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Despite dramatic changes in the recovered fiber and papermaking businesses, brokers still play a vital role in the supply chain, offering benefits to scrap paper generators, packers, and consumers.

By Ken McEntee

For years Walter Bobruk, owner of Agency Fibers (Huntsville, Texas), supplied a southeastern U.S. tissue mill with recovered fiber. “I was shipping them some very clean paper from a printer in Louisiana,” he recalls. “The buyer at the mill said he loved the stuff,” and he “loved working with small brokers like me because we have the best paper.” So Bobruk was shocked when the buyer called to announce a change in the mill’s buying policy. “If I couldn’t send him at least 500 tons a month, he’d have to cut me off as a supplier,” Bobruk recalls him saying. “He loved the material, but he wasn’t able to take it anymore.”
For scrap paper brokers--particularly smaller operators--this scenario is one example of how the business has changed dramatically in recent years. The domestic paper industry has consolidated, resulting in the closure of numerous mills. “It’s not easy for the small broker who worked with all those mills that have consolidated and closed down over the last 10 to 20 years,” Bobruk says. “There are fewer and fewer places in the United States to sell your product.” Further, many mills now have their own procurement divisions, some of which have chosen not deal with independent brokers. Many scrap paper sources either are drying up--rendered obsolete by the digital age--or are increasingly controlled by municipalities and/or their contracted waste haulers. As Tom Wood, a broker with National Fiber Supply Co. (Chicago), puts it, “the playing field has shrunk.” And an ever-increasing portion of U.S. recovered paper is exported.
These and other changes prompt Bobruk to ask, “How does a small, independent broker who doesn’t have his own plant and supply survive?” Indeed, to Robert Cook, owner of Cook Paper Recycling Corp. (Kansas City, Mo.), one sign of the times is that “you don’t see new brokers coming on board.” With the walls “closing in on the independent brokerage,” the current players must be “very aggressive” to maintain enough business, he says. Even larger brokerage operations have had to adjust as the market has evolved. Overall, paper brokers large and small are realistic about the challenges ahead--and confident in their ability to meet them.

The Broker’s Role
For most scrap paper brokers today, the title of broker is a misnomer, says John Daniel, president of the Recycling Division of Federal International (St. Louis). A pure broker works on commission and doesn’t take title to the material he or she sells, he explains. “Now, we all take possession of the material, at least for a millisecond,” he says. “We’re really trading companies for our own accounts. We buy and sell, and we actually own the product in the time between the buy and the sell.”
Daniel would describe the broker’s main function today as “making life easier for suppliers and mill buyers.” For suppliers, he says, brokers handle “difficult credit customers” and pay them faster—and often more money--than mills would pay them so they can keep shipping material. “The mills haven’t been so healthy lately,” Wood notes. “We keep the funds rolling so the material keeps moving.” Whereas mills might take 45 to 60 days to pay brokers for the paper they buy, brokers generally pay their suppliers in 10 to 30 days. That said, “because we tend to get paid a lot slower than we pay, we take on a lot of risk,” Daniel adds. In that regard, brokers are like banks, and they must have sound capitalization and strong relationships with banking institutions to remain viable, Wood says. Brokers also “have access to markets that [suppliers] don’t have access to or [have] no interest in dealing with directly,” says Bob Kovich, a Tacoma, Wash.-based broker with Jordan Trading (Kingston, N.Y.).
On the other side of the sales equation, brokers also perform important services for paper mills. By selling to many different mills, brokers know about overall market needs and can place tonnage with the facilities that need it most, Wood says. Perhaps most important, “mills don’t want to deal with 400 suppliers, so they use maybe 10 brokers who each have perhaps 20 to 30 suppliers,” he says. Daniel concurs, noting that “many of the large, publicly traded companies that buy 50,000 to 80,000 tons of paper a month might have one person doing all their buying. Without brokers, that’s impossible--unless the buyer wants to work 120 hours a week. Brokers are able to aggregate tons from various sources and make it possible for a mill buyer to make one phone call and get a big block of tons.”

The Shifting Mill-Broker Dynamic
Prior to 1980, mills relied on brokers more than they do today, Cook says. Back then, it was more common for mills to view brokers as their partners, a vital link in the supply chain, he says. “For years we handled quantity and quality issues and provided as much contaminant-free paper as they needed.”
That began to change in 1980, when the former Fort Howard Corp. (Green Bay, Wis.) acquired Harmon Associates (Jericho, N.Y.) to serve as its recovered-fiber procurement arm. “One day we were partners; the next day we were not only their suppliers, but also their competitors,” Cook says. This move set off what he calls a “domino effect” among other mills. The day after Fort Howard’s acquisition, its competitor—the former Wisconsin Tissue Mills (Menasha, Wis.)--held an emergency meeting to determine how it would respond. “The copycat mindset is amazing,” Cook says. “When the big companies see their competition doing something, they think they have to do it, too.”
In Cook’s opinion, mills that established in-house procurement divisions were shortsighted, adding layers of bureaucracy and inefficiency that eat away at their profits. “They started to pay large premiums to get some fast tonnage,” he says. “They took on a lot of overhead expenses to accomplish what independent brokers used to do for them at no cost.”
Today mills fall into one of two camps regarding independent brokers, Daniel says. Some mills are anti-broker, he asserts. They think brokers “put money in their own pockets and increase the cost of paper, so the goal is to cut them out of the picture. There are plenty of paper mills that have buying arms and will do anything they can to keep brokers out.”
In the other camp are mills that seek the lowest possible fiber cost, with material delivered on a consistent basis over the long run. Brokers can provide that service in several ways, Daniel says. For example, he notes, “more than half of the tons we sell are not accessible to mills because they come from an involuntary generator like a large printer, which can’t partner with a mill.” The printer must be able to ship its scrap paper no matter what, but there’s always the risk that the mill could go down unexpectedly or take planned downtime. That’s never a worry with a broker, who keeps the printer’s recovered fiber moving.
Daniel maintains that privately owned mills are more likely to work with brokers than publicly traded mills. “Public corporations have a lot of outside forces to deal with, like Wall Street, boards of directors, and investors,” he says. “They have controls in place on inventory and hiring. A company like ours doesn’t have the outside forces. We do what makes the most sense for our company and our customers. Private mills are in the same position.”
Daniel cites one example from a few years ago. At the time, the market for OCC was $70 a ton. Daniel offered to sell his entire stock of OCC to a buyer for a publicly owned mill for $50 a ton, but the buyer refused, saying it was an inventory issue. “I said, ‘This is crazy. This is the cheapest you’ll ever get OCC,’” Daniel recounts. He held onto the bales, and 90 days later the mill buyer purchased the same OCC for $120 a ton. Had he made his original offer to buyers at a privately owned mill, Daniel says, he’s confident “they would have found a way to take the $50 corrugated because it was on sale.”
Noting other benefits of working with a broker, Wood says he can provide fiber to mills on an as-needed basis along with valuable expertise. “If the end user needs 1,000 tons of hard white envelope, we know where to get it and how much it’s going to cost because we live and breathe this stuff every day,” he says. “With some of the large mills, maybe the person buying the scrap paper has other responsibilities and isn’t able to keep up [with] the market on a daily basis. We have 12 brokers working the phones all day, every day.”
Though most businesses consider “cutting out the middleman” a time-tested strategy for reducing costs and increasing efficiency, it doesn’t always happen that way, Kovich says. “In a perfect world, somebody who has paper would … sell it directly to a person who wants to use that paper, and the person who needs the paper would go directly to the person who controls the supply of that paper,” he says. “But there is no perfect world out there. Everybody has a portfolio of suppliers and customers, and those portfolios include brokers.”

A Changing Business
Not long ago, the annual Paper Week conference was a jam packed affair, with paper buyers and sellers filling the lobby of New York’s Waldorf-Astoria hotel every March. More recently, the event has been much more sparsely attended, in part due to reduced travel budgets and the broader use of electronic communications. These developments have made the business less personal, some brokers say. “How much face-to-face time do you actually give your customers anymore?” Wood asks. “A lot of the day-to-day contact is done over the Internet and e-mail, but we feel it’s very important to get out and see your customers. We continually do that.”
Kovich—who calls himself “old-school”--is a strong proponent of face-to-face contact with both consumers and suppliers. Visiting suppliers is important, he explains, because “recovered paper processing and quality is always subject to change as new supplies are brought into a plant or processing equipment changes.” That’s why it’s helpful to “see what the supplier is packing to make sure the quality hasn’t changed since your last visit.”
Bobruk says digital cameras and webcams are further reducing in-person visits in the scrap paper trade. Those technologies allow suppliers to send images of loads and offer live video as they load material into their trucks, precluding the need for a broker to visit to the plant. “You can get more information and more transparency at less expense,” he concedes. “The trips to inspect bales are going to be less frequent, which means there’s going to be less need for a broker to provide that service. That will take away part of what the small guy can offer.” In sum, Bobruk says, “technology has made things more efficient, but it also has taken the relationships out of the business.”
Beyond technology, other dynamics affect their business, brokers say, on both the supply and demand sides of the picture. On the supply side, they note waste haulers’ growing control of recovered fiber supplies and the declining use of paper in major market sectors. The use of newsprint, for instance, has diminished due to competition from Internet-based news sources, and the growing use of portable electronic reading devices (think Kindle, Nook, and iPad) is decreasing demand for printing paper. In another niche, the use of pre-printed business forms has declined. “We used to get the scrap paper from the major business-forms printers, but now people are printing their own forms from their computers,” Cook says. “There’s less and less paper available. That’s the biggest problem we face.”
Demand trends affecting brokers include the greater influence of the export market, even though 62 percent of all U.S. recovered fiber--including 71 percent of all OCC--is consumed domestically. “A brokerage has to know the export market these days,” Wood says. “You always hear about the big Chinese buyers, like America Chung Nam”--the primary supplier to Nine Dragons Paper, China’s largest papermaker—“but there are a lot of other international consumers that need paper.” To compete in the export market, brokers must know the key consumers and establish relationships with them to “get the best prices for suppliers and ensure long-term movement of their material,” Wood says. “That’s one of the biggest changes we see today.”
Larger brokerage firms say they’re well-suited for such work. These firms, some of which have multiple locations and their own processing plants, typically employ specialists in areas such as transportation, financial instruments, and foreign languages to better serve the growing export market. The result, Wood says, is that “some people whom we did not do business with 15 years ago have become allies. … Maybe somebody we compete with regionally doesn’t know the export market as well as we do, so we can help them there.”
Despite the many challenges, paper brokers assert there’s still a place in the industry for this specialized business. “Some people say they miss the good old days, when brokers got rich from large margins on minimal tonnage, but I never saw those days,” Daniel says. “This business is very competitive, and I can name five competitors that drive me mad on a daily basis, but it’s still a good business.”

Ken McEntee is editor and publisher of The Paper Stock Report and Paper Recycling Online (www.recycle.cc). This article was reprinted with permission from the March/April 2011 issue of SCRAP magazine (www.scrap.org) - a publication of the Institute of Scrap Recycling Industries (ISRI). Visit their website at www.isri.org.


Becoming a Broker
To get a sense of the future of the paper brokerage business, it helps to understand how today’s brokers got their start. There are many paths to brokerdom, veterans of the business say. “There’s no set rule for what you have to do or what experience you need to be a scrap paper broker,” Tom Wood of National Fiber Supply Co. says. “Generally you should be a self-starter and you should be able to build relationships.” Beyond those basics, paper brokerage is a business that takes time to learn. As Wood puts it, “we hired four young guys 10 years ago, and it took them a good six or seven years to get their feet wet and know what they were doing.”
Most brokers say a personal contact helped them get their foot in the door. In Wood’s case, his mother-in-law’s cousin, a National Fiber owner, got him started. “He liked me and asked if I had ever considered selling scrap paper,” he says. He decided to try the business, starting off in sales and service. “It happens that way. A lot of it is who you know.”
Robert Cook of Cook Paper Recycling Corp. followed a different path into the paper trade. After earning his college degree and serving in the U.S. Navy, he went to work with Armstrong World Industries, which transferred him to Kansas City, Mo., where he and his father-in-law started a scrap paper supply business.
Walter Bobruk of Agency Fibers became a recovered paper broker after gaining some experience in the solid waste business. After running routes for a waste hauler, he worked a short stint at recycling plant, and then decided to try his hand at selling scrap paper. He visited World Fibers, a Houston-based brokerage, which invited him to hang out with its brokers for a few days to learn the business. In the end, the company hired him at $250 a week, plus commission, he recalls. When World Fibers went under a couple of years later, Bobruk started his own brokerage company and signed a marketing agreement with Canusa Hershman Recycling Co. (Branford, Conn.). The marketing agreement is a win-win situation, he says. He concentrates on buying and selling while relying on Canusa Hershman for support services, such as logistics and financing.
Bob Kovich of Jordan Trading has a similar situation. He buys recovered paper—and does some sales--from an office in Tacoma, Wash., while Jordan handles the bookings and financing from its headquarters in Kingston, N.Y. “We have a staff that deals with the steamship lines and the banking and credit issues,” he says. “We also have people who can speak [the native] languages where we sell tons.”
Kovich began his career as a management trainee at a Weyerhaeuser sawmill before becoming supervisor at the company’s recycling plant in Portland, Ore. After moving into sourcing at that plant, he transferred to Dallas as a regional marketing manager and later joined Browning-Ferris Industries in the same fiber marketing role before moving to Georgia-Pacific, where he sourced fiber and became the buyer for the company’s Toledo, Ore., mill. He got into the brokerage business when he joined Jordan Trading.
And what of the next generation of brokers? How will they enter the business? According to Bobruk, up-and-coming brokers must be young, with lots of energy, good business sense, and solid communication skills. Due to the capital requirements of becoming an independent broker, Bobruk sees more opportunity for young brokers in building a career in an existing brokerage operation. On-the-job training is still the best way to learn the brokerage business, he asserts. He advises aspiring brokers to train in a scrap paper packing plant for a year to gain hands-on experience with the paper grades, and then move into the office to work first as a transportation assistant, then as an assistant to an “old pro broker.”

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