|March 18, 2016|
The Challenges Low Oil Prices Bring to the Waste and Recycling Industry
Low oil prices may come as a relief at the pump, but they’ve had a damaging effect on the waste and recycling industry. As oil prices continue to bounce along at their lowest levels in more than a decade, the cost of virgin materials has dropped below that of recycled materials, which is decreasing demand by manufacturers for recycled goods.
“The price of oil has dropped before, but this is a unique drop because it comes at a deflationary time in our economy,” says Joe Fusco, vice president of Rutland, Vt.-based Casella Waste Systems Inc. “We have seen the markets react to it, and several weeks ago Wall Street reacted to the drop of oil prices with a bit of a panic. This particular drop in oil prices is probably related to the fact that both the global and local economy is not as strong as we’ve seen in the past. It gives with one hand, but takes with another.”
Many waste and recycling companies are feeling the effect of the slump in oil prices and are working to adjust to ensure operations run smoothly. Tactics include implementing fees and sliding scales, staff reductions and redeployments and other measures.
To keep its business more consistent in the face of economic headwinds, Casella has developed a sustainability recycling adjustment. The SRA is a fee added to customers’ bills that rises and falls in line with global commodity prices and the investments that Casella is making in recycling infrastructure.
“In times of low commodities prices when recycling is challenged, the effect is reflected in the costs of the services provided in order to make recycling economically strong,” says Fusco. “When commodity markets are better, the fee is smaller and can even go as low as zero. This system allows customers to benefit in a strong commodities market.”
Casella discussed its success implementing the SRA fee during its fourth quarter earnings call.
Clean Harbors Environmental Services Inc., based in Norwell, Mass., also offers a sliding scale that’s tied to energy prices. The scale either reduces or increases the surcharge customers pay based on current energy costs.
“A lot of the costs to operate our company come from transportation, which is fuel related,” says George Curtis, executive vice president for Clean Harbors. “When it comes to the cost of customer surcharges for energy, we captured around $75 million less in 2015 than in 2014.”
While both Casella and Clean Harbors opt to use a sliding scale method, Houston-based Waste Management Inc. is working with customers to find alternatives for them if they cannot afford the cost of recycling.
For example, glass is a negative value commodity so it may be something that a customer can eliminate to afford the cost of recycling other materials that do have value. In reaching a new recycling agreement with the city of Houston late last week, glass is being dropped from the process.
The Employee Shuffle
Many companies are also shifting employees to different positions or locations to avoid layoffs and to keep busier locations covered.
Clean Harbors, for example, has a large number of drivers that the company is hauling back and forth to landfills. “We are always in need of drivers, and we will shuffle those drivers over to work in the safety clean area or other areas of the Clean Harbors business in times like this,” says Curtis.
Sprint Waste Services L.P., based in Sugar Land, Texas, is also participating in the employee shuffle. The company has assets in each of its locations that support the needs of the local customer base, which allows the company to move employees around as needed.
“When things start getting weaker in the construction area, we start to see improvement in some of the industrial work,” says Sprint President Dave Nelson. “We can move assets from one side of Houston to the other side of Houston and move assets from weak spots to areas where we need more trucks, containers, employees, etc. Oil prices are down and that’s affecting certain areas, but we are seeing other areas where there is some strength so we are moving assets around to do what makes the most sense for us.”
But even though Sprint is able to move employees around, the company also expects to see a reduction in construction in the near future.
The low cost of oil is driving commodities down, and that is where many of the waste and recycling companies are hurting the most.
“The price of oil is down, which is causing the cost of plastics to be down,” says Brent Bell, vice president of recycling at Waste Management. “The cost of plastics being down is making the cost of steel and aluminum decrease. The blended value of all these levels being down is something we haven’t seen since the 2009 recession.”
In addition to the costs of aluminum, steel and plastic being down, Clean Harbors is feeling the burn of decreased copper costs. “We recycle materials like copper to help the utility industry by taking back their worn-out transformers,” says Curtis. “The copper markets have crashed and with the prices way down, we have had to renegotiate some customer contracts and make charges in certain circumstances.”
Looking to the Future
A large number of companies are looking past the current oil prices and starting to focus on what’s to come in the future. From disposing of e-waste properly to managing organics in the waste stream, the waste and recycling industry has a lot to think about when it comes to next steps.
“The next big challenge is finding out what to do about the organic portion of the waste stream,” says Fusco. “Finding out what is needed to renew that resource, take that out of the waste stream and use that to create new resources is important. It’s a whole infrastructure that needs to be invented and figured out, from collection trucks to processing organics to figuring out what kind of product we are going to produce. In many ways, organics is where recycling was 40 years ago.”
In addition to managing the waste stream, waste and recycling companies are also competing with each other for business. Companies need to look at their competition and come up with a creative and thoughtful approach to make their business standout.
“It’s a competitive world, and there are a lot of companies that are trying to get business and customers,” says Nelson. “We are doing everything we can to provide the best service possible. We are very focused on safety, and we try to attract industrial customers who view safety as a priority. We find that being a small, family-owned company allows us to make fast and flexible decisions. If we get a call in the middle of the night, we will jump through hoops to improve our customer service and get opportunities during this time.”
But even though the waste and recycling industry is looking ahead to the future, the challenges of low oil prices may not be going away as quickly as companies would like. “It doesn’t feel like this is a temporary thing or that the prices will come back up anytime soon,” says Bell. “We could be struck in these prices for 12 to 24 months, and we are preparing for that.”