This Year's Model

Recyclers have been bombarded with information regarding the Internet and how it will affect the way they do business. (We will now proceed to add to that bombardment.)

Even with the best intentions individually, Web site promoters and other e-commerce advocates have collectively blazed a trail of contradictions and confusion in many minds.

At various times over the past two years, different Web sites have rolled out their trading and business support models, only to re-tool or overhaul them a short time later. This pattern of rollout and re-trenchment was the predecessor of a fairly serious dot-com shakeout in many business-to-consumer e-commerce market segments. Time may soon tell if a similar shakeout will occur within the recycling business-to-business segment.

More than One Right Answer

Of the several dozen Web sites that have attracted business from recyclers and secondary commodity consumers, most have claimed to offer something unique and new that will help “old economy” companies enter the “new economy.”

In attempting to categorize these Web efforts, however, to some extent they fall into three wider categories: trading sites, back office support sites, and sites that offer both services.

There are different ways to conduct trades (blind bids versus dealing with registered preferred partners, for instance), and many sites also offer pricing, breaking news and other information. But the attraction of the sites (and the potential revenue streams) have been presented as being tied to their roles as forums for conducting trades or as ways of providing contract services/software for invoicing, scheduling and other accounting and human resources functions.

Bill Moore and his consulting firm Moore & Associates, Atlanta, conducted a multi-client project study entitled “Dot.Com: E-Commerce Comes to Recovered Paper Buying & Selling.” The 54-page document, available for $500 from the company, offers a compare and contrast study of 13 scrap paper trading sites.

Among Moore’s findings is that many of the Web sites struggled to capture a significant volume of pure trading business. Of the bid/offer auction format, Moore says, “I think a lot of sites have that component, but we think that’s a relatively small part of the entire market.”

Moore sites PaperExchange.com, Atlanta, as a site that “was an online exchange emphasizing the trading of spot tonnage; now they’re going toward transaction management, transportation, and credit services.”

Moore says the online tracking of shipments could be “the most powerful role” for the Internet in the scrap paper business, although he notes that “system compatibility is a big issue” for that role to advance.

“But, tracking through an Internet site is potentially where e-commerce can save you a lot of money,” says Moore. “An e-commerce site might let a business owner skip some of the investment in technology while still taking advantage of the most up-to-date tracking services.”

In terms of pure trading, the ClickPaper site owned by Enron Corp., Houston, has attracted business across the forest products industry. Essentially, Enron (through ClickPaper) acts as a market maker for online trades, setting a price for a commodity, accepting bids and offers from online participants, and then guaranteeing the transfer of products offered on its site once a buyer and seller have agreed on a price for a shipment.

“The numbers on the sites are Enron’s bids and offers,” notes Enron VP of forest products trading Bob Crane. “Parties conducting business on our site know the trade is being done with a BBB+ credit party overseeing it.”

Crane says the ClickPaper site has drawn “about $650 million to $675 million in trades of all forest products since its inception in late June. In recovered paper, we’re probably seeing about 6,000 to 8,000 tons per month of different grades being traded. That’s about two or three trades a day, and we’ve really only ramped up in the last two to three months,” he notes. Crane says scrap paper brokers have been the most frequent users of the site.

Consumers of recyclables may also drive increased usage of Internet trading sites. “I think we’re going to see e-commerce find its place in North America,” says Pete Grogan, manager of market development, Weyerhaeuser Recycling, Federal Way, Wash. “I think it will be a little clearer12 months from now what that place is,” he adds.

Paper recycler Kevin Little of Lake Erie Recycling, Toledo, Ohio, notes that he has been led to use the Internet trading site Fibermarket.com by some of the mills to which he sells.

“Some of the mills I deal with use Fibermarket.com and communicate their orders that way,” says Little, who adds that transacting over the Internet has worked out well from his viewpoint.

“It’s beneficial to companies my size,” he says of Internet trading. “Used properly, you can keep your overhead down by increasing your number of transactions without the expense of paying another person to add to your sales staff. I’m comfortable doing it,” he adds.

The Moore & Associates report notes that “the many smaller suppliers/processors of recovered paper should . . . benefit greatly from e-commerce transaction,” due to the reduced cost of conducting business.

Muscling In

The involvement of a multi-billion dollar company like Enron is not surprising. A noticeable trend in the business-to-business (B2B) Internet industry has been the growing presence of companies such as Enron, as well as metals industry giants and paper industry giants.

Six of the largest paper companies are now cooperating to conduct trades with their suppliers on the ForestExpress.com Web site.

“ForestExpress is a fairly bold statement,” says Moore. “If those six companies say they are going to buy on an e-commerce platform, it’ll go that way,” says Moore. As a disclaimer, however, Moore notes that Weyerhaeuser’s attempt to conduct its trade on the Chicago Board of Trade several years ago did not catch on, largely because suppliers did not rush to join the arrangement.

“ForestExpress has gone after recovered paper and timber markets to reach a highly fragmented marketplace,” says Moore. “I think they’re pretty serious about it this time. Those companies have put $50 million into the initiative.”

The neutral Web sites that must rely on their Internet income streams alone may soon have to capture more business than they have thus far in order to compete with the industry-backed ventures.

Bob Garvey, CEO of newly introduced MetalSmart.com, New York, believes there is a place for what he calls the neutral trading sites. MetalSmart offers a trading forum for ferroalloys and minor metals, with a plan to go into other commodities of interest to steel mills, including scrap.

“The neutrality of ownership, as well as confidentiality, is a concern,” Garvey says of Internet participation within the metals industry. “If it’s run by two or three large producers or consumers, are you compromising your information?”

Another form of competition for the industry giants involves medium-sized companies setting up their own Web sites as a means of ensuring that they recapture at least as much new business on the Web as they risk losing to other sites.

Balcones Recycling, Farmers Branch, Texas, and The Peltz Group, Milwaukee, are minority shareholders in the Paper2Paper.net Web site. Fibres International Inc., Wilsonville, Ore., is operating e-Cycled.com as a Web subsidiary, while the co-owners of Tri-R Recycling, Denver, have an equity interest in SecondaryFiber.com.

Cyber-Skepticism Emerges

The late 1990s provided a nervous setting for business owners and managers, as they grappled with whether their companies and their jobs were secure in the face of the new economy that was steamrolling into the new millennium.

For recyclers, just when they thought the consolidation craze had safely passed and that core business issues would again be at the forefront, the bold predictions of Internet companies that they would re-invent the industry presented them with a crisis to address.

Most recycling companies did not take an ostrich approach and bury their heads in the sand while hoping that the Internet would go away. Rather, many companies have added Web sites to their marketing budgets, most have added e-mail to their communication infrastructure, and a healthy percentage have tried online trading.

But what was found was not necessarily a brave new world of re-written rules and vastly expanded trading possibilities, but instead a new tool that could be used when appropriate to help employees do their jobs.

By the second half of this year, recyclers were increasingly willing to declare that the Internet monolith was not likely to leave in its path a trail of “old economy” companies, but instead was a medium appropriate for all to use in certain circumstances.

At the Institute of Scrap Recycling Industries Inc. (ISRI) Mega-Roundtables, held in Chicago in September, Gary Curtis of Wise Recycling, Baltimore, listed several reasons why he sees e-commerce as “a tool of progress, but not a tool of revolution” in the scrap industry.

Curtis cited consumer quality and metals chemistry preferences as one reason why “blind” trading between a buyer and seller remains difficult. He also said that the transparency that Internet sites have been promising is already in existence in many ways.

“Everybody knows who the suppliers are and who the consumers are,” says Curtis, adding that there are no “secret” consumers of UBCs lurking in the American Midwest that can be uncovered on a Web site. “Pricing is well known—this is a very transparent business that we’re in,” he remarked.

Curtis, 32, also noted that he is not making his remarks as someone who fears or is unfamiliar with technology. “I represent the newer generation in scrap trading, and I’m not afraid of this technology, but I don’t think it is adding the value to be a revolution.”

Dennis Luma, executive vice president with Wabash Alloys, Wabash, Ind., also told Roundtables attendees that his company has tried to both purchase and sell materials online at several different Internet sites, but with marginal results. “Actual offers have been scarce,” he says of the response to posted notices to purchase scrap. “And the prices are often out of the market. It seems like people are hoping to snag someone paying an unrealistic price.”

Both Luma and Curtis expressed skepticism as to whether administrative costs are high enough that they can be greatly lowered using Internet sites. “Administrative costs aren’t that great in the first place,” remarked Curtis.

At the ISRI-Steel Manufacturers Association Consumer/Processor Dialogue event held in Pittsburgh in October, Dick Jaffre, vice president with TXI Chaparral Steel, Midlothian, Texas, cited a number of reasons why he believes Web-based trading sites haven’t yet captured a massive share of the scrap trade:

• Buyers are not yet confident that what they are buying will match what they are expecting. The medium also compounds the problem of mis-matched specification definitions, and “goes to the heart of why specs need to be overhauled,” according to Jaffre. • Sites need to offer more freight and logistics support to be more full-service, he added. • In Jaffre’s opinion, sites should think about their “value-added” components and move away from the auction format.

Web sites cannot really begin to save time and money until they provide more post-trade support, said Jaffre, such as real-time scale tickets to trading parties, and a way to address “exceptions and charges” that occur when loads are rejected or questioned.

And Joel Litman of Texas Recycling/Surplus, Dallas, can take credit for asking about cyber limitations earlier in 2000, when contacted for a March 2000 Recycling Today story. “We have long-term relationships with mills we do business with,” Litman told RT. “If I work at a mill and I see a posting out there, how do I know the reputation of the people selling? Or in my case, how do I know the reputation of the people that are going to buy it? How do I know they can pay?” he asked.

Litman was apparently not the only recycler or consuming mill asking those questions throughout 2000. More time will have to pass and more business models will have to be tested before the answers become clearer.

The author is editor of Recycling Today and can be contacted via e-mail at btaylor@RecyclingToday.com.