Waste News Digital Edition - September 15, 2008

Recyclers are not immune to today’s higher energy costs, but increased value for recyclables and environmental awareness are helping to combat shrinking profit margins.

“The impact with everyone, in any business, has been pretty extensive,” said Dennis Soriano, chief operating officer for Greenstar.

Transportation costs to deliver recyclables to mills have in- creased, squeezing profit margins, Soriano said.

“In some cases, we’ve been able to get a little more on the delivery side of the price, but not _Soriano100%,” he said. Higher ener-

gy costs have increased operational costs at recycling facilities significantly, Soriano said. A lot of Greenstar’s equipment operates on diesel fuel, but natural gas and electricity price increas-

es also are impacting the bottom line, he said.

“Our costs over the last two years have skyrocketed, and we really have not been able to recapture that in our pricing as much as we would like,” Soriano said.

One side effect of increasing energy and fuel prices has been businesses, including recyclers, looking at how to make their operations more efficient, he said.

“I really think it makes everyone, and Greenstar in particular, look inward to find additional cost savings, additional efficien-cies, to help us make up those differences,” Soriano said.

The sluggish economy, as well as increased environmental awareness, has created new opportunities for recyclers, he said. While tonnage from some of Greenstar’s traditional customers has slipped due to the economy, other doors are opening, he said.

“Because of the environment being such an important issue today, and because of the so-called greening of America, we see a lot of additional opportunities that make Greenstar very optimistic

about our future and what the future of the recycling industry is going to be,” Soriano said.

Public awareness of recycling as a way to reduce greenhouse gas emissions and U.S. dependence on foreign oil via energy savings has been a blessing for recyclers, said Pat DeRueda, president of WM Recycle America LLC, Waste Management Inc.’s recycling arm.

“The opportunities are boundless,” he said. “Companies that never thought of doing anything about their waste are now looking at ways to recycle. Companies

that are recycling are looking at ways to recycle even more.”

Large national customers, such as retail chains, want to reduce their waste and find better recycling solutions, he said.

“Because of the very strong commodity values, some avenues to harvest additional materials are out there if you’re willing to make the investment to do it,” Soriano said.

Greenstar is looking into developing a commercial single-stream recycling system to recover cardboard, plastic and other recyclables.

“The concept of more diversion, less material going to the landfill, we see that demand at every level of our business,” Soriano said. “We’re trying to address it, I believe other people within the industry are also, and I think that spells success for the recycling industry in the U.S. long term.”

And, like many other recyclers, it also has benefited directly from the increased price of recy-clable commodities.

“I think everyone in the industry today is benefiting by these higher prices,” Soriano said. “We certainly are benefiting by them. We’re doing well, but we could be doing better.”

But a lot of the material the company buys, particularly residential, is contracted at an index price based strictly on the value of the commodities. So there is no opportunity to adjust the contract because of energy costs, he said.

“So, what should have been some increased profitability for us is really now going back into covering increased operating expenses,” Soriano said. “We do have increased operational costs, and they certainly squeeze our margins, but we’re not certainly going to suggest that it’s to the point we’re not benefiting by the higher prices.”

Many customers also try to make sure that they get their piece of the increased prices for recyclables, he said.

“As the customer sees the value of his individual commodity change and move upward, they’re expecting to see a like percentage of increase in their rebate,” Soriano said.

WM Recycle America’s Richard Abramowitz warned the increased prices could create complacency and sloppiness among recyclers.

“[With] high prices, even bad operators can make money,” he said. “There’s really not that much challenge out there to a good part of the industry because they can hide lots of things in high commodity prices.”

On the collection side, fuel surcharges mitigate impact of rising diesel and gasoline prices.

“From a fuel standpoint at the corporate level, it’s kind of a wash,” said Lynn Brown, a spokeswoman for Houston-based Waste Management Inc.

She added, though, that there have been times lately when fuel prices rose so quickly that the company was unable to pass the increase along fast enough, she said.