CHICAGO ONeal Steel Inc. will close four warehouses that are outside its core geography over the next 18 months, citing rising freight costs and the difficulty of making next-day deliveries from each location.
The Birmingham, Ala.-based company will seek acquisitions and organic growth within its main geography in the Southeast, Midwest and Southwest, however, ONeal Steel president and chief executive officer Holman Head told AMM Sept. 24.
The distribution facilities that will close are located in Clifton, N.J., part of its 2010 acquisition of Denman & Davis Inc.; Commerce City, Colo., and Farmington, N.M., part of its 2006 acquisition of Timberline Steel Inc.; and Tampa, Fla., which ONeal opened in the 1960s. Each stocks carbon and stainless steels and aluminum products.
After the recession, ONeal Industries Inc. divided its businesses into steel and manufacturing services. "We focused on distribution under steel and processing and parts production under manufacturing," Head said.
When ONeal acquired the locations, each was doing both distribution and processing. With steel focused on distribution, the division developed a hub-and-spoke system to stock its 22 branches.
"These (four) facilities are on the outskirts, so far out beyond the hub that it has been difficult to replenish (inventory) from the hub. It is a lot of miles from Dallas to Commerce City," Head said. "Thats a lot of freight."
The locations arent busy enough to become hubs, and since "the market is still really tough in terms of demand and material costs, it was hard to make each facility reach the profit expectations we hoped for," Head said. "We plan to grow back into these geographies over time."
Three of the branches are leased and one is owned. Head couldnt predict what will happen to them. ONeal is looking for anyone wishing to lease or purchase the facilities or acquire the operations as an ongoing business.
The closures will affect 50 ONeal employees. Warehouse workers will be most affected, because its difficult to relocate them to distant ONeal sites, Head said.
ONeal closed three branches in Atlanta, Chattanooga, Tenn., and Roanoke, Va., in 2009 and 2010. The latest closures highlight the importance of next-day deliveries. "If we can improve the speed, it will give us an advantage in the marketplace. In the core geography we have, we provide all products and services next day," said Head.
The company will invest in inventory and equipment at its remaining 18 branches while continuing to seek strategically located companies to buy, according to Head.