April 25th, 2014

It pays to think about trade waste

by Peter Jones

 

What’s top of most local authorities’ priority lists at the moment? The cumulative effects of successive cuts to central government funding are bound to put budgetary concerns right up there. So why do so few councils closely scrutinise the budgetary performance of their commercial waste service?

Around 70% of councils collect commercial waste. Their services come in all shapes and sizes, with a few amounting to multi-million pound operations. Some run dedicated rounds for commercial waste; others co-collect it with their household rounds. But all provide local businesses with a useful service that helps them to meet their waste management obligations – and contribute to keeping shopping streets clean and tidy.

 

Information underload

However, commercial waste can be the Cinderella of the waste department. It may be run by committed and organised teams, who strive to deliver a high quality service. But when a domestic waste vehicle breaks down, a commercial waste vehicle can be scrambled to fill the gap, throwing the day’s collections into confusion. Although businesses don’t pass judgement at the ballot box, unlike householders they can vote with their feet and choose another provider. Every time that happens, it costs the council money.

Whatever the wider benefits, one thing every commercial waste service should do is cover its costs. Yet a surprising number of the councils whose services I’ve reviewed haven’t had a clear picture of their finances. It has taken a bespoke modelling tool and a lot of work collating data from the waste, finance, IT and purchasing teams, to pull together all of the information needed to give a commercial overview.

Common issues I’ve found include:

  • Hard to manage customer records, often held on a spreadsheet
  • Incomplete records of contracts and duty of care documents
  • A lack of information about whether customers have paid or not
  • Little information about some key costs, such as the capital cost of vehicles and the amount of central overhead attributable to commercial waste.

 

However interested the commercial waste manager may be in whether the service makes money (they may have enough on their plate just keeping the service running smoothly!), gathering and analysing the necessary data will be challenging. The issue is exacerbated if there’s little management focus on commercial waste. That said, misguided attention can be more harmful than benign neglect – for example, from time to time there may be a sales “push” to draw in new customers. But if you’re unwittingly losing money on each bin you collect, more turnover could just mean bigger losses.

 

Price pointers

With austerity biting, councils can’t afford to run commercial waste services this way in an increasingly competitive and sophisticated market. One option is to sell the service, but Biffa’s recent low cost acquisition of PHS seems set to depress trade waste business values for some time to come. To stay in the market, a clear understanding of the cost drivers for waste collections is essential, together with a smart approach to pricing.

Many local authorities have an egalitarian approach to prices – by and large they charge all customers the same price for emptying a certain size of bin. That may be admirably straightforward, but it doesn’t reflect their costs. A remote, rural business will take more time to drive to than one of many on an industrial estate – so collecting a small bin from distant location each week is likely to be a loss-maker, while the standard price may be too high to attract the cheaper to service customer. Still more commonplace is the impact bin weights. As Landfill Tax has driven up disposal costs, the weight of a refuse bin has become the single biggest component of the collection cost. If disposal costs £100 per tonne, then every kilo of waste costs 10p to get rid of. Under a single price model, customers with light bins are effectively asked to subsidise the heavier ones.

 

DSC_0188crop

Trade waste can be wheely heavy work. Photo by permission of Peter Jones

 

At least, that’s how it would work if the council was the only contractor in town. In practice, it isn’t difficult to work out which businesses are likely to have light bins. Rival collectors with a better appreciation of cost drivers and a more flexibility on prices may be able to offer these customers a better deal. The council will be left with more customers with heavy bins, on which they will make little money or even a loss. As the average weight of the bins it collects goes up, the council may have to increase its price to cover its costs, opening up further opportunities for competitors to undercut them.

Over time, the least sophisticated waste collector in town should end up holding all of the heavy bins, and making no money…. Councils need to make sure they understand their costs to avoid falling into this role.

 

Look before you TEEP

Only one question about their commercial waste service should concern a council more than “does it cover its costs?” That is: “does it operate lawfully?” Councils are increasingly aware of and concerned about the implications the Waste Framework Directive: the phrase “TEEP” is muttered darkly, as officers wonder whether they will need to change their approach to household waste collection in order to meet the requirement to separately collect glass, metal, paper and plastic from 1st January 2015. Few have yet thought about the implications for their commercial waste service.

The new requirements regarding separate collection could be particularly significant in commercial recycling, where the great majority is collected commingled. Local authorities are in a significantly different position from other collectors – having grappled with the requirements of the law for their household collections, they will have in place the vehicles and material contracts to handle whatever wastes they deem it necessary and practicable to collect separately.

This may be an advantage – it will mean that, compared with their competitors, it will be far more economical for local authorities to introduce any separate commercial waste recycling collections that they decide are necessary to comply with the law. However, this could prove to be a mixed blessing. Conventional wisdom is that businesses prefer the simplicity of dry mixed recycling collection. But the law could mean that some local authorities must introduce separate collections because it is ‘economically practicable’ for them to do so; whilst competitors, who can argue that it wouldn’t be practicable, need not.

It’s surprising that councils haven’t pushed local business harder to take up recycling services. Some don’t even offer a commercial recycling service, and I’ve yet to encounter an example where recycling is a large share of turnover. Yet moving recyclables out of the residual bin is one of the best ways to save customers money. Best of all, the saving doesn’t come at the collector’s expense. Some councils may need to look for exemplars that have made separate recycling collections attractive if they are to maintain market share and be legally watertight – but all commercial waste collectors will be navigating new territory from 2015.

Despite the challenges, commercial waste remains a rare relatively uncontroversial way in which a local authority can make a surplus. Many small businesses think of their local council as a trustworthy first port of call for waste collection; an important competitive advantage. It’s up to councils to take a commercial view of their commercial waste services to make the most of this opportunity.

 

Peter Jones

 

Peter Jones

 

This article also appears in the current edition of Local Authority Waste and Recycling magazine.

 

Google

12 comments on “It pays to think about trade waste

  1. Phil Conran on said:

    Hi Ian
    My view was that the Directive was aimed at BOTH increasing recycling and improving the quality of collected materials. And very definitely ‘to enforce recycling collections where non previously existed’. Scotland has imposed that as clear law, but in England, with no definition of TEEP in relation to the need to collect separately and no guidance on the position where a waste collector offers separate collection but the waste producer refuses, it leave a very muddled position. Should the waste collector then refuse to collect the waste as in theory, they are contravening the regulations unless they can demonstrate this foggy TEEP get out?

  2. Ian Quigley on said:

    Hi Peter,
    I am struggling to understand the regulations, as you say the producer and collector responsibilities do not match up.
    More importantly surely the whole point of the regulations was to improve the quality of recyclate as collected, not to enforce recycling collections where non previously existed, the regulations specifically address the situation where a collection of dry recyclates take place. this legislation will therefore increase costs to both producer and collector at a time of difficult financial constraints and further add to bin blight across urban area’s

    • Peter Jones on said:

      Hi Ian,

      I agree with Phil’s comment below; the law applies to all those who collect the four materials, whether for recycling or just as part of the residual stream. It requires that the four materials should be collected separately from (a) non-recyclable waste and (2) one another. However, the necessity and practicability tests can be read as applying to both of these meanings of “separate”.

      If the increase in your costs that you foresee would be unaffordable, that would presumably make it fail the test of economic practicability. However, presumably you’d pass those costs on to the client – so it will come down to what they are prepared to pay for – and equally importantly, what the competition will offer. There’s no simple answer to this – but provided that you’ve made a reasonable assessment of your position and acted on the results, you should be in a decent position to demonstrate compliance.

  3. Phil Conran on said:

    Surely the biggest challenge for commercial waste collectors is the lack of quantifiable criteria for TEEP in determining whether a business should have the materials collected separately from residual waste at all? If a shop is having its cardboard collected separately, but puts all its plastic into the general waste bin, who determines whether that is breaking the law and by what criteria? Difference in cost? Extra vehicle movements?

    • Peter Jones on said:

      Hi Phil,

      I understand where you’re coming from, but I’d be concerned that any simplistic “rule of thumb” type criteria might be more trouble than they’re worth. As regards your example, remember the separate collection law applies to collectors, not producers of waste – although your hypothetical shop could be in breach of its waste hierarchy obligations.

      It’s not clear that a collector could use the fact that it would have to charge more for separate collections as a reason not to at least offer them. Extra vehicle movements are a consideration – but would have to be set in the context of the overall environmental costs and benefits of separate collection.

      As the CRR judicial review last year made clear, decisions about what is “reasonable” or “practicable” need to be made locally, based on the particular circumstances. In the absence of Defra guidance, I think our best hope of a useful steer for commercial waste producers and collectors is that the Environment Agency will need to make public the thinking it will apply when it considers enforcement action – but I’m not holding my breath for that. With its limited resources, I’m sure it will only be when someone demands the Agency to make an enforcement decision under Reg 12 or 13 that we might see it start to pull together some enforcement principles.

      • Phil Conran on said:

        That’s an interesting distinction. The 2012 Amendment states that ‘Subject to paragraph (4), an establishment or undertaking which collects waste paper, metal, plastic or glass must do so by way of separate collection.’ Whilst this does not place the burden on the waste producer – which should come from the Reg 12 and the waste hierarchy although not specifically related to the 4 materials – it does say that they ‘must’ collect separately if TEEP. So we come back to the problem of criteria to define TEEP and the basis for enforcement. Is the shop in contravention of Reg 12 because it won’t accept a higher cost for getting its other recyclables collected and is the collector then in contravention of Reg 13 because they aren’t collecting the plastic separate to the residual waste?

        • Peter Jones on said:

          The whole thing is pretty ill thought through when it comes to trade waste – the obligations on collectors and producers don’t match up; economic practicability for collectors doesn’t seem to take account of the propensity of producers to pick the cheapest deal; and it gets really tricky if some collectors deem separate collection practicable and others don’t (thereby gaining a competitive advantage).

          Whilst I’m pretty sure that on a strict reading, the law would require a good deal more separate collection of commercial waste to be at least offered to producers, I’m rather less than sanguine about the prospects of meaningful enforcement – giving little incentive for anyone to change.

  4. Paul Morgan on said:

    Surely practicability for commercial customers is completely different from practicability for household collection services. TEEP needs to be assessed on a site-by-site basis I would argue as “technical practicability” also relates to space to accommodate bins – as a result co-mingled, single bin services will have an advantage (indeed as a single residual waste bin may be more practicable than a single co-mingled bin PLUS residual bin).

    Just a thought…

    Paul

    • Peter Jones on said:

      Thanks for your comment, Paul – but I’m not sure I agree with your analysis. The concept of co-mingled collection being “more practicable” doesn’t really come into the law as I understand it. The question is whether separate collection is necessary and practicable. If it is, then it is legally required. Clearly, it could be tricky for businesses to find homes for four separate recycling bins – but it might well be practicable to accommodate a 240 or a 360 for their most frequently arising recycling stream, and to use sacks for other streams.

      I think it is more likely that collectors might argue that either (a) separate collection is not necessary because commingled collection yields satisfactory quality recycling, or (b) there is no practicable configuration of vehicle that will allow for separate collection of the four recycling streams. It will be interesting to see what happens from January 2015.

  5. Shlomo Dowen on said:

    Due to the way waste PFI and similar contracts are designed, in my understanding, Collecting Authorities could be competing with their own Disposal Authority’s contractor. As the Disposal Authority’s contractor sets the cost of disposal that Collecting Authorities must pay (and as the Disposal Authority has powers of direction that could in theory be used to force the Collecting Authority to do as the Disposal Authority dictates), things seems rather stacked in favour of the Disposal Authority’s contractor.

    As an illustration, Mansfield District Council competes with Veolia for commercial (trade) waste contracts. Because Veolia is Nottinghamshire County Council’s contractor, Mansfield has no choice but to send any trade waste it collects to facilities run by or on behalf of Veolia. Veolia sets the price that Mansfield District Council must pay. Veolia also sets the prices it charges to Mansfield’s businesses. So what stops Veolia from undercutting Mansfield District Council for trade waste servicesoffered to businesses in Mansfield?

    • Peter Jones on said:

      Hi Shlomo,

      I’m sure the risk of undercutting exists – but in my experience, the collection and disposal arms of large companies often work quite separately, with separate financial incentives, so you might be surprised at the extent to which competing collectors can obtain a decent deal for disposal.

      Peter

Leave a Reply

Your email address will not be published. Required fields are marked *

*

HTML tags are not allowed.