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Things are done a little bit differently at Ferrous Processing & Trading Co.

Some of the differences might be considered superficial, such as naming major pieces of equipment after prominent Civil War-era Americans.

But other unique approaches adopted by the Detroit-based scrap company have contributed to its tremendous growth and success in one of America’s largest scrap markets.

Doing things differently is not just a matter of circumstance, according to Ferrous Processing & Trading Co. (FP&T) CEO Jeffrey N. Cole. "Our firm is actuated by intellectual restlessness," says Cole.

The intellectual restlessness he refers to begins with the story of Cole’s own entry into the scrap recycling industry.

From the Courtroom to the Scrap Yard

While to the casual observer few places may look dirtier and messier than a scrap yard, to Cole the industry represents a cleaner, purer environment than his previous work setting.

Cole is an attorney who practiced in the Detroit area for several years before deciding he wanted to walk away from the daily practice of law. "I was a bit disillusioned with all the technical hair-splitters and liars in the law," Cole states. "I couldn’t live with the hypocrisy that was required in that profession."

His disillusionment with the legal world came at the same time he was helping his father-in-law write up a contract to buy out a former partner in a scrap metal business. "He asked me what I was going to do with the rest of my life," remembers Cole. "Three or four days later I decided to leave the law."

Cole’s introduction to the scrap metal business came in 1979 with Alport Scrap in southwest Detroit. His initial impressions of the state of the scrap industry were not entirely positive.

"I remember looking out the window at Alport, watching two shears operating in the rain," recalls Cole. "My thought was that all we were doing was turning long dirty stuff into short dirty stuff. How could you make clean steel with all that substandard content?"

The lack of contracts—or the way they were disregarded if they did exist—also puzzled Cole. "They only lasted as long as they were convenient for one side or the other," he says, adding that industry-wide the situation has not changed a great deal.

"I also saw management techniques that I wasn’t too sure about," he says of his early years observing the scrap industry. "I saw things like indifference, greed, and a disregard for talented personnel," he says.

"What really surprised me was how little technology and acumen had actually manifested itself in this business," he says of his initial thoughts on the industry.

While he was observing, Cole was also planning and testing out new ideas. Operations at Alport were improved, and in 1985 the company was able to purchase one of its largest competitors and triple its annual tonnage processed.

"Since then, we have grown our company through experimentation and innovation," says Cole.

Investments Provide Healthy Returns

Jeff Cole is the first to admit that most good ideas also require follow-up in the form of capital spending. "We have made the investments necessary to generate the profits," he states.

The history of FP&T (and its predecessor and subsidiary companies) can be marked by multi-million dollar capital investment projects that have helped the company grow to its present size.

Many of the company’s largest pieces of equipment have Civil War-era names attached to them. It is a practice that Cole, a Civil War buff, started in 1986, when the company installed what Cole calls "the first super heavy-duty shredder." The large shredder was dubbed the "Abraham Lincoln." Says Cole, "we hoped that, like the Great Emancipator, it would free us of some competitive bonds."

Cole runs through a list of dates when other major equipment installations took place:

-This fall, the company is installing its second a Harris 6034 ferrous baler and two electric equilibrium pedestal cranes manufactured by Hawco Manufacturing Co. of Slaughter, La. and the French company Seram. The new baler is the fourth large baler operated by FP&T. The company also operates and additional Harris 6034 and two Harris 4034s.

Available capital for both equipment and acquisitions received a boost in 1997, when Detroit’s Anthony Soave purchased a 50% equity interest in Ferrous Processing and Trading Co. Soave is the former owner of City Management, Michigan’s largest waste hauling firm. When that company was purchased by USA Waste this February, Soave began devoting more time and energy to the other holdings in his Soave Enterprises fold, including FP&T.

Soave Enterprises executive vice president Yale Levin says FP&T is positioned to become the primary—or even exclusive—scrap supplier to several mills within the Detroit region. "By putting the company together the way we have, and consolidating solely within this region, we now have more than enough material so they can use only our scrap at their mill, if they choose," says Levin. He cites two Great Lakes region mini-mills and two large integrated mills, as well as a large foundry operated by one of the Big Three, as potential sole supplier targets.

And while the company’s name correctly implies that ferrous scrap is the primary commodity it handles, FP&T pays serious attention to the nonferrous side of its business as well. Its recent acquisition of the SLC Recycling site in Warren, Mich. (part of Zalev Metals Inc.) will add to its nonferrous tonnage. The company also continues to install new sorting equipment to maximize its return on nonferrous shred produced by its auto shredders. "FP&T is not content to produce a large tonnage of valuable commodities and then abdicate its ability to fully profit from it," Cole remarks.

Talent Acquired Along with Capacity

-Most recently, Maxwell Zalev of Zalev Brothers Co. in Windsor, Ontario, has been named FP&T’s chief financial officer. Zalev’s years and training as an accountant who has also operated a scrap firm "was something we just didn’t have here," says Yale Levin.

"I’m continuing in the role of president of the Canadian operations," says Max Zalev, whose brother Dean will also remain an officer with the company. "The feeling was that the financial and administrative side of the business was something I’ve been involved in throughout my career. It really is a good fit."

Cole has also procured talent from outside the scrap industry, such as FP&T vice president and quality manager Clarence Watts, who had worked in the quality field with automotive supplier companies. "His task has been to establish a system of experimentation to certify the chemistry and content of our product," says Cole.

Measuring Quality and Output

Things may be done differently at FP&T, in part, because Cole and other officers do not spend a great deal of time studying the competition. "We’re relatively indifferent to what our competitors do—let them set their own goals," says Cole.

Establishing internal goals and finding ways to surpass them has led Ferrous Processing & Trading Co. to take several steps that are not widespread within the industry.

The company scrutinizes the chemistry of its outbound scrap, taking samples not from individual bales or shred, but from steel melted within its own melt shop. A small induction electric furnace melts ferrous scrap samples a dozen times each day. According to quality manager Clarence Watts, 100 pounds of processed scrap is selected for each melt. Scrap produced from each major piece of processing equipment in the yard is used in different melts.

Spectrometer readings are then taken from ingots produced in the melt shop. The readings are recorded and tracked and ultimately published in a monthly "Outgoing Quality Report." The report lists the presence—down to a thousandth of one percent—of 16 different elements in outbound ferrous scrap shipments. Thus, a consuming mill is able to track over time FP&T’s ability to control the copper, nickel, silicon or other residual constituents in its ferrous scrap.

"There are some consumers who are prepared to pay for value," says Cole of his company’s ability to profit from this information-gathering process. "Having more effective processing equipment and being able to quantifiably add value to the product we handle has been crucial."

The emphasis on quality measurement may be ahead of its time, according to Yale Levin of Soave Enterprises. "Many of the mills don’t yet know how to use the information," Levin says of the monthly 75-page Outgoing Quality Report. "I believe that this company and its customers haven’t realized 10% of the benefit they can get from it."

While growth alone may serve to show that the company’s methods are working, FP&T uses an additional yardstick to measure results. "In 1997, our company was processing about 850 tons a year with about 100 people," he remarks. "It works out to more than 8,000 tons processed per man-year."

Recent acquisitions have changed that equation. "Now we’re looking at processing 2.25 million tons this year with 385 people. That works out to about 5,750 tons per man-year. Within the next six months, this firm will be doing the job we’re doing with just under 300 people," he remarks. "Our goal within 18 months is to reach a figure of 10,000 tons per man year. And we’ll reach that goal."

Throughout 1997 and 1998, the actions of national consolidating companies drew a great deal of attention. But the momentum built by such coast-to-coast consolidators as Philip Services Inc., Recycling Industries Inc. and Metal Management Inc. has stalled. Philip is attempting to sell off its scrap assets, and the other two companies are to some extent on the defensive to show that their strategies will pan out.

Those who have long held that scrap is a local (or at most, regional) commodity have an ally in Jeff Cole. He calls his method of acquisition "concentric" and states that it is much more workable than what he calls the "dots-on-a-map" strategy.

"I’m confident that our model will work, because unlike the dots-on-a-map plans, our assumptions are not devoid of the possibilities of truly consolidating operations," he states. He also sees it as an advantage that his company is focused on results produced "not to please the investment community, but to compete on the ground, out in the scrap yard."

FP&T’s "concentric" acquisitions have occurred during the same time it has been investing in equipment to improve its operations internally. The company thus took advantage of the strong ferrous market of the early and mid-1990s to not only purchase new equipment, but also to acquire such companies as Victor Steel, Metal Alloys Corp., TBS Industries, Mason Iron & Metal, and its most recent and largest acquisition—that of Zalev Metals Inc.

Although new to FP&T, Max Zalev adheres to the same logic in regard to consolidation. "This is a regional consolidation, which makes a lot of sense." He adds that, "with Soave Enterprises, we have a strong and solid financial base. That can’t necessarily be said of a lot of the other consolidators."

While FP&T can be pleased with its position in the region, the company’s officers are at the same time grimly realistic concerning the state of scrap and metal markets in the near future.

"American steel makers are being brutally assailed by imported competitive products," says Cole. "Companies in the scrap processing industry are facing daunting global competition arising out of economies that are in deep distress," he says of the effects of Asian and eastern European markets.

"Companies should be prepared for some very tough sledding," adds Cole. "If we’re wrong, we’ll be pleasantly surprised. But if we don’t prepare and we’re faced with these challenges . . . well, I wouldn’t want to be in that position. The need to continue to increase efficiency has never been more intense.

The author is editor of Recycling Today.