Change is an opportunity for growth. Several trends will be drivers for innovation that affect the way equipment manufacturers and industry service providers meet demands for new equipment.
Paul R. Frey and Tim Pratt
It’s said that the only constant in life is change. It is certainly true of the solid waste industry which has seen its fair share of change over the last five years. To the outsider, the business of dealing with waste might seem like a relatively static necessity. After all, the general public does not focus on what happens to their garbage after it is left at the curb. But those in the industry know that this is a dynamic business that requires strategic thinking and a great deal of business savvy to be successful.
So, what is happening in the industry today? GDP growth forecasts predict continued, yet modest growth in 2013, and there is a corresponding waste volume growth expectation of about 1 percent for the coming year. However, beneath the surface the make-up of that volume of waste—and especially how it is processed—is in an exciting state of flux. Thankfully, the days are long gone when trash was simply dumped at a landfill to start the decomposition process. Today, the industry is looking for new and innovative ways to reduce waste, to divert it appropriately and even use it as a raw material to create new inputs into other systems. Below are seven trends that are changing the way the solid waste industry operates to meet the challenges of digesting all of the consumer and institutional waste this country creates.
Americans are on an Inevitable Path Toward a World that Recycles
Old habits die hard but the learned behavior of recycling is slowly, but surely, taking hold in the U.S. So what is causing consumers to be more willing to separate their trash from their recyclables? One of the primary reasons is that individuals, companies and governments are publicizing the economic and ecological gains of recycling. It’s no longer just special interest groups that are promoting the benefits of the greening of America. Businesses and municipalities recognize the cost savings and the goodwill generated by adopting these practices. Recycling is good for business and it’s good for the environment, so the current of popular opinion is flowing in favor of sustainable, long-term waste reduction and redirection strategies. Even as commodity prices fluctuate,he long-term trend toward increasing recycling is likely to continue.
The Construction Industry is Staging a Comeback
As the construction industry suffered its precipitous fall in 2008 and 2009, the amount of Construction and Demolition (C&D) waste destined for the landfill dropped as well. In 2010 and 2011, residential construction activity stabilized but at low levels. However, in 2012 the construction industry saw a significant rise in new housing starts and Wells Fargo economists are projecting additional increases over the next three years. This growth will likely drive a commensurate increase in the C&D waste category. Now that construction starts are beginning to look like they do in more stable economic cycles, there could be opportunities for companies that specialize in this sub-market.
Alternative Energy from Waste is on the Rise
Interest continues to grow in alternative energy sources as a means to reduce waste, but also to take advantage of various government incentive packages. These alternative energy systems can reduce the need for costly landfills, decrease the amount of greenhouse gases being released and partially fulfill our appetite for energy. The technologies that are emerging to transform landfill waste into a renewable energy source are still in the beginning stages of adoption but they are poised to grow significantly over the next decade.
M&A Activity Seems to Be Taking a Break (For Now)
Although the recent phase of M&A mega-deals that have marked the last five years appears to be slowing as we move into 2013, there is a consistent buzz of activity and interest in consolidation. We continue to see and hear of important plays by the major service providers to make strategic niche acquisitions that diversify revenue streams while bringing some economies of scale to bear. The solid waste industry is stable but the dynamic nature of the technology involved is attracting private equity. The solid waste industry remains highly fragmented, but the number of key acquisitions over the last few years has consolidated shares of the market into a handful of sizable players.
E-Waste Mitigation Programs are Gaining Traction
A variety of forces are at work to create alternative destinations for the increasing volume of e-waste that our modern society now produces. Some states have adopted “take-back” programs that require manufacturers to provide responsible recycling options when a device reaches the end of its lifecycle. Other states have implemented “pay-back” laws that require electronics manufacturers to subsidize the recycling of goods produced based on how many units are sold or returned. The fact that some very valuable commodities can come out of e-waste also should not be overlooked. In any case, there are opportunities to specialize in this sub-industry that is not likely to diminish in importance as electronics continue to proliferate.
Large-Scale Natural Gas Vehicle Adoption Has Arrived
The cost pressures associated with diesel-fueled equipment is pushing fleet owners to look more concertedly at cleaner-burning, more cost-effective fuel sources for their vehicles. For example, Waste Management (WM) stated in a recent news release that 80 percent of its new truck purchases for the next five years will be powered by natural gas. WM already has a tremendous fleet of natural gas trucks in North America and touts the cost savings and environmental benefits that have resulted from its move to natural gas. Other smaller fleets around the country are also making the switch to CNG and LNG as the infrastructure for re-fueling becomes more widespread.
New Industry Niches are Emerging
The U.S. is experiencing an energy boom in natural gas that is pulling the country toward a future that may look a lot more like energy independence than anything we have seen during the last two generations. The arrival of the “fracking” industry has created a new category of waste mitigation. As the fracking industry matures and new legislative mandates shape the landscape, new business opportunities will likely arise, particularly for entrepreneurial thinkers and movers. Additionally, the trend of geographical diversion—moving waste away from high-density population centers—is likely to continue to grow and at a more rapid rate.
Change is an Opportunity for Growth
The landscape of the municipal solid waste industry continues to evolve and change. Technological advancements and legislative imperatives are driving innovation that will alter the way we collect, transport, process, dispose of and re-use the waste that is generated. Leaders and companies that stay educated about these developments are better poised to take advantage of a trend and benefit from the efficiencies that are created.
The economic environment is such that some companies may have hesitated to acquire new equipment to meet the many changes of the industry. Interest rates are still near record lows which is a powerful incentive to find the right equipment for a long-term need. 2013 may also be the last year that any accelerated “bonus” depreciation expense is available.
Change is an opportunity for growth. These trends will be drivers for innovation that affect the way equipment manufacturers and industry service providers meet demands for new equipment.
Paul R. Frey is a senior vice president and regional manager for the Environment Services Group of the Wells Fargo Commercial Banking Group. Based in Chicago, Frey provides strategic direction and leadership for his team, which serves the financial needs of business in the $270 billion environmental industry. With over 30 years of experience in the environmental services industry, he has served on a White House Environmental Direction Committee. Paul can be reached at (312) 920-9171or via e-mail at [email protected].
Tim Pratt is a senior vice president and division manager for the Specialty Vehicles Group of Wells Fargo Equipment Finance, Inc. With 25 years of transportation industry experience and based in Tempe, AZ, Pratt leads a team of equipment finance specialists that focus on the refuse and recycling industry. Tim can be reached at (480) 784-9594 or via e-mail at [email protected].