Although location and product mix are most of Inland's story, they are not all of it. The company's reputation for quality control and customer service isamong the best in the industry.
Fred Jaicks would rather fill in Lake Michigan to Milwaukee than build another plant," an Inland Steel Co. competitor said wryly.
Inland Steel isn't about to fill in Lake Michigan to Chicago, let alone to Milwaukee (although it did fill in about 400 acres of the southern tip of the lake to make room for a massive expansion of its iron-making capacity and can go out further if it wants to).
But as its competitor noted, both the company and Chairman Frederick Jaicks are well aware of the advantages Inland enjoys operating out of a single plant location in the nation's best steel market. And Inland plans to keep in that way.
Jaicks, who has been chairman since 1971, said at least four times the company since 1971, said at least four times the compnay has studied building a new facility to augment its 76-year-old, 1,800-acre Indiana Harbor Works. Each time, the company has decided to stay put.
That has meant that the only Chicago-based steel producer, by shunning a multiplant operation, is stretched to satisfy orders from all its customers during periods of heavy steel demand (such as now). But it also has meant that Inland operates much closer to capacity when its major competitors do not - keeping Inland consistently the most profitable of all the large, diversified steel companies.
"At the top of the market, Inland cannot grow. It reaches full capacity sooner than its competitors and stays there longer," according to Ray Hughes, vice president of Blyth Eastman Dillon. Inland - which last year produced 6.2 percent of the nation's steel compared to about 23 percent for the nation's largest, United States Steel Corp - long has shunned growth for growth sake, Hughes said.
However, Inland is in the middle of a major expansion of its capability to make hot iron that will increase its ability to make raw steel from about 8.2 million tons a year to 9.3 million. That in turn will boost Inland's ability to ship finished products (from sheets to plates to bars) from 6.3 million tons a year to 6.9 million tons.
The first stage of the $800 million expansion - a new battery of coke ovens - will be operational about Oct. 1, while a new 7,000-ton-a-day blast furnace (whose capacity can be increased to 10,000 tons) will begin operating next year.
Inland's performance "can be explained very simply," said Jaicks. "When the rest of the industry is operating at 70 to 75 percent of capacity, we're operating at 70 to 75 percent of capacity, we're operating a 90 percent." And when the highly cyclical industry is operating at close to 90 percent, as it is now, Inland quickly finds itself running at full tilt.
In an industry with high fixed costs, the closer a steel company can operate to capacity, the more money it can make per ton of steel produced.
And Inland's lone mill - at East Chicago, Ind., in the middle of a giant steel-making cluster that rings the southern tip of Lake Michigan from Chicago's southeast side to Burns Harbor, Ind. - ships more steel than any other facility in the country.
The Indiana Harbor Works is not, theoretically, the biggest in the country. U.S. Steel Corp.'s nearby Gary Works has more capacity than Inland, for example. But because Inland has all its ingots in one basket, so to speak, and can shift its finished output to meet changing market demand, the company is better able to keep all of its steel-making facilites in use. Inland's "total shipments don't deviate as much from the mean as those of many of its competitors," Hughes said.
And, according to Alfred Rudd of the New York bond-rating firm Standard & Poor's. Inland should be able to maintain its consistently high operating rate even with the expansion. Rudd downgraded Inland's bond rating from AA to AA-minurs last year, mainly because of the heavy borrowing the company needed to finance the expansion, but calls it a minor downgrading. Of the major steel companies, only inland and U.S. Steel (which was similarly downgraded in June because S&P doesn't think the outlook for the entire steel industry is all that rosy) maintain AA ratings.
"We still think Iland's operating prospects are quite favourable," Rudd said.
Inland's relatively happy prospects are in large part the luck of the draw. Demand for steel in the mid-America states that form 80 percent of Inland's market (Illinois, Indiana, Ohio, Michigan and Wisconsin) is reliably strong. And because of high shipping costs, the Chicago area is better protected from the onslaught of low-priced imports than the East, West and Gulf coasts.
The company also has a product mix that is profitable (it shelved its rail operations in the 1950s and its tinplate mill about a decade ago) and wellsuited for the Midwest. Nearly 70 percent of the company's shipments are sheet and strip steel (used by auto makers and appliance manufacturers), with the rest spread among structural steel bars and plates. The plate mill, built in 1918, one of the few old pieces of equipment at Inland. The company hopes to replace it in the 1980s in phase two of its modernization and expansion program.
Although location and product mix are most of Inland's story, they are not all of it. The company's reputation for quality conrol and customer service is among the best in the industry. "It's a damned good outfit on that score," according to a salesman for a small Chicago-area steel company.
And by concentrating output in one location - rather than producing in many locations like most other giant steel makers - top management can focus investment, schedule production more easily and keep on top of an order from start to finish.
Furthermore, there is not the slight deviation in quality from plant to plant that often occurs at other steel companies. "When a customer orders from Inland, he doesn't have to worry where the goods will come from," oen observer said.
Inland, apparently, has also been a well-managed firm since its 1892 founding by the Block family.
"Inland's management is forward looking. They got out of some bad businesses at the right time, they went into galvanizing early and they understood the benefit of modernization," according to James Balanoff, district director of the United Steel Workers director of the United Steel Workers of America.
In the last 10 years, not counting the expansion. Inland spent $900 million to modernize its Indiana Harbor Works, Jaicks said.
Inland was not alone in recognizing the superiority of the newer methods of producing and finishing steel. But unlike other major steel companies that had to decide which of their mills should get what new facilities when, Inland only had a single plant to worry about.
"Inland's management is no better or no worse than steel managements is general to deal with from a worker perspective," said Balanoff. Inland was singled out by the steel workers last year and went to the wire on local bargaining issues last summer, although a strike was averted. "But they've invested wisely. Nobody matches them in keeping people working. There have been no prolonged layoffs since the War (World War II)," Balanoff continued.
"And they've built up good ties with their customers," said Standard & Poor's Rudd. "That has served them in good stead during bad times." Customers who can't get all their needs filled by Inland during periods of high demand, return when the steel market softens.
"One of Inland's strengths has been our consistent commercial policy," said Chairman Jaicks, who survived about with polio at age 31 and often wears a brace because of weakened back muscles. "We don't say to a customer, 'We don't take orders to that size." Although there are attendant cost penalties, we find that strategy supports our ability to keep our facilities loaded."
Although Inland's performance is probably the best of the major integrated steel companies - those who own their own raw materials, transform the raw materials into steel and eventually finished products - its chief executives are the lowest paid of the 10 major firms. Jaicks operates out of a modestly appointed, small office on the top floor of the 19-story Inland Stee l building in downtown Chicago.
The steel industry produces no mavericks, and Inland is no exception, although the company, and its thenchairman Joseph Block, did help the Kennedy administration break a steel price increase in 1962.
That was the famous "all-businessmen-are-sons-of-bitches" row Kennedy had with U.S. Steel Corp. Block had close ties to the Kennedy administration. But Jaicks maintains today that the market would not have supported the $6-a-ton increase in 1962 and that Inland (then the eighth biggest producer) was merely reflecting reality when it broke ranks and announced it would not raise prices.
Today the company is clearly joined with its steel-making brethren on issues that concern the industry the most: low-priced imports, tax policy and government intereference with steel prices.
Jaicks, whose uncle was once superintendent of Inland's Indiana Harbor Works, was chairman of the industry trade group, the American Iron and Steel Institute from 1974 through 1976.