Moving Forward Wisely

While the pending mergers among the world’s largest aluminum companies (Alcoa and Reynolds; Alcan, Pechiney and Algroup) have garnered most of the attention, consolidation has also occurred at the secondary production and scrap levels of the industry.

One of the companies moving forward with an aggressive growth plan on the scrap side of the market has been Wise Recycling LLC, Baltimore. The company, which is 50% owned by Wise Metals Group, Linthicum, Md., and 50% owned by Tomra North America, Stratford, Conn., specializes in the collection and processing of aluminum used beverage cans (UBCs). The company’s management, however, is making certain that the company does not stake its future entirely on the UBC, and is encouraging its managers at facilities across the country to explore ways to profit from the nonferrous scrap business.

 COLLECTING CANS

The Wise Metals Group has several operating divisions, including a trading division and an alloys division with a plant in Alabama. Wise Recycling LLC, based in Baltimore, was created with the February 1998 purchase by Wise Metals of the former Reynolds Aluminum Recycling operations of Reynolds Metals Co., Richmond, Va.

Wise purchased the operating assets of a nationwide network of collection and processing facilities designed primarily for the collection of UBCs. Wise Recycling assumed management control of the facilities located in the eastern U.S. (The Reynolds facilities acquired that were located west of the Rocky Mountains were sold to Tomra Pacific, Santa Ana, Calif. Later in 1998, Tomra North America acquired a 50% stake in Wise Recycling.)

According to Wise Recycling LLC president Dick Weaver, the Wise Recycling network created from the former Reynolds sites consists of some 200 drop-off trailer sites, 22 shipping locations that contain processing equipment, and another 40 to 50 collection facilities that contain more than just a trailer, but that are not designated as shipping facilities.

Wise Recycling “is almost exclusively in the nonferrous business,” says Weaver, “and the vast majority of that is aluminum and copper.” UBCs are key to the company’s operations, as they are the primary feedstock for the Wise Alloys mill in Alabama. “Our 22 shipping locations are where all of our UBCs that we supply to Alabama are shredded and shipped to the mill in Muscle Shoals, Alabama.

“Our sites are in many markets east of the Rocky Mountains, with much of the concentration in the south,” says Weaver, who notes that shipping to Alabama is more cost-effective from the Southeast.

While the company has empowered its regional managers to look beyond the collection of UBCs, there is no denying that the acquisition of beverage cans is a key to making the network of sites profitable. Weaver acknowledges that to keep the stream of UBCs flowing, it takes more than just opening up the doors in the morning.

“I think container recycling faces challenges,” he remarks. “We have a highly-employed populace and there certainly isn’t a compelling economic need to recycle. Most households just don’t need that few extra dollars a week right now to make ends meet.”

Even for those who want to recycle, the proliferation of municipal curbside collection programs has provided an alternative method of doing so. “Certainly it’s easier to place cans in the recycling bin at home or even in the garbage than it is to bring them to a collection site.”

The company does buy material from some waste haulers who collect recyclables, either processing the materials for shipment or acting as the broker for the UBC portion of the recyclable stream. The company is also able to obtain UBCs in states that have mandatory deposit and return laws, according to Weaver.

“We operate in Iowa and Connecticut, where there is a deposit environment, and we operate successfully there,” he remarks. “It can depend on the legislation in the given state, but such laws can be a more efficient and less scattered way to bring cans to the market. Typically, of course, beverage wholesalers and retailers play a bigger role in the process.”

In the soft drink market, aluminum cans have faced aggressive competition on the packaging front from plastic bottles for some time. Now, breweries are also experimenting with plastic bottles as a potential packaging material. Aluminum can demand has nearly flattened in the face of competition from plastic, but Weaver is confident that the container’s demise is not imminent.

“The concerns of the inroads of plastic are major ones,” he remarks. “The dynamics of the market have changed enormously in the past four or five years, with aluminum cans not being the fast-growth container anymore. I don’t think the aluminum can is going to go away, though.”

The bigger dilemma is how to ensure that a significant percentage of those cans get recycled. “The perplexing question is that nationally the recycling rate has fallen to under 60% this year. If you accept that, what happened to the other 42% of cans?,” asks Weaver. “How can we bring that percentage back somehow to the recycling stream?”

“Recycling is not the buzzword that it was ten years ago,” Weaver continues. “The activists are now middle-aged, and many don’t have that fire in the belly anymore. It’s going to be a challenge for us—how do we get the cans and how do we do it economically.”

One advantage Wise Recycling has in addressing the problem is that, due to its management structure, it has several people in many different parts of the country attempting to find answers to that question.

SITE MANAGEMENT

More than just the name changed in February of 1998 at the Reynolds Aluminum Recycling shipping facilities and regional offices acquired by Wise. Most of the individuals involved seem to agree that the style of management changed from a very traditional top-down structure to one with more horizontal decision-making opportunities.

“Reynolds was an old-line company with a lot of promotion from within, and managers were expected to have a pretty narrow focus,” says Weaver. “It had a typical hierarchical structure. We tried to make it more level, and to give the managers more responsibility and authority. The basic philosophy is that in any geographic area there is a unique market, and the manager there is responsible for knowing that market.”

Wise Recycling LLC has 15 regional headquarters offices in locations ranging from San Antonio, Texas to Hartford, Conn. At each of these 15 offices, area business managers make decisions on matters ranging from pricing to buy and sell opportunities to promotional ideas.

“On the promotional side, we make available to them certain promotional material and programs, but we don’t insist that they use them,” says Weaver. “Pricing-wise, Reynolds was much more centrally focused,” he adds. “We provide information to them, but they should know the local market.”

John Stewart, Wise Recycling’s area business manager in Charlotte, N.C., says that his former Reynolds facility “has enjoyed a very substantial increase in business since the Wise takeover of our operations area.” He adds that “growth in the UBC area is very difficult to come by in this day and time, but we have enjoyed some, plus we have been able to expand by accepting other forms of aluminum scrap and red metal scrap.”

Says Stewart of the Wise approach to managing operations in Charlotte: “Basically, to a huge extent they have given us the business and told us to run with it. I have been able to work an entire deal for more warehouse space,” he notes. “Compared to the way that would’ve been done under Reynolds, it would have taken 90 to 180 days at best, and the chiefs would have been involved, up to Corporate Real Estate.”

Stewart says that he was also able to pursue an opportunity in Augusta, Ga., to purchase the assets of a struggling company. “I brought this to their attention, and they encouraged me to go after it. A year later, we’re very successful there and looking at expanding in Augusta. The people at Wise urged us to go ahead and lease or buy property and move. That would have been different under the previous management, with the old paralysis from analysis cliché having been apropos.”

In Chicago, Bill Karr has noticed a similar change in operating methods since the Wise buyout. While also noting that Reynolds was a “great company to work for,” Karr says that, “Wise lets us manage to what our local needs are. We’re no longer just a can company—we have opportunities in all nonferrous metals.”

Karr has taken advantage of Wise Trading’s ability to market collected materials to give his facility “a stronger presence in the scrap recycling business.” He says of Wise, “they gave us the freedom to manage our business unit—that’s the bottom line. Before, we supplied one plant and they controlled our business. Now, we’re more forward-thinking and we’re changing along with the ever-changing recycling business.”

Wise Recycling area business managers are among those looking at ways of increasing UBC collection rates at public gatherings and events.

“We’re very successful in this area with the Charlotte Motor Speedway,” says Stewart. “We have collected as much as 25,000 pounds of UBCs at a single event,” he notes. “We’re currently working with Habitat for Humanity in conjunction with the 2000 races to do some additional collections from the camping areas around the Speedway.”

“It’s a two-way street,” Weaver says of the flow of information and marketing ideas that runs between the Wise headquarters in Baltimore and the 15 regional offices. “We’ve had some of our best innovations come from the field.”

STAKING A CLAIM IN SHIFTING TERRITORY

1999 proved to be a difficult year for many scrap recyclers, and the struggles of the large, publicly traded scrap companies were well documented. But consolidation in the scrap industry may regain some of its strength in 2000, and consolidation in other segments of the metals industry has never slowed down. The rapidly changing landscape has made it a difficult time to manage a business.

Weaver credits Wise Metals Group chairman Jerry David as the type of savvy manager who has been able to manage a growing company during a time of shifting global alliances and mergers. “Jerry David is a pretty innovative person,” says Weaver. Under his and president John Cameron’s leadership Wise “tries to keep ahead of the curve as far as knowledge is concerned and hedging and managing the spread and the risks. That has served Wise well during the last year-and-a-half.”

While an observer might conclude that Wise purchased the Reynolds facilities at a turbulent time, Weaver remarks that, “if any company stands still, it’s not going to be successful.”

In December, the company purchased Sav-A-Can Recycling in Miami, Fla., a 20-year-old recycling business. Wise Tampa area business manager Jim Zaccario says Wise will operate a pick-up center and will support school fund-raising efforts from the former Sav-A-Can location.

The smaller-scale acquisition strategy fits into Weaver’s plans for Wise. “I think Wise Recycling is going to look for growth in the areas where we are right now. I don’t see us going out into other business areas. If anything, our growth will be a lot more measured that what you’ve seen from the public companies.”

The Wise Recycling area business managers on the front lines say they are encouraged by Wise Metals Group’s support for their operations.

“Probably the biggest change I have noticed is that Wise has come in with availability of capital to enable us to grow our business,” says Stewart. “Wise being willing to invest has been a huge improvement.”

A change in style is also evide3nt. “There is a natural entrepreneurial style with Wise that is certainly difficult to emulate in a corporate structure such as Reynolds had. It’s a natural posture for Wise, and it’s been contagious throughout our organization.”

“I like the business philosophy that Dick Weaver has conveyed,” agrees Karr. “As area business managers, we’re in charge of bringing in more business, and we are rewarded if we are. There is so much less red tape. Without a doubt, it’s a much better environment. Wise is great from Jerry David on down—it’s been a great transition for us.”

 The author is the editor of Recycling Today.