every year we landfill one to one and a half Valdez oil spills,” said Bob Henderson, vice president of sales for Procycle Oil & Metals Inc. (Springtown, Texas). “Wherever there’s oil, there will be oily wastes and absorbents. Each year millions of pounds are landfilled.”

The best way to get involved in recycling some of this material, he said, is to create a joint venture with a company already familiar with the process and market outlets. That can help you reduce processing costs and ensure that you’re in compliance with state and federal regulations.

Managing in Changing Times

It’s not easy managing a scrap recycling company in these times of rampant consolidation, rising quality expectations, regulatory and legislative challenges, and tight labor conditions. A handful of convention workshops offered advice on what’s in store in these areas and how to manage in the face of them.

Consolidation—More Than a Trend. The scrap industry’s massive consolidation “will continue and there’s nothing that can stop it,” asserted Paul Higbee, managing director of BT Alex. Brown Inc. (New York City).

Last year saw $1.1 billion in acquisitions in the scrap industry from which new leaders emerged. According to Higbee, the top-five largest scrap companies are now Philip Services Corp., Metal Management Inc., Schnitzer Steel Industries Inc., OmniSource Corp., and Commercial Metals Co., which collectively control more than 25 percent of the ferrous scrap industry. “I expect in the next several years that the top companies will control more than half of the industry’s ferrous scrap,” he added.

As for how long the trend will continue, Higbee said, “I think we’re still in the first half of the game,” predicting an equal amount of activity in the future—and another big year for acquisitions in 1998.

Finding and Keeping Good Employees. With low unemployment, early retirement for older workers, and the baby bust that followed the post-World War II baby boom, employers are having a hard time finding and keeping good employees, reported Robert Heneman, associate professor of management and human resources at Ohio State University (Columbus, Ohio).

So what can employers do to recruit quality employees beyond hanging out a “Help Wanted” sign or placing an ad in the local newspaper?

Try offering bonuses to existing employees who refer job candidates, but make sure the bonus is paid only if the person is hired and stays a set period of time, Heneman said. Signing bonuses are also a good incentive to attract new hires.

There are many nontraditional recruitment sources to consider, such as private industry councils, church-based networks for the homeless and unemployed, and government agencies. Once the job candidate is at your worksite, offer him or her a so-called Realistic Job Preview that presents a balanced view of the conditions and challenges of the position, Heneman said. Although such previews might scare off some potential employees, those who remain interested usually end up “more satisfied and less likely to leave.”

Job dissatisfaction and better opportunities elsewhere are the leading reasons why employees leave their jobs, Heneman noted. But he stressed that employees often consider leaving for anywhere from three weeks to three months before actually seeking a new job—which leaves you at least a chance to persuade them to stay. Good ways to retain employees include offering them greater variety in their work and more involvement over certain workplace decisions, mentoring them in their careers, and providing greater recognition for their achievements, Heneman noted.

Talking Transportation. Scrap shipment by rail, truck, and barge was explored by four speakers in a session titled “Scrap Transport—Looking Ahead.” David Bertram, managing director of metals service design for CSXT (Jacksonville, Fla.), offered a look back at how the rail industry responded to declining steel production in the late 1970s and 1980s and how it has responded to increased steel production this decade.

In the early 1980s, Bertram said, the railroad industry built a lot of gondolas and by doing so demonstrated its commitment to invest in the steel industry. In the 1980s, however, the steel industry was in a decline and while there was an increase in the gondola fleet, there was a decrease in demand for them. By 1991, he said, the gondola fleet had declined considerably as old cars were retired and the railroads spent less on repair.

In the early 1990s, Bertram said, the steel industry came back strong. “After 15 years of a fleet surplus,” he explained, “the rail industry was slow to react to changes and adopted a wait-and-see approach” before taking action to alleviate the shortage of railcars. In the last few years, “we became more bullish about the scrap industry” and decided to make a commitment to the scrap industry’s needs, he said.

Today, while the gondola fleet has declined, the carrying capacity of new gondolas has increased, he said, adding that this year he expects more than 2,500 new railcars will be built and 1,400 will be repaired. “This is good news for the scrap industry and the railroad industry,” he said, adding that “if we all continue working together as partners rather than adversaries, then we will succeed.”

Another approach to gondola needs was addressed by Richard Murphy, vice president of sales and marketing for Southern Illinois Railcar Co. (Troy, Ill.), who covered gondola leasing. “Some scrap processors are satisfied with service from railroads, but leasing offers another option for those that aren’t getting the best service,” he said. In his view, there will continue to be a shortage of railcars this year as long as the scrap industry stays strong and that “it’s worth it to consider your options” and look into railcar leasing.

Among the advantages of leasing, he pointed out, is the flexibility to manage your own railcars rather than rely on the railroad. “You control your destiny,” he said. On the downside, it takes more work to oversee the cars and, Murphy said, “you also have to understand that the cars are your responsibility and not the responsibility of the railroad.”

Turning to truck transport was Gary Carrocce, vice president of operations for R&J Trucking (Youngstown, Ohio), who asserted that the “Achilles’ heel of our industry has been and continues to be finding drivers.” Drug and alcohol testing gets stricter all the time, he said, with the result that the pool of potential drivers shrinks even more.

Added pressure on the trucking business comes from constant scrutiny by the Department of Transportation, Carrocce said, explaining that weight restrictions and payloads have been big issues. “In response, we’re trying to spec a durable trailer that will also be lightweight,” he said, adding that R&J is looking into producing a steel body trailer on an aluminum frame that would allow a 46,000-pound load to be carried and can handle material measuring up to 5 feet. Other trends for the future, he said, will be increased use of satellite tracking of trucks that enable direct communication with the driver for dispatching, billing, and tracking.

Greg Caldwell, manager of bulk and steel sales for American Commercial Barge Line Co. (Jeffersonville, Ind.), looked at scrap transport on the inland waterway system, which he said offers access to nearly every region of the country. Last year, he said, 260 million tons of cargo was transported by barge, with steel making up 5 percent and coal and grain the largest portions of barge cargo.

The most common barge equipment for carrying steel, he explained, is the jumbo hopper barge, which measures 195 feet long by 35 feet wide and can carry 1,500 net tons at a 9-foot draft. An open top is favored for transporting ferrous scrap, but covered hoppers are required for finished steel and alternative iron units, he said. Currently, Caldwell said, there are 17 minimills on the river system and many more close to it. Thus, scrap transport by barge is expected to increase in the future as is barge transport of finished steel products. This will prompt barge companies to build more covered hoppers, he said.

Playing the Political Game. In today’s political world, the bad news is that one person often can’t make a difference, said Joel Blackwell, president of Issues Management Co. (Alexandria, Va.). “No matter how good your idea is, it must represent a political consensus” if you want politicians to even notice, let alone act on, your issue, he said.

The good news, at least in the sense of getting your issue heard, is that so many people have been turned off by modern politics that political leaders don’t get feedback from the broad spectrum of their constituents. Thus, a small, organized group can have a disproportionate impact.

If that sounds like government-by-special-interests, it is. “We live in a special-interests democracy,” Blackwell noted, and the most effective groups achieve their success by being focused and vocal.

But that doesn’t mean the political system is controlled by high-priced lobbyists, Blackwell said. In fact, paid lobbyists ranked 19th in a list of the most influential ways to get information to a member of Congress. The top two ways involved spontaneous letters and phone calls from constituents, Blackwell noted. The key is to have genuine grass-roots support for your issue. Thus, the letters and phone calls should be original, rather than form letters or scripted calls, to be most effective.

And remember: If you want politicians to do something for you, try doing something for them first. Raising money for their campaigns will certainly get attention, as will volunteering to work on the campaign—especially for state and local elections, Blackwell said. You can even combine two actions in one: Tell the candidate he or she can pick up the campaign contribution at your scrap operation, which will give him or her an introduction to your business and the industry.

Getting local politicians out to see your plant is especially useful, Blackwell said, because most elected officials will be unfamiliar with your business and its problems and concerns. It’s not that politicians are ignorant per se, added Al Swift, a former congressman and now head of Al Swift Consulting Inc. (Washington, D.C.), “they’re just ignorant of your issues.”

Swift, who represented a district in the state of Washington for 16 years, said he probably used his own expertise in broadcasting three times during his legislative tenure. On all other issues, he needed outside information. Swift also stressed the impact of “thoughtful and personal” letters written by constituents, noting that 10 such letters will have greater impact than, say, several pounds of form letters or a petition bearing 5,000 signatures.

“Humanize” your issue with real-world anecdotes, Swift said, and be sure to begin your letter by pointing out that you live in the congressman’s home district. Using the district number is especially helpful because it will show that you’re politically aware, he added.

What doesn’t work? Never mix lobbying and contributing, even if you have to set up two separate meetings for the same day. And don’t threaten a politician if you want to win him or her to your side. Swift also said he never responded to e-mail letters because it’s too easy to intercept electronic messages and alter the information.

Keeping It in the Family A recent study has shown family businesses stand only a 33-percent chance of making it to the next generation. The odds of a company reaching fourth-generation status are less than 8 percent. Not particularly encouraging statistics, especially given the current consolidation craze gripping the scrap industry.
  
So how do you beat the odds and keep your family business in the family?

Norb Schwarz, principal of the Chicago-based Family Business Consulting Group Inc., said that planning is the first and most important step for dealing with succession and should begin when children are young. He likened this stage to planning for battle and suggested family-business owners follow SMEAC: situation, mission, execution, administration, and command-and-control. “You need to have these concepts well in hand,” he said, noting this rule works well in determining succession as well as whether it’s a good time to sell.

Passing the business down will depend greatly on estate taxes and how an owner wants his or her children to be active. “Some children won’t accept a deal where they have nonvoting shares, while others may see it as getting something for nothing and say OK,” Schwarz noted. “It really depends on the family’s vision of who should vote, who should have stock, and how the company should be run.”

Owners may opt to give voting privileges to children who are actively involved in the business and nonvoting shares to those who aren’t. To get a tax break, choose to give minority interests in the company to your children, explained Schwarz.

Regardless of whether they enter the business as adults, children may well hold majority shares of stock and should therefore be familiar with the business and their responsibilities. “Start talking to your kids when they’re young, not 30 years old,” Schwarz said. “Try to eliminate the issues of wealth from these discussions and talk instead about feelings of entitlement. Lots of families separate the idea of wealth and responsibility and say, ‘we’re not transferring wealth, but a stewardship.’”

Customer Satisfaction, Profitability, and You. Gaining public acceptance is no easy task when dealing with preconceived perceptions and misconceptions of the scrap 
industry.

Michael Potash, manager of scrapyard operations for Sioux City Compressed Steel Co. (Sioux City, Iowa), described his company’s move as an example of what should and shouldn’t be done in promoting a scrap company to the general public.

He sees four areas of concern for people entering the facility and suggested that companies strive to make each the best possible. First is price and, admittedly, processors can do only so much about it. Convenience is the second factor. This covers issues such as how long suppliers must wait to have their loads weighed and unloaded, how often they need to get out of the vehicle, and how much work they’re expected to do themselves. Friendliness, too, should be a consideration. Last is attractiveness. Potash urged processors to make their facilities as neat as possible by landscaping their entrances and surrounding the site with high walls so that neighbors are spared a view of towering piles of scrap.

His company followed these suggestions and when it came time to roll out its plans to move to a new location, “public acceptance appeared to be a slam dunk,” he said.
He was wrong. The company met with static from the community despite its advance planning and public relations work. To meet these complaints head on, said Potash, his company began a series of community meetings “that were instrumental in establishing a positive outcome as they enabled us to establish ourselves as environmentally responsible.”

Potash’s advice? “Treat each complaint as if it’s serious and respond in kind. And remember the job of promoting your company to the public never ends. You can’t assume that because all your plans appear promising that the public will agree.”

Once established in a site, ongoing goodwill between a firm, its customers, and the community continue to be important. Dan St. Peter, a partner with Arthur Andersen Business Consulting (San Jose, Calif.), said businesses should adhere to the ESP model to achieve quantum performance: Earnings—do you know which customers are ones to be valued? Satisfaction—do you know what your customers value? And presence—how important is your company’s business to your client?

Further, he divides customers into four quadrants. First are those with whom you do a high-volume, highly profitable business and who also buy highly profitable products. Second and third are those firms which are high in one of the previous categories but not both. Finally are customers with whom, said St. Peter, “you probably shouldn’t be doing business. You’re losing money on them.”

Using the ESP model, business owners can move customers in the second and third tiers into the first, he said. To examine what can be done to improve the earnings segment, he suggested determining the profitability of products and customers separately, and then using a system of activity-based accounting to track resource consumption and the cost to both your customers and products.

In ascertaining what your customers value, he reminded managers that “perceptions don’t need to be too far off to result in dramatically different results from what your customer actually values.” Get to know how they rank the importance of and your performance in a variety of products and services. Customer surveys are a good way to get a general idea, he said.

As far as establishing a presence with their customer base, businesses should focus more on existing customers and ensure they’re getting the bulk of their business, St. Peter said. Ultimately, focus on the profitable portions of your existing client base because, he noted, “dollar for dollar, serving an existing client is money better spent that serving a new one because the relationship is already there.”

The Call for Quality. When a scrap shipment is rejected, it costs everyone involved money. “That aggregate cost is a hidden tax on everyone in the business and cuts into their bottom-line profits,” said Rob Kantner, principal of 9000 Solutions Group Inc. (Plymouth, Mich.). The key to keeping these “taxes” at a minimum is one simple principle: quality.

Although quality seems like a basic concept, it’s not always easy to achieve, but as Phillip Serls, president and COO of Colonial Metals Co. (Columbia, Pa.) and president of L. Lavetan & Sons Inc. (York, Pa.), pointed out, “our product becomes part of our customer’s package and therefore the quality level must be high.” It’s also important to be consistent in your quality, whether it’s in your recycling process, customer service, or product.

Ensuring your product is continuously up to par can be achieved through registration under the international ISO 9000 quality assurance standards, Serls said. His companies use a team approach to quality, with the understanding that “suggestions for improvement can come from all sectors of the plant. By working hand-in-hand with our employees, we’ve reaped great rewards,” he said. “Delivering a better product has made us a better company. By developing and implementing better processes, we’ve established quality goals and have improved processes to decrease production time by 3 percent.”

Louis Padnos Iron & Metal Co. (Holland, Mich.) has also made producing a quality product its fundamental goal, said Tony Gleason, quality manager.

Part of producing a quality scrap product is making sure that it meets customer expectations, he said, noting that quality is often “a mutually agreed upon thing with the customer. No one is interested if we ship higher quality material than the customer needs. Our attitude of scoring well on quality inspections traces back to our fundamental orientation that if it’s what the customer wants, we can make it happen.”

The Psychology of Safety. A safety sense “isn’t something we’re born with—it’s a behavior that’s learned,” said Mike Mattia, ISRI’s director of risk management, at a workshop that explored why employees endanger themselves and how to make safe behavior more automatic.

Part of the problem with getting employees to work safely, Mattia said, is that there’s often no reward—there may not be an accident, but there’s no direct benefit to working safely. Indeed, he noted, “the opposite of safety is convenience,” pointing out that safety equipment generally isn’t comfortable, it takes time to put on, and it’s frequently easier to avoid it. On top of that, jargon-filled safety training is typically ineffective and safety signs are frequently too general and mean little to employees.

Mattia also said that signs stating the number of days since a lost-time accident, while they mean well, don’t tell employees what behavior they did that helped the plant achieve the goal. An effective sign might say something like, “we’ve worked 90 days with 100-percent use of personal protective equipment.”

Another way to foster safe behavior is through rewards, Mattia suggested. To be effective, a reward must be prompt, sizable, and certain. But punishment isn’t an effective way to shape behavior, he said, noting that while it may temporarily suppress the unsafe behavior, its side effects can be aggression or apathy. The most effective rewards are intangible, Mattia said, explaining that humans crave attention and affection and that approval, recognition, and verification of their safe performance are good rewards. Gifts, he emphasized, aren’t necessary because they don’t specify what behavior led to the reward. Employers should recognize specific observable safety behavior, reward the group or the individual as appropriate but offer no penalty for others’ poor behavior, and monitor and post progress toward specific safety goals that all employees were involved in developing, he said.

Money Matters and More

The prudent management of all things financial and legal—from cash flow to contracts to preventing fraud—can mean the difference between profit and loss, even long-term success or failure, for every scrap recycling company. A few convention sessions focused on how scrap professionals can succeed in these areas.

Know What You’re Signing. In the scrap processing industry, there’s much interaction between many interests—people from different companies entering your facility, your employees going into other plants, and heavy equipment everywhere.
All of these situations present potentially high risks and inherent dangers, said Danette J. Buckley, claims litigation counsel for CNA Insurance Cos. (Chicago), in a workshop that emphasized why recyclers should carefully read all contracts, especially those that include an indemnification agreement.

An indemnification agreement—also called a transfer-of-risk or a hold-harmless clause—is when one party agrees to assume the liability of another, she explained, adding that “the results can be devastating.” By signing an indemnification agreement, the indemnitor may be held responsible for paying more than their share of the liability or even assume all responsibility for an accident.

There are three categories of indemnification agreement:

• The broad form. This is the worst type of contract from the indemnitor’s perspective because it puts the indemnitor at the most risk, Buckley said. It represents an unqualified obligation and makes the indemnitor responsible for all shared and sole negligence of the indemnitee. This form, however, is also the most difficult agreement to enforce—and may not be enforceable in your state—because it runs contrary to public policy and the courts tend to look harshly on it.
  
• The intermediate form. This agreement offers no indemnity for sole negligence of the indemnitee, but the indemnitor is responsible for all damages in cases where fault is shared. This means, explained Buckley, that even when the indemnitor is only 1 percent responsible for an accident, it would assume 100 percent of the responsibility.
  
• The limited form. “From the indemnitor’s view, this is the best choice,” said Buckley. It offers the most equity in terms of responsibility for negligence and legally is the most widely accepted type of agreement, she said, explaining that any negligence of the indemnitee isn’t covered.
  

In the case of any indemnification or other contract, Buckley emphasized, the first step before you sign is to check with your lawyer and your insurance company to review the laws in your state and what your insurance company will cover. And while it’s important to look at what risks you take on in signing such an agreement, she said, you should also look at what benefits you’ll receive.

If you’re considering an indemnification agreement with a customer, Buckley advised, be sure to carefully review all documents, evaluate potential risk by looking at the business and safety practices of the company asking for indemnification, determine the contract’s intent, try for the most limited contract available, and always consult your attorney and insurance agent before signing the contract.

Managing Your Cash Flow. Calling cash flow the lifeblood of a business, Bonnie Nagayama, owner of BJM Consulting (Martinex, Calif.), discussed the problems that can cause cash flow difficulties and how to resolve them.

Keeping good financial records is especially critical, she noted. Be sure to keep track of your cash receipts and disbursements—basically, where the money comes from and where it goes—to help you make good business decisions. Monitoring your sales, purchases, payroll, and other factors such as fixed assets is also crucial. For instance, understanding sales patterns can help you plan for times when cash will be tight versus when you’re likely to be flush, Nagayama said.

Likewise, a careful study of expenditures can reveal when you’re paying too much for something. It can also pay to take bids on all major expenses, she noted.
Planning for unexpected cash outlays is also smart—whether it’s deciding beforehand what you’ll do if the customer does not pay on time or pursuing a new business opportunity with numerous startup costs, she said.

Other tips from Nagayama included avoiding excessive inventory or fixed assets, balancing your equity and debt, developing relationships with bankers before you need to borrow money, never borrowing more than you need, and establishing a budget as a good way to curtail spending. She also advised against growing your business too quickly without the capital to support such expansion.

Fighting Fraud. While most cases of fraud within businesses are discovered by accident, owners and managers can take steps to minimize their chances of being victims.

One of the first steps is to get to know your employees, said Saunie Fridley, director of quality assurance for Western Staff Services (Walnut Creek, Calif.). “Employees hear things, so get to know them. They’ll feel more comfortable in coming to you and telling you if they suspect something.”

Pay attention to details and look for red flags that may indicate an employee is engaged in fraud, she suggested. These indicators can include a marked personality change in an employee, an employee’s inability to manage money or one who is under financial pressure or living beyond his or her means, poor internal controls and lax management policies, and rising business costs that seem unjustified.

Employees who engage in fraud often start looking for opportunities on their first day at work, Fridley said. The typical embezzler is often described as a “dear and trusted employee” who will ingratiate himself or herself to a mentor. “They’ll become the person’s best friend and earn their trust,” she noted. Over time, they discover the mentor’s weaknesses and begin to use them. The employee gains more responsibility and “before you know it their hand is in the till.”

Two scrap company owners offered firsthand accounts of their experiences with fraud, illustrating how easily it can happen. Their advice? “Don’t ever allow one person to do it all—always have someone in upper management looking at payables and checking the incoming mail and the like,” said Paul Brenner, president of Brenner Recycling (Hazleton, Pa.). “Check your customer receipts for inconsistencies. If you start looking for things, you’ll probably find them.” In looking back, he said he wished he’d taken the time to do the mundane things because “if you don’t, you’ll have a problem.”

Fridley suggested several measures for keeping fraud at bay, urging owners to become very involved in their businesses and conduct in-depth background checks on all job candidates before hiring them. “Examine bank statements regularly to see if they match what you think they should be, and don’t just sign checks—make sure there’s attached documentation. Segregate all duties pertaining to cash so you don’t have one person going to the bank, writing the checks, and paying the bills. And know your customer,” she said. “That way you can call them and ask why a bill is 60 days out. You may find out they don’t know what you’re talking about.” 

Politics and Responsibility

In a survey of today’s political landscape, George Stephanopoulos—the well-known former political strategist and senior adviser to President Clinton—said that the remainder of Clinton’s term will be defined by three Ss:

Statesmanship. “The president will be doing more on the world stage than he’ll be doing in Congress,” he said. Clinton’s travels are part diplomacy and part strategy to divert attention from his personal problems.

Scandal. “But no matter how far he travels,” Stephanopoulos said, “he can’t escape the shadows of scandal at home.” Though he thinks the president’s transgressions have been overblown, that independent counsel Kenneth Starr’s four-year, $40-million investigation of the president is wrong, and that the Paula Jones lawsuit was supported by the right wing, Stephanopoulos added that Clinton is largely to blame. “The president put himself in a position to be criticized, which is inexcusable,” he said. The best course for the president at this stage is to “tell the truth and move on.”

Struggle for Succession. As Clinton’s administration winds down, Vice President Al Gore and other Democratic hopefuls are positioning themselves for the party’s nomination. While Gore will probably be nominated, whether he’ll be elected president depends on whom the Republicans nominate. In Stephanopoulos’s view, two of the best Republican candidates might be Steve Forbes and Dan Quayle. To succeed, however, the Republicans must heal the split in their party between conservatives and moderates, he said.

The next election will focus on big issues because, while the country’s misery index—in terms of inflation and unemployment—has never been lower, big problems remain, Stephanopoulos said. The country, for instance, has the largest income inequality in the world, 40 million Americans have no health insurance, 35 million live in poverty, and the United States leads the world in rates of teen homicide and teen suicide. “We have a commitment to ourselves to make good on the promise of America for everyone,” Stephanopoulos said. “We need everyone and government to take responsibility.”

General Colin L. Powell, USA (Ret.), also focused on the need for responsibility, specifically for the well-being of America’s youth. After noting that 15 million U.S. youth aren’t on a “good path in life,” he asserted that “for this country to be successful, no child can be left behind.”

To succeed, children need to have a responsible, loving, and caring adult in their lives—people who can serve as mentors and role models for them, teach them discipline, and give structure to their lives, Powell said.

Children also need a healthy start in terms of having the requisite vaccines, proper nutrition, eyeglasses if necessary, dental hygiene, and more, including safe places to learn and grow, Powell said.

To succeed, children must be taught marketable skills to help them climb the ever-rising technology ladder. And finally, they should be taught early in life the value of service to others and their community.

In sum, Powell said, “the choice before us is quite simple—we either build our children or we continue to build jails.”

Surviving Through Faith

In 1966, Gerald Coffee’s plane was shot down over North Vietnam. He was captured and held for seven years and nine days as a prisoner of war in a Hanoi prison. In that time, he was subjected to interrogation and torture, as well as exposed to antiAmerican propaganda.

At first, Coffee—now a decorated retired Navy captain—didn’t know if he could survive. Then he stopped being a POW—a prisoner of woe who was always asking “Why me, God?”—and started asking “Show me, God.” In the end, he found the strength to survive through four types of faith:

Faith in himself. Instead of wasting away, Coffee worked to keep himself mentally and physically in shape. He paced several miles a day in his cramped cell, did pushups and situps, and learned French from his fellow inmates, among other activities. In short, he made up his mind that he, not his captors, was the master of his fate, the captain of his soul.

Faith in his fellow inmates and countrymen. Coffee and other inmates provided support and encouragement to each other by communicating through elaborate systems of tapping and verbal sounds, which was necessary since communication was a punishable offense. Through these systems, they taught each other poems, helped each other keep a sense of humor, indoctrinated new prisoners, gave each other emotional support, and informed each other of news from the outside world.

Faith in America. Despite the constant barrage of antiAmerican propaganda and long duration of his incarceration, Coffee maintained his appreciation for America’s greatness and never lost faith that his country cared about him.

Faith in God. In Coffee’s prison cell, a previous inmate had scratched on the wall the equation “God=strength.” And he took that to heart, stressing that his belief in God meant that he “was never totally alone.”

These four faiths not only helped Coffee survive his imprisonment, but they’ve also helped him in his day-to-day life since his release in February 1973, he said.•

ISRI Recognizes Reichert for Distinguished Service

Outgoing ReMA President Jim Fisher honored ReMA counsel David Reichert of Porter Wright Morris & Arthur (Cincinnati) for his more than 40 years of service to ReMA and its predecessor associations. Among his accomplishments, Reichert helped prevent processors from having to pay sales tax on equipment purchases, preserved the industry’s manufacturers’ sales tax exemption, provided counsel on transportation issues, helped with the merger that created ISRI, and ensured that ReMA abided by its bylaws at board meetings. “His accomplishments have literally left their mark on our predecessor associations, on ISRI, on our industry, and on each company involved in scrap commerce,” Fisher said. In appreciation, ReMA gave Reichert a collage commemorating important aspects of his life.

 

Take 3,400 people. Add 100,000 square feet of exhibition space, encompassing 157 exhibitors and equipment displays. Include a historic election of national officers. Put it all in the Moscone Center in the heart of San Francisco. And what have you got?