Going Commercial

Lynn Merrill

Considering the profit margins that they routinely offer, commercial waste collection accounts are highly sought after by haulers. The contracts often allow firms to collect and move larger volumes of waste than they would collect from residences without making as many route stops.

When firms go hunting for such accounts, they will find that local governments have crafted a variety of competitive landscapes. On one end of the spectrum is a closed system, in which only one hauler, whether a solid waste department or a private company, has the exclusive rights to a customer base. At the other end is an open competition system, in which anyone with a truck and a bin can vie for accounts.

The various competitive frameworks offer a jurisdiction different advantages. A closed system allows a local government to provide effective oversight of one hauler while minimizing the damage to infrastructure from having multiple companies with collection trucks on the roads. In such a system, the city or county establishes the standards for the hauler's operation and usually approves the rates that are charged to commercial customers. Rate structures are open to public review, and all accounts are charged the same fees.

An open competition system allows a community's businesses to secure a service arrangement at the lowest possible price, but relies on each individual entity to shop for those rates. A system such as this could lead to situations in which two neighboring businesses are paying different rates for essentially the same service. In addition, a jurisdiction may bear indirect costs from damaged infrastructure and increased traffic congestion from more firms having refuse trucks on the streets.

Commercial waste forms a significant portion of municipal solid waste (MSW), says the U.S. Environmental Protection Agency (EPA), Washington. In 2003, waste from commercial locations — such as retail stores, office buildings, industrial complexes and restaurants — constituted about 40 percent of all MSW, according to EPA.

All to Itself

Ontario, Calif., provides trash collection services to its 170,000 residents and 5,800 commercial businesses in a closed system. Commercial recycling accounts, however, are subjected to open competition. To service businesses, the city operates 12 front-loader routes, two recycling routes, and between nine and 11 roll-off routes each service day.

Periodically, private haulers, particularly those providing recycling services for construction and demolition (C&D) sites, will attempt to provide trash service within the city limits, says Bob Figoni, assistant utilities director for Ontario. This requires the city to enforce its operating franchise.

When the city discovers a private firm's trash containers on a site, it requests that the bins be removed. Ontario officials also will give the firm a written notice that the containers will be impounded if not removed within seven days. “There is no fine provision in the municipal code,” Figoni says.

Contradicting the conventional wisdom, Figoni argues that being the exclusive hauler creates operational efficiencies that would be more difficult to achieve in a competitive environment. “When I was in the private sector, the relationship between the company and the city was always a factor,” he says. “The company would want to meet the needs of the city, but there was always a little bit of tension about who was going to pay for what and what [it was] going to cost to provide various services that the city wants. With the city being the hauler, it's like we're having that conversation with ourselves.”

“Both the collection operation and the management of solid waste are on the same page,” Figoni adds. “Our goal is to provide the services that the city needs, and the profit motive isn't there. That's not to mean that we're not looking for efficiencies just like a private company, but the profit motive wouldn't get in the way of doing the right thing.”

Open competition results in lower rates, Figoni observes. “If there's open competition, it results in lower rates,” he says. But, he maintains that firms often “skimp on equipment” to achieve a lower rate.

“They'll have a lot of older equipment or not-well-maintained bins — things like that,” he says.

Having an exclusive franchise has its risks as well, Figoni says. “Being the exclusive hauler, you can become a little lazy and take for granted that those customers are going to be there,” he says. “Whether you're in the public or private sector, it's something that you need to remember. The customer comes first. In one respect, when the customer doesn't have another place to go, you have an even stronger requirement to provide that customer with the service that they need because they don't have a choice.”

Playing in Peoria

Peoria, Ariz., has a population of 140,000. Under a state law adopted in 1988, cities with more than 60,000 residents must compete with private firms for commercial collections. So the city vies for accounts with six private haulers, including Houston-based Waste Management and Scottsdale, Ariz.-based Allied Waste.

The city runs three front-load routes each day with 150 stops per route to service a total of 410 commercial accounts. Peoria also handles between six and eight roll-offs per day using two trucks.

To service commercial accounts within the city, private haulers must get a municipal permit. “The annual [permit] cost is $6,300 per company — that may be one truck or 20 trucks,” says Jesse Duarte, solid waste manager for the city. “When they submit, it has to go to the City Council for approval.”

Per a city ordinance, haulers are limited as to the times they can operate. They also must submit financial statements to the city every two years that include a list of the customers they service and a summary of the financial standing of the company, according to Beckie Borquez, a department program support assistant.

City officials say the existing system is functioning well. “Right now, it works for all of us,” Duarte says. “The advantage of the system is that we're out there to compete and provide good quality service. We've got to be just like the privates and compete. We're also here to provide rate stabilization.”

He mentions that in Phoenix, which is adjacent to Peoria, the city doesn't provide commercial services. “You can have a Circle K on one corner that's in the city of Phoenix, and the rate may be $150 for a six-yard [container] while our rate may be $60 less. When you get a city in there, a city is basically just covering their costs so that helps to stabilize the rates.”

The Value of Competition

For Cincinnati-based Rumpke Consolidated Cos., whose service area is Kentucky, Ohio and Indiana, the challenges of and opportunities for competition in their five service regions are significant. The company has 300 municipal contracts that cover the entire gamut of collection activities, including commercial, roll-off and industrial.

“With commercial business, we don't have any franchises [exclusive hauling agreements],” says Kevin Downey, director of hauling for Rumpke Consolidated Cos. “We have a sufficient quantity of competition in all of our markets.”

According to Downey, most cities limit their regulation of the commercial hauling side. “The only real restrictions are time restrictions,” he says.

For instance, noise ordinances may mandate that a hauler cannot service a certain area before 7 a.m. “You'd prefer to be there earlier in the day because of the traffic conditions, but the municipalities refuse to allow that, and they'll cite you for that.”

The type of permits necessary varies with each jurisdiction, Downey says. Some local governments will require private haulers to pay a permitting fee to operate their commercial trucks; others have no fee at all.

Downey says that jurisdictions with open competition provide a benefit for their residents. “It's great for the customer because it forces everybody to be a little bit sharper with their pencil and make sure that they're providing the best possible service at the best possible price,” he says.

A good company image can provide a significant edge when competing for commercial accounts, according to Downey. “Rumpke has the largest portion of the collection system in the Cincinnati market because of the company's long history in the region,” he says. “We're on the third generation of the same family, and they have a tremendously positive reputation. But when you go outside Cincinnati, we don't have as strong of a presence. People don't just automatically pick up the phone and call Rumpke.”

Name recognition can be so critical in a local market that, in some parts of the country, the larger companies will keep the local name of acquired companies and minimize the larger corporate presence by keeping the local company's paint scheme. “I find that interesting that it's true in the Midwest,” Downey observes. “I come from the East Coast, and when a company is acquired there, they paint the new colors and put their cans out there right away.”

Downey sees some advantages when one hauler is allowed to handle the commercial accounts in a jurisdiction, especially when such a model allows a company to leverage its vertical integration.

A recent trend in which some cities have moved back to municipal collection after previously having turned those services over to the private sector can be the result of poor performance by waste firms. Sometimes, “the competition is so strong that people are sharpening their pencils so tight that they bring the margins so low that it sacrifices on the service,” Downey says. “They can't afford to buy the extra truck or fix the trucks to the same caliber that they should. They try to shortchange the employees and get the cheapest type of labor that they can find.

“The result is poor quality of service and then you have the uproar from the community,” he says. Ultimately, though, Downey is a big supporter of open competition.

“It's right to compete every day of the week,” he says. “If I were a business owner, I would want to have enough competition out there that I can get the best possible pricing and service.”

Lynn Merrill is a contributing writer based in San Bernardino, Calif.