Recycling chain holds tight amid high fuel prices

Despite high fuel prices, KW Plastics has to keep trucking along.

KW, the largest polypropylene recycling company in North America, is among the major industry players who have felt the sting of rising shipping costs, with recent increases tied to high fuel prices.

But the company is somewhat constrained in its ability to react, explained Scott Saunders, general manager of KW Plastics.

“We would love to be able to say, ‘Well, because fuel is up and freight is more expensive, we’re only going to buy close to our facility,'” he said. “But we have to go where the material is generated, so you really don’t have an ability to say we’re going to be buying from Area A or B unless you’re willing to bring your sales down. That’s the last resort.”

Fuel prices may have fallen fast from their June highs, but they’re still far above historical averages, and many recycling programs and companies continue to feel the pinch. U.S. diesel prices are averaging about $5.50 a gallon, up by nearly 50% from the beginning of the year and up nearly two-thirds year over year, according to the U.S. Energy Information Administration.

Plastics Recycling Update interviewed a range of recycling stakeholders across the country to find out how they’re coping with fuel markets. Strategies include adjusting routes, ensuring trailers and containers are full of product, switching to alternative fuels, buying fuel in bulk and taking other steps.

Costs from the curb to the reclaimer

For a small taste of the big bite that fuel costs can take out of a budget, look no further than The Big Apple, where the sanitation department averaged $2.5 million a month in fuel expenses during the 2022 fiscal year but saw those costs rise to $3.4 million in June.

And there wasn’t a whole lot the department could do about it.

“The NYC Department of Sanitation has an obligation to remove the 24 million pounds of refuse and recycling that New York City residents put out every day,” said Vincent Gragnani, press secretary for DSNY. “Unfortunately, there is not a way for us to do this with less fuel.”

DSNY picks up residential recyclables and drops them at for-profit materials recovery facilities (MRFs), which sort and market bales of recovered materials. MRF operators are also feeling the sting of high fuel costs.

For example, Millennium Recycling in Sioux Falls, S.D. is a MRF operator that uses semi-trucks to move materials that are outside the scope of the local garbage and recycling haulers. And the company pays freight for delivery of bales to manufacturers and others, said Shannon Dwire, Millennium Recycling’s president.

Dwire said the company has been ensuring as much weight as possible per load, maximizing the value per ton. For shipping within 100 miles, the company runs one full-time semi tractor, which can connect to over a dozen trailers. Outside the area, it hires less than truckload (LTL) or other carriers.

With local pickups of scrap materials, the company requires a minimum load count or weight be available. The same requirements are applied to freight companies shipping Millennium’s bales to mills or other downstreams, she said, and the company’s warehouse operators are required to load trucks to their maximum legal weight limit.

“Those small amounts over time add up incredibly,” Dwire said.

“The NYC Department of Sanitation has an obligation to remove the 24 million pounds of refuse and recycling that New York City residents put out every day. Unfortunately, there is not a way for us to do this with less fuel.” – Vincent Gragnani, press secretary for DSNY

Troy, Ala.-based KW Plastics has experienced steadily rising transportation costs because of the truck shortage and rapidly rising fuel surcharges, Saunders said. Over the past two years, freight costs are up 35%, which is “enormous,” he said.

It’s had an impact.

“We’ve been working on smaller margins for several months and we can try to pass the costs on to the customer and the supplier,” he said.

Saunders said that, with no quick fixes, his company is watching prices daily and doing its best to address the higher prices through its business plan.

“That’s really all you can do. We all have got to keep our fingers crossed that we’re going to get some relief in fuel prices that’s not a severe recession,” Saunders said. “We want a strong economy and cheap fuel, but I don’t know where to get that.”

Companies employ financial strategies

A number of companies reported they’re passing the higher fuel costs on to customers by imposing surcharges.

One of those is Advanced Drainage Systems (ADS), which is the largest plastics recycling company in North America. ADS recycles polyolefins, including huge volumes of color HDPE, into drainage and septic products.

In an Aug. 4 call with investors, Scott Barbour, president and CEO of ADS, said the company has been raising prices for its piping products. In March, ADS increased prices largely based on elevated diesel and transportation costs, Barbour said. The company is still getting the benefits of that price increase, although it is scheduled to level off through the rest of 2022.

“We all have got to keep our fingers crossed that we’re going to get some relief in fuel prices that’s not a severe recession. We want a strong economy and cheap fuel, but I don’t know where to get that.” – Scott Saunders, general manager of KW Plastics

Casella Waste Systems, the fifth-largest publicly traded curbside garbage and recycling company in North America as measured by total revenue, fully offset its higher fuel costs in the second quarter by charging customers fuel recovery fees, CEO John Casella said during a call with investors.

Of course, Casella also relies on other companies to move material for it.

“We clicked through a lot of thresholds in third-party transportation contracts and started to be levied pretty significant surcharges by third-party transporters in Q1 and to Q2,” Casella said. In response, the company in June started levying fuel surcharges at transfer stations, allowing it to pass those surcharges on to Casella’s customers.

Others have been able to spare their customers higher prices by employing other mitigation strategies.

Michigan-based recycling company Schupan & Sons, which handles plastics, beverage containers, scrap metals and electronics, has its own fuel tanks at its Kalamazoo, Mich. and Elkhart, Ind. facilities, said Gary Curtis, president of the company’s industrial recycling division.

Having the tanks, which are used by the industrial metals division and the aluminum and plastics sales division, allows the company to sign fixed-price contracts for deliveries of tanker quantities of fuel. Curtis said he was able to lock in 2020’s low fuel prices through all of 2021, he said.

He wasn’t able to extend those low prices into 2022, however. That’s where his other strategy has come into play: utilizing futures contracts to hedge price risk. Curtis said the company has already used futures trading to hedge exposure to aluminum pricing, so he was able to apply the same strategy to fuels.

“That’s another way I’ve been mitigating that risk,” Curtis said. It has allowed him to protect Schupan and Sons from upside diesel pricing risk for the remainder of 2022.

“As long as we’re able to mitigate our risk, then our customers get that benefit,” he said.

Possibilities for alternative fuels

Some operations have been able to insulate themselves from fluctuating diesel prices by switching to alternative fuels. The city of Tacoma, Wash. is one of them.

The city’s solid waste utility switched to compressed natural gas (CNG) three or four years ago and now operates over 20 trucks for hauling garbage, single-stream recyclables and organics from homes and businesses, said Preston Peck, who heads the Recycle Reset project at the city’s Environmental Services department. Those trucks get their fuel at a city-owned CNG refueling station that opened about a year ago.

Peck said CNG costs to the city have remained “super steady,” in the realm of $20,000 and $26,000 per month, unlike the fluctuating prices for diesel. The department’s fleet manager ran some numbers and determined that if the city still ran diesel trucks when the prices are in the $5 to $6 range – they’re currently about $5.50, according to federal data – then the city would be spending about $100,000 a month on diesel for its trucks.

“That’s a big cost savings for us and environmentally better,” Peck said.

“It just worked out that we made that transition before this all started happening,” he added.

“We clicked through a lot of thresholds in third-party transportation contracts and started to be levied pretty significant surcharges by third-party transporters in Q1 and to Q2.” – John Casella, CEO of Casella Waste Systems

Garbage and recycling fleets around the country have been moving to CNG for many, many years, so that’s not particularly new – even if diesel fleets right now wish they were buying CNG instead.

For example, in its latest sustainability report, Waste Management, the largest curbside garbage and recycling company in North America, reported it has spent $2.5 billion on CNG vehicles and $550 million on fueling infrastructure. As of the end of 2020, over half its fleet was CNG.

What is newer is the push for electric collection trucks.

Gragnani said DSNY is piloting use of all-electric collection trucks and street sweepers, with plans to gradually expand the fleet.

While the initial experience with these vehicles has been positive, the transition will take years, as we need to also equip our facilities with the infrastructure necessary to charge these vehicles,” he said.

Others have already ordered EVs, but deliveries are delayed amid widespread supply chain challenges.

Saunders noted that the delayed availability of EVs means companies are essentially locked into the modes of transportation they’ve got. And even if electric trucks arrived tomorrow, they would require years of retraining a workforce of mechanics accustomed to working on diesel engines, he said.

“So that is another huge hurdle to jump over,” he said.

A version of this story appeared in Resource Recycling on August 8.

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