All Aboard

Transportation logistics is one of the often-forgotten aspects of the recycling industry. However, moving material from processing spot to consuming spot eats up a significant amount of money. And, despite the recent upward pricing trend for a host of recyclable materials, it is still imperative for recyclers to control shipping costs. With profit margins still razor thin at best, the difference between a profitable shipment and taking a loss could depend on the mode of transportation chosen.

What has complicated matters on the transportation side has been the move by many consuming mills toward a just-in-time inventory process, which typically favors trucks. The ability of trucking firms to be more responsive to tighter deadlines has been one of the biggest advantages for trucking companies.

On the other side; the closing of manufacturing sites close to recyclers, especially scrap steel consumers, has often forced scrap shipments to be sent further away. This typically favors the use of rail cars.

Michael Collins, president of Metal Management-Ohio and national director of ferrous sales for Metal Management Inc., says of his company’s shipping mix, "I would say there is a tremendous amount going by barge, and likewise a lot by rail, simply because there is displacement of scrap away from its regional markets. For example, the Nucor mills in the Carolinas and the new Chaparral mill in Virginia, they’re having to buy scrap clear up here in Cleveland and in Connecticut, so there is some displacement."

Fluctuating fuel prices may also favor rail in the current environment. "The rail rates today are much more competitive with truck rates. I think it will continue to be that way until the oil situation gets better. The truckers are still charging fuel surcharges."

While both rail and truck companies feel they carry some strengths, the recycling industry is looking for the best method to ship material in a cost-effective method.

For Kansas City Southern, a Class I railroad headquartered in Kansas City, Mo., the use of rail cars to ship scrap metal has mirrored the overall problems with the steel industry. A spokewoman for the railroad notes that the most recent figures show the scrap shipments have declined significantly. While shipments have been declining, the company "pursues every opportunity to increase its business in this sector."

Chad Donley, scale master with Annaco, an Akron, Ohio-based scrap processor, notes that when the steel industry was facing significant shutdowns rail became a much more lucrative endeavor. While acknowledging that rail is not as timely as shipping via trucks, it often is easier to load than a truck. Plus, a typical rail gondola car used to haul ferrous scrap can carry as much as four times as much ferrous scrap as a standard truck.

Seasonal restrictions some states have for truck weights can also be a factor. Marsha Peters, with Miller Compressing, Milwaukee, Wisc., says that when the ground is still defrosting, some states in the Midwest impose weight restrictions on trucks, mandating lighter shipments to be made. The result is a higher per-ton cost to use trucks.

In the past some processors have experienced major problems using rail to ship material. Over the past decade, several large acquisitions shrank the number of large, Class I railroads in operation in the U.S. Two of the most significant were the acquisition of Southern Pacific by Union Pacific (UP), Omaha, Neb., and the Norfolk Southern and CSX acquisition of Conrail.

Following these acquisitions, many processors reported horror stories as cars were delayed significantly, scrap shipments were sent to the wrong location, and the specialized cars used to carry scrap, called gondolas, were not available, or, in some cases, even lost.

Over the past several years, however, the railroads say they have taken great strides to improve their service to ensure a steady flow of material.

While many railroads have been able to slash the length of time it takes to move material via rail, they readily admit that on strictly a timing basis they can’t compete with trucks. However, for scrap processors looking to move material a longer distance than several hundred miles, the advantage swings toward using more rail shipments.

Donley notes that the scrap industry is pretty price sensitive with freight. While the concerns in the past over service had some companies eliminating its use of rail, he says that over the past several years railroads have been very responsive.

Howard Labkon, General Iron Industries, Chicago, says that while the company moves all of its nonferrous by truck, it is using both railroad and trucks to move ferrous scrap. He also says that while rail problems in the past have scared some people, "We have seen it improve." He stresses that the relationship between General Iron and both trucking companies and railroads have been very good.

In addition to shipping via truck, Labkon says the company uses both the UP and the Canadian Pacific railroads to move material. "We have never had a problem using them," he adds.

An issue that weighs in the favor of trucks, Labkon points out, is that a company can get paid much quicker with trucks, since the material typically gets delivered to the end market much more quickly.

Several other processors say that the railroads have become a much better source to move material. Demurrage charges, which often created additional expenses for shippers, have become less an issue for many shipments.

Not all users, however, are as upbeat about the rail service. Peters says that demurrage charges are becoming "more restrictive. You have two days [to load and move the car] if you are lucky."

One of the biggest differences between trucks and railroads is the number of options available for each. There are only a handful of Class I railroads. Even factoring in short lines, scrap processors are limited with their opportunities.

Compared to that, there are thousands of trucking companies competing for business. This may give some scrap processors an advantage when calling around for a better rate to ship material to an end destination.

"If I have a problem with one [trucking company], I can go and use another one. If I have a problem with a railroad I can’t go anywhere else," one ferrous scrap processor notes.

Barry Russell, a marketing manager for the Burlington Northern Santa Fe (BNSF), Fort Worth, Texas, says that scrap metal markets have been struggling over the past year. However, the modest improvement is being seen with an uptick in the use of railcars to move material. Further, Russell says that the company is taking a number of proactive steps to make sure that the company is able to benefit from the improvement that is slowly taking place.

One step is addressing the sometime labyrinth approach to establishing prices to ship various commodities. According to Russell, freight rates are accessible over the company’s Web site.

BNSF also introduced a program specifically geared toward scrap metal shippers. Introduced at the end of last year, the program is designed to allow metal customers to use fewer rail cars to transport the same tonnage. According BNSF, the improvement will allow more inbound gondolas of scrap to be reloaded with outbound finished steel product.

Called the Gondola SWAPS program, the goal is to integrate customer-controlled equipment into the BNSF’s controlled fleet to provide a more generic and versatile equipment supply.

To take advantage of the program, equipment is required to meet the following criteria: 65 feet or greater in length; 100 ton capacity; and in good existing condition.

The shipper is able to choose between two types of integration:

• BNSF will enter into a sublease agreement with customers at the current
market rates in exchange for a guaranteed commitment of monthly shipments.

• Equipment with private marks can be re-stenciled with short-line marks and
placed into BNSF control. Negotiated per diem rates would apply on all roads, and customers would collect accrued off-line earnings.

Norfolk Southern (NS), Norfolk, Va., also has addressed customer concerns through a program called Thoroughbred Operation Plan (TOP), which optimizes the way in which the NS operates its rail network.

Additionally, the company says the TOP program will improve on-time performance, reduce car handling, shorten routes, accelerate train speeds and boost asset utilization.

While some scrap processors extol the benefits of moving more scrap via rail, others are less upbeat. Peters of Miller Compressing says the company has dealt with moving material via rail for the past 16 years.

As for the improved customer service, she says she really hasn’t seen much of an improvement. She cites as problems demurrage charges that can kick in as soon as one day and the lack of knowledge demonstrated by the rail people who her company deals with.

When weighing the options between rail and truck, a key factor is the number of switches that need to be made between rail lines. "If you have a straight shot, the rates are good," Peters notes. However, if there are a number of switches needed to ship the material from point of generation to point of consumption, the cost of using rail starts becoming prohibitive.

Dale Lenz, with Streamline Logistics, a truck and logistics broker in Ames, Iowa, says that trucking companies are becoming much more aggressive with some of their rates. One of the biggest benefits is when a backhaul opportunity arises. "It’s a ‘win-win’ situation," he remarks.

While low rates can be helpful, increases in fuel costs can make it tough for trucks to keep rates down. In their favor, though, is when consumers move toward a just-in-time (JIT) inventory model.

Peters says that some smaller foundries and mills opt for JIT because of the lack of space to store material. Concerns with environmental problems of having scrap recyclables sitting on their site can open up the issue of stormwater runoff.

However, many larger consumers are less likely to move toward this approach. A steel mill that requires thousands of tons of recyclables a day may need to have some inventory on hand to reduce spikes in price if the mill runs short.

While JIT has been embraced by many industries, rail companies stress that the concept is not a total panacea.

"While JIT offers the potential to create significant savings for firms, it can be easily misapplied," says Michael Gorman, director, Supply Chain Services for the BN. "While it is true that JIT can indeed save firms money and improve efficiency, JIT programs can expose firms to costly disruptions in production and failures to meet customer demands," he remarks.

Brian Maher, senior business director, ferrous metals for Union Pacific, says that as the steel industry starts to improve, the company is starting to see a pickup in shipments and demand for gondola cars. UP is the largest railroad system in North America.

Reflecting this upward trend, Maher notes that gondola availability "has been tightening up." To respond to that trend, the company has been bringing some of its gondola cars out of storage to add to its fleet.

While railroads are responding to the need to improve their service to ensure that material continues to move through the system, scrap processors continue to focus on the bottom line.

The author is senior editor of Recycling Today and editor of the RecyclingToday.com Web site. He can be contacted at dsandoval@RecyclingToday.com.