Well adjusted

Atlantic Recycling Group (ARG), Rockville, Md., was formed in 2006 through the combination of two scrap recycling companies with deep roots in the Baltimore-Washington, D.C., metropolitan area.

In the ensuing eight years, ARG’s management team, led by co-owners David Caffee and Robert Millstone, has solidified the company’s presence in the Mid-Atlantic region while also adjusting to an economy and a scrap market that has required their constant attention to strategic decisions.

By continuing a tradition of innovation and managing people to maximize their potential, David, Robert and ARG President Aaron Hill say, despite the current challenges in the market, they are enjoying guiding the company as it navigates through an increasingly competitive scrap climate in the capitol region.
 

Combining strengths

One of ARG’s roots traces back to a 1-acre paper recycling center that was started by Robert Millstone’s father, Phil Millstone, in Rockville, Md., in 1949.

Phil guided the business, later known as Montgomery Scrap Corp. (MSC), to the point where it outgrew its original home and moved to a different 7-acre location in Rockville. Robert says as a younger man it was not his intention to inherit the reins of MSC; but, as his father’s health failed, he stepped in to keep the business operating. Phil died in 1978, and Robert continued what has turned out to be a four-decade career in the recycling industry.

In 1986, Robert hired David, a nonferrous scrap trader who two years later became a partner in the MSC business. Together, Robert and David shifted the company’s business model away from paper and heavily into nonferrous and ferrous metals.

While Robert was learning the scrap trade and leading MSC, the Shapiro family was operating one of the Baltimore region’s first auto shredders at United Iron & Metal (UIM).

“United Iron and Metal was started by the Jacob Shapiro family in 1912 and has remained in its current location on Wilkens Avenue in southwest Baltimore ever since,” Robert says. The company established a second location on Pulaski Highway in east Baltimore in the 1960s. It was idled in the 1990s and restarted in 2011 after the merger with MSC.

The UIM shredder yard was sold by I.D. Shapiro to the Cincinnati-based David J. Joseph Co. (DJJ) in 1990 and then changed hands again when DJJ resold it in 2001 to a group of UIM managers.

Throughout this time, UIM had been a buyer of MSC sheet iron to feed its Baltimore shredder. The leaders of the two companies began talking about the potential of a merger in 2005 and completed the transaction in 2006.

One of the UIM partners retired and was bought out by the others before the merger. The remaining two UIM partners, Ed Johnson and Joseph LiPira Jr., were bought out by Robert and David in 2009 and 2012, respectively.

The resulting family of companies has put current partners Robert and David in a much different situation from the one they had when David was hired in 1986. “In 1986, MSC had one roll-off truck and eight containers and processed less than 500 tons per month of steel,” David says. “By the time of the merger with UIM in 2006, MSC had 30 power units and over 400 roll-off containers and numerous flatbed, dump and van trailers. Ferrous volume grew to over 2,500 tons per month, and nonferrous volumes also grew significantly,” he adds.

The ARG holding company formed by the 2006 merger now processes scrap at four locations, two of which retain the UIM brand and two that still carry the MSC name. Both UIM locations are in Baltimore, while MSC has its Rockville plant as well as a retail feeder yard in Wintersville, Ohio. “Also under ARG is the M-Scrap Transportation Services company,” David says, “which provides trucking for UIM and MSC.”
 

Separating with service

Robert and David say their managerial skills were tested by the financial crisis and subsequent recession in late 2008 and 2009.

“The post-merger years of 2006 to 2008 were very successful and profitable for ARG, with the hoped-for synergies of the companies’ strengths being realized to an even greater degree than either had anticipated,” says David.

“When the 2008 fourth quarter collapse hit, ARG was well-situated with excellent high-priced sales to creditworthy buyers and no inventory exposure,” he continues. “The profitability of those first nine months of 2008 left us in a strong position to weather the storms of the following 12 months,” David adds.

The dramatic drop in scrap volumes, however, was tougher to weather. ARG’s leaders “made the difficult decision to downsize the company’s employee count to meet the new reality during that time,” says David. “A leaner, more efficient company emerged, ready to take advantage of improving conditions in late 2009 and 2010.”

Both before and after the recession, ARG and its predecessor companies have used innovative techniques to distinguish themselves in the regional scrap market. Three decades ago, Robert started a mobile scrap buying operation in which stake body trucks (partially enclosed small flatbed trucks) were outfitted with certified scales.

“MSC buyers went (and still go) to small to midsize nonferrous manufacturing and contractor accounts and brought carts in which the customer could place their scrap to be weighed and paid on the spot,” says Robert.

“This concept proved to be a very convenient service with the comfort factor of the customer knowing he is getting fair and accurate weights without having to wait for payment. This service was so popular it has been copied by every nonferrous dealer in the greater D.C. area,” he adds.

Service overall remains vital for any scrap company that wants to stay competitive, according to David. “We get a lot of business because we are able to respond to a scrap service need, large or small, with an array of transportation options, usually within 24 hours or less,” he says.

The fixed point of reliable service will be important for ARG as it competes within a recycling industry that offers wave after wave of changes and challenges.
 

Facing forward

Among the changes in ARG’s market region have been a reduction in ferrous scrap consumers and added competition on the auto shredding side.

“We are fortunate to have some mills close enough to truck to, barge to and ship by rail to, which gives us flexibility and options, but having lost RG Steel at Sparrows Point, Md., and Claymont Steel [in Delaware] in the last two years has certainly made the remaining area mills less hungry and less aggressive on pricing relative to their Midwest counterparts,” says David.

“The presence of exporters on the East Coast is a two-edged sword: When they are loading cargoes for export markets, they take units away from the area and keep the local mills on their toes,” David continues. “But when they are not exporting, their tonnages end up as excess supply on the domestic market, keeping Mid-Atlantic mill prices down. The absence or presence of Indian ferrous container buyers has the same effect.”

Although the steel industry may be smaller in the Mid-Atlantic region than it used to be, that hasn’t stopped scrap recyclers from investing in auto shredders.

“The Washington, D.C.-Baltimore metropolitan area is very competitive on all material,” says David of his local scrap sector. “There are many shredders (too many?) and dealers in this area, and overcapacity is an issue—too many yards chasing too little scrap”

The result, says Robert, is a “margin squeeze from overcapacity on available scrap [and] escalation of costs (transportation, fuel, insurance, equipment, supplies, wages and taxes) with no corresponding increase in volume or margin,” he comments.

Also contributing to increased cost have been “tightening regulations on buying and processing scrap, much of it theft-related,” notes Robert.

Just as service is a critical competitive advantage on the scrap buying side, strong relationships are vital on the sales side, says David.

“Export markets are here to stay, but they can be very inconsistent,” he comments. “Maintaining relationships and tonnages with all market partners becomes tricky but crucial. Knowledge of all markets and things that affect them (supply, demand, economic trends, currency movements, geopolitical events) are all things that even the smaller dealers need to be aware of to survive and to make good decisions,” says David.

For the past few years, as Robert and David have tried to uncover and absorb market information, they also have been bringing Aaron into increasingly responsible positions so he can learn as well.

Robert and David do not have retirement dates in mind; but, with the younger Aaron currently serving as president, they say they are glad they have developed the next generation of leadership at ARG.

Aaron, likewise, has been identifying younger employees on the operations side to bring into positions of increased responsibility so that important institutional knowledge is retained and additional leaders can emerge.

As they look back at having worked together for nearly 30 years, Robert and David say there have been some surprises along the way.

“I don’t know that we ever envisioned owning a shredder,” Robert says.

While David adds, “I’m pretty amazed that we took such a hard turn into the ferrous business.”

With Aaron and others on board (including David’s son Ben, who is general manager of the Rockville facility, and Troy Simms, general manager at the UIM locations), Robert and David are encouraged that ARG is equipped to handle challenges and make bold decisions when necessary.

Among the philosophies David says ARG tries to maintain is to “take care of problems quickly, fairly and personally. Problems are not like wine—they get worse, not better, with age.”

A priority in recent years has been to “develop a management team and trust them to do the job—it makes life easier for you and more fun for them,” he adds.

Another piece of advice from David to his young managers: “Things are almost never as bad as they seem and will usually get better. Faith and optimism are valuable qualities in this and every business.”

The author is editor of Recycling Today and can be contacted at btaylor@gie.net.