Soaring Fuel Costs Hinder Recycling

Fuel is not typically factored into the equation when people calculate the cost of recycling. But, as many recyclers note, fuel and transportation are actually significant costs. That’s why the run-up in fuel prices in the United States seen over the past several months is a cause of concern for many recyclers, as well as for the trucking companies that service this industry.

Diesel fuel, used by a majority of the trucks serving the scrap processing industry, has seen dramatic increases since the first of this year. According to James Lewis, a spokesman for the American Trucking Association, Alexandria, Va., the average price of diesel fuel was $1.15 a gallon January 1. By May 1, that same gallon cost $1.29. This 14 cent per gallon hike in five months may seem insignificant for many outside the trucking industry, but Lewis is quick to point out that most trucking companies are small and are operating on thin profit margins. "Ninety percent of our members operate fewer than 10 trucks, and the additional costs are difficult to absorb in such a short period of time," he says.

According to Computer Petroleum Corp., a St. Paul, Minn.-based company that gathers information on the petroleum industry, diesel prices have climbed by about 12 percent during the past three months. One truck company executive notes that he hasn’t seen a comparable price spike since the time of the Gulf War.

Truckload carriers, which have lower labor and other operating costs than the less-than-truckload sector, are the first to feel the pinch, because fuel makes up as much as 15 percent of their operating costs.

Adding to the overall problem for many recyclers has been the timing of the price hike, which is occurring at the same time that prices for a number of recyclable commodities are sinking. Paper stock dealers, who have been struggling with less than enviable prices over the past six months, now have to factor in additional fuel costs. These costs make it even more difficult to maintain steady movement of the material.

Regardless of the reason for the price hikes, the reality is more trucking companies are taking steps to offset the higher fuel prices. One move gaining support is trucking companies placing surcharges on fuel to cover part of the additional costs. These surcharges can range anywhere from 1 percent to 4 percent or even more, and add to the overall cost of shipping a load of recyclables.

The fuel issue is a short-term problem which should be resolved by the end of this summer, says Keith Warren, operations manager for Page Transportation, Weedsport, N.Y. Despite this optimism, the company imposed a 4 percent fuel surcharge across the board. Although Page has seen some companies calling for a two-week period before the surcharge is imposed, the company has not waited. "We don’t see much resistance," says Warren.

Mark Carroce, president of R&J Trucking, Boardman, Ohio, notes his trucking company, which operates about 300 trucks throughout the eastern U.S., has seen fuel prices climb by 20 percent over the first four months of this year. Factoring in that fuel eats up between 16 percent to 18 percent of the company’s cost, R&J has had to raise additional money to offset the costs.

"Starting May 1, we have imposed a 4 percent fuel surcharge across the board," Carroce says. While the increase is significant, he adds that the company also has seen very little in the way of resistance to the hike. "They know what we are up against," he notes.

But not all trucking companies have imposed fuel surcharges. Jack Gray Transport, Gary, Ind., has yet to hike its prices, according to Carmen Mormeno, vice president of the trucking company, although he says "we have put our customers on notice." The company is watching the fuel prices closely, and a fuel surcharge could be put in place in the future.

Despite higher prices, Mormeno sees steady activity as scrap processors continue to use trucks to move material to end sources. Alternatives, such as railroads and barges, Mormeno feels, don’t necessarily offer many benefits. For one, railroads have recently been raising their rates – sometimes significantly. And Mormeno is quick to point out that barges and railroads are also affected by the increase in diesel fuel prices.

John Lanigan, president of Schneider National’s Transportation Sector, Green Bay, Wisc., says his company, the largest truckload carrier in the U.S., placed some surcharges for customers in April. While the surcharge is often painful, Lanigan says that the company worked closely with its largest customers before implementing the surcharge. "They supported us – it was a mutual decision," he says. Schneider services companies throughout North America, as well as parts of Mexico with its fleet of 12,000 tractors and 30,000 trailers.

Open communications, Lanigan adds, prevented the company’s customers from being caught unaware by the surcharge. Customers were also given the opportunity to ask questions about the price hike.

Although trucking companies acknowledge higher costs are either in place or will be in the near future, a number of larger scrap recyclers appear so far to have avoided much of the impact of higher prices.

Rick Badeusz, traffic manager for Cozzi Iron and Metal, a Chicago scrap processor, says his company is looking to offset these higher surcharges by working with other companies to move the material."We are working with some of our local guys, contract carriers," he says. "We have some options – we can choose other carriers."

The fuel price increase is a short term problem, says Badeusz – one which should be resolved within the next several months. "We are already seeing some price relief at the pump," he adds.

Other recyclers, such as Bruce Campbell, manager of purchasing for Georgetown Steel, Georgetown, S.C., say that while fuel prices have started to climb, they are currently not experiencing difficulties with the situation. "So far, we haven’t experienced any ill affects," says Campbell.

But if the situation continues for several more months, it could be a bigger issue, according to Mark Wilcot, transportation manager for Luria Brothers, a Cleveland-based scrap ferrous processor. "We are not unreasonable," he says. "If this goes for just several months it will be an administrative hassle. However, if it lasts for a longer period of time there could be time for us to look at alternatives."

Despite the higher costs, Wilcot says the company isn’t yet considering changing its shipment patterns. Using gondola cars, which are already in ahort supply, may not be feasible because many contracts with end buyers are for material delivered in truckload quantities, which prevents some companies from switching to alternative transportation avenues.

Etul Nanda, marketing manager for eastern Canada and the eastern U. S. for Laidlaw Waste Systems, Toronto, says his company has not yet felt any price increase pressure. "We’ve only received one letter about prices being raised." One advantage Laidlaw has, according to Nanda, is the volume of material the company handles, which could make it more enticing for large trucking companies to ride through the increase to ensure the movement of material. Laidlaw moves a significant amount of recyclables, primarily paper, to a number of sources in Canada.

No one is quibbling over whether the fuel surcharge is needed. But some recyclers object to the timing of the surcharges. Several recyclers, who requested anonymity, say that truck drivers are pulling up into their yard and announcing the higher prices at that time. This creates two problems, according to one West Coast scrap processor. "It gives no room for negotiating, and it makes it difficult to pass along any of the cost to the end consumer if the tonnage was already contracted out. We can’t just pass on a retroactive charge, so we end up eating the additional cost."

Joe Massey, executive director of the Institute of Scrap Recycling Industry’s California Chapter, echoes this statement, noting that the suddenness of some price hikes has caught scrap processors unaware. This gives little leverage to the scrap processor who has to move the material on a steady basis. The impact could be far reaching if the fuel prices do not ease soon.

Although price fluctuations are a part of doing business, are there steps that can be taken to offset some of these higher costs? Possibly, all parties say. On the trucking end, drivers are being told to idle as little as possible, to not speed and to seek out the least expensive fuel, which can differ greatly from region to region.

On the processor side, the use of intermodal movement is a way to partially blunt higher prices, says Lanigan. This method of putting trailers on railroad flatbeds could be more widely used. While this is a real possibility, it is not a total panacea for the industry. Drawbacks include the move by more consumers toward just-in-time inventories, which makes intermodal transportation less appealing. Also, Lanigan adds, many companies are not situated directly on rail lines, which would eliminate them from using this service.

Another measure is to maximize backhauling opportunities. Laidlaw’s Nandal notes his company is always looking for good backhauling arrangements to lessen the cost of shipping materials, although he is quick to point out most of the time the end consumer is the one paying for the transportation costs.

Further down the road, steps that could be taken to ease the situation could include allowing for increased weight limits on highways. At the present there is a patchwork quilt of weight limitations, depending on the state. California allows a maximum weight level of around 80,000 pounds, while Oregon trucks can carry in excess of 100,000 tons at a time. Raising the weight limits would reduce the per-ton fuel cost, notes one processor.

Help also could come from the federal government. There has been some debate in Congress over repealing the federal tax on fuel that was implemented for deficit reduction. This $.043 a gallon tax has been a source of contention by many trucking companies. The ATA’s Lewis says association members have no problems paying taxes for highway repairs. However, there are concerns about paying a tax that goes toward deficit reduction. At press time, the gas tax repeal was still foundering in committee hearings.

The high fuel cost situation, while costly in the short term, isn’t expected to be a long-term problem, according to both shippers and truckers. In fact, at press time, a number of trucking companies reported signs that prices were beginning to ease. While conceding that foretelling the future is akin to looking at a crystal ball, most interested parties feel the situation should be resolved by the end of the summer.

Although the short-term problem could be painful, many of the mechanisms which drove prices up should be smoothed out by that time. Supplies of diesel should be met, a resolution on the Iraqi oil embargo could be developed, and much of the political bickering could abate, leaving markets to gravitate to their natural conditions.

The author is senior editor of Recycling Today.