English Speak Different
Language on Distribution

As I opined to the Corus crew, America’s system of independent distribution makes much more sense. With no allegiance to a particular mill, service centers are free to shop the market for the best price and terms. They can buy from the source closest to the customer and minimize logistics and delivery costs. Competing with others on an equal footing forces companies to continually strive for greater efficiencies and excellence in customer service.

The Brits remained unconvinced, however. Indeed, they see a market dominated by independent service centers as “strange.”

Unlike in North America, where independent distribution is the norm, mill ownership of service centers is a growing trend in the UK and other parts of Europe. Corus’s Distribution & Building Systems division purchases 80 percent of its steel from its parent’s mills, and would buy more if it could.

Is it a corporate mandate, I asked, that you buy from Corus? “It’s a corporate target, I would say, rather than a mandate,” explained one executive. “There are times we can’t buy from the mill because they don’t have the type of steel available at the time we need it.”

Service center buyers do have access to material from other mills, especially cheap imports from Eastern Europe, but there seems to be an unwritten rule that Corus gets the first call, and most likely the order, despite the price. Indeed, Corus service centers pay the same price as everyone else.

“From the mill side, we don’t get any special favors. We don’t even get early access to steel. Because they supply

to other [independent] stockholders, they’ve got to be very careful that they don’t appear to be doing us any favors,” said the exec, admitting that this sometimes is a source of frustration.

As our conversation continued, it soon became clear that the reason this approach works in the UK—and most likely would not in the U.S.—is because of Corus’s dominant market position. Corus produces nearly half of the steel consumed in Britain each year, and its service centers command about one-third of all distribution. Corus distributors don’t chase the market price, as service centers do in the U.S., they help Corus set the price. “We are used by Corus, in the UK particularly, to apply market prices. If the price rises, we are expected to lead,” said the Corus exec.

Despite all the recent service center consolidation, the distribution sector on this side of the Atlantic remains highly fragmented. Even the largest players have little or no pricing power. It seems obvious that what works well for Corus and its brethren in other parts of Europe would not be a good fit here. Nevertheless, as steel’s globalization continues, I will not be surprised if foreign mills seek familiar ground and buy into both production and distribution in North America. I will be surprised if it works.