The Wild West's Commercial Collection SHOW-DOWN

There's a territory dispute brewing across Arizona, pitting municipal waste collection departments against their private sector counterparts. At stake is the lucrative commercial collection markets in Flagstaff, Glendale, Mesa and Tucson - markets that could make or break those cities' municipal hauling operations.

Arizona is no stranger to managed competition. For years, the state's regional governments have been vying against private waste companies for residential collection contracts - and thus, have positioned themselves as models for communities facing similar situations nationwide. However, residential collections amount to mere pocket change in the city and county coffers when compared to commercial collection's bounty.

During the privatization wave that swept the industry over the past two decades, municipalities that provided commercial waste services were regarded as anomalies. Commercial collections historically were handled by the profit-driven private sector, which banked on the revenue generated from these high-volume and service-intensive accounts to subsidize their residential routes.

This is not necessarily the case anymore. Municipal waste operations in Flagstaff, Glendale, Mesa and Tucson use a mixture of practical customer service policies, low rates and good-old-fashioned hustling to strong-arm commercial accounts away from their private sector brethren.

A state statute originally opened the doors to managed competition for commercial accounts. According to this law, once a city reached a population of 60,000 residents, it must compete with the private sector for commercial hauling accounts.

Given Arizona's explosive growth, many municipal operations, which historically had provided all refuse services within their cities, suddenly found themselves faced with the prospect of losing their long-standing commercial customers.

While some cities elected to just turn commercial collections over to private operations, others, like the city of Mesa, were incited to duke it out. Mesa's solid waste department currently serves approximately 1,000 commercial accounts with a fleet of 12 front loaders and offers bin services ranging from 2- to 8-yard bins.

While this figure comprises less than half the total commercial market share, the city remains the dominant single waste service provider, having kept the competing eight private haulers at bay - thus far.

"Service and a competitive price will keep us in the game," says William Black, Mesa's solid waste administrative supervisor. "We're here to provide a service, and we try to keep our prices down so that we're competitive with the private sector."

In Mesa, there is an open market for refuse service. But any private hauler that desires to operate within the city first must meet city-imposed requirements, which regulate the minimum insurance amount, bin markings and operational procedures.

Mesa's municipal operation has managed to stay on top of the competition through its emphasis on quality service and on generating new customers. City solid waste officials punctuate this commitment to customer service and sales by recognizing drivers for their efforts in promoting the city's solid waste operation.

"Our drivers [report what] they see out in the field and try to hustle accounts," Black explains. After generating three successful leads, the driver is awarded a pass for a free car wash. "Leads" qualify as spotting potential customers as well as noting that a current customer might be over-buying the city's service.

In addition to these efforts, Mesa monitors new business license applications and building permit activity weekly to refresh its list of leads.

"Every employee is a salesperson and is in customer service - from the operators and foreman to myself and the people who answer the phone," Black says.

"We try to treat our customers as we would expect to be treated ourselves," he continues. "The customers can go [with any service provider] they want. We know they're not locked into our service at all."

A Level Playing Field in Glendale To Mesa's west, the city of Glendale is busy serving its 1,165 commercial customers that are situated along five front loader routes. In addition to the front loader service, the city runs five roll-off trucks daily. It handles most of the roll-off business on an on-call basis, and its varied clientele includes a major shopping mall and several manufacturers - one of which nets the city $120,000 in annual sales.

Unlike other cities, Glendale considers multiple-family accounts as part of its residential, not commercial, waste collection service. This distinction renders multi-unit apartment complexes off-limits to private haulers, which only can compete for commercial sector accounts, explains Robert Donovan, Glendale's sanitation superintendent.

This classification is supported by the fact that the city charges multi-unit dwellings at the residential water rate, which is "considerably lower than" the commercial water rate, Donovan says. "The philosophy is that [multi-unit dwellings] are family dwelling units, and therefore, they take advantage of the same residential water rate as [single]-family units," he adds.

Glendale's municipal collection operation currently handles 70 percent of the city's commercial accounts, and three private companies comprise the remaining 30 percent. These private haulers do not operate under any franchise agreements. Instead, all refuse operators, including the municipality, must meet the same operating requirements, which includes paying annual inspection fees for each truck in the fleet.

"I pay the same $1,000 per truck fee that the private [companies] do," Donovan says. The city also inspects every public and private collection vehicle annually for safety.

"If a truck is found to be without a permit, we pull the deposit," Donovan says. "Then, it's up to the company either to make this right or lose its opportunity to operate in the city."

Beating the competition in Glendale hinges on prompt customer service, Donovan says. The city capitalizes on the fact that some of its competitors are busy with recent mergers, acquisitions and consolidations - factors that may have affected their levels of customer service. This situation, in turn, may provide a "unique window of opportunity" for the municipality, Donovan adds.

Thus, while it might take the preoccupied competition up to several days to deliver a container, the city can hustle to provide next-day delivery, Donovan says.

"With roll-off business, we guarantee that if a customer phones in a request for an emergency pull before 2:30 p.m., we'll complete that pull before 5:30 p.m.," he says.

"Even if it means that I have to keep employees overtime, we'll get that container pulled and a new one spotted," he says. "None of the private [companies here] will give their customers that guarantee, and that's what's pulling in a lot of new business for us."

Donovan is bullish on the feasibility of municipalities competing successfully against private haulers for commercial collection accounts. "It's a fertile field for making money," he says.

"A winning [business] formula will not guarantee that [your service] will sell, but it will give you a good start," Donovan continues. "If you play this game right, it ultimately lowers the residential rates."

Finally, Donovan emphasizes the role political support plays in municipal commercial hauling success. "Make sure that you've built the political consensus necessary to take you not only in the door but to success," he advises municipalities that are considering competing for commercial customers.

"Municipal haulers must understand what this [endeavor] is going to take, and that [they're] not going to make money overnight," he says.

Flagstaff Finishes First In northern Arizona, the city of Flagstaff competes against only one private company for commercial collection accounts.

Although this city's 55,000 residents render it 5,000 people shy of being affected by the state's mandate, Flagstaff officials decided that it wouldn't hurt to permit a small, local company to compete against the municipal collection operation.

They had no idea that several years later, this innocuous private hauler would become a part of a larger waste company - and suddenly would be a threat.

"We no longer have true competition," says Ben Fisk, Flagstaff's solid waste superintendent. "We have a conglomerate that could lower the rates easily and absorb a loss trying to force [the city] out of business."

Despite this David vs. Goliath struggle, the city still controls more than 57 percent of the commercial collection accounts, to which it provides seven day per week commercial collection, as well as an aggressive roll-off business.

Fisk recognizes that competitive pricing is the determining factor as to whether its 570 commercial accounts remain with the city service or sign on with the private hauler.

"Commercial [collection] is a frugal business," Fisk says. "Businessmen will jump off your ship the minute somebody else lowers his rates, so we try to concentrate on service. Often, commercial customers need special collections, and we try to respond to all service requests within 24 hours.

"A lot of our contacts with customers are complaints or inquiries, and we try to follow up to make sure that the service we provided is adequate," Fisk continues.

Due to the region's weather, the city's roll-off business is concentrated in the summer months, when the construction market is booming - a situation that pushes the city's equipment, personnel and customer service to their limits.

"It can go helter-skelter," Fisk says. "In the winter, we just have our regular compactor service. We run about 16 pulls per day."

The city's growth also has pushed the front loader operation to the maximum. "I'm at the point now where I've got to make a decision about [hiring] an additional operator," Fisk says.

Given Flagstaff's small size, the city relies on a personal touch for garnering new business. "We try to do a variety of soliciting, but I do not have a salesperson," Fisk says.

Thus, the supervisor and operators are recruited to drum up new business. "If it's a slow day, they will go out and contact businesses. Our operators sell our services, even when they are off of work, by talking with friends who are business owners."

Tucson Turns the Tables Last year, the city of Tucson reaped approximately $4.5 million in commercial revenue from its 4,500 commercial accounts. Tucson provides service up to six times per week with 1-cubic yard to 8-cubic yard containers, operates 14 front loader routes five days per week and runs two routes on a Saturday collection schedule.

In addition, the city runs seven to nine roll-offs daily with each roll-off handling between six and eight containers per day.

This ambitious operation is sustained by a staff of 11 people in the container and compactor maintenance department, including supervisors, welders, painters, fabricators and trade helpers. Their combined efforts have helped Tucson capture 35 percent of the commercial market.

The road to commercial sector success has been a rocky one for Tucson. Over the past four years, this city of 450,000 residents has seen the competition fluctuate from seven private haulers to two national firms and one small, independent operation.

By 1994, the municipality's market share was eroding: Over a five-year time span, it had lost approximately 1,000 commercial customers a year, says Guy "Mack" McMahan, Tucson's commercial solid waste administrator.

Tucson did not take such losses lying down. Through an aggressive restructuring of its commercial program, the city experienced a 29 percent growth rate over the past three years, picking up 1,500 new accounts, McMahan reports.

Before the restructuring, the city performed a commercial solid waste service analysis on its routing and personnel efficiencies. Based on the results, Tucson decided to invest in a computerized routing system, which would enable it to place trucks in specific areas or beats.

"We have customers that [require pick-ups] anywhere from one to six times a week," McMahan says. "We wanted to allow the customers to dictate their schedules. I want to have a truck in every area, every day, so that the customers can have the service that they want."

This more efficient routing system allowed the city to reduce its front loader routes from 24 to 12 by doubling the routes' densities, McMahan says.

The restructuring saved Tucson approximately $1 million. "We're passing on that savings to our current and potential customers, giving them an approximate 25 percent rate reduction in their solid waste services," McMahan says.

Still striving to boost efficiency, Tucson now is attempting to move away from smaller bin sizes, hoping to pick up more pounds per stop.

"Since I've been here, we've been phasing away from the smaller containers because they can be handled with either a 90- or a 350-gallon automated cart," McMahan says. "We're trying to stay with four yards and above. However, depending on the commercial customer's needs, we will put out 2- and 3-yard bins."

Unlike some private companies that tie up their customers through a service contract, Tucson opts instead to use a simple service agreement. "This agreement outlines what the customer can and cannot do," McMahan says. For example, it specifies that customers cannot block their containers or overload them with non-compactible material.

The only binding detail in the agreement is its stipulation that the customer give a 30-day cancellation notice.

Thus, Tucson's promise to continue to provide quality service at a low price is the only tenuous string keeping Tucson's commercial customers loyal to their municipal hauler.

"Our initial goal is to provide the highest quality of comprehensive solid waste and recycling services available anywhere at the lowest possible cost," McMahan says. "As long as we do that, we'll continue to be picking up."

For more information on collection in Arizona, see "Getting Your Customers Back: One City's Story" [World Wastes April 1998, page 48] and "Collection Strategy Blooms in the Desert" [World Wastes September 1996, page 26].