March 2006
Business Topics

New Driver-Safety Regulations
Worsen the Logistics Logjam
At last year’s FMA Toll Processing Conference, the Outside Processors Council gathered representatives of the supply chain to discuss one of the industry’s most pressing issues: transportation and logistics.

Last month, the discussion continued, with an even greater sense of urgency.

Jerome Hack of Dearborn Steel moderated a second roundtable forum at the toll processors’ annual gathering in Florida featuring Chantel Campbell of CSX, Gordon Gustafson of ADS Logistics, David Frink of Olympic Steel and L. Bruce Johnson of Mittal Steel to bat around the difficulties of getting steel from Point A to Point B.

Rising fuel prices and a nationwide truck driver shortage have been exacerbated by two new challenges: a change in the U.S. Department of Transportation’s Hours-of-Service regulations and a new discipline among steel producers that limits the amount of product in the pipeline.

Gustafson, vice president of Integrated Solutions for ADS, said the changes to the Hours-of-Service rules, which went into effect in October, can have a significant effect on steel distributors. The changes make it crucial that processors and service centers are ready to ship when a truck arrives.

Historically, Gustafson said, the time a driver had to wait for a load was not counted against his hours of service. Under the new regulations, that time is counted against the maximum 14-consecutive hours on duty.

“The best thing you can do is make sure your coils are ready when we arrive,” Gustafson said. “Waiting time at the customer is the worst thing we can have in the industry right now.”

Gustafson noted that his company has spent the past eight months trying to educate customers about the regulatory changes, with varying success.
“Where companies have not adapted, their rates go up. Or, if trucks are tight, they have difficulty finding vehicles.”

Throughout the two-day conference, a single theme was repeated regularly. In the new global steel market, North American mills are starting to produce material to demand, not to capacity. While this discipline has kept prices up, it also reduces the amount of material available, extending mill lead times and making timely deliveries even more critical.

When mill shipments are running late, it often falls to processors to make up the lost time. Sensing that processing lead times are shrinking, the OPC formed a subcommittee to conduct a survey measuring the amount of lead time processors have to perform such services as slitting, blanking, shearing and warehousing, among others (see chart).

To compensate for the time compression in trucking and processing, supply chain partners need to communicate better, panelists agreed.

“Shrinking the amount of inventory in the system is good,” Gustafson said, “but until we start to integrate [logistics companies] into the systems better, we’re going to be scrambling.”

Gustafson stressed the need for mills, processors and OEMs to share information on orders early—and through more than just a phone call or fax. Data integration will go a long way toward improving efficiency, he said.

Johnson, who oversees outside processing at Mittal Steel’s Burns Harbor facility, corroborated Gustafson’s view. “I have the ability to look at all my processors and see one world, but with logistics we don’t have that ability yet.

That’s what we’re working toward, and that will improve our planning process.”
Campbell commented that advanced and accurate communication on orders is even more important when dealing with rail companies, which have even less scheduling flexibility than truckers.

“We don’t have the opportunity to respond to a critical change in demand,” said Campbell, director of service planning for CSX. “We can’t get to a facility like a truck can.”

Both Campbell and Gustafson indicated that one way distributors and processors can reduce transportation costs is to adjust the schedule for load times, allowing for more off-hour and weekend deliveries. For the rail companies, which operate 24 hours per day, off-hour loading levels out service demand.

Frink, automotive region vice-president at Olympic Steel, added that all members of the supply chain must become more accurate when placing orders. “We have to be better forecasters within our own area,” he said. n

Steel Execs:
China Represents Greater Opportunity Than Threat
John Ferriola, executive vice president at Nucor Corp., and Mittal Steel’s Director of Marketing Roy Platz delivered separate presentations at the 2006 FMA Toll Processing Conference in Orlando, Fla., but came to a number of identical conclusions.

The industry will remain cyclical, additional consolidation will occur around the globe, the Chinese will not become tremendous exporters of steel. And, most importantly, the worldwide consumption of steel will grow for the foreseeable future.

Ferriola delivered the keynote address at the conference, offering his assessment of the current and future steel market. The Nucor executive noted that despite steel’s banner year in 2004, it was the following year that represented a turning point in the industry.

“That was the period where we had a lot of inventory overhang and demand dropped off. For the first time in the 30 years I’ve been in the business, I saw a reaction in which the supply was changed to better meet the demand in the industry,” Ferriola said.

While the rest of the world may be behind North America in terms of balancing supply and demand, a similar shift is likely to happen globally, commented Platz in his remarks on the global steel outlook. In fact, it has already begun in China, he said, noting the Chinese government’s 2005 Steel Industry Development Policy, which calls for consolidation within the industry, quality over quantity and production to meet internal demands.

Both speakers asserted that while China’s dramatic escalation of production capacity has been a major concern for steel companies in other countries, it is the growing demand for the product within China that should be the dominant story going forward.

“It is recognized in China that Chinese steel producers are not natural exporters. Although they have low labor costs, the high energy costs of steel production and their dependence on imports of raw materials make their position as exporter less than ideal,” Platz said.

In contrast, the projected per capita growth of Chinese GDP is reason for optimism around the world.

“Every dollar of GDP growth in a developing country generates much more steel consumption than a dollar of GDP growth in a developed country,” Platz said.

“If China continues to advance to the projected GDP growth seen for 2015, its vehicle density would rise to another 100 vehicles per 1,000 (from its current 24 vehicles per 1,000),” he added. “With China’s population at 1.3 billion, this modest increase in GDP would put another incremental 95 million vehicles in service.”

Such GDP growth would lead to similar increases for other household items. Or, as Ferriola noted, “if each family in China bought one air conditioner, that would outproduce the amount of steel produced in China today.”

Similar growth is projected in India, which has 1.1 billion people, just behind China’s 1.3 billion, and projected to overtake it.

“Three billion new capitalists will drive demand,” Ferriola said. “They all want their air conditioners and televisions and microwave ovens.”

 
 

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