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Monday, February 6, 2012

The Recycling Poacher Migration Threat


With the dawn of a new year, the waste industry reached a new milestone when mandatory commercial recycling came to fruition; the biggest change to the industry since the introduction of residential recycling, introduced with much apprehension. In 2012, companies throughout the industry eagerly prepared for this new endeavor by purchasing new trucks (hopefully you were advised well by your accountants to reap the tax benefits and purchased the fleet in 2011), designing new routes and training new employees to handle the new adventure of commercial recycling. A month has come and gone, and by now most of the kinks associated with a new service have begun to smooth out.  Cities are diverting more MSW to alternate waste streams. Commercial recycling outreach and education is taking hold, and businesses are beginning to recycle more and more. Cities are happy, companies are happy, and with continued success the state will be happy. 

But with the good comes the bad. As commercial customers recycle more they have come to understand that their MSW removal needs are less than before, and they are beginning to migrate to lower service levels and smaller bin sizes. Companies are not fretting the loss, at least not yet, because the decrease in MSW removal revenue is being offset, somewhat, by the sale of the new recyclables. The revenue from these new commodities is predicted to increase in the short run as these new waste streams are assuredly of better quality than the typical household recycling can. 

Many commercial customers, multi-family aside, tend to operate on a set structure where the waste remains consistent from week to week. This will result in cleaner recyclables in larger quantities, which mean more income from the sale of these goods, at least until the market is saturated. The hope is this new revenue will help offset the increased costs required to provide this new service.

Cities being cognizant to this new revenue stream are attaching themselves to the commodities more and more, especially as MSW collection revenue begins to migrate away. In the past, recycling revenue has been a benefit some companies got to keep all to themselves, but this might not be the case much longer. With each contract year, cities are obligating the hauler to use this revenue to offset any increased cost they incur. But this is not the worst thing to emerge from the introduction of commercial recycling, a new migration scourge has emerged the “Recycling Poacher” or “Pirate.”

The “Recycling Poacher” is not a new threat, but they are becoming a major obstacle to the success of Garbage companies, especially as it relates to the introduction of commercial recycling. We are not talking about the mom and pop poacher that goes from residential recycling can to can, not that they don’t have an effect on the recyclable return when they steal goods. We are talking about the multi truck fleets of organized “Recycling Poachers” who drive pickups with reinforced wooden walled beds with a large capacity for recyclable goods.

Before the introduction of mandatory commercial recycling, these recycling poachers could be seen typically stealing corrugated in large amounts from commercial customers’ MSW bins.  But now, since this material has now been separated and mixed with other valuable recyclables in separated bins, the number of poachers has increased dramatically. They are organized to the point of knowing daily waste routes and are stealing from the recycling bins long before a company can service their customers properly. And in their haste to steal, many of these poachers are creating collection problems that ultimately get blamed on the solid waste hauler, sometimes causing fines from the cities, creating a poor image of customer service for commercial customers.

In only a month, some companies have already noticed a dramatic decrease in recyclable goods as well as decreased tonnage and volumes, week to week from typically stable customers.   In the past, companies most left these poachers alone, but today they can afford to no longer, literally.

Many out there say, “Leave the poachers alone, they are only trying to make a living.  How much of an effect can they have, they are poor and unorganized.”  Sadly these are the same people who believe that recycling is free, and complain when their collection rates go up as well.  Changing perception is a hard thing. As a result, many companies have thrown up their hands surrendering to public pressure, figuring that this is just another type of migration they will have to deal with. 

This will not work forever though; the new losses from theft migration may cause commercial recycling to become a loss leader for an organization forcing rates to skyrocket.

Companies will also eventually lose credibility with the cities they operate in, as diversion percentages stay the same, or even decrease as theft migration increases. If diversion becomes a problem, fines may be incurred from the state, and these costs are then passed on to the company, which cannot be corrected by rate increases.  All of this will eventually lead to company failure.

There are options a company can take to combat these thieves and avoid future migration of recyclables through theft.  One simple option is instructing commercial customers to just lock their recyclable bins. But locking all bins is not practical. With the increased time it takes for a recycling truck driver to get out, unlock, and service each bin, it will translate into drivers servicing fewer bins. As a result, costs will increase as more drivers and trucks are needed to service the same customer base.

Another option that some companies are pursuing is working with city management to create laws or ordinances that combat theft of these goods.  But we all know how well that works and the negative perception it creates. Further, small fines are not a deterrent, especially since a truckload of recyclables could be worth several hundreds of dollars.  Proving this is the fact that there are more and more poachers beginning work each day.  Law enforcement would rather combat real criminals than arrest and fine those who are presumed stealing what they believe is trash.

The best way to protect a company against the recycling poacher of recyclables is through customer education about protecting recycling bins and creating a commercial recycling service rate.  Explaining this situation to the community helps create an even cleaner waste stream, resulting in additional income and giving customers an incentive to protect the goods to keep rates low.  

Commercial recycling rates appear to be the only way to protect against any type of migration, whether it is “can size migration,” “service rate migration,” or “theft migration.” Determining how these new commercial rates would be structured is a difficult process. Not to mention with migration revenue losses and new commercial rates, comes additional franchise revenue and city interest will almost certainly peak.

To see if commercial recycling poachers are draining your bottom line start with calculating weekly tonnage and comparing diversion goals.

Armanino McKenna has been involved with educating cities about this new costs/rate structure and negotiating contract addendums that are beneficial to both the company and cities alike. If you are unsure if commercial recycling poachers are affecting your bottom line, do not hesitate to contact Armanino McKenna for your diversion calculation, commercial rate structuring and route audit needs.  We are currently involved in projects throughout the Bay Area addressing these new concerns and would be happy to help you with yours.

David Button of Armanino McKenna has been involved in the rate setting process with solid waste haulers, consultants and the cities. For more information on how solid waste haulers and other companies are dealing with migration and handling it in their rate negotiations with each jurisdiction, contact David Button at David.Button@amllp.com.

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