This week, Stifel released its latest solid-waste industry update, “Top 10 Trends in 10 Years in Solid Waste: A Mixture of Recurring and New Ideas.” The financial-services company has published such a list for several years – and in the past, the trends have not changed meaningfully one year to the next. “Solid Waste tends to be evolutionary, not revolutionary,” Michael E. Hoffman notes. This year, however, “there is nothing like a pandemic to shake up our thinking.”
Interestingly enough, four of the identified trends appear on the list for the first time (numbers 7-10 below), and four have been on the list every year since its inception (numbers 1-4 below). Stifel elaborates on each trend through data, analysis and commentary. Also included is a 2021 solid waste stock outlook.
The trends, and one key takeaway from each, are as follows:
- Alternative fueled vehicles: Total routed fleet to be more than 50% a combination of Compressed Natural Gas (CNG) and Electric Vehicles (EV), with EV overtaking CNG within the mix IF capital cost, hours of service and weight limitations can be more competitive with CNG and Diesel.
If EV can get the truck capital cost down and the hours of service (HOS) costs in line with CNG and diesel, the fuel (even if non-peak power prices rise) and maintenance savings may dwarf both diesel and CNG and make up for the lost revenue based weight too. That is the catalyst for EV penetration to surpass CNG in the solid waste fleet.
- U.S. solid waste generation: No change in average generation of about 4.9 pounds per person despite the work-from-home (WFH) shift.
Since the peak of the Covid-19 pandemic passed and people adjusted to the WFH shift, residential cart weights have settled in about 5%, with commercial volumes down 5%-plus, reflecting what is either not open or muted open (education/entertainment). Cancellations are trending at 2.5%, versus a 5% decline between 2008 and 2013, but housing starts are above 1.5 million, having rebounded quickly from below 1 million in April and up versus the 1.2 million five-year average. Historically, new household formation usually results in new business formation.
- Organic diversion/recycling: No viable technology exists to capture the caloric value of organics at scale without a subsidy; landfill gas still the most economical means to capture the caloric content of organics.
In 10 years, a viable solution to economically capture the energy value of organic waste – specifically food waste – will likely still not be able to address all of the following questions: does it work, can it be scaled, is it economical without subsidies and is there a favorable regulatory backdrop?
- Post Collection: Total number of landfills decline to fewer than 1,000, and with the drop comes a rise in the national average tip fee to more than $75/ton (a 3.5% annual increase).
In 10 years, we think total non-hazardous waste landfills (Subtitle-D) will be down below 1,000. In urban markets, if there are three to four landfills on average today, the trend is likely to result in at least one landfill closing over 10 years.
- Recycling business model: Near fully converted to a process fee operating model; while the share of waste stream recycled shifts to about 30%, contamination stays stubbornly high as more than 20% of total tons processed are a non-useable residual.
There will be more focus on what is really circular (can it be economically reused?), and that could push up supply of good volume. However, contamination, which currently sits at around 20% to 25%, is unlikely to improve as more recycled volumes are derived from less clean residential waste resulting from the shift to WFH as well as the overhang of aspirational recycling and feckless solid waste policies that are focused on diversion and not circular reuse of materials.
- Technology: Helps deliver better end-to-end connection with the customer – doesn’t everyone want a mobile garbage app?!
Live calls make up 75% to 90% of customer contact in solid waste, at an average cost of $6 to $8 per call. Most of those calls are just asking for information, like when is the pickup during a holiday week; these requests could be satisfied with IT.
- Work-from-Home (WFH): Cart weights remain structurally higher on a sustained basis, even with the advent of a vaccine; as a result, more old corrugated cardboard (OCC) is sourced from residential collection.
One result of more online ordering is an increase in the presence of “little brown boxes” coming out of the residential stream. As it stands now, cart weights have settled up about 5%. Residential cart weights are likely to come down as economies reopen and consumers shift from WFH to back-to-work. However, more likely than not, many employees may either never go back to the office or go back on a reduced or rotating schedule. Employers will seize opportunities to reduce real estate cost as long as productivity and employee engagement produce favorable outcomes. That means residential cart weights stay above pre-Covid levels.
- Consolidation...and then there were four: We expect one more round of meaningful consolidation, bringing the public solid waste group to four from six today (CWST, CVA, GFL, RSG, WCN, WM).
The whole group will continue to consolidate solid waste at about the pace of the industry organic growth, or 2% to 3% acquired sales. We believe WCN and GFL are the best positioned for one more big deal – public or private.
Based on size alone, CWST could be a likely target, with its appealing assets in the Northeast.
- PFAS — Solid Waste is a solution: The modern Subtitle-D landfill successfully captures billions of gallons of leachate annually, often with complex tiered PH changes needed and a recurring presence of PFAS from the waste stream; it is the obvious choice for containing PFAS in an environmentally sound manner.
Combining managing sludge and processing leachate in a closed-loop is one solution to controlling the dispersion of PFAS. Another is the expansion of onsite treatment by solid waste, and the eventual opening of this capacity to other industrial waste liquid treatment makes solid waste part of the PFAS solution.
- ESG/Sustainability: Solid Waste should lead on E – with clear integrated goals for air, water and land, with S – supporting training to improve worker safety, and G – committing to lasting diversity and transparency in the workforce, senior leadership and board of directors.
All stakeholders – investors, customers, supplier/vendor – are increasingly focused on understanding ESG risks and what companies are doing to mitigate them. Many have turned to third-party ratings agencies, which mostly automate data collection, often resulting in errors that drive incorrect conclusions. Solid Waste as a group must focus on controlling the accuracy of data, owning its distribution and not being dependent on third-party aggregators. More transparency, with clearly stated goals and deadlines across all three categories of E, S & G, is needed.