by Kelly McMahon
 
Natural disasters such as Hurricane Katrina and other catastrophic weather events, as well as foreign market demand caused by the continued industrial development of China, South America and Africa, are literally transforming the marketplace for transformers and related high-voltage switchgear.
Increased scrap dealer demand and aggressive bidding, combined with lower inventory availability, has stimulated surplus price increases and driven more organizations to seek and sell to the scrap market rather than seeking recycling channels. The result is that scrap prices for this equipment is at an all-time high.
 
Transformers and related high-voltage switchgear are critical operating elements in all public facilities and private industrial installations. Currently, one of the biggest business challenges throughout the industry is a spike in the surplus inventory demand trend. Inventory availability for buying, selling, renting, repair and delivery of used highvoltage, electrical distribution power transformer and switchgear equipment is especially tight.
 
Obviously, scrap dealers serve a bonafide need in the market; however, their focus is more on simple as-is “commodity” trading rather than industry facilitation. At T & R Electric and similar companies, the focus is vested largely in providing dependable products and the refurbishing process to get equipment back into productive industrial use. Accordingly, a major operational investment is made in equipment repair/rebuilding, application standards analysis, testing and certification, and meeting environmental/regulatory compliance.
 

Customer audits of equipment performance and regulatory compliance testing is an important part of this process. In fact, in addition to price and delivery service attributes, the business-standards goal is to maintain a high “Quality Assurance” reputation for providing “better-than-new” warranty backup on
recycled equipment. These benefits have been important factors among the secondary marketplace,
comprising mainly major urban public utilities, municipalities, rural utility organizations, commercial

industrial facilities/installations, electrical contractors and a growing sector of international developing markets.
 

Also related to quality assurance is pickup and delivery capability. This is especially important in the case of natural disaster situations when customers need to get back to operational status quickly and cannot wait months for delivery of new transformers and other electrical equipment. This challenge is

met best through investment in substantial inventory warehousing facilities and maintenance of company-owned transportation capabilities. Having direct control over trucking—vs. using common carriers—also impacts product quality assurance in terms of knowing and controlling how equipment is handled as well as knowing that equipment condition and transport methods are in strict regulatory compliance.
 
Current surplus scrap dealer participation and market short-supply dynamics tend to affect several business factors:
  • Increased surplus acquisition cost
  • Increased equipment-selling prices to end-users
  • Reduced ability of recycling companies like T & R to be strictly selective about buying decisions because currently there is more pressure to bid on entire lots in the face of surplus dealer aggressiveness
  • The balance between “project-byproject” outlet/marketing arrangements with recyclers and annual contract relationships are affected because of pricing volatility
  • The role that auctions play— both live and Internet—may be affected if current trends in supply and pricing persist
  • “Consignment” arrangements, although traditionally not a major factor in this business up to now, may get another look as a viable option in moving equipment
 

All in all, both surplus dealers and quality- control-oriented, industrial recycling participants have important roles in the marketplace. Surplus dealers are needed as quick outlets for surplus
asset disposal; recyclers, in addition to being disposal outlets, also function as stewards of surplus equipment effective usability. The recent pricing and inventory availability developments in the

marketplace are and will continue to be a challenge that the recycling companies are and need to be flexible enough to meet.
 
Reprinted from ASSET 2.0, the Investment Recovery Business Journal, Vol. 2, 2007

© The Investment Recovery Association