Two different solid waste reports were released in June—the U.S. Environmental Protection Agency’s (EPA) annual municipal solid waste (MSW) report and Waste360’s Waste 100. Each provided some key insights into trends shaping the waste and recycling industry, namely, the continued evolution of the waste stream and the state of industry consolidation.
In the latter part of June, the EPA released its annual report, Advancing Sustainable Materials Management: Facts and Figures 2013, previously known as Municipal Solid Waste in the United States: Facts and Figures. Given all the recent discussion of the state of recycling, it was unsurprising that a lot was made of the fact that the headline recycling rate once again slipped modestly for the second year, to 34.3 percent, from its peak of 34.7 percent in 2011. Interestingly, if composting is stripped out of the headline recovery figure, the recycling fall is sharper—falling from 26.5 percent in 2011 to 25.5 percent in 2013.
Although the ills currently plaguing the recycling industry are certainly a factor—illustrated by a recent Washington Post article “American Recycling is Stalling, and the Big Blue Bin is One Reason Why”—the changing nature of the waste stream is certainly also a factor. As discussed by the National Waste & Recycling Association’s director of policy and advocacy, Chaz Miller, the growth in lighter weight packaging, such as plastics, at the expense of glass and cans, as well as the decline in the generation of newsprint, is also skewing the recycling rate, as it is measured by weight. That same shift does not help recycling economics either, except to the extent that there is less glass!
Other items of interest in the report included total generation, up 1.2 percent to 254 million tons from 251 million tons in 2012, roughly in line with what the publicly-traded companies generally believe was the overall volume growth rate last year, 1 to 2 percent. Since 2009, total tonnage has grown just under 1 percent annually on average, and 2013 total tonnage generated has finally regained the level last seen in 2005.
It is apparent from the EPA data that MSW generated and personal consumer expenditures have been increasingly decoupled since 1995. Although landfill tonnage as a percentage of the total has decreased from 54.4 percent in 2009 to 52.8 percent in 2013, on an absolute basis, it grew to slightly more than 134 million tons in 2013, after being flat at around 132 million tons during the last several years. That still remains well below 2005 levels of more than 142 million tons, however.
Food waste increased by 2 percent in 2013, and despite all the interest in organics diversion during the past several years, its recovery rate remains fairly flat at 5 percent (versus 4.8 percent in 2012), and expanding the recovery of this waste stream remains problematic from economic, technological and siting perspectives, as previously discussed in this publication. Nevertheless, this waste stream remains targeted for diversion, as it is the largest category (at 21 percent) that still ends up in landfills.
The report has also been enhanced by new information on landfill tipping fees and construction and demolition (C&D) waste. According to the EPA data, average national tipping fees rose from roughly $18 per ton in 1985 to slightly more than $49 in 1995, then fell to a low of about $42 in 2004, basically tracking the “hype,” then the reality of the implementation of Subtitle D regulations. Since 2004, there has been slow and erratic progress back up, to roughly $50 per ton in 2013.
The EPA also reported that in 2013, 530 million tons of construction and demolition (C&D) debris were generated. As this is more than double the MSW waste stream, it is easy to see why the return of, and trends in, the construction industry are so important to the industry, though the EPA noted that demolition represents more than 90 percent of total C&D generation, as opposed to new construction, which represents less than 10 percent. The report also noted that roads and bridges account for 243 million of the total 530 million tons generated.
The Waste 100—M&A Always a Factor
Waste360’s annual listing of the Waste 100—the 100 largest solid waste companies as measured by 2014 revenues—was published in June. Although there was little change in the top 10, several shifts were worth noting.
In the top five, Waste Connections and Progressive Waste Solutions swapped fifth and sixth places. However, that is likely attributable to the weakness in the Canadian dollar, and to a lesser extent Progressive’s lagging Northeast region, rather than any dramatic differential in the underlying organic growth rates of the two companies.
Between numbers 10 and 20, there was also some jockeying, with Waste Industries climbing two places to number 10 and Waste Pro dropping two places to number 13. Although the larger publicly-traded companies continue to bemoan high seller valuation expectations, there has been a flurry of merger and acquisition (M&A) activity among the smaller players, led most recently by Advanced Disposal (holding the number 8 position), but also benefitting Action Environmental Group, which climbed from 26 to 19, and US Ecology, which moved into the 14th position, up from 19 last year.
However, Waste Pro, which had been an active acquirer, is seemingly less so in the past year, which seems to be reflected in its ranking, as was the case with WCA, which fell to 20 from 15. Continuing a solid waste tradition, once again, industry veterans who had sold their businesses are also jumping back in—Michael Barry and Brian Meng purchased recycling assets from Waste Management, and Bill Killian is again looking to put together a larger operation under the moniker K2 Waste Solutions, after selling a Texas operation to Progressive.
After being a major source of discussion at WasteExpo, the current problems in the recycling area remain front and center in the national media, with not only CNBC, but the Wall Street Journal and Washington Post covering the issue. The problems covered in these news stories were largely touched on in my last column—in a nutshell, low recycled commodity pricing, largely due to weak Chinese demand and exacerbated by the falling dollar, combined with high processing and contaminated residuals costs, largely attributed to single-stream recycling and precipitated by China’s Green Fence policy.
The new axiom seems to be that recycling costs roughly three times that of landfilling, with estimates ranging from $65 to $100 per ton to process recyclables versus landfill tip fees ranging from $20 to $40 per ton, and contract pricing must reflect this. That said, it does appear that industry attempts to change contract structures and/or charge fees to account for higher recycling processing and contamination costs are gaining some traction. Casella Waste cites very little pushback to its new sustainability/recycling adjustment (SRA) fee, while anecdotally, industry participants seem unified in trying to bid contracts based on a fee for service, not commodity, model. Contracts are now often being bid with or without glass as well. Many public sector recycling programs are also losing money (more than 2,000 municipalities are estimated to be paying to dispose of their recyclables), bolstering the private sector companies’ position.
As a result, there are an increasing number of municipalities either now charging for recycling, or dropping glass recycling. Despite the sudden vilification of the “blue bin,” it still looks likely that single stream is here to stay, as scale, and thus the higher volumes resulting from single stream still matter to the overall profitability of a material recovery facility.
Amidst all this, the last two months of data indicate a stabilization, if not a nascent upturn, in recovered paper prices and some grades of plastic. This is unlikely to change the solid waste companies from their course of attempting to enforce and change contracts, as this recovery looks to be more “U-shaped” than the “V-shaped” recovery that the recycled paper industry more typically used to enjoy. But it may make the changes easier for customers to swallow, particularly in concert with healthier state and local financial situations.
Leone Young is the Principal of LTY ERC, LLC, providing consulting and research services to, and conducting special projects for, the environmental services industry, primarily the solid waste sector.
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