Balancing Act

Unfortunately for both recycling advocates and for the solid waste industry, in recent years one of the bankable story lines has been to film a waste hauling firm picking up recyclables and then taking them to the landfill.

There is debate as to just how often this occurs, but there is some level of agreement as to why. For some haulers who have entered into recycling collection contracts, following through on the actual recycling of objects collected cuts into their bottom line profitability.

KEEPING A PROMISE

Most waste haulers would be reluctant to say they were dragged into the recycling industry kicking and screaming-that sounds a little too eco-unfriendly.

But even if it’s off the record, many will admit that collecting and processing recyclables is a nuisance that must be tolerated to offer winning bids for municipal contracts.

A look at the quarterly results of publicly traded companies who trade and process recyclable commodities-whether scrap metal or the curbside mix that solid waste haulers encounter-helps demonstrate the source of the aggravation.

There may have been a number of reasons why several publicly traded scrap metal companies headed into bankruptcy over the past two years, but persistent low prices for their commodities was one of them.

In the solid waste industry, the former Browning-Ferris Industries (BFI) rushed into recycling with more enthusiasm than its other coast-to-coast competitors. Ultimately, that strategy proved questionable when slumping commodity markets damaged the company’s earnings for several quarters in a row and soured investors on the company.

Thus, strictly from a profit and loss viewpoint, waste hauling firms can point to several reasons why they would prefer to stick to the less volatile task of picking up garbage and bringing it to landfills.

On the other hand, to remain in the garbage business, these same companies have to find ways to meet the combined recycling and garbage pick up needs of communities and commercial customers.

When recyclable commodity prices are depressed, this can lead to the “Action News Team” exposé situation where a hauler is caught taking recyclables to the landfill along with the garbage.

Fortunately, haulers are beginning to gather enough collective experience in the recycling business that better ways of dealing with a down market are being created.

DOLLARS AND SENSE

Solid waste industry companies have several management issues beyond how to best deal with the volatile recycling market.

A look at the legislative/advocacy section of the SWANA (Solid Waste Association of North America, Washington) Web site shows references to several other issues competing for the attention of haulers and solid waste managers.

Among the issues facing the solid waste industry are those concerning landfill siting and landfill gas emissions; solid waste flow control; OSHA and EPA regulations affecting ongoing management; environmental justice concerns stemming from residents near landfills and incinerators; and product labeling rulings affecting disposal.

This variety of legal concerns is joined by competing in a consolidated marketplace and factoring in high fuel costs and a slumping economy to provide a full plate of management challenges before the word “recycling” is even mentioned.

Bill Terry, chief operations officer of Rumpke Consolidated Companies, Cincinnati, adds one more issue to the mix: “The single biggest issue we all face is getting qualified people.” Terry says this problem is not “unique to the waste industry,” but the non-glamorous nature of the industry exacerbates the problem for haulers.

“Trying to find people to deliver the services we are contracting for-people to drive the trucks as well as mechanics-is an ongoing task,” Terry says. “We’re competing with companies like UPS for drivers. The hiring bonuses and higher salaries we’re paying are driving up the costs of doing business.”

Even with the array of challenges facing solid waste companies, entrepreneurs are still entering the business to further increase the competitiveness of the climate.

Many solid waste merger and acquisition approvals required the divestiture of some assets, resulting sometimes in asset swaps, but other times in newly-created competitors. As time has passed since some of the earlier consolidation purchases, many of the business owners who were bought out (or managers who were laid off) are also finding their way back into the business.

“A lot of the non-compete clauses of these executives who were laid off are ending, and they’re looking to get back and involved in the industry,” notes Harvey Gershman, a partner in the solid waste and recycling consulting firm Gershman, Brickner and Bratton Inc. (GBB), Fairfax, Va. “There are pretty high-level executives who can help out a stronger, regional player,” he adds.

Starting up a new company is another route some of these executives are taking. “My sense is that many of the people doing start-ups are people who have left the national companies,” notes Terry, who knows of such start-ups in cities ranging from Chicago and New York to Dallas-Fort Worth and Seattle.

An issue that pits some recyclers against against waste companies is the franchising of rights to collect generated waste. A defined-term and comprehensive franchise agreement can provide a solid waste company with a way to plan the allocation of resources in a given geographical area.

Some recyclers, however, have charged that some of these franchise agreements are too broadly written, and undermine their ability to collect feedstock. According to Jason Rush, legislative director with Ware Disposal Co. Inc., Newport Beach, Calif., two recent court cases on the West Coast could provide some encouragement to recyclers on this issue.

In one case, the collection of recyclable materials with value was found to be outside the realm of a franchise agreement, while in another case, a municipality providing drop-off boxes for recyclables (and thus not charging a fee for individuals to drop containers into the boxes) was found to be outside the boundaries of the exclusive franchise.

Rush says the recent cases should provide some encouragement to recyclers who predicted the worst when considering the future of franchise agreements. Ware Disposal Co. has continued with its plans to establish Madison Materials as a subsidiary company that will process construction and demolition (C&D) materials from throughout southern California. “It helps on the C&D side,” says Rush. “You want the opportunities to collect materials to be kept open.”

The solid waste industry is coping with all of its current challenges while in the midst of cleaning up after the single biggest issue of the previous decade: consolidation. The 1990s (and into 2000) witnessed a phenomenal consolidation from markets where several family-owned companies competed in each major city to one where two national companies have put together coast-to-coast entities that compete against several strong regional players.

The consensus seems to be the national and regional companies are just now putting their operations houses in order, after finally settling accounting matters arising from the flurry of deals.

“What we are seeing is a follow-up to consolidation,” says Terry. “It takes awhile to optimize routes and to other things to pull together systems for things like truck maintenance and billing. These national companies are now making themselves over with these new assets.”

These companies are also ensuring investors they are in the midst of finding the efficiencies that were promised when the acquisitions were announced. “Our information systems and accounting processes were stabilized,” says A. Maurice Myers, CEO of Waste Management Inc., Houston, in summarizing annual results for investors. “Internal reporting systems were developed and implemented, resulting in timely statistics and information available to assist us in managing our operations.”

Even with improved information flow, the company is careful to note that any “forward-looking statements” must be predicated on several factors, including “the effect of price fluctuations of recyclable materials processed by the company.”

MAKING A COMMITMENT

Although it clearly is not the leading issue on the minds of solid waste industry managers, how best to deal with the recycling aspects of their waste management operations will remain a question to be confronted.

Solid waste companies have taken different approaches to the recycling sector of their businesses. Waste Management Inc., the largest solid waste company in the U.S., announced an ongoing commitment to the collection and processing of recyclables last year.

The Rumpke Co., Cincinnati, a regional waste and recycling company profiled in the January 2001 issue of Recycling Today, has established its recycling operation as a separate corporate division expected to be its own profit center for the company.

Other companies are finding it more beneficial to outsource the processing and trading aspects of recycling. Great Lakes International Recycling, Roseville, Mich., is one company that is benefiting from this trend.

The company operates one of the few single-stream processing systems in its entire region, and is attracting recyclables from haulers from a wide geographic territory. “We’ve focused on smaller haulers who don’t have their own processing centers,” says Tony Joseph of Great Lakes. “The bread and butter of their contracts is waste, but they have to offer recycling to get many of the contracts. This is where we come in handy by performing that for them.”

Joseph says the single-stream system allows these haulers to minimize their collection and transportation costs and can save them in several other ways. “You get rid of a high-maintenance recycling fleet. You’re now compacting the loads, lowering your cost per ton for transportation. You’re taking fewer trips to the recycling center with these compact loads. And you’re saving on personnel hours by having no sorting of materials at the curb and by saving driver time since there are few trips to the center.”Typically, companies such as Great Lakes or Rumpke Recycling (which also opens its MRFs up for recyclables collected by others) also offer materials brokerage services, meaning haulers without a recycling infrastructure or trading experience can fulfill recycling obligations simply by collecting materials and dropping them off.

Such arrangements are a natural evolution for the solid waste industry, says Terry. MRFs, like landfills, are becoming part of the solid waste infrastructure, and not all companies need their own facility in every market. “In some markets, you don’t need a recyclables processing center to compete, but you need access to the infrastructure that is in place.”

Formerly, waste companies tried to operate their own facilities to maintain control of their materials, but they were having trouble “feeding the beasts” they had created, says Terry.

Relinquishing some control of the recycling aspect of operations may become increasingly common for waste companies, and ideally represents a palatable alternative to repeated televised news exposes of bottles, cans and newspapers being fed to the local landfill. RT

The author is editor of Recycling Today, and can be reached vie e-mail at btaylor@RecyclingToday.com.