“To me, you know you are doing something right when you can retain employees and customers across decades.” – Kenny Burgess, founder and owner, Midwest Scrap Management Inc.
Kenny says MSM’s main source of revenue when the company began was from plate and structural (P&S) ferrous scrap it sold to small local foundries. “Our first location did not have a rail spur,” he explains, “which prohibited us from selling material to larger mills. Over time, as we grew, we began to purchase shears, balers and eventually shredders. Our second location had a rail spur, which permitted us to sell to both larger mills and smaller foundries.”
Ferrous scrap accounts for roughly 80 percent of the material MSM handles, and the bulk of the company’s suppliers are industrial accounts, Jerrit Burgess, MSM’s CEO, says.
“MSM purchases ferrous and nonferrous metals within a 200-mile radius from each of our locations,” he says.
The company’s yards have access to five of the seven Class I railroads and to barges. “Our railroad and barge access permits us to sell the majority of our ferrous metals domestically, but we will also shop ferrous metals internationally based on market demand,” Jerrit says.
Craig Ward, the company’s chief financial officer, adds, “Strategically, MSM’s operations are designed to process ferrous metals using its shredders and geographically placed feeder yards.”
The company installed its first auto shredder in 2002 in St. Joseph. While MSM no longer has that shredder, it facilitated the company’s growth. That original yard in St. Joseph now acts as a feeder yard for MSM’s Kansas City auto shredder.
MSM’s Kansas City location features a 7,000-horsepower automobile shredder supplied by Harris, Cordele, Georgia, that was installed in 2006. MSM has operated a 6,000-horsepower auto shredder, also from Harris, at its Park City, Kansas, yard, formerly a wheat field, since 2014. The company has a third auto shredder—another 7,000-horsepower Harris beast—planned for its Oklahoma City, Oklahoma, yard. Jerrit says the shredder has been purchased and is in storage and will be installed in the next two to three years.
“Our shredders are much bigger than our competitors’ shredders,” he says. “We can process heavier materials mills like.”
The Kansas City yard also is home to a nonferrous recovery plant supplied by U.S. Shredder and Mackinaw, Illinois-based U.S. Conveyor, while the Park City yard includes a system supplied by Wendt Corp., Buffalo, New York.
In 2013 Jerrit says he recognized the potential benefits a nonferrous recovery plant could provide to MSM’s operations, improving recovery of nonferrous and ferrous metals from its auto shredder residue (ASR) and reducing the amount of waste headed to the landfill. From 2013 to 2014, Jerrit says he worked on the design of the system that would be installed at the Kansas City yard, which was completed in 2015.
In 2018 MSM recognized the need to increase nonferrous recovery plant production, and Jerrit says he began working on the design of a new system for installation at the company’s Park City yard. He incorporated the “positive attributes” of the Kansas City plant into the design of the Park City plant while avoiding “inefficiencies” the company discovered over time in the operation of the Kansas City plant. Jerrit says those inefficiencies involved regulating the infeed material to provide a steady flow to the system and sizing issues.
MSM’s nonferrous recovery plants produce various zorba, insulated copper wire, stainless and other miscellaneous metal grades, Jerrit says.
Earlier this year, MSM acquired Langley Recycling in Topeka, Kansas, to serve as a feeder yard for its Kansas City and Park City shredders. That was the second of two acquisitions MSM has made of one-time competitors in its operating region during the past 15 months. The first was of Midwest Iron & Metal in Hutchinson, Kansas, in 2018. That yard was equipped with a Newell shredder, which MSM no longer operates. The Hutchinson yard now serves as a feeder yard for the company’s Park City shredder.
“We look at growth strategically,” Ward says. “If you grow too fast, you can cause more harm than good by putting the company’s success and longevity at risk.”
He adds that MSM’s growth strategy is informed by the company’s organizational goals and market conditions.
Market conditions have been far from ideal in 2019, but MSM has managed to maintain its annual double-digit growth in year-over-year purchasing and sales, Ward says. He attributes this to MSM’s emphasis on customer service. “We invest heavily in both our mobile equipment fleet, including semitractors, trailers and containers, and in our processing equipment,” he says. This investment allows the company to quickly respond to clients’ needs. “We put a strong emphasis on what we can do for the customer and put our customers’ needs first.”
Scrap pricing is a factor the company has less control over.
“Raw material prices and finished goods prices are lower than historical averages in the Midwest United States,” Ward says. Despite that, he adds, “MSM has been able to utilize our competitive advantages and processing capabilities to increase raw material commodity purchases and finished goods sales in both down and up markets over the past decade.”
Jerrit adds, “Despite the market declines, our purchase and sales volume has remained steady or increased, and I feel the market is at the bottom and will increase.”
While ferrous markets as of early August are at five-year lows, Kenny says, “Our organizational structure permits us to adapt to changes in market conditions faster than our competitors.”
The men also point out how tariffs and China’s evolving import restrictions on various forms of scrap metal are affecting the domestic scrap market.
“The biggest downfall in business is the point when someone thinks they know everything.” – Kenny Burgess, founder and owner, Midwest Scrap Management Inc.
“Although markets are closing, new markets are opening up; but new markets take time to develop,” Ward says.
This leads to excess scrap supply on the domestic market, which Jerrit says is “driving down price points that recyclers can sell finished product to mills at.”
The men say they also are concerned about the uncertainty created by the 2020 presidential election.
Ward points to the “progressive ideology of many presidential candidates,” adding that they don’t understand small and midsize businesses. “Small and medium-size businesses drive the American economy, and many of the running points of 2020 presidential candidates will undermine business for their personal agendas that promote their singular viewpoints and not the viewpoints of American business.”
Kenny mentions the Green New Deal, as well, which is a set of proposals issued by progressive Democrats in the U.S. Congress that is designed to address inequality and climate change. The deal emphasizes clean energy as a tool to address climate change. He says he sees the potential impact of these proposals “as being devastating to the scrap recycling industry if it is passed as it will fundamentally change manufacturing and, in turn, recycling in the United States.”
While Kenny says MSM can “work through tariffs and their impact,” a more difficult issue the company must address relates to the workforce.
“The biggest issue that I feel every industry is facing is finding skilled and unskilled workers,” he says, adding, “we cannot replace a workforce if a replacement workforce does not exist.”
MSM has made an effort to attract and retain good employees by emphasizing its benefits, safety programs and organizational culture. Ward says, “We have been able to create safe work environments for our employees and develop insurance programs that control risk. We have also been able to develop benefit programs which include flexible personal time-off structures; a 401(k) with employer match; health, vision and dental insurance; employee wellness plans; short- and long-term disability; and life insurance, among other benefits that focus on our employees and their families’ well-being.”
Ward began working for MSM in 2014, having come from KPMG, a big-four accounting firm.
“The Burgess family creates a work environment that makes coming to work enjoyable, and they treat all of their employees as individuals that contribute to the success of the organization regardless of their role,” he says.
Jerrit, who wanted to work in the family business since he was a child, says MSM doesn’t “pigeonhole” employees into defined roles but cross trains employees in related jobs.
The managers at MSM identify areas where employees excel and how that can be applied to other roles in the company. A recent example, Jerrit says, is the promotion of a dispatcher to a metal buying role based on his good customer communication skills and understanding of the raw materials the company purchases.
MSM continues to integrate its Topeka acquisition and to look for additional opportunities to purchase companies in its operating area, Ward says. MSM also will begin preliminary designs for its Oklahoma City yard.
In all these endeavors, MSM will retain the humility and determination that has helped it get to this point.
“The biggest downfall in business is the point when someone thinks they know everything,” Kenny says. “At that point, the person will go backwards and not forwards. You always need to be ready to learn something new because there is always someone that knows something you do not.”