If the Norwegian luxury cruise ship that was struck by a 70-foot wave in mid-April had been carrying steel instead of people, the carrier insuring the ship's cargo would have been hit with a 25,000-ton claim.That's according to Scott Shapiro, CEO of SteelSalvor LLC, a Narberth, Pa.-based firm that operates an online auction site for steel buyers and sellers.
Steel gets damaged very easily, says Shapiro. "It's heavy. It doesn't carry well. It doesn't age well. And it's susceptible to the atmosphere."
Furthermore, the steel industry is cyclical. When the economy is weak, buyers of steel reject more cargo-a phenomenon called "market rejection" or "market claims," which drives prices down. When the economy is strong, on the other hand, supplies tighten and prices go up.
The old vs. the new
These market conditions affect marine, transportation, and other commercial carriers that insure steel suppliers. When cargo is rejected, the carrier covers the loss. And, as always, carriers want to minimize their losses.
Enter SteelSalvor, an online auction site that sells damaged, rejected, or obsolete steel products.
The five-year-old company has amassed a database of 6,300 buyers and sellers of steel in North America. It continually collects data on the needs and preferences of those buyers and sellers, as well as data on prices for various steel products at various times and in various regions.
The online trading exchange is designed to replace the traditional method of selling salvage steel, says Shapiro. Normally, a buyer refuses cargo after a surveyor finds the steel damaged during an inspection. The company selling the steel then files a claim with its carrier-and the carrier and the policyholder are left with damaged product, which they sell on the open market to recoup their loss.
Traditionally, an insurance company hires the same surveyor who inspected the cargo to conduct the salvage sale, adds Shapiro, who previously was an executive vice president at Allied Steel Industries LP, an Bala Cynwyd, Pa.-based excess and secondary steel broker.
"But we at SteelSalvor said, 'That doesn't make sense. It's a direct conflict of interest and they have no real marketing expertise. "So for 30 or 40 years, they've sold that material as essentially scrap-or pennies above scrap-and the buyers are multimillionaires because they buy the steel and resell it as a significantly higher value."
Using SteelSalvor as their sales platform, insurers can keep that extra money for their policyholders and significantly lower their claims instead, he says.
For example, on the day Insurance Net-working News spoke with Shapiro, SteelSalvor had sold 1,400 tons of steel for one insurance customer for $700,000. Using the traditional method, that steel would likely have sold for $500,000, according to Shapiro.
"We just made the insurance company $200,000," he says. In addition, over time, the steel seller's insurance premiums will decrease because its claims are lower."
Even buyers benefit, according to Shapiro, because they know exactly what they're getting. "We supply them digital pictures and real information about the material," he says. "Everybody in the steel business wants the last look. And in our system, everybody gets the last look. It's totally auditable and it's nonexclusive."
A wealth of information
It's also psychologically compelling, according to Guy Van Spilbeeck, senior claims adjuster at Fortis Corporate Insurance, Marine.
"In a normal salvage sale, a surveyor puts the goods on the market, people send him an offer, and the highest one wins," he says. "With SteelSalvor, all the bidders can see [online] where they stand without seeing the actual figures. And that creates a feeling of competition, which makes their offers go up."
In fact, Fortis has been using SteelSalvor for North American steel claims for approximately four years. As a result, the insurer-which has offices in Antwerp and Rotterdam-has reduced its marine claims significantly.
"This past week, we obtained the results of a salvage sale, which diminished the claim by 40%," says Van Spilbeeck. And, although it's difficult to put a figure on the company's actual savings-because it depends on the extent and type of damage, the kind of steel, and the market condition-Van Spilbeeck estimates Fortis' marine business is getting results that are 15% to 20% higher on average than when using the traditional sales channel.
What's more, SteelSalvor owns a wealth of information about the market, says Van Spilbeeck. "They know how the market is evolving and they advise us accordingly." For example, he says, when Fortis recently had a large claim, SteelSalvor told the carrier to wait before placing the damaged parcel on the already-saturated market.
Similarly, SteelSalvor knows its buyers very well. says Van Spilbeeck. "They know what is needed, by whom and in which parcel sizes," he says.
"Let's say we have damage on 50 steel coils. Normally, we'd put that on the market in one lot. But SteelSalvor knows what the buyers want, and they'll say, 'You'll be able to recoup more by selling this claim in five lots of 10 coils each."
What's more, SteelSalvor establishes the minimum price for a sale-based on the statistical information it collects. And the company doesn't collect its 5% fee unless the sale meets or exceeds that minimum selling price.
"Since we've introduced SteelSalvor on our contracts, several of our insureds now use the service for noninsurance matters," says Van Spilbeeck.
"The steel traders use it when a client refuses a purchase and they have no other buyer, and they use it for surplus stock. To me, that's proof that it's a good solution."
