The COVID-19 crisis has had a significant impact on the waste industry, including on the health and safety of front-line workers, as well as on cashflows, margins, waste volumes, recycling contamination levels and waste generation sources. Deemed an essential service, waste collection and disposal continued throughout the COVID-19 crisis. So while maintaining day-to-day operations – even with potential risks to employee health and sudden shifts in demand – waste companies also are having to plan for recovery. This article explores the impacts and potential opportunities of COVID-19 on the U.S. waste industry.
Deloitte believes this crisis will move through three phases: Respond (focused on business continuity and stabilization), Recover(focused on emerging from the immediate crisis stronger than before), and Thrive (focused on preparing for the new “normal”).
While the timing of each phase is uncertain, waste companies have been considering the implications of COVID-19 on their businesses as well as their next steps for dealing with the crisis. Given the pandemic's evolving nature, it is too early to predict the severity of the economic downturn or timing of the recovery. Regardless, waste companies’ initial responses will be similar to past economic downturns – with an immediate focus on operational efficiency, asset optimization and cost management. However, because of the unknowns of COVID-19, this economic downturn will be different, and therefore after company officials’ immediate focus, their next actions may also be different.
The Respond Phase
Waste companies have significant experience responding to crises like natural disasters and have already put that knowledge to work in their response to COVID-19. The following are key observations and recommendations under four major business dimensions of waste companies: (a) industry fundamentals, (b) the customer perspective, (c) the employee perspective, and (d) strategic factors.
- Industry fundamentals. The decrease in commercial and industrial waste volume likely has created a significant headwind to industry profitability in the short term. To replace lost profits, waste companies may explore alternative waste streams that offer different unit economics, including medical/hazardous waste. Waste companies should proactively develop a mitigation plan for an extended shutdown and restart. Officials should continuously assess and balance resource/asset requirements across segments and geographies.
- Customer perspective. While customers continue to expect undisrupted service from their waste service providers, depending on the nature of their business, waste industry customers may be facing liquidity challenges and decreases in demand. Waste companies must address each segment, region and even account differently. Officials should perform a risk assessment of crucial field operations to identify further disruptions because of ‘weak link’ challenges and potential insolvency of customers and suppliers.
- Employee perspective. Workers in the waste industry are faced with risks to their health and job uncertainty. Moreover, COVID-19 has forced customer service, field support and management teams to work remotely, and transitioning to remote work is a tremendous challenge. In response, industry players should assess extended remote work capabilities to limit impacts on the cost and health and safety of employees. They should ensure technological capabilities are in place to facilitate remote work and fully leverage digital and cloud solutions whenever possible.
- Strategic factors. Waste company officials are focused on their most urgent operational and financial responsibilities. And companies without strong balance sheets, positive cash flows and a clear picture of spending are likely behind the rest of the industry today. So companies must evaluate and agree on actions regarding non-essential expenditures by implementing cost control/optimization. Also, officials should leverage the CARES Act and other relevant government programs.
The Recover Phase
While waste companies have experience in effectively responding to a crisis, COVID-19 is different. The overall significance and potential duration of the crisis will likely be much longer. As a result, many customers will go out of business, and of those who survive, many will not stay current. Given the different nature of the COVID-19 crisis, waste companies must think ahead to the eventual recovery now. Using the same four dimensions discussed in the Respond phase above, below is our view of the Recoverphase for the U.S. waste industry:
- Industry fundamentals. Even as volumes gradually return, companies likely will be challenged to drive strong pricing as customers manage their expenditures, and new business mix may result in lower yields and profitability. Companies with better data and insights potentially will have an advantage in spotting trends across geographies and responding opportunistically. Those firms should monitor changes to route density by market and build updated scheduling plans with reoptimized routes and redeployed resources as needed.
- Customer perspective. The critical uncertainty is understanding which customer behaviors are temporary and which are permanent as recovery will be uneven across geographies and customer segments. Companies with the ability to identify these shifts in customer behavior likely will be able to respond quickly and deliver better customer experience. Industry players should accelerate investments in key customer-facing and internal digital capabilities. Specifically, they must identify trends by customer segment and apply new practices and solutions to deal with the ‘next normal’ as different geographies reopen.
- Employee perspective. Recovery will entail continued social distancing, personal protective equipment (PPE) and additional stress that takes away employee engagement, well-being and morale. Some regions/companies likely will see the union push to increase membership. Waste companies must proactively work with employees as offices and non-essential operations come back online – including new human resources policies, facility configurations and remote work support. Companies need to establish remote centers of excellence (COEs) and shared service capabilities. Those firms will have to determine cost impacts, including enhanced cleanings, reduced workforce, required PPEa nd other requirements to deal with the crisis.
- Strategic factors. The Recover phase likely will present waste companies with strong balance sheets the opportunity to double-down on crucial elements of their strategy. Mergers & Acquisitions (M&A) is one of several opportunities that well-prepared waste companies may be able to make the most of. Therefore, waste companies must engage outsourcing and offshore models. Those firms should review major spending categories (contracts) and determine opportunities to renegotiate terms and prepare to take advantage of M&A opportunities.
The Thrive Phase
Looking beyond recovery to the Thrive phase is difficult while in the middle of responding to a crisis. The amount of change that has already occurred in our day-to-day lives is staggering. And for businesses that are still open, in just the past three months, countless established norms, practices and policies have been completely disrupted. Within the waste industry, this is especially true at the front line, where new customer-facing tools and experiences are being deployed and with landfill, collection, and recycling operations where smart-asset technologies are being reprioritized. Further, we are already seeing waste companies look to new “Future of Work” approaches to manage field and corporate teams more dynamically.
But there are still many unknowns – the macroeconomic environment, public policies and re-opening decisions, and the fallout of the industry as a whole. And so below are the questions industry leaders must ask themselves as they evaluate the impact of COVID-19 and build their next normal:
- Will there be a long-term change in the waste mix?
- Given the shifts in waste generation, how will pricing be affected, both in collection and disposal?
- What parts of the business could be top candidates for structural cost reductions?
- What consumer behaviors that have been disrupted change permanently, and which will revert?
- How will the recovery differ by geography and customer segments?
- How will route densities change?
- How will the non-essential and remote workforces return, and what COVID-19 changes will stick?
- What approach will unions and waste companies take, both in public and private, in upcoming negotiations?
- How will the dislocations in the broader economy impact the waste companies, both in the front line and supporting roles?
- Will the industry leaders’ existing strategies remain relevant in light of industry shifts?
- What strategic bets and investments could or should be made now?
- Are there new business adjacencies, alternative waste streams or other new opportunities to consider?
COVID-19 has exposed challenges to waste companies’ age-old approach to doing business, and the status quo is no longer an option. To recover lost value resulting from COVID-19, waste company officials should expect to rethink their entire business while navigating the pandemic. They must take immediate action to improve control of business operations and simultaneously ask themselves what kind of company they want to have coming out of this crisis. Waste companies that navigate the crisis and recovery most adeptly will be well-positioned to take full advantage of the opportunities to come.
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