May 24th, 2012
by Peter Jones
There is a fundamental misalignment at the heart of how commercial waste is managed in the UK. It distorts the market, reduces price transparency and acts as a deterrent to waste prevention and recycling, yet there seems to be little appetite to change it. It seems incomprehensible – but let’s try to understand the reasons and whether a different paradigm may emerge.
If you want to get commercial waste collected, almost every contractor you speak with will offer a price based on the volume of waste you produce. Do you need an 1100 litre bin, or a 660? How often do you need it collected? The answers will more than likely determine what you pay.
Pack it in
When disposal was cheap and weighing bins was difficult, this approach made sense. The majority of the cost of waste collection arose from the vehicles and crews, so what mattered was how quickly the vehicle was filled up – high volume customers were high cost.
As landfill tax has escalated, disposal has come to represent an increasing share of the total costs of a waste management business – I would estimate around a third as a rule of thumb, although for those with cheap vehicles or low overheads it may be as much as half. Disposal costs are driven by weight, with charges and tax being levied by the tonne.
A straightforward “pay by volume” system is blind to weight. In practice, a responsible contractor will look at the waste a potential new customer produces before they take on the work. They’ll perhaps point out the opportunity to save by recycling and may look to charge a premium if the bins are particularly heavy – but that’s about as sophisticated as it gets. A less responsible waste collector may sign up a customer with heavy bins at a low price and then ramp up the charges, although a recent case against PHS Wastetech with any luck marks the beginning of the end for this practice.
The heavy bins tend to end up with the least commercially savvy player in town, who will offer them the standard volume-based price without taking account of the disposal costs. All too often that can be the local authority.
Adjusting the volume
The volume-based system is proving remarkably tenacious, and I think I understand why. Foremost, it delivers predictability. Even those who would benefit from adopting “pay as you throw” may be put off by variable pricing. Volume based charging makes customers pool the cost of disposal, which means those with the lighter bins subsidise those with the heavier ones. But at least everyone knows what they will pay each month. It’s the same reluctance we see to move onto water meters instead of standard charges, even where people can save by switching.
The ease with which those with heavy bins can get a cheap, volume-based price is making it difficult to increase recycling, especially of dense material like food waste. In a mixed waste bin, the food tends to occupy the gaps left by other, rigid material. It is heavy, but adds very little volume.
A business that separates it out will have to pay for a food waste collection, but is unlikely to seem much of a reduction in the volume of residual waste it produces. Gate fees for composting and anaerobic digestion may be lower than for landfill, but under volume-based charging it remains cheaper for businesses to mix food waste with other material in the residual bin.
Because waste disposal still isn’t a big cost for most small and medium sized businesses, few invest time in shopping around for the best price. Consequently there’s little commercial advantage for a waste business in bucking the trend. A waste collector that moved to weight-based charging can’t expect to quickly reap the benefits by attracting the customers with light bins away from its competitors.
Chip and bin
Perhaps, then, it isn’t surprising that change has been slow to come, even though the technology for weight-based charging is well developed – bin lifts that weigh what they pick up, and RFID tags that enable the reading to be automatically attributed to the customer. While local authorities may often be the ones left holding the heavy bins, they are also the pioneers of this pay as you throw technology. According to a WRAP guide to commercial waste collection, Peterborough City Council already charges for commercial waste collection by weight – although it is interesting that its website doesn’t mention this.
Peterborough’s reticence about their innovation, despite its potential to benefit all those with lighter than average bins, highlights the problem. Waste collectors don’t yet feel they can persuade their customers of the advantages of pay as you throw. Doing so is not yet business-critical to anyone, and from a marketing perspective it remains easier to sell the tried and trusted volume based approach.
But I suspect that a change will come. It won’t be driven by price pressure from customers – I can’t see the small savings achievable being sufficient motivation. Instead, it will be caused by one of two things. Government may start to properly enforce the pre-treatment regulations, requiring more separation of materials. Heavy food waste could then no longer be leavened with light plastics, bulk densities would become more predictable, and being charged by weight or volume would make less difference. But the shorter wait may well be for a tipping point to be reached in waste collectors’ business models, when disposal becomes the biggest cost. When this happens, the imperative to charge by weight may at last become too strong to ignore.