Service Centers

The Future of the Family Service Center
Written by John Packard
March 24, 2014
Would you want to start up your own service center in today’s environment? The risk and rewards are much different than in the past and, more often than not, entrepreneurs are not opening steel distribution centers. Last week, Steel Market Update attended the Platts Steel Markets North America conference, where the challenges of service center operations were discussed.
In contrast to a discussion on mergers and acquisitions within the steel industry, Jim Bouchard the CEO of Esmark, addressed the Platts audience on the challenges of surviving and operating a family-owned service center.
Mr. Bouchard described the primary challenges facing privately held service centers today:
– Mills movement to a cost plus industry (which can pose a danger and put a cap on probability)
– A move to quarterly pricing vs contract
– Slow economic growth (moderate increases in steel consumption)
– Excess capacity at both mill and service center.
Considering these factors, “Many service centers face deteriorating balance sheets, restricted profit margins in the cost plus environment, and margins that don’t support investment into the business,” Bouchard told those attending the conference.
He posed the question what are family service centers to do? Liquidate and retire? That is one option. Other options include: diversifying (easier said than done for many), or find other value added strategies.
Mr. Bouchard told the group, if the small service center is to make a successful go of it, they will need to invest in training the next generation, modernize operations, manage inventories to 2.5 months, and invest time and capital into the customer base.
In today’s market, nothing is certain, and small businesses will have to face risk head on and make the necessary investments if they are to stay competitive.

John Packard
Read more from John PackardLatest in Service Centers

Klöckner narrows Q1 loss, targets growth in North America and Europe
Germany’s Klöckner & Co. reported a narrower loss in the first quarter as the company targets becoming the “leading” service center and metal processing firm in North America and Europe by 2030.

Russel mulls buying US service centers despite Q1 profit dip
Russel Metals’ earnings slipped in the first quarter, but the company is still eyeing service center acquisitions in the US.

Olympic Steel earnings slump in ‘challenging’ first quarter
Olympic Steel’s earnings slid in the first quarter as the steel industry faced a “challenging” economic conditions.

Olympic taps Scott for board, Rippey steps down
Olympic Steel elected Peter J. Scott to its board of directors at its annual meeting on May 2. At the same time, long-time director Michael G. Rippey has retired from the board after 10 years.

Ryerson narrows loss in first quarter
Ryerson's net loss shrinks in first quarter.