Since the onset of the coronavirus pandemic, shock waves have been felt throughout most major industries in the United States. This has been true in the recycling sector, where challenges such as transportation constraints, suspended operations and shifts in product demand have created unprecedented disruptions for recyclers.
While the pandemic has introduced a wave of complications for recyclers, it also has highlighted existing susceptibility within current business models.
“The bigger financial impact [on the recycling industry] really predates the COVID-19 pandemic, [largely] because you took the bottom out of the economic model,” says Michael E. Hoffman, managing director for the St. Louis-based investment bank Stifel.
With the U.S. recycling market still recovering from the aftermath of China’s Operation National Sword in 2017, the industry was left with limited domestic markets and insufficient infrastructure.
Hoffman says that because the prevailing business model in the industry was built around commodity values, when those values declined considerably, cost structures collapsed.
Material recovery facilities (MRFs) across the nation have been working to process their materials more efficiently. Many MRF operators have automated their processing systems to increase sorting efficiency and material purity. By pursuing early integration of automated sorting technologies, these companies were able to soften the blow of pandemic-related social distancing measures.
Hoffman says, “In order for recyclers to get to high quality at a reasonable cost … recyclers had to figure out how to improve their yields and lower their cost per ton. And how do you get there? It’s both operating uptime as well as line speed. So, can this go faster and meet quality standards?”
But some MRF operators and municipalities that struggled to find the cash to facilitate these upgrades were left vulnerable to COVID-19 aftershocks. Additionally, given staffing shortages, low market prices for commodities and cheaper alternatives available for disposal, some municipalities and local hauling companies temporarily suspended the collection of recyclables.
The pandemic also has reduced tax revenues for municipalities.
“The pandemic has really impacted tax revenue,” says Cody Marshall, chief community strategy officer at The Recycling Partnership, Falls Church, Virginia. “A large majority of programs in the country are funded through local government taxes and fees, so when those local taxes and fees are pinched for a number of reasons that the pandemic is creating, it’s going to impact recycling.
“And when you have less tax revenue, the need for health and safety at the local level is increased,” he continues. “[But] it’s an opportunity for local governments to look at their programs and find ways to find savings and automation to keep the programs running.”
Among the recycling programs that have experienced these effects is the Centre County Recycling & Refuse Authority (CCRRA) in Bellefonte, Pennsylvania.
The municipal authority, which manages waste and recycling collections for Centre County residents along with Pennsylvania State University, currently services 28,000 households and 62 drop-off locations with roughly 120 publicly accessible containers at those drop-off sites. Centre County also operates its own material recovery facility (MRF) and waste transfer station.
Joanne Shafer, the deputy executive/recycling coordinator for the CCRRA, says the authority made the decision early on to suspend curbside recycling collection for one month in April 2020.
“We are a curb-sort recycling program, which means the residents put their recycling out in a bin, and our crews come through and separate [the materials] into 11 different items curbside. So, they are handling each piece,” she says. “With the first positive case in our county and knowing that we had collected there that day, not knowing what we know now [about transmission of the virus], we suspended curbside [collection]. We then added 14 additional drop-off locations to service the customers that were suspended.”
Faced with the loss of staff and increased operational costs, Shafer says the CCRRA experienced significant financial impacts in relation to the pandemic.
“There was a lot of money spent in the early days on transportation, getting additional containers, overtime for personnel to go out on the weekends and collect them [and] personal protective equipment (PPE) and a loss of revenue because we didn’t charge our municipalities for that month,” she says.
While many curbside collection suspensions were temporary solutions to address pandemic-related budgetary challenges and initial transmission concerns, some municipalities have made the decision to dissolve their programs altogether.
This can be seen in areas like Starkville, Mississippi, where COVID-19 impacts, low participation rates and high costs led city officials to permanently suspend curbside recycling pickup Oct. 1, 2020—the start of the city’s 2021 fiscal year.
Prior to the suspension, Starkville offered voluntary curbside pickup to residents for a fee. That program was funded in part by a $25,000 grant from Mississippi’s Department of Environmental Quality.
“The curbside program was not well-supported by our community for whatever reason. Only 10, maybe 12, percent of our residents participated in the program,” says Starkville Ward 2 Alderman Sandra Sistrunk. “So, we were already starting to think [about] what we wanted to do with our recycling program anyway, since it was not sustainable at that point financially, and then the pandemic occurred,” she adds.
Starkville initially suspended curbside recycling pickup in March of last year to ensure the safety of the employees, as officials were concerned about contact spread of COVID-19, Sistrunk says. Starkville also formed an ad hoc citizen’s committee to look into solutions to the city’s already struggling recycling program.
Ultimately, officials decided the most cost-effective route was to move forward with only a drop-off program.
Under the city’s previously contracted curbside service, which was overseen by Houston-based Waste Management, Sistrunk says residents were paying $2 per month to participate. This monthly rate only generated about $24,000 per year in revenue, which paled in comparison to Waste Management’s annual fee of $60,000 to haul recyclables to Tupelo, Mississippi, for processing.
“We only have one revenue stream [associated with recycling], which was a monthly fee that generated a moderate amount of money,” Sistrunk says. “As hauling fees went up, we were faced with having to make a decision about how we were going to continue to operate a program that was not financially feasible and how could we do it in a way that met the needs of those people who wanted to recycle and did not harm other city operations related to that department.”
As for the CCRRA, the authority reported a financial loss of about $500,000 at the end of 2020 because of increased purchasing of PPE, lost revenue and additional labor hours. Shafer says the CCRRA’s annual budget is usually around $10 million, with $5 million of that allocated to payroll.
In addition to budgetary challenges, Shafer says trash and recycling tonnages were down by roughly 12 percent in 2020.
“Our fixed costs did not go down. In fact, they rose,” Shafer says. “The revenue from the sale of recyclables [also] was down a lot. We went from something like $2 million in sale of recyclables to a little over $900,000. So, the economic picture, while diverse, was diversely bad everywhere.”
To address the authority’s financial difficulties related to recycling, the CCRRA made the decision to raise rates. Tipping fees for municipal solid waste went from $70 per ton to $74 per ton, and tipping fees for recyclables went from $20 per ton to $40 per ton. The CCRRA also increased curbside recycling rates from $4.85 per month to $5.60 in 2020, eventually reaching $5.93 per month in 2021.
With the pandemic ongoing, though vaccination efforts have begun, The Recycling Partnership’s Marshall says the long-term trajectory for the recycling industry remains largely unknown. From budget deficits to changes in the residential recycling stream, some recyclers and municipalities are still adjusting to the changes introduced by the pandemic.
“We’re still looking at data from last year, but things to consider would be the amount of e-commerce that happened and, thus, the amount of paper that’s needed to [make new cardboard boxes],” Marshall says. “I think fiber is one thing that we’ll continue to look at in relation to the pandemic and how people change their habits, as well as how staying at home impacted that.
He adds, “Another thing that we’re looking at is how cardboard is coming out of the home more rather than retail because of the shift of people’s behavior.”
In terms of how likely MRF operators are to increase processing fees, Marshall says the approach is long overdue.
“This has been happening over the last few years, and the pandemic has definitely put a strain on processing. I’m not sure if processing fees will go up [solely] because of the pandemic but rather the ongoing market challenges that we’ve seen,” he says.
The Recycling Partnership has been examining how municipalities can better protect their recycling programs from market volatility. Marshall says this can be done by seeking stronger contractual agreements when renegotiating or going out to bid for new contracts. He adds that two major factors that can help municipalities and MRFs strengthen their contractual agreements is setting a tipping fee with revenue sharing and seeking out longer term contracts.