Fuel prices have had an impact on players in the plastics recycling sector this year. | Paul Vasarhelyi/Shutterstock
Despite high fuel prices, KW Plastics must keep going.
KW, the largest polypropylene recycler in North America, is among major industry players that have felt the pain of rising shipping costs, with recent increases tied to high fuel prices.
But the company is somewhat constrained in its ability to respond, said Scott Saunders, chief executive of KW Plastics.
“We’d love to be able to say, ‘Well, because fuel is up and freight is more expensive, we’ll only buy near our facilities,'” he said. “But we have to go where the material is generated, so you really don’t have the option of saying we’re going to buy in area A or B unless you’re prepared to cut your sales. It is the last resort.
Fuel prices may have quickly fell from their June highs, but they are still well above historical averages, and many recycling programs and businesses continue to feel the effects. According to US Energy Information Administration.
Plastics Recycling Update surveyed a range of recycling stakeholders across the country to find out how they are coping with fuel markets. Strategies include adjusting routes, ensuring trailers and containers are full of product, switching to alternative fuels, buying fuel in bulk, and taking other measures.
Curb to Collector Costs
For a little taste of the big bite that fuel costs can take out of a budget, look no further than The Big Apple, where the sanitation department spent an average of $2.5 million per month in fuel expenses in fiscal 2022, but saw those costs jump to $3.4 million in June.
And the ministry couldn’t do much about it.
“The New York Sanitation Department has an obligation to dispose of the 24 million pounds of trash and recycling that New York City residents throw away every day,” said Vincent Gragnani, DSNY press secretary. “Unfortunately, there is no way for us to do this with less fuel.”
DSNY collects residential recyclables and deposits them at for-profit Materials Recovery Facilities (MRFs), which sort and market bales of recovered materials. MRF operators are also feeling the sting of high fuel costs.
For example, Millennium Recycling in Sioux Falls, SD is an MRF operator that uses semi-trucks to move materials that are beyond the reach of local waste and recycling haulers. And the company pays the freight for delivering the bales to manufacturers and others, said Shannon Dwire, president of Millennium Recycling.
Dwire said the company secures as much weight as possible per load, maximizing value per ton. For shipping within 100 miles, the company uses a full-time semi-tractor, which can connect to more than a dozen trailers. Outside the area, it hires less than full truck load (LTL) or other carriers.
With local scrap material pick-ups, the company requires that a minimum number or load weight be available. The same requirements apply to freight companies that ship Millennium’s bales to factories or others downstream, she said, and the company’s warehouse operators are required to load the trucks up to their maximum legal weight limit.
“These small amounts over time add up incredibly,” Dwire said.
“The New York City Sanitation Department has an obligation to dispose of the 24 million pounds of trash and recycling that New York City residents throw away every day. Unfortunately, there is no way for us to do so. that with less fuel.-Vincent Gragnani, DSNY press officer
KW Plastics, based in Troy, Alabama, has seen steadily rising transportation costs due to truck shortages and rapidly rising fuel surcharges, Saunders said. Over the past two years, freight costs have increased by 35%, which is “enormous”, he said.
It had an impact.
“We have been working on lower margins for several months and we can try to pass the costs on to the customer and the supplier,” he said.
Saunders said that without a quick fix, his company was monitoring prices daily and doing its best to deal with the higher prices through its business plan.
“It’s really all you can do. We all have to keep our fingers crossed that we are going to get some fuel price relief that is not a severe recession,” Saunders said. “We want strong economy and cheap fuel, but I don’t know where to find that.”
Companies use financial strategies
A number of companies indicated that they passed on higher fuel costs to customers through surcharges.
One of them is Advanced Drainage Systems (ADS), which is the largest plastic recycling company in North America. ADS recycles polyolefins, including huge volumes of colored HDPE, into drainage and septic products.
In a call with investors Aug. 4, Scott Barbour, president and CEO of ADS, said the company has raised prices for its piping products. In March, ADS raised prices largely due to high diesel and transportation costs, Barbour said. The company is still reaping the benefits of this price increase, although it is expected to stabilize through the rest of 2022.
“We all have to keep our fingers crossed that we’re going to get some fuel price relief that’s not a severe recession. We want strong economy and cheap fuel, but I don’t know where to find that. – Scott Saunders, Managing Director of KW Plastics
Casella Waste Systems, the fifth-largest publicly traded waste collection and recycling company in North America, measured by total revenue, fully offset higher fuel costs in the second quarter by charging customers fuel recovery costs, CEO John Casella said on a call with investors. .
Of course, Casella also relies on other companies to move the material for her.
“We clicked a lot of thresholds in third-party carrier contracts and started collecting quite significant surcharges from third-party carriers in the first and second quarters,” Casella said. In response, the company began collecting fuel surcharges at transfer stations in June, allowing it to pass these surcharges on to Casella customers.
Others were able to spare their customers higher prices by employing other mitigation strategies.
Michigan-based recycling company Schupan & Sons, which handles plastics, beverage containers, scrap metal and electronics, has its own fuel tanks at its facilities in Kalamazoo, Michigan and Elkhart, Ind., has said Gary Curtis, president of the company’s industrial recycling division. .
Possession of the tanks, used by the industrial metallurgy division and the aluminum and plastics commercial division, enables the company to sign fixed-price contracts for the delivery of quantities of fuel by tank. Curtis said he was able to lock in 2020 low fuel prices through 2021, he said.
He was unable to extend these low prices into 2022, however. This is where his other strategy came into play: using futures contracts to hedge price risk. Curtis said the company had previously used futures trading to hedge aluminum price exposure, so it was able to apply the same strategy to fuels.
“That’s another way I mitigated that risk,” Curtis said. This allowed it to protect Schupan and Sons from the risk of rising diesel prices for the rest of 2022.
“As long as we are able to mitigate our risks, our customers benefit,” he said.
Alternative fuel possibilities
Some farms have been able to protect themselves from fluctuating diesel prices by switching to alternative fuels. The city of Tacoma, Washington is one of them.
The city’s solid waste department switched to compressed natural gas (CNG) three or four years ago and now operates more than 20 trucks to transport garbage, single-stream recyclables and organics from homes and businesses, said Preston Peck, who leads the Recycle Reset. project in the service of the city’s environment. These trucks get their fuel at a city-owned CNG refueling station that opened about a year ago.
Peck said CNG costs to the city have remained “super stable,” in the $20,000 and $26,000 per month range, unlike fluctuating diesel prices. The department’s fleet manager ran some numbers and determined that if the city still used diesel trucks when prices were between $5 and $6 — they’re currently around $5.50, according to federal data — then the city would spend about $100,000 a month. diesel for its trucks.
“It’s a big cost saving for us and a better environment,” Peck said.
“It turned out that we made this transition before it all started,” he added.
“We crossed a lot of thresholds in third-party carrier contracts and started seeing some pretty significant surcharges imposed on us by third-party carriers in the first and second quarters.” – John Casella, CEO of Casella Waste Systems
Garbage and recycling fleets across the country switched to CNG for many years, so it’s not particularly new – although diesel fleets currently want to buy CNG instead.
For example, in its latest sustainability report, Waste Management, North America’s largest waste collection and recycling company, reported spending $2.5 billion on CNG vehicles and $550 million in supply infrastructure. At the end of 2020, more than half of its fleet was on CNG.
What is more recent is the push of electric collection trucks.
Gragnani said DSNY is testing the use of all-electric collection trucks and street sweepers, with plans to gradually expand the fleet.
Although initial experience with these vehicles has been positive, the transition will take years as we also need to equip our facilities with the infrastructure to charge these vehicles,” he said.
Others have already ordered electric vehicles, but deliveries are being delayed due to widespread supply chain challenges.
Saunders noted that the late availability of electric vehicles means businesses are essentially locked into the modes of transport they have. And even if electric trucks arrived tomorrow, they would require years of retraining a workforce of mechanics used to working on diesel engines, he said.
“So that’s another huge hurdle to get over,” he said.
A version of this story appeared in Resource Recycling on August 8.