Rethinking the business model

When commodity prices are high, quality requirements for the bales of recyclables produced by material recovery facilities (MRFs) are less stringent. The prolonged downturn in pricing for the recyclables marketed by MRFs, however, has exposed numerous weaknesses in the recycling industry, says Sean Duffy, president and chief operating officer of MRF operator ReCommunity, Charlotte, North Carolina. High contamination levels and a pricing structure that doesn’t promise profits to MRFs top the list of the industry’s flaws, he says.

However, the contamination that finds its way into the bales of recyclables MRFs produce often originates in curbside bins. Duffy says contamination in incoming loads has become such an issue that if a customer brought in just 1 percent less contamination annually, ReCommunity would save $1 million per year in costs.

“If a customer was bringing in 10 percent residue, and we got it down to 9 percent, it would save us $1 million in one year in costs because we wouldn’t be processing [the residue], we wouldn’t have disposal costs, and I guarantee you we would have less shutdowns,” Duffy explains.

ReCommunity, which employs 1,600 people, operates 29 MRFs across the country and two transfer stations, recycling nearly 200 million tons per year. The company does not operate landfills or collection routes.

While contamination in loads of recyclables is nothing new, low prices have highlighted the fact that the industry needs to clean up its act, says Cody Marshall, technical assistance director at The Recycling Partnership, Falls Church, Virginia.

The Recycling Partnership provides grants and technical assistance with the intention of transforming the curbside recycling system in the United States. In 2015, The Recycling Partnership says it leveraged $11 million in new recycling infrastructure, including the delivery of 165,000 recycling carts, and provided direct value to 1.2 million households.

“High commodity rates were hiding our sins for some time,” Marshall says. “Really great markets allowed us to forget about the crap we were sending, so a great thing that’s happening is we’re tightening up our system as a whole, and MRFs are becoming more open to talking to each other.”

Additionally, he says, “MRFs are designing for the future, so they need to understand the evolving ton.”

TAKING A CLOSER LOOK

Understanding the composition of incoming material streams is imperative, sources say. It affords the opportunity to capture maximum volume and value, benefitting all parties, says Pete Keller, vice president of recycling and sustainability at Republic Services, headquartered in Phoenix.

Audits reveal the materials actually contained in collection bins, which Marshall says is “very important.” However, he adds, “Doing it efficiently and affordably is a huge challenge.”

Marshall says while there is no standard auditing process in the recycling industry, it’s something the industry is trying to figure out.

Most MRFs perform daily visual tests of every incoming load. This type of auditing can be subjective, he says. Backing up this visual examination with photos of loads and composition studies is common, Marshall says.

“As an industry,” he says, “I think we could do something much better than just eyeballing a load, as it isn’t necessarily easy either … MRFs and communities need something less subjective.”

For Houston-based Waste Management Inc. (WM), audits have become a core part of the company’s culture, says Vice President of Recycling Brent Bell. North America’s largest residential recycler performs inbound, outbound and residue audits.

“Audits are important to the overall recycling industry because you’re charging a customer for material they’re bringing in and you have to know what’s in that material,” he says.

Each WM MRF has a separate audit team—a group of employees who are trained on how to manage the process consistently.

Most MRFs also have a loader operator who is in charge of managing loads for audits.

Some ReCommunity locations employ inbound inspectors as well to ensure the legitimacy of their auditing, Duffy says, while other MRF operators may use independent third parties to perform audits as necessary.

At WM facilities, a worker takes photos of each individual incoming load, and a visual inspection is completed. Some facilities that are well-advanced in the process have drivers sign the load inspection report to confirm the WM worker’s review. The pictures are then sent to the customer.

ReCommunity uses a customer portal, where municipalities and haulers can view pictures of their incoming loads the same day, Duffy say. Customers’ loads are graded using a point system, with yard waste and other contaminants representing a certain point deduction, for example. The more contaminants contained within each load, the more points deducted. These points, along with photos, serve as feedback to the supplier regarding the degree of contamination.

A loader operator visually inspects all loads, pushing clean material into an area to be sorted and processed. If problematic materials are evident, the loader operator spreads out the load and takes additional photos.

“It’s the carrot and the stick together: The carrot is the better you do, the less chance you have for rejection, and you get more money. The stick is if you bring in more bad materials, you’ll pay more.” – Sean Duffy, ReCommunity

Bell says the job of the loader operator is critical as he or she is trained to pick out large items that could cause downtime or hurt the equipment or another worker.

“The loader operator really plays a vital role in how they push the material in to make sure they don’t overburden the machines at one time; it’s sort of like an artwork,” Bell says of this employee’s role in the overall sorting process.

COST-BASED BUSINESS

WM, and most MRFs, manage all audit information using databases. Doing so enables a MRF to track what its customers bring in and illustrates how the composition of the loads changes over time, Duffy says.

Improved incoming material quality can result in improved economics, Bell says. “If a customer is paid or charged off of a certain value represented, they may get a higher rebate because they improved on their contamination level or reduced their contamination level,” Bell says. “By eliminating that contamination charge, your economics would change as well.”

For the last several years, because of high commodity prices, many municipalities were getting paid rebates for their recyclables, Bell says. “Now, municipalities are having to be charged for the processing of the material, which is definitely making the customers rethink their recycling programs.”

Duffy suggests rethinking the situation for what it is: “You’re providing a service, and that service is expensive,” he says. Cities already pay for schools, roads, bridges and solid waste, and recycling should be a part of that, he says. It can be seen as another tax, he recognizes, yet it’s a cost for a service.

“There truly is a cost to recycling,” Duffy says. “You have to go back to this cost-based business. Give us good quality material, then the higher that value is and the lower your costs will be.”

MRF operators need a source of revenue other than that from the sale of recyclable commodities, he says.

WM says it already has figured out a solution to this problem. To pay for the labor and equipment at its MRFs, among other costs, customers are now charged a tipping fee for single-stream processing, Bell says.

“We’ve been doing that for quite a while now,” Bell says. “Just look at the value of commodities of single stream versus the processing costs,” he adds, noting the potential disparity.

“Audits are important to the overall recycling industry because you’re charging a customer for material they’re bringing in, and you have to know what’s in that material.” – Brent Bell, WM

Keller says Republic is working to transition its processing business to a fee-based model, “meaning charging a processing fee that approximates our cost of operations.”

Depending on material characteristics and commodity prices, Keller says Republic would then share or pass remaining value to its customers. “We believe such a model is equitable, transparent and incentivizes all parties through the value chain. When everyone has skin in the game, the game gets better.”

Duffy explains how for years MRFs got “blinded by” the high average commodity revenue (ACR). He says in the past it never got to the point of caring if the ACR was covering MRFs’ operating costs or not. Now that the ACR has dropped to the $60 range, it doesn’t cover the processing costs, he describes.

As a result, Duffy says, “municipalities are going to have to pay, just like any other business.”

He adds, “It’s the carrot and the stick together: The carrot is the better you do, the less chance you have for rejection, and you get more money. The stick is if you bring in more bad materials, you’ll pay more.”

EXPANDING THE PIE

In addition to understanding what’s inside incoming material streams in an effort to improve outbound material quality and control costs, employee safety also is critical, Duffy says. “Ensuring the safety of our employees is No. 1.”

When incoming loads contain bowling balls, cables and other heavy items, they can be dangerous to a MRF’s employees. Removing those heavy and bulky materials when they first arrive at the MRF is critical, but so too is educating residents about which materials are welcome in their recycling bins in the first place.

Marshall says having the MRF and community work together to educate residents is ideal. Having consistent messaging from the MRF, hauler and community about what should be placed in recycling bins and what should absolutely be left out is vital.

“The MRF can work with the community to take the time to implement a recycling program … Contamination starts when people put it in the recycling cart at the curb,” Marshall says.

When material arrives at the MRF and sneaks past the eyes of the loader operator, it can damage equipment, result in a “tremendous amount of time to cut and remove things that wrap” around equipment, present a safety concern for employees and also create additional overtime hours for workers—all extra costs to the MRF operator, Duffy says.

At ReCommunity, every break and every shift requires employees to perform a lock-out-tag-out procedure to clean machines of contaminants.

“All those costs impact us,” he says. “It’s a nasty cycle.”

ReCommunity’s Duffy says the only way to fix the current cycle is for MRFs to attempt to earn additional revenue from charging a processing fee. “Expanding the pie outside of the commodity pie is the push you will hear ReCommunity talk about,” he says.

The author is associate editor of Recycling Today and can be contacted via email at mworkman@gie.net.