Rebuilding (and reshoring?) after COVID-19

Even before the pandemic began causing ripple effects throughout global supply chains, trade tensions between the People’s Republic of China and many of its trading partners were causing corporate board rooms to consider diversifying their manufacturing footprints.

Also, a Trump administration that has been urging American companies to “reshore” some of their operations has had its viewpoint amplified by the supply chain disruptions caused as the COVID- 19 pandemic moved from China to other parts of the world.

As the State of the Scrap Recycling Industry Roundtable convened in mid-May, the financial press was in the midst of a discussion about the future of manufacturing in North America and beyond.

Scrap recycling companies almost certainly stand to benefit if manufacturing output in North America enjoys a renaissance, whether by accessing new scrap generation points or increasing output at domestic metal melt shops.

Rick Dobkin of Shapiro Metals, St. Louis, mentioned some manufacturers had begun to reshore some of their operations prior to the onset of the pandemic. “I would say going back six months or a year, we saw some manufacturers increase their capacities here in the United States because they had business coming back from China, mostly,” he said. “I think what people realized is, you had very cheap labor in China 10 or 15 years ago, but that’s disappeared, so waiting for something to get on a boat and get here in two months was not worth the little bit of savings they were getting on parts that they were making.”

Dobkin said Shapiro’s locations “in the middle of the industrial belt, in the middle of the country,” position the company to benefit from the reshoring trend. “Also, we have seen some of our industrial accounts trying to start back up the last couple of weeks and being unable to because they couldn’t get parts because the supply chain is just such a mess right now,” he added.

“I think it’s more of a long-term than a shorter term trend,” Ben Abrams of Consolidated Scrap Resources, headquartered in York, Pennsylvania, said of reshoring. “Over time, with some energy advantages and cheaper energy here, I think you’ll see that is the foundation for more and more onshoring.”

Abrams added that while China built its economy on exports, that growth has slowed. However, he said other countries also have embraced this model, so global trade will not be a thing of the past. “I think that this idea of globalization that we had sort of in the last two decades, to some degree, will continue. The middle class in the world will continue to rise, but at the same time there are going to be more and more advantages to doing things in the U.S.,” Abrams said.

“[T]he U.S. still has the biggest reservoir of scrap raw materials,” he continued. “When the dollar eventually gets weaker, which it invariably will, other countries benefit from that. They will be able to invest and continue to buy scrap from the United States and make products in their plants, too. I don’t think you’re getting rid of globalization, but I do think there will be government incentives to [locate] plants here. I think there will be a pretty big infrastructure package that forces materials to be American made, and that will be more incentive both on the ferrous and nonferrous side to produce material here.”

Becky Proler said her company Southern Core Recycling, Houston, works extensively with the auto industry supply chain, a proponent of just-in-time inventory management, which was disrupted significantly by the pandemic. “I think these manufacturers at different tiers are going to have to study this for years to try to figure this out. … [A]nd I think things are going to be coming back to North America. We’re seeing that already. But for a supply chain like the auto industry and the heavy equipment industry and all that to be really, seriously hurt over something like this, it really shows you how vulnerable we are as a country and how vulnerable we are as a business.”

Matt Kripke of Toledo, Ohio-based Kripke Enterprises Inc. referenced Harvard Business School lecturer Vikram Mansharamani, saying he has been using the phrase “just-in-case inventory” in the last year or so. “I heard him speak recently, and he was saying not only is there going to be reshoring, but he said there’s going to be redundancy, and people are going to have secondary and third-tier suppliers.”

Kripke continued, “On the aluminum coil side of our business, we’ve received some new orders from customers that we’ve never been able to get in the door with previously. Now some of it may be that they don’t want to deal with [a newly consolidated sector], but some of it is people who are getting the material from Oman or the United Arab Emirates or China, and they can’t wait for the material.”

Looking ahead to late 2020 and 2021, Abrams said, the scrap industry and the wider world will look different after the pandemic. “I think one of the big differences you’re going to see is fewer integrated steel plants and more electric arc furnaces in the United States. That’s going to require more scrap demand on the ferrous side. I think you’ll probably see some similar phenomenon on the nonferrous side, too, with more plants coming back here and opening up. I think that will create more demand.

He continued, “I think, in due time, the integrated steel plants can’t make money at some of the lower hot-roll prices, and they are going to have a very difficult time surviving, and especially now that their balance sheets are not particularly strong to begin with.”

"We’re seeing onshoring, and we saw it before COVID, and for us it’s great.” – Rick Dobkin, chief marketing officer, Shapiro Metals

Jacqueline Lotzkar of Pacific Metals Recycling International, Vancouver, British Columbia, said she sees opportunity from the environmental perspective. “I think the world has seen how good this has been for the environment with things being shut down. I think for us as an industry, that’s an opportunity. Consumers are going to be looking for products that have been designed with recycling in mind, and I see that as a good thing for recyclers.”

“Nobody knows what the future holds, but what we do know is that it’s going to be different than what it was pre-COVID,” Jeremy Miller of Wm. Miller Iron & Metal, Winona, Minnesota, said. “I would agree with [panelist Edward Kangeter of CASS Inc., Oakland, California] in his assessment that companies that have a good reputation and have good relationships with their suppliers, whether that’s peddlers or industrial accounts, there’s an opportunity for them to grow their business during this time or in the near future, shortly after this crisis passes us.”

Miller also saw a need for federal intervention. “I think the best thing that our government can do right now is a very large, sizable stimulus package involving roads and bridges and other infrastructure projects,” he said. “To me, that would have a very positive effect not only on our industry but across the board.

“And if we can get our industrial accounts to pick up, I think that would help everybody, whether putting people back to work or recycling and everything in between,” Miller added.

“Pre-COVID, everybody was in the recycling industry,” Chag Olgin of Olgin + Efune Recycling Co., Phoenix, said. “You could have a guy open up a yard down the street and not follow any environmental regulations or be in compliance at all. We would spend hundreds of thousands of dollars on compliance, and it wasn’t fair that our competition wasn’t doing the same.”

He continued, “Now, I believe everybody is kind of moving into a new norm or a new standard, and really only the strong will survive. I think this will just be better competition for those of us that make it.”