Technology doesn't replace a handshake
ABC Recycling, based in Burnaby, B.C., finds that, despite the technological developments in the industry, the trust needed to do business effectively requires a face-to-face approach
There is the world of today, of business relationships conducted wirelessly, sometimes across vast distances. And then there is the supposedly old-fashioned world of face-to-face trust, deals settled in person and sealed with handshakes.
But ABC Recycling sees the latter as today's reality in its business.
No matter how much communication quickens and logistical systems modernize, no matter how fast metal prices rise or fall on trading screens, face-to-face interaction still holds sway in the global scrap metal recycling business.
The reason is quality assurance, says David Yochlowitz, chief executive officer of ABC Recycling, now in its fourth generation of family ownership, and based in Burnaby, B.C. It's a sentiment heard throughout the industry.
There are industrial standards and specifications for metals. Yet buyers still need to know exactly the origin and processes used for the metals they purchase, especially given the huge tonnage of materials bought and sold in most transactions.
"We wouldn't deal with somebody we haven't seen face to face and where we haven't seen their facility. At the same time, we wouldn't expect them to deal with us without knowing who we are," Mr. Yochlowitz says.
The innovation in the industry receiving the most attention has been the physical machinery used for tearing apart and recycling materials, such as the car shredders feeding a fascination on YouTube. Yet, software has also had to advance to track shipments in ever more sophisticated ways throughout the shipping process.
"And then most of these guys are checking the markets, checking the commodities price index fairly frequently, so they're on their phones all the time." So, new applications are developing to offer dealers ways to keep track of prices more effectively, says Tracy Shaw, president and CEO of the Canadian Association of Recycling Industries, a trade association.
Despite the technological advances, she agrees that the industry has its idiosyncrasies. "It's a unique industry in several ways. There is quite a mixture of that old-fashionedness," she says, "and that comes down a lot to trust. You want to know that you're getting quality material from someone."
However, a pivotal new strategy at ABC Recycling, which has been operating from the Lower Mainland for 105 years, came in 2005 when the company started its expansion from two yards (in Burnaby and Campbell River, B.C.) to nine throughout B.C. and in Grande Prairie, Alta. The need was an old-fashioned one: to reduce shipping costs, hence the reason for being closer to scrap sellers.
"When the markets went too low, we couldn't service Northern B.C., for example. So, we set up in Terrace, Prince George, Fort St. John and Grande Prairie, and put rail lines in and got our own rail cars, so that even when the markets go lower, we can service each area," Mr. Yochlowitz says.
So, for instance, from its yard in Terrace in northern B.C., the company can service scrap located 45 minutes away in Kitimat (such as material from the Rio Tinto aluminum smelter), pay for that scrap and ship it out by rail, even if the price of the metals are down.
"We couldn't do it from Vancouver, if the markets were low. The freight would be too much," Mr. Yochlowitz says. "At times, logistics-wise, you can't go too far to get it, because the freight will be more than what the material is worth."
To get logistics costs as low as possible has meant "being in those communities with the rail lines, or having our own rail cars, our own trucks, and now in Nanaimo, being able to load bulk [as opposed to container] ship. Each one of them allows us to reduce freight costs. Especially for steel, the more we can bring it down, the better chance we have of getting to a new market."
Other factors affect price, too.
Steel still sells at a rather gentlemanly pace, with monthly sales. But sales of non-ferrous metals, such as aluminum and copper, are arranged daily, Mr. Yocklowitz says, and are based on constantly fluctuating market rates on the London Metal Exchange, New York's commodity exchange (COMEX) and various other markets. (Most of the non-ferrous metals are shipped out of the company's yard in Burnaby to markets throughout the world, the biggest ones being the United States, China and South Korea.)
While technology tracks the fluctuating prices, it can also get in the way when it shows the price of a certain non-ferrous metal rising or falling while dealers are in the midst of confirming a sale.
"So they really need to know us, and we really need to know them. There needs to be a very big trust element, especially with China. We're over there all the time, going to their different conventions, going to the facilities that we do business with. And they're coming over here, too," Mr. Yochlowitz said.
For steel, most goes to Regina and Seattle. ABC also deals with certain metals, such as chromoly, going to specialized markets and foundries that melt it down.
Kent Kiser, assistant vice-president of industrial communication at the Institute of Scrap Recycling Industries Inc., a North America-wide trade association, notes that handshakes and personal relationship are particularly prevalent when a scrap dealer is buying metal from smaller mining operations or, for instance, a paper mill.
"When you're buying scrap from, say, a mom-and-pop organization, you can form a personal relationship with them a lot better than you can with a steel mill," Mr. Kiser says. "So, on the buying side, our members do have a lot more of that personal interaction."
On the selling side, dealers are often selling to international metal companies, who work on a more formalized, less personal basis. "They have to be more impersonal because they are dealing with hundreds of suppliers or more separately," Mr. Kiser says. Much of this has to do with economies of scale as the industry has consolidated, in order to ride out troughs in metal prices.
The mindset toward personal ties, however, dies hard. A century ago, "my great-grandfather started with my grandfather when they came over from Belgium [after having originally come from Poland], and they started with horse and wagon," he says. Reusable goods and recycling were often an entry point for new immigrants.
"I remember my grandfather telling me that they would go as far as Chilliwack," about 100 kilometres from Vancouver.
"It would take them about a week, and they would go throughout all the communities." They would pick up anything they could resell: bottles, rags, any kind of miscellanea. Sometimes this included metals that they would sell to recyclers at the time, who would melt down the scrap.
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