Over King Crab salad at Portland’s Ringside Fish House, the CEO of Schnitzer Steel discusses global headwinds, the dilapidated state of U.S. infrastructure and incremental progress toward gender diversity in the nation's executive ranks.
It's been a tumultuous year and half for Tamara Lundgren. Schnitzer revenues were $352 million in the third quarter of 2016, down from $467 million in 2015. The company shuttered recycling plants and consolidated two of its three business divisions. On the bright side: Third quarter operating income for its auto and metals recycling business rebounded, to its highest per ton performance since 2011.
I met Lundgren for the first time two years ago, when I was writing this cover story. We reconnected for lunch two weeks ago to discuss the ups and downs of an eventful year, personally eventful as well as professionally. Just last week, her husband, John Lundgren, announced his retirement as CEO of Connecticut-based Stanley, Black & Decker — a position that helped drive one of Oregon’s great bi-coastal executive romances. (Interview excerpts have been edited and condensed, and the Q & A includes two follow up email questions.)
LB: What is the market outlook?
TL: Commodities are always volatile, but since 2011 it has been more volatile than you saw in any other cycle. The past year, September to January, was a very tough time for the recycling industry and parts of the steel industry. Prices hit decade lows. But they rebounded in spring. So the mid to long term outlook is positive, and we need to get through the near term: low GDP and a very difficult worldwide market.
LB: Last time we spoke you said you enjoyed working in an industry that functions as a proxy for global political and economic developments. Today, as you say, a "difficult worldwide market" is wreaking havoc on commodities.
TL: Whether you look at what happened in Europe with Brexit, what just happened in Turkey, what’s happening in China, we’re in the middle of changing presidential administrations — there is a lot of uncertainty about what future holds and that can weigh on people’s capital investments. We see that happening in machinery sector. We’ll get clarity on that in near term; we'll get clarity on whether the U.S. is really going forward with an infrastructure program. I think there is more opportunity than less going forward.
LB: But if the global situation doesn’t improve …
TL: Then the outlook is going to be different.
LB: How has volatility impacted operations?
TL: Over the last year and a half, we closed one shredder on each coast. We closed the shredder in Canada and now barge material down to Tacoma. We closed the shredder in Rhode Island and take material to a shredder near Boston. When volumes dropped, we became more efficient with our platform so we have higher utilization. We did the same thing with our Pick-n-Pull [self-service auto parts] facilities. Where we might have had a cluster of four facilities, we now consolidate into three.
LB: How many employees have lost their jobs?
TL: Since 2012 we are down 20% people, with the biggest changes being shortly after European financial crisis.
LB: Last we spoke you had launched a reorganization and restructuring initiative. Where are you in that process?
TL: We followed that a year ago with an integration of our auto parts and metals recycling business. So we consolidated two businesses into one. That has delivered a lot of benefits to the company. In April we levered on the efficiency and restructuring we’ve done.
LB: You credit improved third quarter results to those efficiencies?
TL: As we’ve been making changes we’ve been facing the headwinds. While we know what it would have been like had we not done it, you don’t present it that way.So what you see is staying in place because of the headwinds. This most recent quarter we got a little bit of uplift in volumes — 10% — a little bit of uplift in pricing, and so you saw all of the benefits come through right to bottom line.
One analyst, [D.A. Davidson's] Brent Thielman, who I know you know, had a great report saying: “This was a show me report that delivered.” That was very satisfying.
LB: China used to be the world's biggest consumer of steel and now is the world's biggest producer. How does the Chinese stake shape the global market?
TL: The biggest issue with regards to China is they have tremendous amount of overcapacity. They are producing a tremendous amount of steel that they are not needing internally. So they are exporting. There is nothing wrong with exporting, but there is something wrong with exporting at anti-competitive prices, at sharp discounts to market prices.
LB: The U.S. and other countries are involved in several trade cases against China. Are they getting traction?
TL: Trade cases can only take you so far. The most positive thing we’re seeing happening is that the Chinese government at the very highest levels — the president, and the premier, as well as trade associations and the biggest steel mills — have all acknowledged that there is anywhere from up to 300 million tons of overcapacity on the market. They have committed to taking at least 150 million tons off to close that down.
LB: By what date?
TL: The closest day I’ve heard is 2020, and the longest date is ten years. So somewhere in that range. A lot of that commitment is driven by the fact they are very anxious to achieve market economy status. European countries and the U.S. are finding their dumping activity, which has been affecting steel industries world wide, to be a big barrier to that. [Attaining "market economy status" under the World Trade Organization would give China’s competitors less opportunity to initiate anti-dumping measures on Chinese exports.]
China has lot of high polluting steel mills that are inefficient, environmentally very challenging and need to come off line. As that happens, they will hopefully replace them with electric arc furnaces — that’s the type of mill that utilizes scrap metal. So there are some good levers that will make the steel industry globally much more balanced.
LB: How is your foray into the sharing economy, Row 52, coming along? [Schnitzer launched the online marketplace for used auto parts in 2014].
TL: I get letters periodically from parts pullers who tell me how thankful they are we developed something like this. It allows them to be quite entrepreneurial. Particularly people in regions where we have a lot of stores. Or we have online other stores that we don’t own, but other people will put their inventory online. It’s our way of participating in the new economy with a very old economy product.
LB: How do you attract young employees to an old economy industry?
TL: People’s passion for the environment, for recycling, far overwhelms the fact that it’s not a software startup. The level of satisfaction that you get by actively participating in something physically and makes a difference is very powerful.
LB: The New York Times published an article recently claiming the U.S. Chamber of Commerce board members were out of sync with the chamber’s policy positions. The article singled out the chamber’s lobbying on behalf of tobacco and climate change debunkers. You are a board member and former chair of the chamber. What is your response to the claims in the Times' article?
TL: I don’t want to be a spokesperson on that issue.
LB: There’s a lot of talk about bringing back manufacturing to the U.S. But so far there is more talk than action. Are you optimistic it can happen here?
TL: Absolutely. My husband just brought back manufacturing [of DeWALT-branded professional power tools] from China to North Carolina and Indiana. I see it all the time, with low energy prices, the fact that we have a workforce that is underemployed. The things that work against bringing manufacturing back are permitting and regulatory compliance, which can be quite extensive. If you are going to bring back manufacturing, you want to know you can get your plant up and running in X period of time and not be delayed for ten years. So that’s within everybody’s control to manage. Energy at one point felt like it wasn’t within our control. But we solved that. It’s an extraordinary opportunity for the U.S., and shame on us if we don’t take advantage of that.
LB: You alluded to a U.S. infrastructure program. There is also a lot of handwringing about lack of infrastructure investment, in Oregon and nationally. Yet little if any progress has been made.
TL: Last we met energy prices were not as low as they are now. I think that it has become clear across the board, irrespective of party, that job growth is necessary, and the people who missed out on the recovery — and I think as a country we are still recovering — are the ones who lost their jobs in the crisis. And those are construction workers and steel workers and coal workers.
We have an obligation as country to find opportunities for these individuals to become fully participant in the country. And our infrastructure is badly badly underinvested. So it’s not about creating work that’s not needed. The return on infrastructure investment is huge efficiencies and new businesses and higher productivity. It doesn’t slow anything down; it accelerates.
LB: We recently published a cover story on Martin Daum, CEO of Daimler Trucks NA, and he too noted the dilapidated state of U.S. infrastructure.
TL: What was his perspective?
LB: I think he thinks we Americans [Daum is German] are idiotic for letting our infrastructure get to this point. He has that very straightforward, German way of speaking. It’s very refreshing.
TL: [Laughs]. I worked in Germany for while, for Deutsche Bank. I know.
I give a lot of speeches on infrastructure. I spend a fair amount talking to people in Washington about this. I’m passionate about it not only for steel industry and recycling. I’m passionate about it because of the economy. If you ask my husband, I talk about this anytime the conversation moves to the economy. To me this is something we should have attacked a long time ago.
LB: Speaking of husbands, yours is retiring. How will John's retirement affect your bi-coastal lifestyle?
TL: In addition to John’s ongoing commitments to Stanley Black & Decker, he will continue to be involved in a number of boards and other activities on both the East and West Coasts. So no changes to our busy bi-coastal lives.
LB: There is a lot of talk about gender diversity in the tech sector. You are a woman in a male-dominated industry and the only female CEO of a publicly traded company in Oregon. Do you have any advice for tech leaders about how to diversify their executive ranks?
TL: Every industry I’ve been part of during my career has been male-dominated while I’ve been in it. My law school class was about 20%-30% women; now most law school classes are 50% or more. I was one of the few women managing directors on the trading floor in London in the '90s. Today those numbers are much higher. The shift in female executive leadership crosses many industries: defense, information technology, healthcare, consumer products. I am very optimistic that the focus on women and STEM education should create a pool of female talent large enough for there to be strong representation across all segments of the tech industry.