Success Through Service

Tube City, LLC has become one of the largest scrap recycling and mill-service corporations in North America by taking care of its customers “no matter what.”

By Jim Fowler

Rewind to about 1908. A young Lithuanian immigrant named David Coslov steps off a boat in New York. It’s winter, and he’s cold. He tells his relatives who greet him that he wants to go where it’s warm. They suggest heading south—to Georgia.
   So Coslov went to Savannah where he became a pack peddler, going from town to town selling goods. Pack peddlers would take a pack of goods on consignment. When they sold the goods, they’d pay for the pack, keep the profit, and take out another pack. In this way, Coslov traveled throughout Georgia, peddling his goods and raising a family. 
   In 1924, he moved to Mount Pleasant, Pa. His cousin, who owned a furniture store there, told him about a junk-shop owner in McKeesport who needed a partner. With his cousin’s help, Coslov bought a half interest in the business in 1925. 
   A year later, he bought out his partner and decided to rename the company. But what name would work? National Tube, one of the largest tube mills in the world, was headquartered in McKeesport, giving the city its nickname, “The Tube City.” Thus, one name made complete sense to Coslov—Tube City Iron & Metal Co.
   Processing scrap with a hacksaw and a chisel, it took Coslov 30 days to prepare each railcar of scrap. When he bought a torch, production increased tremendously. Coslov would take his new production tool home with him every night, clean it, and put it under his bed. 
   In 1929, a brickyard in Glassport came up for sale. Coslov bought it and built a “modern” scrap yard, complete with a derrick crane, a small baler, alligator shears, and a warehouse. He sold scrap to Pittsburgh Steel Foundry, Pittsburgh Steel, and U.S. Steel. His business was growing.

Now fast-forward to 2004. 
David’s grandson, I Michael Coslov, is chairman and CEO of the company, now named Tube City, LLC. The firm, still based in Glassport, is a multi-divisional limited liability company that processes and purchases (on an outsource basis) more than 15 million tons of scrap a year. Some 1,000 employees make up today’s Tube City, which generates $600 million in annual revenue.
   As is often said in the scrap industry, “From humble beginnings … ”

The Banana Man 
But let’s not get ahead of our story. The next vignette is legendary in the scrap industry:
   In 1940, with war imminent, U.S. Steel invited all Pittsburgh-area scrap dealers and brokers—including David Coslov—to a meeting to spell out how much scrap it would need and the price it would pay, as Michael Coslov recounts.
   When David Coslov arrived, there was one seat left—next to the U.S. Steel vice president who was describing his scrap needs. A spokesman for the 50 scrap dealers and brokers stood up and said they refused to sell at the price the steelmaker was offering.
   The vice president pleaded with the group, “I need the bananas.”
Coslov wrote a note and slipped it to him under the table. The note said simply, “If you need bananas, I’m the banana man.”
   The vice president then invited Coslov into his office and asked, “Mr. Coslov, do you have any idea how much scrap we’re going to need?”
   “Yes, I have an idea,” he answered.
   “Mr. Coslov, do you have a brokerage division?”
   “Yes.”
   “Mr. Coslov, do you have a transportation division?”
   “Yes.”
   “Well then, what are you going to charge us for the scrap? What’s your price?” 
Coslov offered to buy scrap, ship it to the mill, and charge $1 a ton as a brokerage fee. “If you don’t like how it’s working, you can stop,” he said. “If I don’t like how it’s working, I can stop.”
   The vice president thought that sounded fair, so they finalized the deal—and with that, Tube City became a scrap broker for U.S. Steel.
   “Then my grandfather went to his bank and explained the arrangement,” says Michael Coslov. “The bank supported him. So, my grandfather went west and my father, Leon, went south, and they started buying scrap. The business grew, and our relationship with U.S. Steel grew.”

Taking the Retail Route
By 1953, David Coslov was semi-retired. The up-and-coming leaders of Tube City included Robert Odle—who started in 1949 and continues to serve today, at 83, as vice chairman—and David’s son, Leon, who became head of the firm in 1954.
   Odle handled most of the trading—“He had great relationships with the mills,” Michael says—while Leon Coslov directed the company’s growth. Specifically, he decided to grow by acquiring retail scrap yards, adding an operation in Brooklyn, N.Y., a yard in West Virginia, and a partnership in a Buffalo, N.Y., shredding plant.
   Michael joined the company in 1964, initially trading scrap in the New York area for export and subsequently moving to Philadelphia to sell to domestic mills in the east. Odle served as Michael’s mentor, teaching him the scrap business.
   Over the years, Tube City built a significant brokerage business, serving consumers from Pittsburgh eastward. While growing the company, Leon Coslov held a variety of leadership roles in the Institute of Scrap Iron and Steel (ISIS), eventually serving as president of the association from 1970 through the beginning of 1972.
   As Tube City grew, however, so did tensions between father and son. Leon and Michael didn’t agree on how the company should grow, with Leon seeing the retail scrap business as the way and Michael seeing mill service as the way. Michael understood, however, that his father “had his reasoning and it was his company, and I had my reasoning and it wasn’t my company.”
   In addition, Michael and his three brothers did not agree on how the company should be run or what direction it should take. “What we did agree on,” he says, “was that one of us would buy the others out.” After Leon Coslov died in 1985, Michael proceeded to do just that, ultimately acquiring the company from other family members in July 1987.

Reinventing the Company
Following this ownership change, Tube City’s focus also changed from retail scrap operations to providing services to steel mills and foundries. 
   “Our plan was to source material and do what’s now known as scrap management,” Michael says. Tube City became the official on-site scrap manager for U.S. Steel’s mills in Fairfield, Ala., and Gary, Ind., handling scrap-related functions for those operations. 
   “It was a tremendous accomplishment for us to warrant the confidence of U.S. Steel to perform these services,” Michael adds.
   Taking on such duties was also a considerable challenge. “We went from zero tons to 100,000 tons of scrap a month at the Gary yard,” recalls Joseph Curtin, president and COO, who joined the firm in 1983. “It was a big deal for us. Today, we do 300,000 tons a month in that yard.”
   From these scrap-management contracts, Tube City’s leaders learned how their company could perform services that would save customers “significant amounts” of money, according to Michael.
   At first, the firm concentrated on such tasks as scrap sourcing, material inspection, inventory management, logistics, and material handling. Then it began making scrap blends to optimize melts in the mills. Then it began processing the mills’ slag.
   Steadily, Tube City evolved to the point where it is “the only company in the scrap industry that offers full scrap management—including scrap metal recovery and slag processing—under one umbrella,” says Michael. “There isn’t another company that provides all the services we do.”
   Among its range of services, Tube City has established a complete machine shop and a field service division based in Gary. Michael’s son, David—the fourth generation of the Coslov family to work in the business—is vice president of maintenance, heading up this growing machinery repair and maintenance initiative with Jamie Estill, senior vice president of maintenance.

A Mill-Service Focus
Given its service focus, it was a logical step for Tube City to create a mill-service division under its corporate umbrella—and that’s what it did by founding Olympic Mill Services (OMS) in 1995.
   OMS, headquartered in Glassport, Pa., now has 500 employees and accounts for about a third of Tube City’s revenues. Currently, Tube City and OMS have 21 fee-for-service contracts with steel mills in the United States and Europe, with OMS accounting for 12 of those contracts, all with U.S. integrated and electric-furnace steel mills.
   OMS performs a wide range of steel-mill ser-vices, including slag removal and processing, recovery of usable metallics, scrap management, scrap handling, melt-shop services, road maintenance, industrial cleaning, and mobile equipment rental and maintenance, explains Tim Kaufman, president and COO of the division.
   Of those services, slag removal and processing is among the most challenging, in part because it’s expensive to enter that niche. Each site requires an extensive capital investment, says Kaufman, noting that establishing a slag-processing operation at an integrated mill (both blast furnace and basic oxygen furnace) can cost $12 million to $14 million, while one at an electric-furnace mill can run $2 million to $4 million, depending on the tonnage. 
   Handling slag works like this: At the end of the steelmaking process, slag—which is composed of the impurities in liquid steel and which floats on top of the molten bath—is poured off. After it cools, the slag is run through a separation plant to recover the residual metallics. About 95 percent of the metallics go to electric-furnace mills for use in future melts, while the remaining “B material” is sold through Tube City’s brokerage operations for use by blast furnaces.
   After recovering these metallics, the OMS marketing department sells the nonmetallic slag to cement producers, highway builders for use as a sub-base under concrete, and as landfill cover. 
   “The bottom line is, if your equipment runs right and you have good personnel, you can make a profit,” Kaufman says. 
   Currently, there are five major companies in the slag-processing business, with OMS holding the number-three position. Stay tuned, though. “We’re in a growth mode,” Kaufman asserts, “and we’re working to be number one.”

Innovating Service, Creating Value
One of the most innovative services that Tube City offers its mill customers is in the area of scrap optimization. As Michael explains, there are numerous scrap-optimization programs available that tell consumers what grades of scrap to buy. The problem was that there wasn’t a real-time optimization program to tell them instantaneously what they could melt from inventory. 
   Thus, Tube City “developed a sophisticated, proprietary melt chemistry optimization computer model that can produce the lowest-cost liquid steel for our customers,” he states.
   This optimization model, called Gen Blend+, was developed largely by Joe Curtin and Robert Harris, vice president of customer technical service. The company brought in people with mill backgrounds in melting practices and computer modeling—people like Harris, who previously ran the basic oxygen furnace at U.S. Steel’s Edgar Thomson Steel Works in Braddock, Pa.—and had the Gen Blend+ model developed in four to five years.
   According to Curtin, Tube City purchases the front end of the program—a basic scrap-purchasing model—from Scrap OptiMiser Associates, then it adds the Gen Blend+ real-time optimization feature. 
   How does this program work in the field? Offering an example from U.S. Steel’s Great Lakes Works, Curtin explains that there are computer screens in the overhead cranes that are used to load the charging buckets. When the crane operator selects the next heat melt order, the computer provides the operator with a complete list of scrap grades. The operator is then asked to identify the grades currently in inventory by selecting or deselecting the appropriate scrap on the touchscreen. When this task is completed, Gen Blend+ will create and provide the lowest-cost scrap menu based on the available material that will meet the necessary chemistry requirements of the heat melt order.
“Our Gen Blend+ program tells the operator what he can use that’s readily available,” Curtin says. “Without this program, he would simply substitute premium scrap.”
   Tube City is currently using Gen Blend+ at U.S. Steel’s Great Lakes Works and its mill in Slovakia. The program is being installed at the steelmaker’s Gary, Ind., operation, with plans to add it to the Edgar Thomson Steel Works and Fairfield Works in Fairfield, Ala.
   “This program has been well-received by our customers,” Michael says, noting that the company has “a backlog of mills that want the service.” That backlog includes AK Steel in Ashland, Ky., and V&M Star in Youngstown, Ohio. In addition, some Chinese steel producers have expressed interest in the Gen Blend+ program.
   This groundswell of interest is no surprise to Michael Coslov. As he states, “Our slogan is ‘We Create Value,’ and Gen Blend+ absolutely creates value every day for our customers. It allows mills to use less-expensive grades of scrap to get their chemistry, and it can be done instantaneously with our computer model.” 

Trading on Creativity
In addition to its mill services, Tube City has a major trading division led by J. David Aronson, senior vice president of trading, who joined the company in 1991 as a trader/buyer at the Gary operation.
   Joe Curtin played a significant role in expanding Tube City’s trading activities in Ohio and parts of the Midwest. Aronson is credited with increasing the number of trading offices from two to 12, including Pittsburgh, Philadelphia, Cleveland, Chicago, Detroit, Atlanta, Birmingham, St. Louis, and Salt Lake City in the United States as well as England, Slovakia, and Serbia. “We’re doing business around the world,” Aronson says, “and we’re expanding our presence in Europe.” These offices are manned by 25 traders who handle 6 to 7 million tons annually in the United States and 1.2 million tons overseas. 
   All 25 traders are on a conference call every Monday morning to review the markets, then the five regional trading managers—who cover Pittsburgh, Philadelphia, Chicago, the South, and the West—hold a second call to review strategies and decide what the company wants to do in the marketplace. “We’re big into communications and team-building,” says Aronson. 
   Two other representatives—from the accounting and logistics departments—also participate in the conference calls. “The accountant listens to be sure we’re within credit limits and budgets,” Aronson says. The logistics representative is critical, he adds, because logistics are “always a major factor in trading.” In fact, logistics can easily make or break a deal’s profitability. 
   In addition to ferrous and nonferrous scrap, Tube City buys and sells iron ore, coke, alternative metallics such as pig iron, HBI, and DRI, as well as other mill byproducts. No matter what products the company trades, its philosophy is the same: “We don’t take positions in the marketplace,” Aronson notes. “We’re risk-averse.”
   Overall, he sums up the company’s trading activities by noting, “Our strength is creativity—we’re innovators—and we try to be low-key and down to earth. Each of our traders works to match the highest quality and least costly materials to meet the customer’s needs.” 

A Culture of Empowerment
In its history, Tube City has grown from a company of one—founder David Coslov—to now more than 1,000 employees in the United States and three other countries.
   How does Michael manage such a large, diverse group? He smiles and says, “It’s real simple—absolutely fantastic people.” That and the fact that Tube City has what he calls a culture of employee empowerment. “It’s an entrepreneurial culture in which employees have the ability to make things happen,” he says. “They’re encouraged to try new things—as long as they’re done with integrity. We have few management layers. We believe that people at each site can handle their problems. There’s a trust among employees within the company.”
   Thomas Lippard, executive vice president of finance and administration and general counsel, concurs. “The culture of Tube City is fantastic,” he says. “It’s a monolithic business with one agenda—everyone trying to make things better. There’s cross-selling—working to build the company together—with a strong visionary leader who’s able to conduct the orchestra and make good music.”
   Perhaps this empowerment culture explains why Tube City has “extremely low” employee turnover. “It’s a very special place to work,” says Joe Curtin. “We’re given the opportunity to grow and develop new business. We’re a unique group, with a lot of creative people who are allowed to develop.” As Aronson adds, “The relationships in our company are special. We are truly a family.”
   Tube City shows its concern for its “family” of employees by emphasizing safety at all of its operations. “Safety is our prime concern,” Michael states. “We have a responsibility to send all employees home from work the way they came to work”—and the company takes that responsibility seriously. For starters, Tube City employs 12 full-time safety professionals to oversee the safety efforts at its plants. Then, using incentives and peer pressure, the firm tries to prevent unsafe working conditions and “instill in our employees that we’re all responsible for each other,” Michael says. If an accident does occur, the company investigates it to learn how to prevent similar incidents.
   These efforts enabled two Tube City plants to have zero lost-time accidents in 2003. Olympic Mill Services has likewise seen its incident rate decline every year since 2000, says Tim Kaufman. In fact, the National Slag Association recognized four OMS sites for safety in 2002 and two in 2003. Overall, OMS’s incident rate of 5.4 percent in 2003 beat the national rate for the slag industry of 7.5 percent, Kaufman notes. Aside from a safe, positive workplace culture, Tube City offers its employees “extraordinary” benefits, says Lippard. For instance, the company self-funds its own employee health-care plan that’s “better than any insurance company plan available” and that requires “zero contribution from our employees,” he explains. The firm also provides group life and disability insurance and a 401(k) profit-sharing retirement program. “People look at what we have for our employees and are amazed,” he says.
   Perhaps the best benefit of all, however, is the opportunity for professional growth that Tube City offers all employees. Michael takes particular pride in this fact, stating, “I enjoy seeing people in the company grow to their maximum—seeing them fulfill their own ambitions and dreams.”

Into the Future
Michael is sure his grandfather and father wouldn’t recognize Tube City today, though he believes they’d be thrilled with what they saw. While many aspects of the company have changed, at least one important feature has remained the same—“my grandfather’s belief that you take care of the customer no matter what,” he says. “That belief—that we do create quantifiable value for our customers—and our people are the reasons for our continued growth. Much of our growth has come from following the noses—the good ideas—of our people. They aren’t afraid to do things.”
In September 2003, Tube City took yet another big step in its corporate evolution when Blue Point Capital Partners purchased a majority interest in the company. Michael’s objective was “to sell a piece of the company but continue to run it.” While this purchase brought no changes to the company’s day-to-day operations, “it has made us a bit more structured and focused—it has sharpened us up,” he says.
   With Blue Point as a partner, Michael says, Tube City will be able to enhance its services and expand “literally around the world.” In particular, he expects the Gen Blend+ program to take the company “into places we haven’t been, then we’ll expand our services to these customers through our other operations.” 
   Tube City also plans to keep the door open to acquiring other companies that do service work for mills, Michael says. Overall, “we want to do any service our consumers require,” he adds. “We understand their mentality—it’s important to get the service done and be invisible. That’s what we do.”
   So what will the company look like in a decade? “Tube City will have the same culture,” Michael says. “We’ll be more global, providing a multitude of services to our customers, and—as always—concerned with safety. I’ll still be here. I’m enjoying it. I’m having fun.”  •

Jim Fowler is retired publisher and editorial director of Scrap.