Bold moves in tough times: in part two of our feature, recyclers give their rationals behind investing for the next upswing.

But veterans of the recycling industry--whether recyclers of metal, paper or other materials--cite the same axiom: We've seen low prices before, and they always go back up eventually.

For those recyclers who have prepared their businesses to last through the tough times, the current reduction in activity has presented an opportunity to take a long-term look at operations improvements and strategic investments.

TIME TO THINK

"I've been too busy to think," is a statement heard commonly from frenzied business owners and managers moving from one day to the next with the single ambition of filling orders and keeping machinery running.

A booming economy is good news on most fronts for those in the scrap and recycling industries. It means material is coming in and that orders can be assured on the sell side as well.

It usually also means, however, that the agenda item known as long-range planning is left completely out of the conversation, as the treadmill of meeting a series of daily, weekly and monthly deadlines merits all of the attention.

A slowdown, on the other hand, can provide the time needed to assess how current equipment is performing and to shop for new equipment if it is deemed necessary.

In some cases, the amount of time and energy a business owner will put into a major purchase is staggering. But the purchase to be made could involve seven figures and can eventually make the difference between success and failure for a business.

"I probably looked at 20 different shredders, traveling the country over the past two years," says Sam Jacobs, president of Columbus Metal Industries, Columbus, Neb.

Jacobs, who ultimately decided on a Svedala 80/104 shredder, considered the state of the ferrous scrap industry for some time before making the decision to commission the first auto shredder to operate in Nebraska since the closing of the Aaron Ferer & Sons in Omaha. "Buying a shredder was looked at and thought about for a long time," Jacobs remarks.

Marty Davis, president of Midland Davis Corp., Moline, Ill., says he and his brother Mitchell, vice president and secretary of the company, also needed time to think about their new purchase of a T-Rex baler made by American Baler Co. "It was something we had sat back and thought about starting about a year ago," he comments.

The strategy of the recyclers is not surprising to equipment salespeople like Bill Tigner of Metso Svedala Recycling, who noted in last month's feature his observation that companies often cannot make major investments when they operating at peak capacity. Rather, it makes more sense to install new equipment "when they don't have customers lining up to bring material."

And as Richard Harris of Sierra International Machinery notes, "putting in machinery is very disruptive. Being down for one or two weeks is a major hassle."

LONG-TERM VIEW

When the owner of a small or medium-sized business purchases a piece of equipment costing a quarter of a million dollars or more, he or she is probably doing so with confidence in the future of the business.

Considering the state of the recyclable commodity markets for the past two years, it might be expected that some of that confidence could evaporate. But most recyclers remain convinced that the long-term prospects for the materials they deal in are fine.

The ferrous markets have been particularly distressed for the past two years, but Sam Jacobs is sure that with his shredder he can make a product that will be in demand. "The steel mills want a clean, dense scrap with good chemistry," he remarks. "There are still markets for sheared scrap, but the mills are looking for dense shred to improve their tap-to-tap times."

The investment has been considerable for Columbus Metal Industries, including not just a shredder, but also an indoor downstream facility and the laying down of concrete throughout the facility.

Jacobs says the decision to make such a major investment was not made overnight. "I think it probably took even longer to convince my wife," he says of Sue Jacobs, who is secretary and treasurer of Columbus Metal Industries. But he is convinced that there will still be sustained markets for scrap metal.

"There will still be demand," he states. "There are going to be ups and downs. We've been successful every year, but we try to maintain smart business practices on overhead and business costs."

Glenn "Skip" Anthony, vice president of sales and service with American Pulverizer Co., St. Louis, notes that equipment that helps recyclers compete by making a cleaner, higher-grade product is also in demand when markets get tighter. "There is a keener interest in new equipment," he comments. "I think it basically is driven by recyclers wanting to do what they have to do in order to get the product upgraded to provide an additional return on investment. I think recyclers are spending to have better magnetic separation and screening equipment."

Paper recyclers have also hit a rough market over the past 18 months, but recyclers of that material are not about to give up either. "I've been in the business almost 18 years now," says Tim Haugh of Evergreen Paper Recycling, Fort Worth, Texas, "and the markets always come back. You have to plan for markets being down and you have to plan for when they go back up as well."

Midland Davis handles both metals and paper, so Marty Davis has also experienced the roller coaster ride given by the recyclable commodities markets. "Our company has been in business since 1892, so we have been in it a long time and know that there are ups and downs," he comments. "The valleys seem to last longer than the peaks, but we've always known it goes with the territory."

Davis notes that the company has purchased much of its equipment while markets are weak, "and we've always been optimistic that markets will come back. I know my brother and I will be here doing this for another 12 to 15 years, so we're looking into the future."

CUTTING COSTS

Parting with large amounts of cash for new equipment is not done merely to keep a business afloat. New equipment can also offer increased efficiency and other advantages that will more than justify the major expense being made.

For Tim Haugh at Evergreen Paper Recycling, material volume remained steady even though prices were lower. Haugh was watching overtime payroll costs escalate as older, lower-volume balers struggled to keep up with incoming material.

"We had to replace the 25-year-old baler at our Waco plant," says Haugh. "There was a lot of overtime being worked there. Our baler in Fort Worth was excellent, but our volumes there are twice what they are in Waco, and it was just too much for the baler."

Evergreen ultimately purchased a high-volume MacPresse baler distributed by Sierra International Machinery. "The MacPresse baler volume was twice what our prior baler in Fort Worth could do," Haugh remark, "so we took our Fort Worth baler to Waco and installed the new MacPresse here in Fort Worth."

Haugh says the overtime the company had been paying was "doggone expensive." Eliminating or vastly reducing that cost was imperative. "The savings in manpower have more than paid for the baler on a monthly basis," he states. "There was a cash outlay upfront, but markets had been good for a year and a half so we could afford that. And we couldn't afford not to take advantage of the monthly savings."

With its MacPresse baler in place, the company has saved with a reduced overtime schedule and 15% to 20% savings in electrical costs. "I thank God I have the baler," says Haugh. "I'm so glad we did it when we did it, or we'd be leaking money every month right now otherwise."

Howard Glick, treasurer of Tri-State Iron & Metal Co., Texarkana, Ark., says his company tracks maintenance costs on each piece of equipment it operates. "You look at what you're paying on maintenance each month, and you get to a point where it makes more sense to replace that equipment," he says. The spike in energy prices in 2000 and early 2001 also made it more worthwhile to consider energy costs, he adds.

In addition to purchasing a new Caterpillar front end loader and an Atlas scrap handler, the company in 2001 installed an inventory management software system designed by 21st Century Programming, Long Beach, Calif. The system has been a time and labor savor for the company, says Glick.

Eliminating maintenance costs and reducing the overall size of its equipment stable helped Midland Davis proceed with the purchase of the American Baler T-Rex. "We were spending a lot on maintenance and the two balers we had weren't being particularly productive or making especially good bales," says Davis. "The T-Rex let us do everything on one baler" he adds.

As at Evergreen, a reduction in overtime costs has been critical. "The biggest factor was going from 12 people working an hour of overtime each day to ten people with a lot less overtime," says Davis.

Paying the upfront costs may be a difficult bullet to bite while markets are down, but recyclers who are seeing savings already and who are prepared for peak productivity when markets rebound are unanimous in their opinions that now is a good time to make bold moves to bolster their businesses.

"We're trying to get more organized and more efficient for when things turn around," says Glick. "We want to be ready when things turn around."

Adds Jacobs of Columbus Metal Industries, "Most people would probably think this is the wrong time to install a shredder. But when the upturn comes, we're ready to roll and handle any increase in material that comes along."

GROWING AGAINST THE GRAIN

In the scrap metal industry, pricing, supply and demand for scrap products all seem to be in a trough together, offering little encouragement for those in the industry.

But scrap veterans say they have seen market troughs before, and some companies have been willing to make the strategic moves to back up their claims that they expect markets to return.

Within the past 18 months, OmniSource Corp., Fort Wayne, Ind., increased its presence in the southeastern U.S. by purchasing the former Loef Co. facilities in Athens, Ga. OmniSource promptly installed a new auto shredder plant at the site, choosing a large shredder made by Newell Riverside, Moline, Ill.

When assets of the former Recycling Industries Inc. were liquidated, several buyers stepped forward to increase their scrap yard holdings. L. Gordon Iron & Metal, Statesville, N.C., acquired five facilities in North Carolina. Additionally, Mercer Wrecking & Recycling, Trenton, N.J., acquired two former Recycling Industries facilities in Virginia.

A new partnership between OmniSource and Jefferson Iron & Metal, Birmingham, Ala. (and Jefferson's operating Regional Recycling LLC), picked up assets in the Atlanta area that had formerly belonged to Recycling Industries. That new partnership, known as Metal Assets Acquisitions LLC, purchased four Atlanta area yards that had once operated under the Central Metals name.

Detroit's Ferrous Processing & Trading Co. also committed major capital to a highly automated downstream shredder sorting plant in Warren, Mich., which is operating as part of the company's SLC Recycling division.

The author is editor of Recycling Today and can be contacted via email at [e-mail].