Between dealing with a pandemic and slowed economy, more employees working from home, a new presidential administration and a change of power in the Senate, the waste and recycling industry has been forced to adapt to constant change within the last year.
To understand the state of the industry as we move through the first quarter of 2021, Waste Today reached out to Darrell Smith, president and CEO at the National Waste and Recycling Association (NWRA); David Biderman, executive director and CEO at the Solid Waste Association of North America (SWANA); Michael E. Hoffman, managing director and group head diversified industrials at Stifel; Institute of Scrap Recycling Industries (ISRI) Chief Economist and Director of Commodities Joe Pickard and ISRI Chief Lobbyist Billy Johnson.
Waste Today (WT): Can you discuss the impact that COVID and the larger economy might have on the waste and recycling industry in 2021?
Smith: The waste and recycling industry responded quickly to challenges brought on by the global COVID-19 pandemic. NWRA worked with federal, state and local governments to ensure that waste and recycling collection could continue. In the early days of the pandemic, as many Americans began to work from home, residential collection rose, and commercial collection declined.
While the waste and recycling industry faced challenges in 2020 and continues to face them even now, our service-based sector is more resilient than many other sectors in the broader economy. The industry reacted quickly to changes early during the pandemic addressing requests for pauses in service as the industry worked with their customers.
One bright spot over the past year has been the recovery of recycling commodity pricing. Fiber prices have experienced steadily increasing prices and natural HDPE hit record high prices. And, while many struggled over the past year, the ongoing worldwide shortage of shipping containers suggests that the waste and recycling industry will need to handle additional materials in the future.
Biderman: COVID will continue to have a substantial impact on the waste and recycling industry in 2021, particularly during the first half of the year. Many Americans continue to work from home, and many schools and offices remain closed. This means continued elevated levels of residential waste, and decreased commercial waste. Unlike spring 2020, when SWANA estimates that residential waste and recyclables were 20 percent above normal, we believe current levels are about 5 to 10 percent above normal. As more Americans get vaccinated, schools and offices will reopen, people will feel more comfortable traveling again, and waste levels in both the residential and commercial sides of the industry will normalize even further.
Some solid waste companies have been hurt by the decline in commercial volume. There may be acquisition opportunities for well-financed companies to acquire some of these smaller haulers.
Hoffman: When discussing the pandemic and its impact on the overall economy, it really comes down to what political choices were made regionally on a state/local level—what was shut down; for how long; and once open, were these businesses allowed to stay open even with varying degrees of restrictions coming on or off? If an economy is open, then commercial solid waste services are necessary.
The initial impact looks like a wave of lost business in the commercial and permanent roll-off markets. Suspending service looks like a “cancel” purely from an accounting standpoint. The immediate response of the service providers was to rein in costs … and rationalize assets—and do it quickly. The evidence shows that it did happen quickly, with little or no disruption of service overall. As customers reopened, that looked like new business growth on a leaner cost structure.
Exiting 2020, down volumes will reflect what is not open or only partially open, and most service interval changes happened at the point of reopening. Operators have retained some of the time/cost savings with weight-based volumes coming back as business recovered. Pricing leverage remains in open markets with core prices expected to be in the 4 to 6 percent range and reported price between 2 and 4 percent.
Residential trends were different as work-from-home mandates resulted in behavior changes early on with panic buying resulting in perishables being discarded and more home projects being done, leading to a lot of extra volume at the curb. That immediate bump settled into a sustained increase in cart weights of 5 to 7 percent on average, much of which cannot be recovered immediately based on contract language.
Pickard: In the second quarter of last year, we saw a significant contraction in the U.S. economy. The health of the U.S. economy, manufacturing and the scrap industry are all closely connected.
Already this year, we see a resurgence in commodity pricing, especially for metals markets. Commodity prices have been trending higher on the back of positive manufacturing reports from China and the major developed economies, which generally bodes well for scrap demand. Additionally, the markets responded positively to the U.S. elections results. Manufacturing Purchasing Managers’ Index (PMI) reports are signaling continued growth ahead, albeit at slower rates than previously reported.
For recyclers, capital investments and other efficiency gains have lowered certain risks due to COVID, but supply constraints, labor shortages, transport/logistical hurdles, regulatory costs, and trade restrictions are all still uncertain.
Looking at potential opportunities, rising societal concerns about sustainable development, environmental protection and climate change increasingly reinforce recycling’s critical role in conserving natural resources, reducing energy costs and greenhouse gas emissions, and preserving low-cost raw material inputs for our manufacturing industries.
WT: Can you discuss the impact that the Biden administration (and democrat-controlled Senate) will have on the waste and recycling industry in 2021 and beyond?
Smith: We anticipate there will be a number of bills that address recycling, PFAS, infrastructure and plastics introduced in Congress. Democrats have a small majority in the House, and the Senate is split 50-50 with Vice President Kamala Harris having the tie-breaking vote as president of the Senate. The makeup of the Senate means that Democrats may need greater support from Republicans to move bills.
The new administration has taken a number of immediate steps with respect to reviewing various regulations that [were enacted or enforced] during the last administration and recommitted to the Paris Climate Agreement. The industry is eager to work with the new administration as they work to enact their policy goals.
Biderman: The Biden administration faces multiple crises. We have the pandemic, the economic downturn, the aftermath of the attack on the Capitol—including a likely trial of former President Trump in the Senate—and continued racial and social strife in the United States. These will be the top priorities for both President Biden and Congress. Addressing immigration reform and improving Obamacare are also top priorities. These issues will almost certainly consume most of the legislative and regulatory bandwidth in 2021, and possibly beyond.
Climate change and environmental justice are the two key environmental issues that the Biden administration will focus on, at least initially. The legislative and regulatory actions taken will likely impact the solid waste and recycling industry, and SWANA will be working with congressional leaders, EPA and others to make sure the industry’s voice is heard. Federal regulations usually take years to be issued, so I would be surprised if major action is taken in 2021.
Hoffman: With the Senate split 50:50 and the House 222-213, the centrist Democrats in both chambers will limit the scope of tax changes, court-packing and other aggressive progressive policy initiatives. The Biden administration will be very focused on climate issues, but may be limited to executive orders to accomplish its agenda. Solid waste will not see any meaningful regulatory changes. PFAS is likely to get a federal maximum contaminant level (MCL), and solid waste is part of the solution managing PFAS as it cycles through the economy.
Johnson: Over the past several years, recycling has gained more and more of the public’s attention partly as a result of the public’s awareness of marine plastics and China’s discontinuation of imports of municipal recyclables.
In the 115th and 116th Congresses, there were numerous recycling bills introduced, primarily focusing on residential recycling. However, most of the proposed legislation does not address helping create and sustain markets for these materials. Without markets, we don’t have recycling.
We anticipate the Biden administration and the 117th Congress will continue addressing recycling, especially residential recycling. Moreover, recycling has become more and more bipartisan as lawmakers have found common ground towards addressing some of the challenges faced by recyclers.
ISRI believes the RECYCLE Act directly addresses the problem of residential recycling quality by educating citizens on what to recycle and what not to include in their recycling. The legislation enjoys bipartisan support in both Houses.
ISRI feels that recycling legislation should focus on two related areas: quality and markets. Without markets, recycling does not occur. And quality makes markets by delivering an alternative to virgin materials, and as a result, helps address climate issues and the environment.
The Biden administration and Congress have clearly indicated that climate will be a top priority. Recycling is one of the best ways to address climate by conserving energy and natural resources.
The Biden administration and Congress have also indicated that climate will be an integral element in infrastructure. Recyclable content should be a priority in these infrastructure projects as that will help satisfy these environmental, sustainability and climate goals. Using recycled content also helps create markets and drive demand for these materials.
We look forward to working with the Biden administration and the 117th Congress to help advance recycling.
WT: Any other trends or focal points of attention you’re looking at for the waste industry in 2021?
Smith: We will continue to be engaged on issues surrounding COVID-19. We are also committed to safety. According to the BLS, we are the sixth-most dangerous occupation. That’s down from fifth. Earlier this year, we made NWRA’s Safety Monday guidance, [which contains safety-related educational resources], free to those who register for it, and we will continue to work to make our industry safer.
Biderman: SWANA will continue to work with the EPA on finalizing its National Recycling Strategy. I expect the Biden administration EPA may be interested in a more aggressive approach to recycling, and we will be having conversations with the new appointees in the coming weeks. I also expect activity on PFAS, including a proposed MCL under the Safe Drinking Water Act, and the possible designation of PFAS as a hazardous substance under the Superfund program.
A trend that will continue in 2021 will be a high level of mergers and acquisitions in the industry: All of the larger companies have strong acquisition pipelines, and some owners of hauling companies may be looking to exit the business.
Hoffman: M&A is likely to return to its normal course in 2021, generally. [This is more] company-specific regarding deals [that may have been] long under discussion. Price and volume should be positive, with volume starting out negative but quickly swinging positive as the year over year comparisons ease. Capital spending should be relatively normal with the mix slightly more toward rolling stock than disposal. If household formation remains strong, then new business formation could provide an added volume kicker late in 2021.