A nimble player: size gives many companies heft. However, being smaller also offers opportunities, as Ralison International demonstrates.

The burgeoning market for recovered fiber in China has resulted in a tremendous boom for businesses capitalizing on the country's demand. One company that has carved out its own niche in the dynamic secondary paper trade occurring in China is Ralison International Inc., a Diamond Bar, Calif.-based operation focused on providing Chinas Lee & Man Paper Group with OCC (old corrugated containers).

Ralison doesn't operate any processing centers, so it relies on its contacts to ensure it can supply enough recovered fiber to feed the mill.

Under the direction of David Lee, president and CEO, during its five years of operation Ralison has become a large supplier of OCC to China. The company's success has been tethered to Lee & Man's strong increase in business. While Ralison is a major supplier to Lee & Man, Lee says it is a completely separate entity, though Ralison "is the buying agent" for the Chinese paper company.

Lee & Man has been growing its papermaking capabilities throughout the past several years and expects to continue its strong growth throughout the next several years. The success of Lee & Man translates into good growth prospects for Ralison, Lee says.

Ralison International is responsible for the procurement of OCC--No. 11 and No. 12--to feed three Lee & Man paper mills in China. Two of the mills are located in southern China in the Pearl River Delta area, while the third is in eastern China in the Yangtze River Delta area. Ralison sources its material from throughout North and South America.

MIRROR IMAGES. Ralison's growth has to a degree mirrored Lee & Man's own growth. Lee & Man now has seven paper machines with an annual capacity of 2 million metric tons in China. Additionally, Lee & Man is looking to build a number of additional machines in the country.

In expectation of this further growth, Ralison continues not only to strive to lock in tonnage, but also to find new strategic partners to help to source materials for the new capacity. While the majority of the supply that Ralison obtains comes from North American sources, the company does branch out to purchase tonnage from outside the region.

Highlighting the growing role that the Chinese paper industry is playing within world paper stock markets, during the Paper Recycling Conference & Trade Show, a Recycling Today Media Group event held in Atlanta in late June, Lee outlined some of the growth prospects for the paper recycling industry in China. He noted that in 2003 U.S. recovered paper exports totaled 13.9 million tons, of which China took in around 43 percent. The country has been increasing its capacity for the past five years, buying material from around 16 ports in the United States, he said.

According to Lee, Ralison presently ships anywhere from 40,000 to 70,000 tons of recovered fiber a month to Lee & Man mills.

While Ralison expects to continue to grow along with Lee & Man, Lee says the company expects to extend its business to work with other non-affiliated mills, including a greater amount of brokering to mills in China and in other regions.

Further capitalizing on its position as the buying agent for Lee & Man, Ralison is looking to get more involved in supplying plastic scrap to feed the plastic factories that are cropping up throughout China.

The advantage of developing a strong working relationship with Lee & Man has given Ralison some opportunities to supply raw material to other areas of the Chinese company, which has a separate division called Hand Bags & Luggage. This division uses a significant amount of synthetic fiber to make its finished product.

While working with Lee & Man and other Chinese paper companies offers significant benefits, Lee cautions that some areas bear consideration before diving fully into this market.

THE DARK CLOUD. Opportunities abound for companies staking their business on the growth in China; however, one of the biggest concerns is the country's potential energy shortage.

Lee says widespread electricity shortages this year have hampered the growing Chinese economy. As a result, Lee estimates that China is dealing with a 20 million kilowatt shortfall this year. While the Chinese government is addressing this problem by adding new capacity, routine power outages are common and some manufacturing plants work only two or three days per week.

The Chinese government's willingness to invest in infrastructure has been a more promising indicator of Chinas ability to sustain its growth. The government is reducing the number of regulations that must be met to build and to operate in the country, resulting in more foreign investments on the order of more than $1 billion per month.

Other areas of potential concern for doing business in China include the population and labor unrest, high unemployment, the pressure to float the Chinese currency and an uncertain banking situation. These issues and others give pause to companies like Ralison.

One of the biggest concerns for shippers of a host of secondary commodities to China has been the implementation of its AQSIQ (Administration of Quality Supervision, Inspection and Quarantine) import policy. Lee acknowledges that this policy has caused problems.

"We have found the business climate to be very challenging to meet the new regulations and to safely get our goods to our mills in China," he says. "However, we are continually working together with AQSIQ and CCIC (China Certification and Inspection Co. Inc.) North America to strategically ship quality scrap goods into Mainland China. All I can say is that it hasn't been easy, but we have always found a way to ship to our mills. Once everything reaches some maturity, I know things will get better for China and for its shippers," Lee adds.

In his Paper Recycling Conference & Trade Show presentation, Lee also noted that CCIC has begun accepting new applications for self inspections. To qualify for the self inspection, companies must have a clean record for the past three years; the capacity to implement new electronic application processes; an inspection team in place; and between $100,000 and $300,000 put up as a standby letter of credit with the beneficiary being CCIC NA. All expired applicants must reapply, and no sole brokerages may apply.

While Ralison is focused on supplying Lee & Man's three mills in China, Lee sees other opportunities. Lee & Man also has purchased a pulp mill in California, which could result in opportunities for Ralison.

While involved in purchasing material from its sales offices in Diamond Bar, Calif., and in Richmond, British Columbia, Canada, Ralison is also looking at opening another sales office, possibly in New York City, to met Lee & Man's growing needs.

Lee says Ralison sees a bright future in servicing the Chinese market, despite the potential pitfalls.

Ralison's relative small size allows it to respond quickly to changes in the business environment. For instance, before the implementation of the AQSIQ import policy, Ralison was involved in shipping steel from the United States to China. However, with the somewhat complicated procedures in obtaining and maintaining the license, the company has opted to focus solely on the paper side of the business. However, Lee says once Ralison can scale its operation to properly meet its recovered fiber requirements, the company may focus some energy toward materials like plastic and steel.

Now, Ralison aims to grow as the predominant supplier to one of Chinas larger paper companies.

FIGHTING CONGESTION 

California State Sen. Alan Lowenthal (D) has said that roughly 40 percent of U.S. imports and exports handled by ship travel through the ports of Los Angeles and Long Beach and that about 35,000 trucks depart and arrive daily.

To address this congestion, as well as to take steps to reduce the pollution at the ports, Lowenthal introduced Senate bills 760 and 762. The bills sought to impose a charge of roughly $30 per container.

While the two bills passed the California Senate Appropriations Committee, Lowenthal opted to hold the two bills in the California assembly. "I believe that I could move this bill to the governor this year, however with the governor's recent work on goods movement issues, I think a more collaborative proposal can be worked out, it will just take a few more months."

The Pierpass program, which was created by the Marine Terminal Operators, also offers incentives for trucks that deliver material to ports at night and on weekends, when traffic is much lighter.

TEN POINTS TO PONDER

In his Paper Recycling Conference & Trade Show presentation this summer, David Lee, president and CEO of Ralison International, based in Diamond Bar, Calif., touched on the finer points of dealing with China:

1. Anything is possible in China, never more so than this year.

2. Nothing is easy.

3. Don't get hung up on the "China Price"; focus on U.S. value.

4. The perfect moment to enter China may never come; but then again, it may have been yesterday.

5. The best defense is a good offense. Tap the China Market before Chinese companies tap yours.

6. Use preemptive strikes; source from China directly before your customers beat you to it.

7. Maximize shareholder value.

8. Don't take the red tape personally--policymakers are merely seeking to balance stability, growth, and reform in times of change.

9. When you think you're winning in China, recall point No. 2.

10. When you feel you're falling behind, remember point No. 1.

The author is Internet and senior editor of Recycling Today and can be reached at [e-mail].