Entrepreneur Is Shipping Scrap Metal by the Box

Like many entrepreneurs, Nathan Frankel sees money where others see nothing. In the last five years, he has built a $15-million-a-year business selling scrap metal from abandoned appliances, assembly line discards and used car parts.

So when Chinese companies offered to pay a 30% premium a few years ago for scrap to feed their booming factories, Frankel jumped at the opportunity. But loading bulky metal pieces into shipping containers was time-consuming and difficult to do without damaging the containers. So Frankel, the 31-year-old president of Fontana-based Advanced Steel Recovery, developed a machine that can fill a container with scrap metal in less than 15 minutes, compared with four hours with a backhoe. In addition to reducing labor costs, the machine significantly reduced potential container damage.

If successful, Frankel’s machine could revolutionize the overseas transport of scrap metal. Scrap and other lower-value bulk products such as waste paper and farm products traditionally have been loaded directly into giant “break-bulk” ships that carry 40,000 tons of material. Containerized shipping offers the potential of significant cost savings.

Greater use of containers also would alleviate a big headache: the pileup of empty containers on U.S. shores, the result of China shipping more products here than the U.S. sends back.

Officials at the ports of Los Angeles and Long Beach estimate that they shipped more than 1.2 million empty containers to China last year.

By taking advantage of low U.S.-to-China container rates, Frankel said he could ship scrap to China for half the cost of traditional methods: $10 to $25 a metric ton, versus about $40 at the break-bulk rate.

“I’m getting to take advantage of economies of scale. The other guy who is loading manually can’t do that,” said Frankel, a classically trained violinist who followed his father into the scrap business five years ago.

He thinks his machine also could load other bulk commodities, such as agricultural goods and waste paper, into containers.

The Frankel Advanced Shipping Technologies machine, known as FASTek, isn’t being sold commercially yet. Since Frankel began operating the device at his Fontana scrap yard, he has shipped 400 containers to South Korea and China. He hopes to have a second unit in place by September. Mechtronic Solutions Inc., an Albuquerque-based firm specializing in prototype development, manufactured the machine.

Roman Cheng, a broker working for Chinese steel companies, said China’s demand for scrap metal would remain strong. He has sent more than 100 containers to China in the last two months using Frankel’s machine, and has gotten executives from China Shipping Group, a large state-owned shipping company, to visit Frankel’s yard to see the device in operation.

Shipping industry executives are intrigued. Mike Zampa, a spokesman for APL, a subsidiary of Singapore-based Neptune Orient Lines, said his company transports only small amounts of bundled scrap metal because of the potential for damage to the containers.

“Conceptually, it’s a good idea,” Zampa said of Frankel’s machine, which he hasn’t seen in operation.

Anything that shifts more cargo to containers would be a boon for the Ports of Los Angeles-Long Beach, the nation’s top container handler and the world’s third-busiest port. Containers are easier to load, transport and secure, and take up less space in crowded terminals.

Jim MacLellan, director of marketing for the Port of Los Angeles, said “there is great upside potential” for such a machine. He said shipping bulky products by container, rather than in bulk, would be particularly attractive for foreign customers operating far from a port.

“[The container] could be taken directly to the factory rather than having to re-handle it at the port,” he said. “That’s what tends to be expensive.”

A visit to Frankel’s scrap yard helps illustrate the problem he hopes to solve. When he first tried to ship scrap overseas, it took three people about four hours to load one container using a crane and a backhoe. Backhoe operators, who had to make repeated trips into the container to fill it, complained about breathing exhaust fumes. During the loading process, the metal pieces would bang against the container, damaging the walls and floor. On a good day, just three or four containers left the yard for the port.

That frustration inspired Frankel’s machine, which is deceptively simple to see in operation. A truck carrying a container backs up to the machine, which consists of a metal box sitting on a track powered by a small engine. A crane loads scrap into the box and the machine slides the box in and out of the container, depositing the scrap metal. A crane operator and someone operating the machine can load 20 containers a day.

But Frankel, who said he has sunk $600,000 into research and development costs, is a long way from striking gold.

Although China remains the biggest export market for U.S. scrap metal, demand has softened in recent months, in part because Beijing has imposed a tax designed to slow imports of scrap and other commodities. China also is expanding its steel-producing capacity, making it less reliant on imports.

That, combined with slowing demand from American steel users, has substantially reduced scrap prices from last fall’s record levels.

To expand his volume so he can exploit economies of scale allowed by the machine, Frankel also must persuade other dealers or producers to sell to him. That means going up against the big firms that dominate the industry, such as Hugo Neu-Proler Co., which handles more than 60% of the scrap metal collected in Southern California at its 27-acre site at the Port of Los Angeles.

Frankel also hopes to lease or sell the machine to scrap yard companies that could become regional hubs for collecting and loading containers. For customers to shell out at least $150,000 a pop for his machine, he needs to demonstrate that it can be successfully replicated and withstand thousands of hours of wear and tear.

George Adams, president of Adams Steel, an Anaheim-based scrap recycler, said Frankel’s idea has merit. But he isn’t convinced that the industry will shift to containers, which would change pricing and require different equipment for transporting and unloading.

“It’s very difficult to get orders by container,” he said. “People are not used to handling it.”

But Frankel, who picked up a major in business along with his music degree, thinks money will talk.

“The true economic value comes in doing what other people can’t do,” he said.