Over the past decade, environmentalists have pressured waste collection firms to become more eco-friendly amid increasing concerns about greenhouse gas emissions and climate change. Waste haulers have, in turn, been able to generate more revenue from the emerging recycled material market created from advances and initiatives to “reduce, reuse, recycle.” However, the cost of going green has recently jumped for many waste collection firms, and the added expense has often been passed down the line to buyers.
While larger firms have been able to coordinate and develop strategies to offset these rising costs, smaller outfits have been taken to the brink of bankruptcy. In effect, waste haulers have implemented a number of market-wide hedging efforts, including more modernized recycling processes, which has inflated all trash removal service prices, albeit at varied rates of growth. IBISWorld has analyzed how current trends are contributing to changes in waste disposal and recycling service markets in addition to how they will alter buyers’ preferences towards a more eco-friendly approach.
Cost of Sustainable Policies & Shifting Demand for Recycled Goods
In the past decade, a number of city governments have put “zero waste” plans in place as they have looked to divert more waste to recycling facilities rather than landfills and incinerators. These plans have called for citywide efforts to increase awareness of greenhouse gas and raise recycling levels. Cities have benefited from reducing their greenhouse gas emissions, while waste haulers have been able to collect and sell more recycled materials to downstream manufacturers.
However, a couple of issues have emerged since these plans’ inception. First, in recent years, the price of recycled materials has fallen in line with suppressed demand. Due to weakened economies abroad, demand for popular recycled commodities like paper and aluminum has decreased. Collectively, these trends have cast a dark cloud over waste collection firms’ recycling operations as material sorting costs have risen and revenue generated from these operations has fallen. While large-scale operators have been able to automate sorting practices and close unprofitable recycling facilities to offset rising operating costs, other firms have raised service prices. Altogether, recycling service costs have increased at an annualized rate of about 1.9% during the past three years.
Meanwhile, although they initially displayed growth, recycling rates among citizens have stabilized at just above 30% of total waste disposed during the past decade. This is primarily due to sustained low landfill service costs and the wide scope of the waste management industry. One aspect of zero waste plans has been to reduce the number of landfills. Today, there are only about 1,900 landfills; however, these disposal sites are much larger and more efficient than old landfills. So, even though the reduction in landfills was intended to inflate landfill service prices and incentivize recycling, higher average operational efficiency has actually allowed suppliers to continue offering reasonable service prices. In effect, even though prices have risen, traditional waste collection and disposal services have remained affordable since the largest change in operating costs has been an increase in the cost of transporting waste to the nearest landfill. According to IBISWorld, from 2013 to 2016, the prices of landfill and solid waste collection services have been increasing at estimated average rates of 2.9% and 1.7% per year, respectively. Because solid waste collection and disposal prices have risen at a slower pace than recycling services, it has been harder for buyers to shift to using recycling services.
The Push for Universal Modernization
Despite years of delayed gratification for a number of waste collection and disposal firms, renewed private investment in green practices is expected to generate new revenue streams for the recycling service market. For example, a number of companies and investors have collaborated to create a “closed loop fund” designed to encourage recycling and help modernize existing recycling facilities. Involved companies have also pledged to incorporate more recyclable material into their production to appease stakeholders. Such renewed interest will provide operators with the funds necessary to invest in modernizing their facilities and lower operating costs.
These investments are especially important today as regulations broaden the list of items that qualify as recyclable materials. As this list grows, the cost to sort recyclables increases, pressuring waste haulers to inflate prices. However, with the installation of automated sorting equipment, such costs will be limited, which will tame operating costs and stabilize service price growth. Altogether, IBISWorld anticipates that suppliers will raise recycling service prices at an average annual rate of 1.9% in the years to 2019.
Newer sources of revenue will also allow suppliers to invest in other operating segments, such as landfills. For example, a number of waste haulers, including Waste Management Inc. and Republic Services Inc., have installed waste-to-energy conversion equipment at their landfills. Because the energy produced can be sold to downstream energy suppliers, this strategy provides waste haulers with another source of revenue. As this practice is expanded to more landfills, suppliers’ profit margins will rise, allowing them to keep future landfill service price growth in check and subsequently limiting solid waste collection service price growth as well. In fact, from 2016 to 2019, IBISWorld expects the prices of solid waste collection and disposal services to increase at a moderate annualized rate of 2.0%. Because price growth for recycling services is projected to remain steady while price growth for solid waste collection and disposal services accelerates, recycling services will become a more affordable, eco-conscious alternative for buyers.
Sustaining for the Future
In determining the effects of sustainability in the waste collection and disposal service market, the prevailing benefits of lowering greenhouse gas emission levels have been weighed against the prospects of revenue generation. Although, in the past waste collection and disposal firms were able to limit costs by modernizing their recycling facilities, recent declines in recycled material demand and stagnant recycling levels have caused prices for both solid waste and collection disposal services and recycling services to rise in the past three years. However, because recycling prices have grown at a faster rate, buyers have felt less inclined to recycle.
In order to sustain green waste operations in the next three years, all stakeholders must be more strategic. In effect, suppliers and buyers alike are investing in recycling awareness programs, facility modernization and incorporating more recycled material into finished goods; trends that will go a long way towards shifting buyers’ disposal preferences. As such, buyers should consider seeking out recycling services in the near future because they are not only the more eco-friendly option, but are expected to be the most cost effective.
Deonta Smith is an IBISWorld Procurement Research Analyst. For more information, visit www.ibisworld.com.