300 Pike Street
With an estimated 19 percent of the domestic market, The David J. Joseph Company is widely recognized as America's oldest and largest scrap iron and steel company. The company also ranks at the top of the global scrap heap. In addition to its core scrap processing and brokerage business, the company leases and markets refurbished railroad equipment.
The David J. Joseph Company (DJJ) stood at the forefront of a highly fragmented, but slowly consolidating, industry in the mid-1990s. At that time, an estimated 4,000 companies operated America's $8 billion scrap metal industry. The business could be separated into three segments: collection, processing, and brokerage. The vast majority--up to 90 percent--of DJJ's business was concerned with scrap brokerage; the firm's 14 domestic and international trading offices would buy processed material from other companies and sell it to steel producers. DJJ primarily dealt in ferrous (iron- and steel-based) metals, but it also dealt in nonferrous materials. Although proportionately small, DJJ's scrap processing operations were impressive. The company's 17 scrap processing and mill service facilities across the United States scrapped railcars, shred autos, and managed scrap inventory. Company policy precludes publication of annual tonnage figures, but DJJ's volume has been estimated at over 5.3 million tons.
The company's history can be traced back to the mid-19th century, when German immigrant Joseph Joseph started a textiles business in Cincinnati. Swept up in the industrial revolution, the founder launched a scrap iron business in 1885. The railroad and construction industries helped increase demand for steel--and in turn boosted the scrap business--throughout the late 19th century.
Known in the late 1800s and early 1900s as the Joseph Joseph & Brothers Company, the family business diversified vertically and horizontally. The Indiana Rolling Mill Co. subsidiary was eventually merged into Republic Iron & Steel, a leading steelmaker in the early 20th century. The founder also created the Railway Supply Company and the Ohio Falls Iron Company.
Although each of the founder's five sons earned positions in management, it was the youngest who rose to the top. David Joseph first started working at the scrap brokerage in 1897 at the age of 11. The future company namesake rejoined the firm in 1905 after earning degrees from the Franklin Institute and Harvard University. He advanced to leadership of scrap operations by the time he was 30. Following the 1920 dissolution of Joseph Joseph & Brothers, the David J. Joseph Co. was formed to pursue the scrap iron business.
The development of the open-hearth furnace in the early 1900s both improved the quality of steel and encouraged consumption of scrap metal. Although steel manufacturers used "home scrap" from their own operations, the burgeoning auto industry's voracious appetite drove the expansion of the purchased scrap business.
Nonetheless, the scrap business remained a risky proposition ruled by the cyclical dictates of supply and demand. Scrap dealers played the odds, stockpiling material when prices dropped and selling when demand drove prices up. Scrap collection grew so efficient that an analyst for American Metal Market characterized the market as "demand-driven," asserting that "scrap is bought, not sold." A 1995 company publication noted that DJJ dealers occasionally "resorted to barter, taking finished steel in the attempt to make a profit." Given the structure of the industry, DJJ evolved into a brokerage. It established contracts with steelmakers that required the firm to find scrap supplies to meet steelmakers' needs.
The speculative nature of the scrap iron business was exacerbated by the Great Depression, which in the United States shut down over half of the capacity for steel production. According to a company history, David Joseph didn't let the national financial crisis stand in the way of a good deal. The 1933 purchase of 16,000 Southern Railroad railcars and engines is an oft-cited case in point. DJJ shipped a whopping 625,000 tons of scrap to Great Britain four years later. Large, risky transactions such as this helped DJJ rebound in the mid-1930s.
DJJ's close ties to the railroad business developed into an enduring, but lesser-known, segment of the family company. Railcars were an abundant source of scrap steel. DJJ's railcar scrapping developed proprietary burning equipment for wood-lined boxcars. The firm not only scrapped railroad equipment, it also refurbished railcars. Some of these were drafted for use in a company-owned fleet that transported scrap across the country; others were sold or leased to railroads and businesses. This auxiliary operation eventually developed into DJJ's Railroad Equipment Division, which had facilities in Illinois, Nebraska, Colorado, Tennessee, Florida, Kentucky, Virginia, Georgia, Texas, and Utah by the late 1980s. This division maintained a fleet of nearly 10,000 general-purpose railcars by the mid-1990s.
By the early 1940s DJJ was generally acknowledged to be America's largest scrap iron broker; it also ranked as a top scrap iron and steel exporter. David J. Joseph Jr. joined the family firm in 1938 and assumed the presidency in 1945. In contrast to his father, the Yale alumnus was better known for his managerial techniques than his trading prowess. DJJ expanded with the steel industry throughout the postwar era.
The Joseph family divested ownership of its namesake company to SHV Holdings, N.V. of The Netherlands in 1975. SHV was a worldwide global trading conglomerate with interests that included wholesaling and energy. David J. Joseph Jr. accepted the presidency of SHV's North American Holding Corporation and remained in that capacity for seven years. He retired in 1982.
James R. Breth was elected to DJJ's presidency in 1980. He had started as a broker in one of the firm's southern offices, advancing to office manager in 1960. He became vice-president of trading in 1976. In 1986, the veteran trader was elected chairman.
Technological advances and structural changes in the steel industry benefited DJJ in the 1980s and early 1990s. Just as open-hearth furnaces had changed the face of the steel industry at the turn of the century, the development of the electric-arc furnace in the 1960s spurred another revolution. The electric-arc furnace used scrap iron and steel--instead of the traditional mix of iron ore, limestone, and coke&mdashø make a limited range of steel products. Compared to conventional integrated mills, the "minimills" that evolved around electric-arc furnace technology were faster, more efficient, more versatile, and more productive than their dominant counterparts. At the same time, steel mills striving for increased efficiency reduced their production of "home scrap," thereby raising their need for purchased scrap. Thus, even as U.S. steel production declined in the late 1970s and early 1980s, demand for purchased scrap iron and steel increased.
The minimill segment of the steel industry fit well with DJJ's own decentralized strategy. Its regional markets and emphasis on autonomy echoed DJJ's corporate culture. DJJ had the foresight to forge close ties with two of the most important minimills in the United States, Nucor Corp. and Florida Steel Corp. Established in 1967, North Carolina-based Nucor had grown into the largest and most profitable producer in the minimill sector. DJJ enjoyed valuable exclusive brokerages with Nucor and Florida Steel.
DJJ's internal technological advances created efficiencies and improved profitability as well. Perhaps most noteworthy was the company's information system that linked company traders, and technology facilitated the coordination of orders and supplies.
The vast majority of DJJ's post-World War II business was conducted domestically, but in recognition that the United States was the world's largest exporter of scrap, the company reentered international markets in 1985 and created an international division two years later. With the support of its globally influential parent, DJJ expanded its geographic reach through exports to Canada, Mexico, and overseas markets. In 1993, DJJ expanded railcar leasing, repair, and remarketing into Mexico through a joint venture with Servicios Financieros Quadrum S.A.
DJJ also expanded through acquisition in the late 1980s and early 1990s. After a six-year hiatus, the company reentered the nonferrous segment of the scrap business with the purchase of United Iron & Metal Co., a Baltimore firm. The 1991 acquisition of Frank H. Nott Inc., a private, family-owned company founded in 1887, further expanded DJJ's nonferrous activities.
Two publicized attempts to expand DJJ's processing activities through acquisition were inexplicably aborted, however. In 1992, the company initiated the $18 million purchase of three southern scrap yards from Proler International Corp. The deal was abandoned within months of its announcement with no public explanation. Less than a year later, the proposed acquisition of Ferrous Processing & Trading Co., a major Detroit-area scrap yard, fell through. Later in 1993, DJJ was able to acquire two ferrous scrap shredders from the bankrupt CF & I Steel Corp.
Although DJJ's processing operations remained limited in the early 1990s, the company was not sheltered from the environmental pitfalls of this aspect of the scrap business. Scrap processing entails handling and disposition of the hazardous by-products of everything from automobiles to medical equipment. As a result, it is regulated by state and federal environmental and worker safety agencies. In 1993, DJJ's Tampa, Florida, scrap yard discovered two cancer therapy devices containing radioactive material. (Both components were found before any harm was done.) DJJ has also been involved in a Tampa-area Superfund cleanup ordered by the U.S. Environmental Protection Agency. These events dramatically illustrated some of the risks associated with the scrap industry.
DJJ got a new leader in 1992, when Louis F. Terhar Jr. advanced to president and chief executive officer. Terhar had been with DJJ a scant three years. James Breth stayed on as chairman.
Industry analysts were divided over the prospects for the domestic and international scrap markets in the mid-1990s and beyond. Some predicted that rising global minimill capacity and production would fuel scrap steel shortages. That was good news for scrap dealers, who anticipated higher prices. Other analysts, however, forecast that rising scrap prices would simply revitalize the more traditional integrated production methods. Given the support of its parent, its historical performance, and its strong ties to the minimill sector, DJJ's position appeared impervious to market shifts.
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