Solid State

THE TRIFECTA. 2006 really is the year that we as an industry have hit the trifecta. We have growth in all our markets and in some cases spectacular growth. We have prices for our products rising at unprecedented rates and we have new markets developing that could lead to even greater growth and success in the future.

Looking at the seven main categories of products that we sell, we see that:

This is all great news, of course, but it is scary that three of these markets (TDF, mulch and infill) are coming up substantially short of desired volumes (e.g. approximately 100 artificial turf field jobs will be moved into next year at least partially for lack of rubber).

INCOME STRIDES. The news is even better on the pricing side. After a decade of fairly flat pricing in most markets, we have double- to triple-digit pricing increases in five out of seven markets.

For years we have heard that if only the tire recycling industry was more reliable there would be more people willing to buy more product. We are seeing the proof of this now as the strengthening of our industry and the better players with better performance are helping generate more interest and more sales. This improvement in industry performance also helps create new interest as people see a raw material supply at reasonable prices that can be obtained on a predictable and repeatable basis.

Our customer base is further expanded by the direct and indirect affects of energy prices. Not only is TDF more attractive, but when competing with raw materials that are either petroleum-based or imported from great distances, recycled rubber looks more attractive.

And finally we are seeing the impact of more interest in environmental causes as both the public (mulch and playground materials) and industry seek higher-value answers to the scrap tire issue.

STILL SOME ISSUES. So things are great and the future looks bright, but what are the issues we need to be concerned about and working on?

In a broad or global sense we have some major challenges. For those of us in the tire collection side of the scrap tire markets, the fuel price increases of the last two years have been extremely painful, as few in our industry had fuel surcharges built into our contracts (but we do now). The volatility of the oil-producing world makes transportation costs an X factor for all of us moving forward.

Tire composition is changing. Many of us in the crumb business found a new plastic-like fiber in our crumb. This material, depending on your processing technology, could create major problems for you in certain markets, particularly the playground or infill markets where the sharpness of these plastic-like fibers could be a hazard.

Our workforce issues are only getting worse. The most readily available workforce, immigrant Hispanics, is suddenly becoming unavailable because of immigration issues. The current furor over illegal immigration as well as the sustained low level of unemployment are making the task of staffing our operations harder than at any time in recent history.

Finally, we find ourselves in the initial stages of what many argue will be the total globalization of the world’s economy. Who among us can be sure that the customers we currently ship our products to will not disappear as lower cost or alternative materials replace our products?

Bottom line: We live in an ever-changing world that we cannot predict or control.

As if that isn’t enough, we have challenges within our industry. Five years ago rubber mulch and artificial turf infill were relatively small markets. What if the pallets and pallets of mulch on the shelves at Home Depot and Lowe’s start sitting there and the retail world gives up on it? What if the turf world once again, as it did in the 1980s, decides that natural grass is the best and artificial turf sales dive? These are real possibilities, and if these marketplace changes do not take place, others will.

Who in the room remembers Landstar? They were just one of a series of companies in the last 10 years that were going to roll up the industry…and of course there are some players today with similar aspirations. What does industry consolidation do to the prospects of individual processors? What does it portend for the industry? Great questions. Sorry, no answers, but I feel confident that it will be an interesting ride.

And what about the world of government regulations as they relate to our industry? Currently there is a legal challenge in United States District Court wherein environmentalists are challenging under what rules the use of TDF is managed. If the environmentalists win, it would mean that the use of TDF would be treated as waste incineration with a much tougher set of standards for permitting and emissions. This could have a dramatic impact on current and possible future TDF consumption. Additionally, as the scrap tire problem diminishes there will be pressure on state legislatures to drop their state mandated fees and programs, without which the industry may find itself re-experiencing the problems of the late 1980s with tire piles and fly-by-night operations.

While these issues may be beyond our individual efforts, they are not beyond the efforts of industry groups such as ISRI, and I strongly encourage you to become well versed in the issues and express your point of view clearly and often.

IMPROVING THE INDUSTRY. The preceding topics dealt with issues in the larger world outside of our day-to-day operations. But there are several key issues for us in our day-to-day world:

Are zero tip fees in our future? Probably, but not real soon except in certain arenas. Strong demand for all black and TDF could drive tipping fees down close to zero in certain regions.

The control and availability of raw materials could become one of our primary issues near term.

How many of you remember the famous ISTEA (Intermodal Surface Transportation Efficiency Act) legislation of the early 1990s? This is the bill that mandated the use of crumb rubber in federally funded asphalt projects. The result was an incredible surge in investment and capacity in the crumb rubber world: close to 100 new companies in a two-to-three-year period. In the period from1991 to 1996, crumb prices dropped 20 percent and did not fully recover until the last two to three years.

Well we are now looking at market conditions that could stimulate a similar growth in capacity, which in turn could generate the age old phenomenon of "buying sales." Once that process starts and margins start to disappear, people go into survival mode and start cutting corners to keep their doors open. The net result: The industry returns to the "bad old days."

I am not saying this is inevitable, but just a very possible scenario given current strong markets.

Supply and pricing issues are real, but what really scares me most is our industry’s continuing issues and shortfalls in the areas that directly affect our customers and our image.

We are stronger today as an industry because we have started to change these perceptions, but we still fail to treat customer requirements with the urgency they deserve.

While I do not suggest that these flaws will doom the industry I am certain they will, unimproved, hurt our effort to grow and especially hurt efforts to move up the value hierarchy.

How many of you have made a delivery commitment to a customer this year that you have not met? Did the customer find out by an advance warning from you or by their delivery not showing up when expected? We are still storytellers when we need to be dependable.

PROFESSIONALISM. Our industry is where it is today because of a growing and paying customer base. We must show our customers daily that we care as much about their business as [we do about] ours and, as part of this and to grow industry integrity, we must value our commitments.