Scrap goes E-Com

You’re in an airport when your e-mail pager goes off. The message says to contact the e-commerce site you’ve been using to buy and sell scrap over the Internet. So you pull out your laptop computer, navigate the Web until you find the correct site, then log on with your company ID and password. 
Up pops an icon that looks like a little bale of scrap, and a mechanical voice declares: “You’ve got sales!”
Is this the future of the scrap industry or just wishful thinking by e-commerce companies?
The answer depends on everything from what the latest 
e-commerce technology can—and can’t—do to whether or not the scrap industry can move beyond its traditional ways of doing business. Plus, while new scrap-related e-commerce sites seem to pop up daily, it’s too early to tell whether any of them can deliver the cost-savings, process efficiencies, and exciting services they promise.

Portals and Promises
For scrap professionals, e-commerce involves using the Internet to buy or sell scrap or other products and services. The term “e-commerce” is often linked with the term “B2B”—the acronym for business-to-business electronic commerce. Various Web sites, also called portals, attempt to electronically connect processors and brokers with others at all points of the business chain—from generators to consumers. Some of these portals are run directly by a buyer or seller, but most of the attention lately has been on sites operated by third parties (though buyers and/or sellers are occasionally investors in such sites).
   The promises of e-commerce are many, beginning with the possibility of opening up the largely regional scrap industry to potential buyers and sellers around the globe. Nonferrous scrap, in particular, would benefit from such expanded markets, e-commerce advocates note.
   Just ask Jim Diamond, who had 25 years of aluminum industry experience before joining the portal Aluminium.com Inc. (New York City) as vice president of sales earlier this year. Diamond pointed out that certain scrap is already moving back and forth in large volumes between Europe and the United States and between the United States and Asia. E-commerce “widens the spectrum” for aluminum traders, he says, “opening up the world to their desktop, allowing them to maintain contact with a much wider audience than they ever have before.”
   Likewise, Kevin Preblud, the Denver-based executive director of recovered paper for PaperExchange.com Inc. (Boston), stresses the value of the Internet in locating a buyer for even your least desirable material. Let’s say you’re a paper processor or broker who ends up with “this load of oddball stuff,” Preblud explains, “and you don’t know where it goes. But somewhere, somehow in this global world, that product has value to somebody.”
   The options, in short, are to look for a buyer the traditional way—by calling or visiting potential customers—or post the material on the Internet.
   Traditional business methods have their obvious drawbacks. After all, how many places, over how large a geographic region, can you physically visit in a reasonable time? And how many people can you call directly without playing endless games of telephone tag? Faxes aren’t much better.
   In contrast, “the Internet gives you the ability to offer that product to the world” 24 hours a day, seven days a week, notes Preblud.
   And it’s not just new customers or wider markets that e-commerce hopes to provide. While e-commerce can’t fabricate any products or physically transport them from place to place, “it does just about everything else,” according to a report from MetalSite L.P. (Pittsburgh), a steel industry portal that also helped launch ScrapSite.Net, an e-commerce site for scrap. “Every other step along the way—research, contacting partners, bidding or seeking bids, negotiating, logistics arrangements, order tracking, invoicing, extending credit, record-keeping, accounting, enterprise resource planning—can be completed more easily and efficiently with the aid of e-commerce.”
   Such easier and more efficient processes will bring savings in overhead, e-commerce aficionados assert. General Motors Corp., for instance, has predicted that the Internet will help it cut transaction costs from $100 a purchase order to $10 by streamlining processes and eliminating inefficiencies. That’s where scrap processors can expect to save money online as well, says David Maland, director of business alliances for ScrapSite.Net, the ferrous and nonferrous scrap portal jointly launched this year by MetalSite and scrap processors Metal Management Inc. and Philip Services Corporation, both based in 
Chicago. 
   “The Internet isn’t really going to affect scrap prices much,” Maland explains. “But it will bring tremendous savings and competitiveness to the companies that use it properly and integrate it into their systems.” Umaesh Khaitan, CEO of CopperNet.com (Calcutta, India), agrees, asserting that e-commerce will reduce traders’ transaction processing times and costs, as well as their communication costs.
   Thus, e-commerce should be seen as a tool for much more than just helping companies sell scrap, says Christine Mason, chief strategy officer and cofounder of MetalMaker Inc. (Chicago), a portal aimed at connecting foundries and mills with their raw materials suppliers, including scrap processors.
   Scrap processors “spend an inordinate amount of time guessing market directions, making phone calls, trading data, and far too little time on improving the manufacturing processes surrounding scrap—optimizing inventory, minimizing labor, getting optimal use of their equipment and logistics, redeploying technology to help get the job done better,” Mason says in her report, The Case for E-Commerce in Scrap Metals.
   But e-commerce can improve “all the underlying functional areas of a company’s operations, from HR to procurement,” she concludes. And it can strengthen relationships between buyers and sellers by automating the exchange of basic information so that your contacts with customers can be far more “substantive” in helping each other solve problems and meet needs, Mason notes. Khaitan adds that e-commerce enhances your business relationships by enabling you to serve customers from anywhere at anytime.
   John Robb, sales manager in the Guelph, Ontario, office of RecycleNet Corp. (Richfield Springs, N.Y.), is quite familiar with e-commerce’s anywhere/anytime appeal. RecycleNet’s Recycler’s World Web site has been online since 1995, Robb notes, and while its peak usage times are during business hours in North America, the activity never drops to zero—even at 3 a.m.
   “When it’s 3 o’clock here, it’s 9 o’clock somewhere else in the world,” Robb explains, “and those people are using the system.” (For more on RecycleNet and e-commerce issues, see “A Capital CARI,” beginning on page 113.)

From Basics to Bells and Whistles
The range of existing and proposed e-commerce sites is a bit staggering and bewildering. There are portals that offer numerous grades of both ferrous and nonferrous metals as well as plastics, equipment, even job openings—all at the same Web site. Then there are sites that specialize in strictly ferrous or nonferrous, or that focus on only one metal, such as copper or aluminum. Some sites handle only scrap paper, while at least one focuses exclusively on OCC. There are even sites for attachments and used equipment.
   Selling scrap online involves various mechanisms, including catalogs (which list material in inventory that’s available for a set price), auctions and reverse auctions (depending on whether the buyer or the seller has control), and exchanges (in which the buyer and seller can negotiate price and other aspects of the deal). Any of these transactions, including auctions, can occur in real time or over a set period of time so that buyers or sellers in different time zones or even on different continents can respond to offers made outside their normal business hours.
   The terminology of e-commerce, however, can be confusing to novice Web surfers, in part because the e-commerce industry can’t agree on the definitions of its own jargon. 
   One steel industry analyst, for instance, predicts that there will be absolutely no catalog sales of scrap because his definition of a catalog doesn’t permit any price negotiation. But at the same time, an executive from a major e-commerce site sees catalogs as the leading mechanism for selling scrap online—because his definition of a catalog does permit the buyer and seller to negotiate just about everything involved in the deal, from price to delivery and everything in between.
   The e-commerce sites themselves also operate in many different ways. Some function mainly as electronic bulletin boards or listing services. These allow users to post information about material for sale or a request for material to buy, but the buyers and sellers must then contact each other by phone, fax, or e-mail to negotiate and finalize the deal—just like they would with any nonelectronic purchase or sale. It’s an approach designed to preserve the trading relationships forged over the years between buyers and sellers, notes Toni Chavla, marketing manager for ScrapExchange.com (Washington, Pa.), a division of nonferrous processor General Alloys Inc.
   Then there are sites that want to do it all—to assist users from “inquiry to settlement,” notes ScrapSite’s Maland. These full-service sites not only let users post listings of scrap sought and scrap for sale, they also enable each side to negotiate prices, quantities, delivery dates, and other aspects of the deal online. And once all the digital fine print is finalized, all it takes is a few clicks and the deal is done—the scrap is purchased or sold, and a binding electronic purchase order is generated.
   But that’s not all. Many sites permit buyers and sellers to remain anonymous to all but a select group of other users, so that competitors can’t log on to learn your prices. And there are plenty of high-tech bells and whistles designed to attract users to various sites.
   Want to arrange shipping? The most advanced sites are partnering with major freight companies, so all you’ll need to do is click on an icon of, say, a truck, railcar, or barge. They’ll even help you plan the route or offer your transportation for competitive bids.
   Need financing or want to confirm a potential buyer’s credit-worthiness? Certain sites are linking with groups of banks or offering services like a credit card icon that indicates which buyers are credit-approved. Some sites will notify you via e-mail or beeper when you have a buyer or when the product you’re seeking comes on the market. There are also electronic collection options, an insurance option that determines how much each user can trade, even an option to sell idle capacity for certain equipment like shredders.
   And if you aren’t comfortable buying your scrap sight unseen through a computer, don’t worry. Digital photos and even live digital cameras enable you to preview the material being offered.

Reality and Checks
That’s the dream. The reality is that no site currently operating or under development can actually provide all those services (at least not at presstime). And, of course, all these portals hope to be profitable, so be prepared to pay.
   E-commerce sites charge users in various ways. Some charge monthly or yearly subscription fees. One listing service site, for instance, charges buyers or sellers $150 for three months or $500 for the year, while a nonferrous auction-based site requires a monthly $75 membership fee plus a quarter cent a pound on all material traded. Other sites take a percentage of each transaction, paid by the seller. There’s usually no charge to access a site and see what scrap is available, though it’s customary for visitors to have to register in some fashion and obtain an ID number and/or password.
   The percentage fees differ from site to site, with several portals still deciding what fees to charge. Generally, they range from less than 1 percent up to 3 percent of each transaction’s cost. Plus, the sites often charge extra for the various services mentioned above, though some sweeten their rates with volume discounts and even equity ownership in the portal as a perk for large-volume usage.

Potential and Proponents
So, what’s the potential market for buying and selling scrap online? Morgan Stanley Dean Witter (New York City), in its recent report B2Basic Materials: The Supply Chain Moves Online, estimates that as much as 30 percent of the materials needed to manufacture steel—including ferrous scrap—could be purchased through Internet portals by the end of 2003.
   Likewise, a report from World Steel Dynamics (Englewood Cliffs, N.J.), E-Commerce in Steel: Electrifying Some, Electrocuting Others, describes scrap as “a natural” for Internet transactions. The report projects a “massive rise” in the amount of steel scrap sold through e-commerce portals. For instance, the 4 million mt of steel scrap (excluding futures) estimated to trade online in 2001 will skyrocket to 44 million mt by 2002, the report predicts. That volume will climb to 58 million mt in 2003, 100 million mt in 2005, and 300 million mt by 2010—a compound growth rate of 61 percent over the decade, the report says.
   But it won’t stop there: World Steel Dynamics sees online scrap trading surpassing 455 million mt by 2015. Plus, the report raises the possibility of steel scrap being sold on a futures, or forward sales, basis in the next five years, thanks in part to e-commerce sites. Such futures sales could reach 180 million mt by 2010, the group notes.
   On the nonferrous side, a genuine e-commerce evangelist is Tom Stephens, CEO of McCook Metals Group Aluminum Operations (McCook, Ill.). McCook Metals Group consists of McCook Metals and Scottsboro Aluminum, an aluminum plate and sheet producer that purchases roughly 125 million to 150 million pounds of aluminum scrap annually. The company participated in beta testing Aluminium.com earlier this year. (Beta tests allow samples of an intended audience to try out a new product before it’s released to the public.)
   Stephens, who describes e-commerce as “the wave of the future,” says he’d like to purchase 100 percent of McCook Metals’ scrap online as soon as possible. “We’re sold on the concept,” he explains. “We’re telling people that this is the way we want to do business.”
   Jay Sherwood, nonferrous marketing manager at Schupan Industrial Recycling, a division of Schupan & Sons Inc. (Kalamazoo, Mich.), was another beta tester for Aluminium.com who expects online trading to play a major role in the scrap industry. “The way things are going,” he predicts, “five years from now a lot of us are going to be doing at least half of our transactions over the Internet.”
   Sherwood says it’s far too early to see any of the proposed transaction savings from e-commerce deals. The volumes of scrap he traded during the online testing were small and the learning curve for online trading actually made the deals take longer than if he’d made a few phone calls.
   On the plus side, he has received requests for material from companies he hadn’t previously considered selling to because of their location or because they were outside his “familiar circle” of buyers. “But the prices they’re offering might make me look at my freight rates,” Sherwood says.

Caution and Concerns
While these online trading scenarios thrill some scrap processors, they also put other buyers and sellers of scrap on their guard.
   “A lot of brokers ask: ‘Are we going to be replaced?’” says Amar Vakil, director of Aptech Corp. (Chicago), the technology partner for the nonferrous portal MetTrade.com L.L.C. (Dyer, Ind.). “But we don’t intend to replace the brokers. I don’t think an automated system will ever replace personal relationships.”
   E-commerce executives also emphasize how the Internet can help brokers reduce their costs of doing business and find previously untapped markets. Of course, brokers may need to change the way they do business—by acting more as fee-based service providers for mills, one industry observer predicts.
   The consensus seems to be that any company—broker or processor—that provides value to a customer is likely to remain in the supply chain, while those that don’t add value could be vulnerable.
The price transparency that Internet trading will bring is another controversial point. Some industry leaders like Robert Philip, president of Schnitzer Steel Industries Inc. (Portland, Ore.), see such transparency as dangerous, especially for the ferrous scrap industry.
   “When the factory bundle auction occurs in the end of the month in Detroit,” Philip says, “the rest of the country looks at it and says, ‘The price is down—so my prices must be down, too.’ But on the West Coast, there’s nothing even remotely similar to factory bundles. So it doesn’t make sense to say that prices are down in one region, so we should have them down all over the country.”
   Instead, Philip stresses, each company in each region should price its scrap based on its own cost of acquisition, supply and demand, and cost of handling. But he fears that the current follow-another-region’s-lead mentality will only get worse with the global information possibilities of Internet trading.
   Schnitzer doesn’t rule out trading scrap online, Philip stresses, and he adds that the company has reviewed most of the major scrap-related portals. But at this point, he explains, those companies haven’t convinced his firm that it makes business sense to be involved with e-commerce.
   “None of our customers have said they won’t do business with us unless we’re able to do it over the Internet,” he notes. That’s especially true for Schnitzer’s smaller scrap suppliers “who don’t even have a computer, let alone any interest in learning a new way to transact business.”
   For David Carpenter, executive vice president of Metal Management, however, price transparency will establish “an open dialogue with steel mills on what their future procurement needs will be.” Carpenter, whose company is a partial owner of the ScrapSite.Net portal, says Metal Management’s philosophy “is to work closely with the steel mills to try and make their operations more efficient. We think that if we do that, we’ll get a better price for our product because the mills will have savings on their end of the procurement chain.”
   At the nation’s largest minimill steelmaker, Nucor Corp. (Charlotte, N.C.), Chairman, CEO, and President David Aycock says his company has already purchased equipment online and will eventually purchase scrap electronically—perhaps through a Nucor-operated site or some third-party e-commerce site. But he adds that “too many people think B2B commerce is going to jump off much more rapidly than it is.”
   One reason is that there are simply too many scrap merchants offering material in individually small amounts for the online process to accommodate a huge scrap consumer like Nucor, Aycock says. He’d like to see someone “aggregate” the electronic market in much the same way that David J. Joseph Co. (Cincinnati) does with the traditional scrap market when it acts as Nucor’s sole scrap buyer—purchasing great quantities of scrap for Nucor on a fee basis rather than brokering the material, he says.
   Meanwhile, at least one minimill—Birmingham Steel Corp. (Birmingham, Ala.)—doesn’t plan to buy any scrap online. Personal relationships are too key, says Chairman and CEO John Correnti, and grades of scrap too inconsistent to trust prices generated by Internet trading. For instance, shredded scrap can be a vastly different product from processor to processor based on how well each removes contaminants. But Correnti doesn’t see Internet trading allowing for such case-by-case differences.
   Michael Friedman, vice president of marketing for the iR2 Solutions e-commerce division of Industrial Services of America Inc. (Louisville, Ky.), agrees that scrap quality is a concern. ISRI’s specification codes, which have been adopted by various e-commerce sites, still require a lot of “asterisks” regarding issues like moisture, weight, and contaminants, he says. That’s one reason why, though Industrial Services launched iR2 Solutions primarily for its waste industry business, the company is less certain of using e-commerce on the scrap side.
   For instance, while Friedman recently used e-mail and digital photographs to resolve certain issues about some material from a Venezuelan company, he makes a phone call to finalize his deals. And the only reason he was comfortable using even those initial electronic methods was because he already knew the Venezuelan seller personally.
   “I’d be very skeptical of the same deal offered by a guy I didn’t know,” Friedman says.

Force of the Future?
   If e-commerce is to have a future in the scrap industry, quality issues must be addressed, notes MetalMaker’s Christine Mason, whose firm has been discussing that topic directly with ISRI. She stresses that “the scrap industry has to come to terms with common grades that go deeper than the current standards.”
   To that end, MetalMaker is working to more clearly define scrap requirements by using minimum and maximum tolerances of chemistry within grades, Mason says.
   Another approach being tried by PaperExchange.com involves forming a strategic alliance with a quality and testing firm—in this case, SGS Group (Geneva, Switzerland)—to test disputed products, Kevin Preblud explains.
   It’s also clear that some of the newly created e-commerce sites won’t last. Wall Street is already growing wary of unprofitable Internet companies, whose values have plummeted in recent months. So there’s likely to be a winnowing among scrap portals as well, industry watchers predict.
   And don’t forget that even though e-commerce requires little more than a computer with access to the Internet, its appeal might still be limited within the tradition-bound scrap industry.
   That’s one of the reasons why Becky Graninger, director of marketing for Wise Recycling L.L.C. (Baltimore), says her company is taking a wait-and-see approach. Graninger has already experimented with four different e-commerce sites, including two listing-service portals that charge a subscription fee and two auction-based portals that collect a percentage of each transaction’s value.
   Though Graninger sees a use for both types, she stresses that the overhead savings promised by the auction sites—through automating such tasks as shipping, payments, financing, and other areas—will need to be fairly large to offset what she sees as high transaction fees.
Besides, there’s been no pressure from Wise Recycling’s customers or competitors for the company to do more online.
   “Of course,” Graninger adds, with a business practicality that could ultimately decide the fate of e-commerce for scrap, “if everybody else goes online, we’d have to, too—regardless of the savings.” •

Here’s a list of the major e-commerce sites for the scrap industry.
Aluminium.com Inc.: www.aluminium.com
CopperNet.com: www.coppernet.com
eCardboard: www.ecardboard.com
eFibre.com: www.efibre.com
Fibermarket.com Inc.: www.fibermarket.com
i-metal.com: www.i-metal.com
MetalMaker Inc.: www.metalmaker.com
MetalScrap.net Inc.: www.metalscrap.net
MetTrade.com L.L.C.: www.mettrade.com
PaperDeals.com: www.paperdeals.com
PaperExchange.com Inc.: 
www.paperexchange.com
Recycler’s World: www.recycle.net
ScrapExchange.com: 
www.scrapexchange.com
Scrapfinder.com: www.scrapfinder.com
The Scrap Post: www.thescrappost.com
ScrapSite.Net: www.scrapsite.net
Additions or changes to this list should 
be sent to kentkiser@scrap.org.