Success in Diversity

Right smack in the middle of the United States is a busy scrap yard and metals importer and exporter called Aaron Ferer & Sons Co. Legend has it that Aaron Ferer, along with his wife and son, set out from New York in 1886 with $12.50 in his pocket, determined to go as far west as his money would take him. This turned out to be Omaha, Neb., where he started a small scrap metal processing business that has endured – and grown – ever since.

"We never considered moving the company somewhere else," says Harvey Ferer, chairman of Aaron Ferer & Sons. "It’s a convenient location. It’s a good-sized city, and population and industry are what generate scrap. Our plant is on the Missouri River, so we’re capable of shipping by barge, rail and truck."

In order to make the most of all available opportunities, the company consists of two different types of businesses, Harvey explains – scrap metal processing and primary metals trading.

"On the one hand, we’re a scrap processor, and on the other hand, we’re a metal merchant that trades metals, minerals and residues worldwide," he says. "They’re really two very separate businesses, but they both have the common denominator of being involved with raw materials."

This approach works well for the company, Harvey adds. "We started heavily in the trading business, and we've always done trading of one commodity or another. In the past 30 years, we’ve expanded into the whole range of metal commodities."

The company trades in primary metals, ores, concentrates, residues, ferroalloys and steel products in addition to scrap, says Harvey. Primary metals include copper, aluminum, lead and zinc, along with antimony, tin, nickel, chrome, calcium, tellurium, arsenic, cadmium, bismuth, selenium, silver, gold, indium and cobalt.

In addition to its Omaha headquarters, where it employs about 50 people, Aaron Ferer & Sons operates seven offices in other locations worldwide, with an additional 20 employees. Currently, about 50 to 60 percent of the company’s business is now conducted outside the U.S. These seven foreign offices mainly trade in primary metals, according to Harvey.

"We have three in China, one in Hong Kong, one in Chile, one in Peru, and one in Moscow," Harvey explains. "We also have an interest in two joint ventures, one in Hunan Province, China, and one in Argentina."

The company, for many years, has specialized in a number of metals that are produced in China, according to Harvey. But like many in the scrap industry, Aaron Ferer & Sons finds trading in China to be a special challenge. "That market is always very difficult," says Harvey. "There’s a lot of activity, but there’s always frailties with doing business with China."

"Like any place it has its risk," adds Matthew Ferer, president of Aaron Ferer & Sons. "You just have to try to cover all the bases and be careful, and structure deals so that your liability or potential losses are limited – whether that’s selling via letters of credit, and getting those letters of credit confirmed – or whatever you can do to minimize your risk."

For its overseas offices, the company sometimes hires United States citizens, but usually hires residents of those countries, says Matthew.

Not surprisingly, conducting business in other countries can lead occasionally to a variety of cultural misunderstandings.

"In some cases, Americans want to impose a faster pace on people in other countries, but it usually doesn’t work," he explains. "You have to be patient. And sometimes you have to spend time convincing foreign offices to take some dramatic measures they wouldn’t normally take. But in general the relationships work well."

The balance is approximately 60/40 scrap to primary metal in the business, estimates Matthew.

Aaron Ferer & Sons exports about 75,000 tons of U.S. steel products annually to countries such as Taiwan and Korea. The company also exports, to a lesser extent, copper and copper alloys, aluminum and other nonferrous metals in the form of ingot, scrap and residue.

The company’s Omaha facility processes "respectable" amounts of ferrous and nonferrous scrap, according to Harvey. "We do many, many things in the processing of nonferrous metals," he says. "We do shearing, shredding and sorting of nonferrous metals. We do ordnance demilitarization, and we do stripping of wire scrap."

The company handles "sizable quantities" of aluminum, brass, copper, metallic lead, magnesium, nickel, precious metals, stainless, tin and zinc. The company has installed a shredder which allows it to process more nonferrous metals.

"We generally buy from industry," says Harvey. "We buy from railroads and other industries – industrial production, industrial outfall – and we process scrap that is generated from obsolescence, like a worn out railroad car."

The company sells processed materials to steel mills, foundries and smelters, mainly supplying regional mills in ferrous scrap but sometimes exporting ferrous scrap.

"We would not export a whole shipload of materials from Omaha, but we do ship containers, and they go through a gateway in a number of cities such as Chicago, Houston, the West Coast, or even occasionally the East Coast," says Harvey.

Although Aaron Ferer & Sons has found success in diversity of operations, some parts of the company have come and gone, while others have proved more lasting.

"We ran a lead smelting plant for a number of years, and prior to that, we produced solder and babbitts and so on, so we’ve always had an interest in producing specification products which we alloyed or produced," says Harvey. "In addition, we’re very active in government scrap and demilitarization of ordnance materials and so on. Ammunition of all sorts is one of our specialties. It’s a business we enjoy for obvious reasons, because we’re turning weapons of war into peaceful products."

The company has had government contracts to demolish and salvage Atlas and Hercules missile sites, as well, according to the company. Aaron Ferer & Sons was, at one time, awarded a contract to demilitarize 9 million rounds of obsolete 50 caliber armor piercing, incendiary and tracer ammunition. The work was conducted at the company’s Omaha plant under government supervision, and is believed to be the only contract ever awarded a private company for the demilitarization of live ammunition.

The company has also demolished surplus aircraft; at one point demolishing more than 250 multi-engine aircraft including sizable quantities of B-47 bombers and KC-97 tanker aircraft at a military installation in Arizona. The company salvaged usable aircraft instruments and components, and then reduced the aircraft to aluminum ingot. More than 15 million pounds of aluminum ingot were recovered under this contract, according to the company.

Aaron Ferer & Sons also operated a copper smelter, Quincy Mining, on the upper Peninsula of Michigan for several years, which closed in the late 1960s. The smelter was run in partnership with the General Electric Co.

"We were producing fire-refined ingot, specification fire refining and from scrap, and at that particular time (of the closure), the price of scrap in relation to the commodity exchange price narrowed, so that it cut our margin significantly, and it no longer paid to do it, so we shut the operation because we didn’t want to work without adequate margins," Harvey explains.

Although the company has been in existence for more than 100 years, that long history was punctuated by one particularly difficult period when, in 1974, it was forced to file a petition under Chapter 11 of the bankruptcy code.

"We were then a very large company doing more than $500 million in turnover a year, principally in copper," says Harvey. "It’s terribly complicated, but our problem was we were trading large, huge amounts of copper ... We were short producer price copper in a rising market, when the producer prices were under government constraint not to rise."

The company’s sales went from $500 million to $7 million annually which, says Harvey, "is quite a shock for any company." Although a plan of reorganization was approved by the court the following year, the company did not emerge from Chapter 11 until 1989.

"We built our way back to around $60 million," says Harvey. Although it’s highly unusual for a company to continue existing for 15 years under these conditions, Harvey attributes the company’s tenacity to hard work and pride. "That’s our name over the door," he says.

Although he agrees that most bankruptcies get wrapped up in a much shorter period than 15 years, Matthew points out that Aaron Ferer & Sons is not alone in experiencing an extended period under Chapter 11 (see sidebar on page 40).

"I think the length was due to the fact that there were a lot of people that were bent on our not emerging from Chapter 11," Matthew continues. "It seems that a lot of people were very difficult in their acceptance of our proposals to the creditors committee. Within a year, we had our plan of arrangement, but there were still legal issues that were confounding this process. There were problems after that of a procedural nature, not necessarily of a cash nature or a stock nature."

"Most people don’t make it out of Chapter 11, and those that do have a very high failure rate," adds Harvey. "I have no regrets ... except one thing – we were quite a successful company, and still are for that matter, but we certainly learned the humility of adversity. Maybe we’re a little more understanding."