The role of the master distributor in the PHCP-PVF supply chain is continuously changing.

But when it comes to recent successes on the balance sheets, master distributors have two different narratives depending on the products stocked in their warehouses and markets they serve.

Masters in the plumbing, heating, cooling and bath-and-kitchen realms are seeing improving conditions, while some tied to the industrial pipe, valves and fittings space, particularly those dealing in the oil and gas patch, are in the midst of what can best be called a challenging period.

“We continued to grow in every market and channel we serve,” says Chip Devine, vice president of The Stock Market, a master distributor of bath, kitchen and lighting products. “These include bath and kitchen dealers, and retail, wholesale and Internet companies. We believe our growth is due to our expanded product offering, ease of access to our products through our 11 distribution centers and a world-class
sales center.”

Len Gross, the recently retired CEO at Santa Fe Springs, Calif.-based industrial PVF master distributor Kelly Pipe, termed 2015 a challenging year for not only his company but the entire steel and pipe industry.

“The year began with a red flag on crude oil as the price per barrel started sinking in the first quarter followed by an accelerating downturn in crude prices in subsequent periods,” he explains. “During the course of the year operating rigs followed suit declining from close to 1,900 at the beginning of the year to 670 at the end. At the same time pipe prices dropped precipitously by more than 30% for OCTG (oil country tubular goods) and almost 25% for line and standard pipe. Both the fall in the number of drilling rigs and unstable pipe prices were caused by a dramatic imbalance of excess supply coupled with declining demand. Taking these considerations into account, 2015 was not a robust year.”

Tim Hagan, vice president and general manager of Woodbridge, N.J.-based industrial PVF master distributor Kessler Sales & Distribution, says the drop in oil prices has been a big win for consumers, but a migraine headache to those in the distribution chain.

“Specific to our business, low-cost oil drives producers out of the OCTG markets and into the standard pipe markets, creating overcapacity issues which lends itself to depressed pricing,” he says. “On the copper side there has been a historical tie-in between the price of oil and the price of copper. High-priced oil seems to usually be accompanied by high-priced copper and now, as we currently are experiencing, low-priced oil is accompanied by low-priced copper.”

Ever-evolving role

Master distributors interviewed for this story agree market climate aside, their roles in the supply chain continue to rise in prominence. “As business conditions become even more fluid, the role of master distributors continues to evolve,” says Alan Lipp, chief operating officer of Cleveland-based Merit Brass. “Wholesale distributors seem to be more risk adverse and thus are depending more on just-in-time deliveries for core items. Moreover, they’ve become more dependent on master distributors to supply the less common items they distribute.”

Rob Raban, president of Rancho Dominguez, Calif.-based Industrial Valco, says a competitive environment is further segmenting the market into product price niches. “For example, with WPB weld fittings you could carry six different product price niches for the same item,” he says. “A 16-inch STD LR 90 has domestic, generic import, China, import-approved (western European), import-approved (Asian acceptable) and Buy America, which favors Mexico and Korea. This puts a challenge on product pricing, purchasing power, warehousing and MTR retrieval.”

To combat the market volatility, masters are doubling down and finding ways to make headway in a competitive environment. Houston-based Energy Metals reported increased sales in 2015 due to the addition of an international group. In late 2014, Energy Metals started developing business in the UK and Asia with the addition of salesmen Gary Downie, Clifton Cheong and Colin Low.

“Our sales were up slightly even though market conditions were bad overall,” Energy Metals President Dennis Fikes says. “We have benefitted greatly since Gary, Clifton and Colin have come on-board.”

Expansion also was in the cards for Ipswich, Mass.-based United Pipe & Steel, which last year opened its 11th distribution center in Rialto, Calif. United Pipe & Steel’s customers include those in the plumbing, heating and industrial PVF segments. While the expansion gives United Pipe & Steel an added footprint on the West Coast, President and CEO Greg Leidner stresses the company is making sure all its internal processes are running as efficiently as possible.

“We continue to focus on operational excellence,” he says. “We are laser-focused on things such as improving fill rates, reducing damages and providing our wholesale customers with the right product at the right price — quickly and efficiently. It’s the dependability of delivery and service that has helped us build a phenomenally loyal customer base.”

Gyl Grinberg, of Atlanta-based Val-Fit, has noticed an ongoing diversification in terms of products and sales tactics. “Pipe guys have gone into fittings and flanges, flange guys have gone into valves and masters stocking carbon now have stainless,” he says. “It also seems like more masters are starting to sell direct.”

Grinberg holds firm on the company’s long-standing practice of selling only through wholesale distribution. “Some companies appreciate this immensely and remain loyal while others make purchasing decisions purely based on price regardless of potential conflicts with their now competing vendors,” he says.

Now and beyond

The Global Group’s Art Shelton notes issues such as accounts receivable and margin declines are worrisome in today’s marketplace. But the Houston-based industrial PVF master distributor combats those concerns through a focus on one factor it always can control: service.

“We see the opportunity within our model to offer customers the value proposition of service,” The Global Group’s David Nunn adds. “We understand companies have to right-size, but the key is to find a way to take expenses out and add profits to the bottom line. Internally we have to focus on efficiencies, asset optimization and technological advancements to do more with less. These are the times that to the right customers, service will be more important than price.”

Matt Corvin, of Pensacola, Fla.-based valve and fittings master distributor J&M Valve, says immediate responsiveness is king for today’s customer. “Things seem to be moving at an ever-faster pace every year and that means our customers expect to have their needs met quickly,” he says. “Our efforts have been focused on maintaining on-hand inventories of the valves our customers are most commonly looking for. We have seen that immediate availability is often the deciding factor in completing a sale, especially with customers within one’s immediate geographical region. These customers rely on us to supply their needs quickly and that often means shipping same-day-as-purchase.”

As far as the outlook for the remainder of 2016, opinions are mixed.

“We think a slight decrease in 2016 as compared to 2015 is an optimistic scenario and any upside will occur in the second half of 2016,” Global’s Don Ross says.

Merit Brass’ Lipp, who is cautiously optimistic that 2016 will bring stable to slightly upward-trending business conditions, offers this old axiom: “Corrosion does not know from recession.”

Whatever 2016 turns out to be, companies are prepared to push forward to best position themselves in the marketplace.

“We’re expecting more of 2015, but we are ready with deeper inventories, increased machining capabilities, increased access and concierge-type service,” says Ronny Ravkind of Houston-based industrial PVF master Maintenance Metals and Supply.

And so goes the ever-changing climate of PHCP-PVF master distribution.

“Master distribution is more competitive and more complicated than ever before,” Industrial Valco’s Raban says.

This article was originally titled “Trickier than ever” in the February 2016 print edition of Supply House Times.