A Slippery Situation

RISING FUEL PRICES quickly are becoming a rite of spring. While the solid waste industry continues to research long-term options, many companies and municipalities are focusing on what they can do now.

“As a rule, people are concerned and doing what they can in the short term,” says Jeremy O'Brien, research director for the Solid Waste Association of North America, Silver Spring, Md. “They are doing what they can to conserve until they see if the trend is going to sustain.” He points out that over the last 20 years, fuel prices have not kept pace with inflation.

For the last week in April, the average diesel price was $2.90 per gallon, up $0.63 from last year, with the highest prices reported on the West Coast, according to the Energy Information Administration. Rushing to quell consumer complaints, the Bush administration announced at that end of the month that it planned to temporarily suspend deposits into the nation's Strategic Petroleum Reserve and later began calling for legislation that would fine refiners and wholesalers for price gouging.

Just in time for the latest fuel saga, the National Solid Wastes Management Association (NSWMA), Washington, has released a white paper, “Rising Diesel and Commodity Prices Mean Higher Garbage and Recycling Costs,” detailing causes for the hikes, how the industry has been affected and what it can do to cope. The paper predicts that prices will remain high, in part because “EPA regulations requiring cleaner diesel fuel for trucks and buses are expected to increase the price of diesel in various regions starting in mid-2006.”

Bruce Parker, president and CEO for NSWMA, emphasizes a suggestion in the white paper that any new contracts include a provision that allows the company to pass on fuel price increases based on a selected index, in addition to everyday solutions such as having drivers maintain a constant speed. He adds that explaining to a customer why the increases are necessary and backing it up with evidence can make a significant difference.

Last summer, for instance, Houston-based Waste Management began calculating its “Fuel/Environmental Surcharge” for direct customers based on the Energy Information Administration weekly index and posting this index on its Web site. According to a Waste Management spokesperson, pegging the surcharge to the administration's figures allows the price customers pay to decrease if fuel prices decline. The company's sales and marketing department reports that customer feedback to the new surcharge “has been generally very favorable.” The department attributes the response to company efforts to fully explain the change.

Passing along costs, however, isn't always an option. “Some of it you can't pass on,” Parker says. “It really depends. If you have some contractual obligations it's much more difficult.”

Depending on the size of the company, finding ways to absorb costs means different types of pressures. Parker says that while larger publicly held companies may have more financial wherewithal, they have shareholders to appease. Some smaller companies with smaller margins might have to lay people off or cut back in other areas.

O'Brien sees the increases having the greatest impact on systems that rely on remote landfills for disposal, which are more common in the Northeast and South. He says in the short term, haulers can focus on good payload and tire pressure. If the latest fuel trend, however, ends up being more than a “blip on the screen,” it would have more of an effect. “More communities are having waste long-hauled,” O'Brien says. “But all of those costs are going up, so that may make them reconsider how they manage their waste. It may not be economical to keep long-hauling.”

O'Brien also says most public sector waste departments are not increasing their prices yet. “My impression is that it's a little premature. Fuel is expensive, but labor and vehicles make up much more of the overall costs.”