Goin Once, Going Twice...

Domestic generation of scrap metal from industrial sources has declined as many manufacturers have moved offshore. While domestic manufacturing has increased modestly recently, manufacturers also have become more efficient, resulting in a decline in scrap generation. Because of these reasons, following the economic downturn of late 2008, recyclers have found it more challenging to obtain scrap material.

While expanding into the retail trade holds some promise for recyclers, there are challenges with that sector as well, including dealing with smaller loads, an inconsistent supply stream and regulations meant to thwart metals theft.

Online auction-based marketplaces are attracting the attention of some recyclers. One such website is Scottsdale, Ariz.-based Government Liquidation, a division of publicly traded Liquidity Services Inc., Washington, D.C. Liquidity Services also operates Liquidation.com and Govdeals.com.

Government Liquidation, available online at www.govliquidation.com, is the exclusive contractor to the U.S. Defense Logistics Agency’s Disposition Services, which is involved in the sale of surplus and scrap assets from the U.S. Department of Defense (DoD). Government Liquidation has been providing auction services to the DoD for more than 10 years and is the exclusive sales channel for the the agency’s scrap and surplus assets.
 

Online Origin
Liquidity Services says it provides online marketplaces and integrated services for surplus assets to more than 3,800 government agency sellers; more than 430 commercial sellers, including seven of the top 10 retailers; eight of the largest multi-national energy companies; and the two largest equipment leasing financial institutions.

Liquidity Services says it has developed and fine-tuned an online marketplace that allows Government Liquidation to act as a conduit between various DoD locations and recycling companies. The service has allowed the DoD, which generates a tremendous amount of surplus and scrap material, to earn money selling this material.

In addition to having a presence at more than 150 military bases throughout most of the United States as well as in Puerto Rico and Guam, Government Liquidation manages more than 1 million square feet of warehouse space at various DoD sites, excluding North Carolina, South Carolina and Tennessee, where the material to be sold is stored. The company estimates that it handles more than 500 different commodity categories as well as thousands of surplus items weekly.

Government Liquidation began contracting with the government in 1998 after winning a bid to sell DoD surplus property. In 2001, Government Liquidation became part of Liquidity Services Inc. When a new contract to sell DoD surplus was awarded, Government Liquidation, as Liquidity Services’ marketplace, began to auction that material through its online sales channel. Liquidity Services and Government Liquidation were awarded the bid to start selling DoD scrap in 2005 and have been running the program since.

Government Liquidation’s auction service is part of an effort to keep surplus and idle inventories moving out of DoD facilities nationwide, maximizing efficiencies while creating a valuable source of cash that flows to the U.S. Treasury, says Tom Burton, president of Government Liquidation. This is accomplished with a strong emphasis on national security, through inventory assurance measures and strict purchasing restrictions, he adds.

Burton estimates that Government Liquidation conducts between 700 and 800 auctions each year, selling from 25 million to 30 million pounds of recyclables per month. While the company offers a diverse list of materials, such as compost, glass, electronic scrap and asphalt, on the open market, it is best known as the auctioneer of ferrous and nonferrous scrap metal.

Government Liquidation’s website has separate areas for the different commodities it auctions, including aluminum, copper, steel, titanium, rubber, lead, cupro nickel, brass, paper and mixed metals. The information the company provides includes a brief description of the material to be auctioned and the location, date and time of the auction. Photos of the material slated to be auctioned also are provided.

Burton says Government Liquidation is no Johnny-come-lately to the auction industry, having been involved with the DoD for more than 10 years.

“We didn’t invent the auction business; we just took it on line,” Burton says.

While the material available for auction is located at sites throughout the continental United States as well as at a number of bases in various U. S. protectorates, Government Liquidation uses its online presence to bring prospective buyers closer to the material. “We will put the information online. We give people two weeks in advance to get the information on the product; we provide many videos and photos of the material,” Burton says.
 

Connecting with Recyclers
Burton estimates that roughly 30,000 companies have purchased scrap through Government Liquidation. “I believe 70 percent of the companies are repeat buyers,” he says. Government Liquidation’s website has nearly 1.6 million registered users.

One company that has found success taking part in Government Liquidation’s online marketplace is New Phoenix Metals, a scrap metal recycler in Greenville, Texas.

Mike Carl, a partner with New Phoenix Metals, talks favorably about his company’s experience with the Government Liquidation’s online marketplace. “We have used them for five years,” he says of Government Liquidation. “They are very professional. They communicate quite well. We have never found them deceiving.” He adds, “They are quite open in their descriptions. They make every effort to understand what is being bid.”

Carl stresses that it is important for recyclers to read the full description of each lot as well as any other information that Government Liquidation provides. He says the description typically lists any dunnage, incidentals or contaminants contained in the material.
 

The Process
The auction process is fairly straightforward. Government Liquidation promotes a new auction roughly two weeks before it is set to begin, providing information on the items for sale, including photos representing the material.

While the company provides as much information as possible on the lots being sold, Government Liquidation recommends that auction participants visit the location of the material one or two times prior to bidding.

Because the industry is sensitive to freight costs, scrap metal dealers can typically bid competitively from within a 50-to-100-mile radius of the site.

Bidders are required to provide a deposit designed not to be too steep but yet to dissuade bidders who aren’t serious.

That said, to safeguard the auction environment and to avoid disruptions to the property flow, Government Liquidation says it has implemented multiple layers of verification of its bidders, including verifying account information and the bidder’s ability to fulfill the contract in question.

Once the bidding begins, the auction usually concludes within 72 hours. Burton says the bidding typically occurs within the last few hours of the auction. In cases of competitive bidding, Government Liquidation will allow the bidding to continue beyond the typical 72 hours, Carl says.

Once an auction has been closed to bidding, Government Liquidation notifies the winning bidder, providing information on the terms of the sale.

Apart from being U.S. citizens, there are additional requirements for participants. Because the surplus material is found at military installations, protocols govern who can access the site to remove the material. Additionally, individual sites may give Government Liquidation specific removal requirements.

When the auction is finished, the winning bidder is responsible for fulfilling the contract. Often, there are stipulations on how soon the material needs to be removed from the site.

If the occasion should arise where a winning bidder does not perform the job, Government Liquidation says it suspends the buyer’s account and assesses what the damages are.

New Phoenix’ Carl says on-site processing is necessary in most cases. If shredding is required, Government Liquidation will work with the winning bidder to perform some of the prep work on site.

“The more sensitive the equipment, the more they require you to destroy the material on site,” Carl adds.

Often, demilitarizing the equipment, including stripping hazardous materials and sensitive items from the item being auctioned, is conducted before the bidder has access to the material.

Certain other items carry restrictions and require the buyer to fill out an end-use certificate. An end-use certificate requests background information on the buyer as well as what the buyer plans to do with the item. Government Liquidation then sends the form for Trade Security Control.

For recyclers, there are both upsides and downsides associated with the growing popularity of Government Liquidation’s auctions.

While the auctions have provided a new source of obsolete material for recyclers to process, their popularity has caused bids to escalate, potentially leaving very little profit margin for recyclers that win auctions.

As Carl says, “Some bidders go right to the edge with prices. They are almost offering full value for the material, leaving very little profit opportunity.”

The author is senior and Internet editor of Recycling Today. He can be contacted via email at dsandoval@gie.net.