As we examine the challenges of the nation’s recycling landscape, it’s good to keep in mind two basic truths: There will always be a huge segment of the population that insists on opportunities to recycle. And recycling is here to stay.
It’s easy to let the current depressed market for recycled commodities drag the industry into a sense of despair. Current conditions threaten the profitability of some operations, especially those tied into long-term service contracts that make them dependent upon markets for revenue. But over the last 20 years we’ve also seen a consistent, growing demand among consumers for more recycling access, especially as they’ve become increasingly aware of the benefits of recycling.
Even in the worst of times, anyone should be able to see the good financial and environmental sense in investing in a business that has shown such positive growth for such a long period.
Consider, for a moment, that while market prices are currently depressed, there remain viable markets for recovered material. We don’t have warehouses of curbside-collected material idly waiting for someone to take. Rather, the recycling infrastructure continues to feed domestic and international manufacturing, providing feedstock for a substantial sector of our economy. While the intermediate processor with an outdated or difficult long-term contract is in a financial squeeze, recycling continues to be a service with a significant impact on our economy.
Ups and downs inevitable
Holding onto this view of things is pivotal for our industry’s success. It is a perspective that all parties, both customers and material processors, should adopt in the early stages of their relationships to ensure maximum success in the future. If we can get customers and processors to acknowledge the inevitable ups and downs of commodity prices, we can smooth out the experience and make everybody happy. But this solution requires a long-term strategy, with a willingness by both sides to accept some of the risks and downsides of the business, as customer rebates dwindle or profits diminish on the processing side.
Clean newspaper is becoming harder to find, containers are being lightweighted and paper is generally shrinking in volume. A ton of recyclable material garnered through single-stream collection just isn’t what it was five years ago. The equipment installed to process single-stream material 10 years ago is not designed to process today’s material mix efficiently. The material stream is changing and so must the industry.
As little as five years ago, processors commonly offered agreements that gave rebates to customers with a floor rate. This rate would ensure the customer a baseline amount of money to expect in return, but a processor also had to be able to recoup the cost of all that fancy new sorting equipment. Unfortunately, the stream changed so fast – thinner, lighter, less material – and the commodities-market fall happened to coincide alongside that change. Eventually, many of those agreements became unprofitable. While one might applaud the customer for negotiating the unbalanced agreement, consider the reality: When that agreement expires, that customer is doomed to experience some serious sticker shock.
When commodities come back (and they will), don’t forget where we came from. Both customers and processors need to be realistic. When it comes to any sort of single-stream processing, agreements need to account for the worst-case scenario. Mutual benefit is the goal and processors must recover costs to justify the business.
New reality for customers
This strategic shift might require a re-education of the customer, and the complexity of the new “floating” rebate, as opposed to the floor rate, might be more difficult for the customer to swallow based on revenues gleaned from past contracts. But there needs to be an honest conversation with customers to let them know that previous contract structures were not sustainable, and if they want to continue to offer recycling services to residents (and, we certainly think they do), there might not be the same rebates they once enjoyed.
Given the reduction of recycled commodity values, we have to believe that customers also want to take the long view and will be willing to earn less – or even pay more – to divert more waste to more sustainable uses. The industry needs contracts that steer both customers and processors toward a fair and happy medium, allowing everybody to share in the long-term benefits and long-term success of recycling.
Brent Hildebrand and Will Sagar are members of the National Recycling Coalition Board of Directors. Hildebrand is vice president of Alpine Waste & Recycling in Colorado, and Sagar is executive director of the Southeast Recycling Development Council (SERDC).
The views and opinions expressed are those of the author and do not imply endorsement by Resource Recycling, Inc. If you have a subject you wish to cover in a future Op-Ed, please send a short proposal to [email protected] for consideration.
