Looking Ahead

Two different impressions crop up when the history of recycling is considered. For many family-owned recycling businesses, the industry began with immigrants using a horse and wagon to collect "junk," whether rags, scrap metal or broken furniture.  The other, more contemporary image is that recycling was born from the environmental ecology movements of the 1960s and ‘70s.

Fast forward to today, a climate in which these two images often clash. However, for Canusa Hershman Recycling Co. (CHRC), Branford, Conn., a paper recycling operation formed by the merger of Hershman Recycling and Canusa Corp., these divergent histories encapsulate its history.

Ethan Hershman, who was president of Hershman Recycling and is presently CEO and co-chairman of CHRC, recalls the former story. Hershman Recycling originated in New Haven, Conn., as his great grandfather’s rag business. The company adapted and changed into one that handled a wide range of materials, including almost every grade of paper, and then switched to focus on a select group of fibers. Further, the company at one time ran a host of collection centers, but then sold off these parts of the business to focus on working with collectors and processors to broker material.

Bruce Fleming, the other co-chairman of Canusa Hershman Recycling Co., came up from the environmental side of the recycling business. Fleming began his recycling career as a student at Princeton University. While involved in the campus recycling program, he wrote his senior thesis on the recycling industry. During his research he studied the Garden State Paper Co, a New Jersey paper mill that was the first 100 percent recycled newsprint mill in the U.S. Eventually, Fleming landed a job with the paper mill. While working at Garden State, Fleming continued his education and acquired his law degree from George Washington University.

JOINING FORCES. Fast forward 20 years, to the year 2002. The two companies, which competed for similar tonnages, found an excellent opportunity to combine their energies.

Hershman says that while definite synergies between the two companies can be seen, the reality is that the merger, from initial inquiries to final completion, took several years. During this dance, the two companies found out that instead of being direct competitors all the time, they were often working with the same companies, though providing different services.

The two companies officially merged their operations last June, though components of the two individual companies are not a part of the combined operation.

What the merger did, at first, is give the company a much larger amount of material from which to market its products and services. Hershman says that the combined company handles between 70,000 to 80,000 tons of fiber a month, giving it the scale needed to compete in the market.

Both companies say that their merger, while fairly new, is an ideal fit because the heads of both companies are able to devise and develop programs and procedures that stand apart from many traditional recycling companies. Both Hershman and Fleming heap praise upon each other.

Says Hershman about Fleming, "What Canusa was doing was very creative. They were thinking out of the box."

As for Hershman, Fleming says he finds Ethan Hershman to be one of the smartest, most innovative people in the business.

Both say a key advantage of combining the two companies that has led to initial success is that the two companies bring a yin and yang balance to the business.

While both leaders have developed reputations as "thinkers," the two companies found the key to the merger was finding a middleman who understood the culture of both companies.

While the two sides saw a fit in combining their operations, it took about three years of due diligence to finally complete the deal. Both Hershman and Fleming say the "linchpin" to getting the merger of equals complete was the role of Jonathan Sloan, president of CHRC.

Sloan had been working for Canusa Corp. as president of its fiber division and had a relationship with Hershman that went back 14 years. This made him an ideal person to assimilate the two cultures.

Sloan, who had previously worked for Browning-Ferris Industries in its recycling division, recognized many of the advantages of marrying the two companies.

Hershman agrees that bringing the two companies together has created some hurdles. "Getting the two cultures together took about six months."

While these steps have benefited the company, Sloan acknowledges that issues needed to be resolved. One such issue he notes is the basic hierarchy of both companies. "Canusa was a decentralized operation, while Hershman was very centralized. We now have a terrific group of individuals throughout the organization that have made the merger a success and are key to CHRC’s future."

Post-merger, the company lists its headquarters as both Baltimore, and Branford, Conn., an indication that the combined company still recognizes the different roots of its operations.

Prior to the merger, both parties worked very hard to come up with strategies to keep their companies viable. Now, with the new structure in place – Fleming and Hershman as co-chairmen; Sloan as president; and two other top managers, Todd Laggis, CFO, and Michael Gajewski, vice president of administration – the company is able to more effectively make the moves that have allowed it to prosper.

An initial advantage of the merger, Sloan says, is that Canusa Hershman can reach more markets. "We now have more people to cover more territory. We can drill deeper, and because of our size, we can make larger investments."

While the companies only completed their merger last year, Canusa Hershman understands that it is unable to remain content. Fleming says that the company is looking to expand its operations. However, while both companies were headquartered on the East Coast, Fleming notes that the company is very much an international operation. "We are already more national than people think."

Hershman agrees, noting the combined company has sales offices on the West Coast, in the Southwest and in Canada.

These different sales offices give the company access throughout the country; however, Hershman does say the company is looking at becoming more visible in the Midwest.

While the company is busy cultivating and growing its market, it continues to look toward the offshore market as an area of growth. Fleming says that the longer-term trend is toward Asia and the Asian subcontinent for greater growth potential.

In addition to building up the roster of end markets for its products, CHRC has been able to use its size to improve things such as payment schedules, credit opportunities and working with generators to install new equipment.

The innovation of the company’s leaders was seen a long time before the two sides decided to merge their individual operations. In his role as owner and president of Canusa Corp., Fleming developed a partnership with the Washington Post that led to the start of one of the company’s packing plants called Capitol Fiber, Inc.

He also developed a more comprehensive fiber procurement and marketing arrangement with Bay State Paper Co., a paper mill in Boston that produces 100 percent recycled corrugating medium and linerboard.

Initially, Canusa sold the paper mill recovered fiber as a raw material, but soon discovered that it could also assist the mill in providing a comprehensive marketing program for the finished product as well.

These types of innovations, Fleming feels, give the combined company the flexibility to provide a wider range of services as it goes forward.

As Canusa Corp. grew it was able to supply paper mills throughout the eastern U.S. In addition to inking a deal to market material to Bay State, several years ago Canusa agreed to fulfill a procurement role for Encore Paper in South Glens Falls, N.Y. (now known as SCA Tissue).

This approach, Fleming says, is a response to a number of mills looking to contract out the business of procuring fiber for their mills. "Not every mill wants to create a fully staffed fiber procurement operation. In essence, we became the secondary fiber division of the mills that contract with us."

However, the merged company is also operating in an environment far different from the industry of 20 years ago.

Sloan, president of CHRC, says that a current trend is the growth in single-stream recycling. This hot-button issue is generating a significant amount of interest and concern from consumers, processors and even generators.

A related issue, Sloan adds, is the whole concept of quality. As more generated material comes from single-stream sources, quality problems are growing. At the same time, Sloan adds, some mills do not want to provide the support facilities needed to collect and process higher-quality material. The result is less incentive for the processor to spend the extra time and capital to ensure that the material is of the highest quality.

"As mills demand quality, then they have to support the network that provides it," Sloan remarks.

Fleming adds to this concern, noting that the struggles of the forest products industry are significant. "We have always been happiest when our customers are making a healthy profit. Paper companies are not making a healthy profit today."

Another concern all three share is the steady erosion of the U.S. manufacturing sector. The well-publicized problems with the North American forest products industry have resulted in numerous mill closures in the U.S. and Canada. At the same time, the growth of the forest products industry outside North America, especially China, has been apparent.

This trend will result in the company continuing to examine ways in which it can grow its export business.

"So much of the industry is driven by the export market," Sloan says. However, he continues, "We don’t see a lot of strength in the next six months."

In addition to the SARS concern in China, as well as the end of conflict in Iraq, there doesn’t appear to be much of a catalyst to propel markets upward anytime in the next several months.

In addition to Capitol Fiber, the combined company operates two packing plants, one in Vermont and one in Baltimore, as well as a variety of joint venture and equity investments in other facilities scattered throughout the country.

While the company has been willing to work with many of its domestic clients, in the future it is looking to take a more direct involvement in the export business, as well as perhaps looking for more marketing agreements with individual mills.

While these strategies are extending the traditional background of the two companies, the three company executives say that Canusa Hershman Recycling Co. continues to look at opportunities in the packing business. "We may take an interest in packing plants. We may open one of our own," Hershman says.

Like other survivors in the paper recycling industry, the Canusa Hershman operation will continue to look for growth opportunities. Whether that means further developing existing relationships or exploring opportunities outside the traditional comfort zone has yet to be determined, though all three men say that they continue to look for opportunities.

While the merger has given the company additional size, the combined force also provides advantages to the generators the company works with. Sloan notes that Canusa Hershman has been able to make payments faster, a large advantage when working with a sector that has struggled for years with developing and maintaining a standard financing structure.

As the company has grown, it also has become more cautious about the willy-nilly approach some vendors took when selling into a mill with serious financial risk. Hershman says that the days of people in the recycling industry selling into this type of environment are over. "We have to watch closely," he adds.

While the two companies have evolved into an entity quite different from their roots, some things remain. The company continues to tether itself to its roots as an environmental organization, Fleming notes, by donating five percent of its pretax profits to environmental groups such as the Nature Conservancy.

It is the type of move that shows the company may be primed for the 21st century, but it still remains grounded to its historic roots.