The Manganese Steel Story
A lesson on how to go bankrupt quick
Written 7/9/2013 and rewritten 2/ 2016 unedited
In 1969 I was in Port Au Prince Haiti, helping my friend Lou Gladstein to disassemble and remove the Haitian railroad system. Lou, after many months, of trying, had finally been awarded the rights to the railroad in 1969. The railroad had not been running for many years. It had been bankrupted and shut down by the government a long time ago.
Once the railroad stopped running, the jungle grew over all the equipment, and rock and mud slides covered up most of the old original railroads tracks, pretty soon no one even remembered that the railroad existed.
My good friend Lou Gladstein had gone to Haiti to start a business buying lobster and quick freezing their tails, he was doing it aboard a 40 foot work boat and then shipping them frozen to New York. While Lou and his wife Gladys were living in Haiti, Lou had spotted the old railroad tracks that were exposed all along the side of the National Highway from the city of Port Au Prince to the city of Saint Marc. He wondered why no one had ever bought the steel rails and sold it for scrap.
So when Lou eventually got tired of the lobster business, he sold his lobster freezing boat to a businessman that was growing hydroponic vegetables in Haiti. He had sold the business in1969 for $35000.00.
After selling the business, Lou then hired a local attorney and started soliciting the Haitian government for the rights to buy the scrap steel remaining from the old railroad system.
He found out that any decisions regarding the disposal of the railroad would have to be made by the Minister of the Interior in Haiti, so his attorney sent the Minister a proposal, Lou offered to pay $2.00 a ton, a fair price, to purchase the railroad tracks.
Eventually an official hearing was held, but Lou said the hearing was held in French, which is the official language of Haiti, so Lou and his wife never really understood much of what happened at the hearing, as their attorney translated only what he wanted Lou and Gladys to hear.
After many months of nothing more happening, Lou instructed his attorney to offer the Minister of the Interior an additional $2.00 per ton under the table as a bribe, Lou patiently waited but still nothing happened.
After another month went by with not a word coming from the Minister, Lou was getting mad, and he decided to go to the Ministers office and request an appointment with him personally, but every day he arrived, he was always told the Minister was too busy to see him, so Lou decided to sit and wait in the hallway outside the Ministers office.
He said that he knew that the Minister knew he was there, so the Minister was probably leaving his office through a rear exit, but Lou waited.
After wasting another month of trying to get an appointment, Lou realized that the Minister of the Interior and his attorney were probably just holding out for a bigger bribe.
So finally, when Lou’s finances were starting to run low, he decided to call it quits and he called up his attorney and said that he was to inform the Minister of the Interior that he could go to hell.(Actually what he told him to say was much worse).
Lou and his wife decided they were leaving Haiti for good, never to return.
They packed up their belongings and then boarded an Air Haiti flight to Miami.
The plane taxied down the Port Au Prince runway, but stopped short just before taking off. A boarding ladder was pushed down the runway all the way from the airport terminal. And then a black Cadillac pulled up to the planes door.
Two black guys wearing sunglasses boarded the plane and told Lou that the Minister of the Interior wished to see him.
The very next day an official formal proclamation, in French, awarded the Haitian railroad to Mr. Lou Gladstein.
Now that Lou was awarded the rights to the railroad, he was running out of money, and that’s when he called me in Miami, and requested that I fly immediately to Haiti to help him sell it, and I did what Lou had asked, and I flew over to Haiti.
At the time, I was in the automotive parts business in Miami, and I had several customers in Haiti but I had never visited the country.
It was my first trip to Haiti, and the more time I spent there the more interesting people I met, and I sort of fell in love with the country, and that got me involved with many really interesting, and some really dangerous projects there.
The interesting project that I am going to tell you about here, could have cost me every dime I had and it could have bankrupted me for the rest of my life.
My friend Lou, was fairly knowledgeable when it came to scrap metals, so was I. I had worked in an auto wrecking, for several years and using a metal cutting torch was like second nature to me. But in this case, all we were thinking about was making money, and this deal could have cost me plenty.
So, by late 1969, I was in Miami looking for customers to sell the Haitian railroad track to. Lou also had spent a lot of time estimating all the costs of removing the rail, so we were hoping to find a customer that would pay more than scrap prices for the railroad track.
Lou was now realizing why no one had attempted doing it before. In calculating all of the costs involved, there was digging out the rail, then unbolting it, and then hauling it and storing it prior to loading on a ship. There were a lot of costs involved, and Lou was having a hard time negotiating one of them with the Harbor Master in Haiti.
Lou knew that he needed space to stack up the railroad track at the dock so it could be quickly loaded aboard a ship when it was sold. Lou said, the Harbor master figured he had him over a barrel, and was holding out for a big bribe.
Lou started looking for an alternative pier area to be able to store the railroad track, and that’s when he discovered a French owned company called “Cement Haiti.” Cement Haiti owned a sizeable piece of property with a concrete pier capable of receiving big ships.
At Cement Haiti, they were operating a huge overhead rotary kiln, that they roasted the various elements they used to make cement.
Lou then negotiated a deal with Cement Haiti, for him to be able to store the rail road track there, he would be using only one side of their pier.
While he were there Lou couldn’t help but notice that they had a huge pile of what appeared to be some kind of scrap metal.
The managers of Cement Haiti said that they were scrap liners, pieces of metal that lined the inside of their huge rotary kiln, and when the liners wore out, they would remove them and replace them with new ones. The old worn out liners were just piled up on their property where they were taking up space.
The liners appeared to be about 3 feet long by 2 feet wide by about 4 inches thick, and there were hundreds of tons of them piled up at Cement Haiti.
Each plate was slightly curved so that they fit into the round overhead kiln, which was like a long tube about 4 foot in diameter and it was perhaps 80 feet long.
The managers as Cement Haiti said, that as soon as any part of the liner wore down to about 2 inches thick, they knew they had to replace them. They had been piling the used liners up on the property for many years.
As soon as Lou saw the huge piles of iron, he had dollar signs in his eyes. So he asked the company manager if they would consider selling him all the scrap metal. The managers said certainly they would be more than happy to get rid of the stuff, and Lou was welcome to buy all of it at any price.
Lou looked over the plates again and he was sure that they were some kind of cast metal like cast iron, so he went home and called me in Miami.
I flew over to Haiti, and we drove to Cement Haiti plant. Once we were there I saw what Lou was talking about, and I saw that there were tons of these plates piled up.
Lou said they were cast iron. I thought they sure looked like each plate was poured cast iron, so I had no reason to disagree with Lou.
At the time cast iron, a highly magnetic form of iron was worth considerably more than regular steel, so we both felt that Lou had financially hit a home run. It looked like a perfect deal, Cement Haiti was more than happy to sell the metal cheap, and the huge pile of metal was located about 500 yards from their dock. The metal was just far enough away that using a self-loading ship would not be possible, without using a lot of labor in moving each piece closer to the pier.
Lou said that all I had to do was find a customer for tons of very clean cast iron, and I had to find a way to sell and ship the metal from Haiti.
It all sounded easy, but I knew it would be best for me to bring a piece of the metal back with me to Miami, as a sample.
Because the individual plates were so big and heavy, I told Lou we needed to get his oxygen acetylene torch, and I would cut one small piece as a sample that I could take back to Miami with me.
We went up to Lou’s house and loaded his Toyota up with the torches, and drove all the way back to Cement Haiti, where I went to cut a piece of the cast iron as a sample.
Lou had said I didn’t need a sample because it was Cast Iron, so I assumed he knew what he was talking about.
The metal didn’t cut smoothly like steel does, it melted just like Cast Iron does, so I melted a 2 inch square piece out. I didn’t give it a second thought as it melted exactly like cast iron should, and I had melted Cast Iron before so I pretty much knew what to expect.
The next day I flew back to Miami with the sample.
At the time scrap steel in Miami was bringing about .01 cent per lb. or $20.00 per ton, but Cast Iron was valued at .02 cents per lb. or $ 40.00 per ton.
I knew that I needed to sell the cast iron direct to a foundry and eliminate the middle men, so my first thought was to call one of the largest companies I had ever heard of, called Bethlehem Steel, located at Sparrow Point Maryland.
I got on the phone and spoke to a buyer at Bethlehem, and explaining everything to him, and I asked him how he thought we should do the transaction.
He said if we could get the cast iron sent to Sparrow point by barge, they would unload the cast iron, using cranes with magnets, on them, and pay $60.00 per ton.
He said the barges would be unloaded quickly so we would not incur any demurrage charges. Demurrage charges incur when a ship or barge is delayed over and above the time allotted to unload it.
The buyer suggested that I contact “The Feldman Barge Service Co.” and I did.
Mr. Feldman said he was elated to receive my phone call. He was presently hauling wooden telephone poles to Haiti, so he could have barges at Cement Haiti whenever we needed them as he was coming back to the States with empty barges now.
But Mr. Feldman said he had a tight delivery schedule and he could only allow us two days to load each barge and two days to unload them. After that we would have to pay demurrage, which was several hundred dollars a day per barge.
I immediately called Lou in Haiti to tell him the good news, he said it all sounded good, but we had no way of loading the cast iron pieces onto the barge at Cement Haiti.
He thought about the problem a while and called me back. He said he would hire about 100 Haitian laborers and have them stand in a line from the pile of cast iron plates all the way to the barge, by handing each metal plate from one laborer to another laborer, we could load at least one barge every two days.
He said, the cost of Labor in Haiti at the time was about $1.00 per man per day, so it wouldn’t cost us more than $100.00, per day to load a barge. So everything sounded perfect, the next day I would call Feldman to have him deliver the first Barge to Cement Haiti, I could use my American Express Card.
That evening I was in a meeting with two fellows that were managing a big scrap yard in Miami. One of the fellows was named Norton Blum and the other was Arthur Pepper, we were all discussing a project that I was doing with them in Miami.
On my desk was sitting the sample piece of cast iron from Cement Haiti.
Norton Blum, having been in the scrap business a long time, had small magnet attached to his key chain, just like many scrap iron dealers do, he was touching it to everything on my desk, and when he touched my Cast Iron sample the magnet didn’t stick.
I was watching and I said, do that again, that’s a piece of Cast Iron the magnet should stick.
Norton tried it again and the magnet definitely did not stick, I didn’t know what to say.
Arthur picked up my sample and said, “The reason the magnet doesn’t stick is because this is Manganese Steel, not Cast Iron”. Manganese Steel is used in cement making rotary kilns. When he said that my heart nearly stopped. It meant that my sample wasn’t Cast Iron and that meant it wasn’t magnetic and there would be no way to unload the barges at Bethlehem Steel. That meant I would be stuck paying demurrage on the barge as long as it sat there, I didn’t sleep all that night.
First thing in the morning, I called the buyer at Bethlehem Steel, and he said “No they didn’t want to buy Manganese Steel. So I called Feldman and stopped the barge, then I called Lou in Haiti and told him not to hire anyone because the barge wasn’t coming.
Lou was shocked, he was sure it was Cast Iron, but I could have kicked myself in the butt for not trying a magnet on the sample, I knew better.
I told Lou, if the sample wasn’t Cast Iron and it wasn’t magnetic so it couldn’t be unloaded by a magnet at Bethlehem steel. Mr. Feldman and his barge company would have bankrupted me, if they couldn’t unload it with a magnet at Bethlehem Steel.
I would be stuck paying demurrage on the barges as we would have no way to unload them. I knew that the demurrage could run into the thousands of thousands of dollars, and the barge contract was in my name, on my American Express card.
I also knew that probably the only way to unload the barges at Bethlehem Steel would be by hand, using Long Shore men in the United States. They would also charge me thousands of dollars.
I told Lou that Feldman would have sued me for loading his barges with scrap that he couldn’t unload, I was sure lucky that we didn’t ship it.
The stuff may still be sitting at Cement Haiti today.