By holding inventory, master distributors serve vital, and unique, role in the metals supply chain.
Master distributors play a vital role in the supply chain. And if the supply chain didn’t fully appreciate that role beforehand, the last three years have served as a telling reminder.
Following the COVID shutdowns of 2020, the global supply chain nearly broke. Commodities such as steel, aluminum and stainless, as well as the raw materials that help create them, became more scarce around the globe due to shifting lockdowns in various countries, transportation bottlenecks and other hiccups.
Take steel. Throughout 2021 and into 2022, sourcing steel products of all types became incredibly difficult, resulting in skyrocketing prices and extraordinary lead times. Steel consumers of all types were begging their suppliers for more material, product that simply wasn’t there.
The scenario was similar for other products, including aluminum and specialty metals. And the nightmare situations were even worse for some specific parts, such as the microchips need for auto production, a shortage that plagued the car manufacturers for upwards of two years.
Under those conditions, the person with inventory was king.
“In general, our strengths have been highlighted in recent years as we’ve been able to make sure we have the stock in an environment when everybody is looking for steel,” says Jerry Shaw Jr., vice president of sales and administration for New Jersey’s Blue Blade Steel and Benedict-Miller, the latter of which stocks 4130 and 4340 sheet plate and bar stock.
“In the short run, it was amazing,” says Justin Rattner, president of Dover Tubular Alloys, a New Jersey-based master distributor of stainless steel and aluminum tube and pipe. “When there’s uncertainty in the market, people flee to certainty, which is floor stock.”
Of course, those days are in the rearview mirror. But that doesn’t change the value master distributors bring to the metals world.
For the past two decades, much of the industrial metals supply chain has been focusing on inventory turns, the better to avoid the painful swings in pricing that have characterized commodity metals. The master distributor is the counter to that trend, becoming the go-to place for metal buyers, particularly service centers. It’s a responsibility they take seriously.
“It’s on our floor. We’re paying for it,” says Carl Bosley, president and COO of SB Specialty Metals, a Dallas-based distributor of tool steel products that formed in 2010 with the dissolution of Crucible Service Centers. “We’re essentially being your bank.”
And your lifeline. Rather than stock a hard-to-move item for months or years to satisfy a single customer, service centers can turn to the master distributor to supply that item in little time.
“We are the safety blanket for domestic onshore material,” says Rattner. “Where lead times push out, where mills fail abroad, we have the material on the ground that fulfills both long- and short-term needs.
“You may have a specific customer in the Midwest that needs a certain type of tubing that may be small business for you, but when I combine it with 20 other service centers across the U.S., it starts to really build up,” he adds. “We’re here to bring certainty in an uncertain world and have the backup stock these guys need at any given time to fulfill their obligations to customers.”
“Our offering is focused on critical product lines with extensive and unpredictable lead times; therefore, our inventory goals are driven by sales and relationships as opposed to turns. That’s where we make a big impact in the supply chain,” Shaw says.
AA Metals, an Orlando, Fla.-based distributor of aluminum and stainless products, says the master distributor is also ideal for sourcing material from mills outside the United States. Dr. Jack Cheng, founder, president and CEO of AA Metals says the master distributor is ideally suited to navigate the complex world of foreign trade, made more challenging through the introduction of Section 232 and 301 tariffs in recent years.
“Some service centers who used to import directly from overseas mills now go to master distributors such as us. We have a dedicated team specializing in foreign trade, making sure we follow the right paperwork, the right tariffs are collected,” Cheng says. “Those are value-added services we bring to the customer.”
While 2021 into 2022 was a robust period for master distributors with inventory, the past year has moved back into more historical norms. The ebb and flow of inventory levels in the domestic supply chain of all industrial metals has resumed.
The master distributors report much slower activity levels from their service center customers in 2023, consistent with service center sales levels to end users and fabricators.
“Generally speaking, the activity level has been reduced. It’s been gradually slowing back to normal,” Cheng says. “After COVID everyone stocked up, and the market just needs to adjust the inventory levels. People are cautious to restock inventory and they’re also cautious about the economy, because of inflation.”
Bosley agrees with that assessment. “For our service center customers, I’d say it’s definitely softened,” he says. “In our experience, activity levels started to soften in July and continued into August. In September, they softened a little bit more when the UAW decided to strike.”
On the steel side of the business, Shaw sees a bit of a bifurcation. “On the coil side, things are slowing down, with lead times from the mills much improved. On the plate side, things continue to be busy. A lot of the energy and infrastructure projects are driving continued growth and sales there.”
That the robust times of the past few years have ended is not particularly surprising to any veteran of the metals business. It’s a cycle that’s been ridden for decades.
“People have extremely high levels of inventory, especially in pipe and tube, and they’ve been bleeding them down all year. It’s been bringing margins down, and the Fed’s interest rate hikes aren’t helping either,” Rattner says.
Compounding the problem was a little bit of forgetfulness that the good times never last forever.
“We’re coming off maybe three of the best years in the industry’s history and people stocked up for maybe the fourth best year, but it didn’t deliver,” Rattner adds.
On the supply side, the master distributors’ assessment is consistent with the rest of the industry: mill lead times have shortened for most products.
“My mill lead times have reduced significantly, perhaps too quickly,” Bosley says. “You’re used to lead times for tool steels and specialty products being in the five- to seven-month range. Now, you place orders and you have steel three months later.”
“Lead times continue to come in,” Rattner agrees. “They’re working through their own backlogs.”
The difference between this time two years ago and now is rather stark. “We’ve gotten calls for special arrangements, special payment terms, special pricing, anything to incentivize buying,” he adds.
While master distribution is a rather established space, that doesn’t mean there are no changes taking place. For one, the supply base is always shifting, both foreign and domestic.
“From the mill perspective, we have discovered more and more capable mills after the ADCV was put in place,” Cheng says. “There’s more capacity released to the U.S. market, but the tariffs take control of what can be used. In the past you were just thinking of quality and delivery, but now you have to consider tariffs.
At home, “there continues to be consolidation as the mills change their models, idle locations and consolidate production within their organization,” Shaw says. “Where it’s changed, we’ve adapted.
And, he notes, these things can be an opportunity for the master distributor. “Our value in the supply chain becomes more important than ever with these disruptions.”
And like all members of the metals space, adding more value is the key. That can be in the form of doing some or additional processing, where applicable. Or simply in how companies go to market.
“We’re doing a lot more relationship management. We’re trying to build long-term partnerships. We’re keeping the bread and butter core stock buyout business and bolstering it with a secondary layer of long-term contractual stuff,” Rattner says, then adds, “which I think is a pretty common theme throughout the industry right now.”[Caption:]
Having material on the shelves is at the heart of every master distributor’s business.
(Photo courtesy Dover Tubular Alloys)