May/June 2008
Container shipping is changing the shape of the ferrous scrap market, giving smaller companies in more parts of the country direct access to foreign buyers. The logistics of finding and filling containers can be a challenge, however. By Kim Fernandez
Shipping ferrous scrap overseas always has been an expensive proposition, especially for scrapyards that are not near a major port. Typically ferrous scrap is loaded using specialized equipment into the bulk holds of large ships, and scrap companies that have sufficient volume of material to fill the ship's 15,000- to 70,000-mt hold are more likely to have access to those shippers. That setup favors a few large scrap companies on the coasts, leaving smaller and more inland competitors to sell to those companies or to sell their ferrous scrap to North American mills. It's no wonder that, though ferrous exports grew 40 percent from 2002 to 2006, not all scrap companies could take advantage of the increased overseas demand.
Times and technologies change, however. The longstanding trade deficit meant that (at least until the economic downturn began a few months ago) some regions of the United States had a surplus of shipping containers bringing goods here from Asia. Then bulk freight rates began to go up, rising to $50 to $60 a mt, making container shipping rates of $10 to $25 a mt seem much more reasonable. Demand—and prices—for ferrous scrap have continued to grow, with No. 1 HMS nearly doubling in value since the beginning of 2008. And several companies have developed technologies they say make loading ferrous scrap into containers faster and easier.
All of a sudden, container shipping of ferrous has become feasible and even economical, with its costs and benefits comparing favorably to domestic sales. Scrapyards all around the country are finding that with a small investment in training and equipment—even as little as a skid-steer loader and some paved ground—they can get access to a booming export market hungry for more product. The result has been "an absolutely cataclysmic change" in the ferrous market, according to new ReMA Chair George Adams, president of SA Recycling (Anaheim, Calif.), in his profile in the March/April issue of Scrap. "With containerization today, anybody and everybody is an exporter." This has worked to the advantage of some companies—and the disadvantage of others.
Geography Still Matters
Many West Coast scrapyards already were exporting ferrous—in bulk—because of the time and expense of transporting scrap overland to domestic steel mills, most of which are east of the Rocky Mountains. SA Recycling started shipping ferrous scrap overseas in containers about three years ago. Adams says the volume has ebbed and flowed over that time depending on overall market conditions and the availability of containers in his area—something that any yard considering this approach will need to consider. His yards in Southern California have good access to containers, for example, Adams says, but Northern California yards might not.
Container access is a serious concern right now for much of the country, as the United States' economic difficulties slow the flow of imported goods. In April, few containers were available inland, with stocks in Memphis and Chicago "very low," reported Mario Bruendel, general manager of Fr. Meyer's Sohn North America (Newport Beach, Calif.), at an export session at the ReMA convention. The wait for containers was as much as six weeks on the East Coast, he said.
Repositioning also plays a factor. At the same session, Greg Dixon, vice president of ZIM American Integrated Shipping Services Co. (Staten Island, N.Y.), said his company is cutting back on its New York container service by 30 percent, which could mean longer waits for containers and the need for more advanced planning. Short-term container delivery "won't happen," he said. Further, positioning containers inland is "not in our best interests" because it takes the equipment out of service for too long, he said.
Even with containers in short supply in some areas, East Coast companies are successfully exporting ferrous in them. Morris Iron & Steel Co. (Philadelphia) began container shipping more than a year ago, says company CEO Stan Greller, and its volume has increased steadily since then. It has given his company an advantage in the marketplace, he says.
"The prices are very competitive. And the freight costs for containers going back to Asia are low compared to other freights." The containers that arrive on the East Coast have to go back one way or another, he points out, and their owners would rather see them carrying freight than empty. "Anything that we have going overseas is in containers," Greller says. "We're not doing any bulk shipping. And from what I can see, that'll go on indefinitely."
Not every scrap company will find containerized exports more cost-effective than selling ferrous domestically, Greller says. It helps if the yard is close to a port that routinely gets container ships traveling to and from Asian markets. "Container ships don't come into every port in this country," he notes. "It's a big factor. You have to know what ships come into what ports. Once you're 200 or 300 miles away from a port, the costs of picking up and delivering the containers goes up. ... In that case, you might be better off using a railroad or truck to move the scrap to a domestic mill." That was the conclusion of Cycle Systems (Lynchburg, Va.), a company that experimented with and decided against exporting containerized ferrous. "Our freight costs, to get it to the closest port, are fairly high compared to someone closer," says Richard Lerner, commercial vice president.
But some inland companies are finding success with this export method. Carolinas Recycling Group (Spartanburg, S.C.) has nine locations in North Carolina, South Carolina, and Georgia, all but one of them more than 100 miles from an ocean port. In the past, the company largely sold its ferrous scrap to domestic mills because the cost to transport it by rail or truck to a port and then load it into the bulk hold of a ship was too high, even when overseas companies were offering higher prices. But about six months ago the company started investigating container shipping.
"Containers have allowed us, with locations that are inland, to export," says Steve Siegel, vice president of ferrous. Instead of shipping his scrap to a port via truck or train, Siegel simply has containers brought to his yards. There, workers load them using semi-specialized container loaders, and the containers travel by truck to a port where they're loaded onto a ship and transported overseas. Truck-to-port has "given us an alternative to rail and allowed us to develop new markets," he says. It took about three months to transition to the new processes, he adds, but the company plans to continue.
Geographically, this new approach has "worked against some companies, though," Greller says. "Those that have locations that have invested a lot of money in port facilities have lost an important advantage. Now, lots of scrap processors who are inland have those same advantages, thanks to containers."
Equipment Options
As they begin to enter the business of containerized ferrous shipping, scrap companies are investigating what equipment and other yard changes they need to make it work.
"A lot of people just do it the old-fashioned way, by taking a Bobcat and scooping the material up and driving it into the back of the container," CRG's Siegel says. In fact, that's exactly what Morris Iron & Steel does. Preparing his scrapyard for bulk shipping "wasn't difficult," Greller says. "We brought in a couple of additional front-end loaders, and as we went along, we added about 2 acres of concrete slabs to the yards. That just makes it easier to load the containers with the front-end loaders."
Though this approach might be the least costly, it has some disadvantages, Lerner says. The Bobcat or front-end loader way of filling the containers did not make sense for his company. "If we were going to do it on a consistent basis, we would have to get a container tipper or build a conveyer that would fill an overseas container to the top. Unless you can turn the container on its end using a container tipper," he says, "you can't load a container with a Bobcat and fill it all the way to the top."
Morris Iron & Steel has reached that conclusion as well—it is now considering whether to upgrade its loading equipment for quicker and more efficient loading and a better long-term payback, Greller says. "There's equipment out there that lifts the containers up and uses a magnet to load them, but we haven't done it yet. We're giving it more thought. I think [containerized ferrous is] here to stay, and we need to consider making capital investments."
Manufacturers of container-loading equipment tout such benefits as faster loading—21 mt in 15 minutes, according to one company—compared with the hour or two it might take with a front-end loader. They also say their equipment causes less damage to the container, maximizes its capacity, and requires fewer workers.
In addition to speed and efficiency, greater safety is a reason CRG uses container loaders. "Safety is very important to us," Siegel says. "You have to figure out a way to load the material safely into the containers." If your yard is going to be shipping "significant amounts" of containerized ferrous, he says, "you'll probably need to make an investment in [specialized] equipment."
Though SA Recycling's equipment investment wasn't huge, Adams says, the firm did make some changes to accommodate the containers and the extra truck traffic that comes with moving them in and out of the facility. "It's certainly a change for most people," he says. "It's a lot of work. It changes the logistics in the yard." Truck traffic through his property has doubled, he says, because the containers that arrive with unprocessed scrap aren't necessarily the same ones he'll load up with processed ferrous and ship back to the port. "You have to have the ability to handle that volume of trucks," he says. "You need more scales, and you need more people."
Siegel notes logistics and labor considerations as well. The company had been shipping nonferrous metals in containers for quite some time before starting up with ferrous shipping, so "we were pretty well versed in the area of shipping and exporting," he says. The extra weight and bulk of ferrous scrap required some training and logistical wrangling, however. "The training part was not a problem for us," but "it does require more labor... . It's more labor-intensive in the yard and in the office. But in this period, when the dollar has been weak and the export markets have been strong, we're able to absorb the extra costs and still make it a profitable venture."
But yard logistics were another reason Cycle Systems decided against ferrous containers, Lerner says. With its yard setup, "we have to load the material on a dump truck and take it to our loading dock area to reload into containers."
Container Concerns
Companies that are on the fence about exporting containers of ferrous might not pursue it for other reasons. For one, "the sheer volume of paperwork is overwhelming," Adams says. "One bulk ship holds about 40,000 tons. If the average container is 20 tons, you can do the math—to get 40,000 tons, you're talking 2,000 containers" and the associated paperwork. One shipment of bulk-cargo scrap might require up to a dozen documents, Adams explains, depending on destination, insurance, and other variables. But each set of containers you book requires its own set of about seven documents.
"If you load 2,000 containers on a ship but book them in groups of 100, you would have 140 pieces of paper," Adams says. "If they are in groups of 10, you would need 200 sets, or 1,400 pieces of paper. It's a tremendous amount of work compared with bulk shipping."
With the headaches of finding and loading large numbers of containers, Lerner says his company decided after a several-month-long trial period that exporting containers of ferrous "really hasn't been lucrative for us." He clarifies that the economics were somewhat favorable—"I think we probably gained a little bit on it. ... It wasn't earth-shattering, but we gained a little bit of money." But the difference in return between that and keeping his product in the United States was minimal, he says, which made it an unsound investment and not something his company is likely to stick with long-term.
As Adams put it, "A domestic steel mill is always going to get business first. Any steel mill is going to feed its mill. And they're always going to buy scrap at whatever price they can."
But the trend toward containerized ferrous isn't going away, and the large scrap companies that all but controlled ferrous exports are paying attention—and planning their response. Jeremy Sutcliffe, Sims Group's executive director and Europe/Australia chairman, commented on the trend and its potential consequences for large and small scrap companies at the October 2007 ferrous division meeting of the Bureau of International Recycling (Brussels). Scrap suppliers, now "free of the shackles of unavoidable delivery to export docks," have become competitors to bulk shippers, he said, leaving the bulk shippers "with reduced scrap flows and time on their hands." Further, he said, "… mills around the world, used to discharging bulk vessels for decades, are adapting to delivery by containers, at lower prices. Steel mills and container shippers are sharing the savings between container freight rates and bulk ocean rates."
Sutcliffe predicted that to maintain their supply of scrap, bulk shippers will further penetrate the scrap food chain into feeder yards and mobile baling equipment, "and these yards and equipment will still be there when bulk freights lessen and the container lines wake up to the fact that scrap is rapidly filling their empty containers, and inevitably increase rates."
Kim Fernandez is a writer based in Bethesda, Md.
Container shipping is changing the shape of the ferrous scrap market, giving smaller companies in more parts of the country direct access to foreign buyers. The logistics of finding and filling containers can be a challenge, however.