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3-2011 From the Editor
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Tough to Tally Service Centers in a ‘Consolidating’ Market

By Tim Triplett, Editor-in-Chief

Every so often, someone will ask me, “How many service centers are there?” As the editor of the only publication focused exclusively on the metals service center industry, I should know. But I don’t. Because no one knows. But here’s my best guess. (Pretend this is scrawled on the back of an envelope.)

The first challenge is defining the term “service center.” Today, the typical service center is as much a processor as a distributor, offering cut-to-length, sawing, shearing, thermal cutting and slitting services, among others. Some service centers have even gone further, investing millions in specialized equipment such as stretcher levelers, temper mills, annealing furnaces and cold-rolling lines—and in the process have redefined their businesses. A few have even crossed into the fabrication and manufacturing arena, performing first-step part production for customers. Where does one draw the line?

The U.S. Census Bureau lumps them under its NAICS 423510 (formerly SIC 5051) classification for “metal service centers and other metal merchant wholesalers.” According to the latest federal economic census data, there are 10,831 such establishments in the United States, employing 161,430 people, with total annual sales of $209.2 billion. Such information is only updated every five years, so these figures date back to pre-recession 2007 levels and have undoubtedly changed significantly.

Metal Center News circulation data probably provides a more reliable snapshot of the industry today. In our 50 years of publication, we have garnered readers in nearly every service center location in North America. Our circulation file contains nearly 12,000 unique addresses. Rounding down to account for duplicates and exceptions brings us to a figure around 10,000, similar to the Census Bureau estimate, but including readers in Canada and Mexico. Since the average service center has two locations, and the Top 50 alone operate approximately 1,400, ownership appears to be consolidated among roughly 4,000 to 5,000 different companies.

While the trend toward industry consolidation may reduce the number of owners over time, it will have less effect on the number of stocking locations, which need to be close to the customer for efficient logistics. Thus, the service center industry may be consolidating, in terms of ownership, but it is not necessarily shrinking. If anything, the service center’s role as supplier, processor and production partner is growing. Did you ever notice that many of the calls for further industry consolidation come from large companies that would benefit from less competition?

  
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Friday, August 22, 2014