Geoff Sampson, associate director at AMEC, explores the financial drivers influencing the selection and provision of commercial waste management services and a potential move to “pay-by-weight”
Published in the CIWM Journal November 2013
The market for commercial waste collections is complex and competitive. National service providers compete directly with regional operators and local authorities. Brokers also operate in this space, applying commercial models incorporating management fees, open book reporting and/or sharesave agreements. Private sector operators seek to maximise route density – the number of customers/lifts they can make per round – aligning services with the evolving availability of treatment facilities.
Waste producers are faced with limited pricing transparency, increasing waste disposal costs and variable collection charges. This, combined with historical charging on a volume basis, rather than the weight lifted, hinders customers in making informed value-based decisions. This article explores some of these conflicting issues and provides an insight into how service charging may evolve as the economics of recycling over disposal improve. It also references work undertaken by AMEC for WRAP over the past year, learning gained from studies helping local authorities re-engineer their commercial waste services so that they are recycling-led (rather then dominated by residual waste lifts) and support delivered to businesses in the specification and optimisation of their commercial waste management.
For a long time customers of commercial waste collection services, especially SMEs, have been happy with low-hassle waste services, commonly based on the lift of a single (general waste) bin. Waste costs have historically represented a relatively low business overhead and have not justified any significant investment in time.
Proactive waste producers and service providers have supplemented such services with dry recycling collections and/or recovered target materials from general waste through investing in sorting at waste transfer stations and MRFs. This is largely in response to environmental commitments (with recycling often the first associated action) and landfill tax increases. These increases have created a marked price difference between options further up the waste hierarchy, where positive values for common waste streams exist. With landfill disposal now approaching £100 per tonne and common business waste streams, eg paper, card, plastic and metal packaging, attracting positive market revenues, the economics of business recycling should stack up – the challenge is finding the right configuration of collection services for individual businesses that enable this value to be realised. The historic “single bin” model clearly represents a lost opportunity.
AMEC’s recent WRAP-funded work with a number of local authorities interested in expanding the commercial recycling services they provide (including the Dorset Waste Partnership, Down District Council and Powys County Council) has identified a common disparity between the numbers of customers taking up recycling services alongside residual waste services. This may be due to those businesses subscribing to services from other operators but, in many cases, it demonstrates the scale of the opportunity. AMEC’s wider research indicates that the number of residual waste collections outnumbers recycling collections by around 4:1 across local authority services.
The Economic Argument
Despite the positive market value of much of the material making up business waste, the economics of making a new recycling service pay depends on building the customer base quickly with the right sorting infrastructure. This remains a challenge for cash strapped councils where the “invest to save” argument has to be solidly made, and where the ability to operate similar commercial models to those in the private sector, eg with incentives for early uptake, can be limited.
At present, market rates to lift a commingled recycling bin typically range from nine to 30 percent lower than the equivalent residual waste bin. However, the economic argument is increasing; through support AMEC has provided to one major national plc procuring a new waste services contract, we have seen their recycling lift charges reduced to almost half those for residual waste. Despite this trend, unless the waste producer can rationalise their residual waste service, eg through provision of a smaller bin or reduced frequency of collection, adding new recycling services (such as for food waste) can still result in higher overall costs. Unless customers and service providers understand – and then optimise – what is being lifted, opportunities to reduce costs may be missed.
When considering the introduction of commercial waste recycling services, it is important to understand waste composition and the impact of weight versus volume when specifying services, as Figure 1 (below) shows. This affects the optimum container mix that a customer may require. Putting this into context, for a hospitality business taking up a food waste collection, its residual waste bin would become 45 percent lighter, but only contain nine percent less waste by volume. That small reduction in volume may mean it is difficult to reduce the size of the residual waste container and/or reduce the frequency of collection, so opportunities to reduce waste management costs (overall) are limited.
Removing the dry mixed recyclable fraction from the residual waste bin would make it 29 percent lighter but release over 54 percent of the volume. This means the business could potentially halve the size (or collection frequency) of the residual waste bin when introducing a recycling collection. WRAP has undertaken and published research specifically on this topic. “Food Waste Collections to SMEs: Developing the Business Case”, which is available online (see end of article).
The current situation where recycling performance and landfill tax operate on weight, but services are typically paid for based on volume (£ per lift) contributes to the challenge. Therefore, with outlets generating high bulk density streams that are recycled, a pay-by-weight model could generate commercial benefits. For service providers, high collection costs on new services such as food waste, where commercially viable route densities take time to establish, remain an issue.
Improved Weight Data
Many businesses and service providers are misreporting the true amounts of waste being produced/managed through a lack of validated data. Recognising these issues, WRAP initiated a study in 2012, delivered by AMEC. The aim was to research material bulk densities for commercial wastes and to determine the feasibility of developing tools to help local authorities apportion these wastes where they are co-collected with other materials (eg household waste).
With a project steering group comprising government, regulators, local authorities and private sector waste management companies, the output (to date) has been the launch of a spreadsheet tool targeted at local authorities (but with wider industry applications). This records lifts made over time and converts them to weights, using a consistent and validated set of apportionment factors for the full range of material streams and commonly used container types in collection services. The benefit to users of this tool (available at www.wrap.org.uk/la-apportionment) is improved confidence in weights attributed to reported lifts, helping inform reporting on performance and future pricing strategies.
What Does The Future Hold?
The costs of waste disposal will undoubtedly continue to rise, as will the focus of commercial waste producers on what they throw away and whether their existing waste management services remain “fit for purpose”. The range of services available from public and private sector operators is evolving in response to market demands. Service providers that can offer integrated and efficient recycling (potentially including food waste) alongside a residual waste service will be best placed to help businesses optimise their arrangements and deliver high performance at lowest cost. It is likely that such changes may come about through greater use of multi-compartment vehicles, collecting streams on a single-pass.
Crucially, the technology exists to support a transition to “pay by weight” collections, but this is largely driven by market demand rather than service provider push. Such a transition would help deliver the quality of data that is needed, but it has to be recognised that the capital investment per vehicle (£10 000-£15 000) needs to be raised through charges levied. A number of national and regional waste service providers have acknowledged that the benefits outweigh the costs and are rolling the technology out across their collection fleets.
Although the market for commercial waste collections is complex and highly competitive, there are a growing number of financial drivers that are likely to bring about beneficial change in the years ahead. Much of this may be about increasing pricing transparency and information availability, allowing customers to make more informed value-based decisions… and with these changes we may see more enlightened waste service providers offering real opportunities for parties to enter into contracts with shared incentives to increase performance and add value to the entire waste hierarchy.
Food Waste Collections to SMEs: Developing the Business Case is available at www.wrap.org.uk/la-business-recycling-guidance. Geoff Sampson is an associate director at AMEC with responsibility for overseeing its waste collection, recycling and policy services business areas.