Amazon buys Central Steel and Wire.
That’s an odd couple.
What Jeff Bezos wants is the 70 acres of land on the southwest side of Chicago near the old stock yards. No bundles of half inch 12L14 bars in with the bananas for the moment.
The Central Steel and Wire Company and its real estate in Chicago was sold to Ryerson Steel in 2018. The firm was an odd duck because it had no debt. It was 56% owned by the James Lowenstine Trust, which was dedicated to using 1,200 acres of natural beauty in Northern Wisconsin as an environmental school known as Conserve School. Lowenstine, son of the founder of the company, died in 1996. He had no children. His will also left a loophole for the trust to be controlled by his Alma Mater, Culver Military Academy in Indiana. The competing interests fought over control of the trust, and therefore the future of Central Steel, for over 20 years. Today’s Machining World wrote a feature story about the conflict back in 2006. In 2018, Culver gained control of the trust, installed its slate of directors to run the Conserve School, and sold the company to Ryerson Steel for $150 million. It turned out to be a sweetheart deal for its old rival, Ryerson, also based in Chicago.
Amazon just paid $45 million for the real estate and leased it back to the company for two years. For a little more than $100 million, Ryerson became the dominant metal distributor in the Midwest.
The deal interests me for many reasons. Graff-Pinkert has been a customer of Central Steel for as long as I can remember. If a company, even for the smallest of customers like us, could exemplify caring, efficient service for decades, it was Central Steel. With Ryerson, it becomes a global “maybe,” with their interests in China and Mexico and elsewhere.
But what is also fascinating is the shifting of real estate patterns over the past several years, with Amazon leading the way.
Retail is withering. Find me a shopping center that is thriving. Few are even in the black. Rents of retail locations are falling. Many retail centers are being demolished or will be converted into housing, marijuana farms, or vaccination centers.
Office space today is in disuse, but giant warehouses are proliferating near many highways, especially where there is easy access. The new real estate magnates are using cheap money to build massive windowless 35-foot high concrete wall rectangles with a lot of asphalt to enable vehicles to get in and out of fast.
Amazon is employing hundreds of thousands of people processing boxes. That means loads of hand and wrist injuries now, but in the future robots will do most of the work. In 5 to 10 years, we will probably see driverless delivery vehicles.
This is why Bezos continues to buy real estate, even in sick cities like Chicago. For an Amazon, the southwest side of Chicago, which used to have many small machine shops served by Central Steel that have since fled Chicago with its taxes, rampant corruption, and lousy schools, is now fertile ground for a company that needs huge numbers of $15 per hour employees to load vans with boxes of booties.
Amazon, for the moment, needs people. Central Steel has strategic ground and hundreds of motivated, well-managed employees. While Amazon says it is not interested in steel distribution, I can imagine Bezos studying the Central Steel operation and deciding Amazon can do it better.
If it works for bananas and booties, it could work for billets.
Question: Do you think steel distribution could be improved upon?