Re: [GRRN] Recycling Profitability

Gary Liss (
Fri, 10 Sep 1999 08:33:41


Some comments on the structural problems:

Haulers are generally paid for residential garbage collection work on a
$/household/month basis. This does not provide any economic incentive to
reduce wastes or maximize recycling.

Bid or negotiated prices are based on covering all their operating costs,
plus profit. The major variables between companies on bids is what type of
equipment they use, what different assumptions they make about labor
productivity (often based on their knowledge of the local area and actual
costs to operate there), and what they want to get as profit. Wall Street
driven companies need to get a 30-35 % return on their overall bottom line
to have attractive stock prices (not necessarily received from every
contract). Smaller, independent companies often are willing to provide
service for less profit (often 8-15 %).

In San Jose, CA, we tried to break this cycle (I was Solid Waste Mgr there
1983-1991). The current contract pays the residential hauler a combination
of fees: 1) $/household/month was capped so that they could only get 80% of
their costs (and no profit) from this fee; and 2) $/tons recycled. Two
bidders won the bid in San Jose, with different rates for each. GreenTeam
is paid $5/household/month plus $270+/ton recycled by the City. This has
provided GreenTeam with a huge incentive to maximize recycling.

Seattle, WA recently solicited proposals for an integrated system where
they are paying $/household/month for garbage collection component of
service, and $/tons recycled for the recycling component of service. This
has a similar effect to that of San Jose.

Other tools can be used to get haulers attention for recycling, such as
variable franchise fees which decrease as waste diversion increases, or as
specified targeted recycling program goals are met.

We need more cities around the country to innovate on how they pay for
garbage and recycling services to harness the forces of the marketplace to
accomplish our waste reduction goals. We need to stop paying haulers more
money for garbage collection than recycling in order to break the cycle.
There is a reason why the multinational garbage companies feel recycling is
a marginal contributor to their bottom line. Cities need to revise how
they pay for these services! That was supposed to happen when cities all
did their local recycling plans around the country, but in most cases, this
analysis was not done.

Gary Liss
Gary Liss & Associates
4395 Gold Trail Way
Loomis, CA 95650
Fax: 916-652-0485

At 10:01 AM 09/09/1999 -0500, RecycleWorlds wrote:
>Robert Lester asked:
>"3. Does anyone have the exact figures and source for the statement that
>waste haulers generally make X more dollars per ton for hauling and
>disposing of regular garbage compared with recycling (what type?)?
>Why's that necessarily the case? Is it the structure of the industry?"
> There is no answer for this question in the manner in which it is
>posed. In general, at the beginning of this decade, many of the large
>integrated haulers offered municipalities low ball contract offers for
>recycling services essentially as a "loss leader". That is to say, it was
>felt that being a "full service" provider would open more doors and fence
>out more competition. In that sense, then, the recycling margins were less
>at that time. But, in general, that is no longer happening.
> What is happening that affects the relative profitability of the two is
>that consolidation over landfill ownership, which is a bottleneck in the
>solid waste industry, is increasingly establishing market power for the
>large vertically integrated consolidators. With market power, those
>activities interrelated with their landfill assets will obviously be able
>to draw higher returns than activities which must be priced to market, such
>as recycling for which there are no barriers to entry, as landfills serve
>as in solid waste.
> Compounding this further, returns to the collection link of the
>recycling industry fluctuate with the commodity cycle (many processors
>price to maintain a constant buy-sell spread and hope to thereby escape
>that roller coaster). The absence of recourse to options and futures
>trading to leven these fluctuations has led to a misunderstanding of
>recycling's profitability by incorrectly evaluating returns at a single
>point in time.
> Bottom line: industry will look upon recycling as the weak sister
>unless both (1) the market power conferred by landfill concentration is
>broken; and (2) the underlying policy changes that can dramatically improve
>recycling economics are instituted (e.g. min. content, design for
> I hope that this answer hasn't hopelessly confused things further.
> Peter
>Peter Anderson
>RecycleWorlds Consulting
>4513 Vernon Blvd. Ste. 15
>Madison, WI 53705-4964
>Phone:(608) 231-1100/Fax: (608) 233-0011
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Gary Liss
Fax: 916-652-0485