Facts And Strategy in Recycling Business: Part 1

Time to share some experiences about the export market and used electronics.  I've now spent more than a decade building the Fair Trade Recycling aspect of the business, and growing my companies (American Retroworks, Retroworks de Mexico, and Good Point Recycling) to be healthy and fully functional.  There is not as much strategy and trade secret to the business.

Commodity value of fiber = ?
In this Part I, we can see how electronics recycling is basically just like curbside recycling.  There are three key differences which we will explore in Part II.   Part I starts with simple and factual observations about the recycling business, and then wades into how government can or should involve itself in regulating that "waste" or "raw materials" business.

1.0  Similarities between E-Scrap and Consumer Recyclables:  

Like curbside recycling, the revenue comes from different grades of raw material which must be separated, graded, and cleaned to replace virgin raw material from feldspar mining (glass), smelting (metals), forestry (fibers), and refining (polymers).  Each of these products can be sold, at some stage, for cash, but they have drastically different values, grading, and transport requirements.

1.1  Commodity Value:  Glass is a bane for both curbside and e-scrap recycling, in that it's heavy, easily contaminated, distances to furnaces are enormous, virgin production is fairly simple and raw material - igneous, metamorphic, and sedimentary rocks all have abundant silica for feldspar mining.  Metals are easy to manage (magnets and eddy currents) and easy to sell, and the pollution from metal mining and smelting is colliding worldwide with growing population.  More people, with more money, want more things made of metal, and no one wants the smelters to impact their property values through pollution.  Even in China and India, the incomes and expectations have grown to where people are less and less tolerant of a lead-zinc smelter which spills noxious toxins into the rivers and water supplies.   Fiber is much more or a part of the curbside business, but the difference isn't as great as you'd assume when you look at the declining tonnage of newspapers and the huge volume of wood from console televisions, speakers and stereos which our plants manage.

1.2  Labor:  If all of the materials in a computer, tablet, TV or printer were pre-disassembled, you could run them down the exact same Mayfran sorting belt that you run curbside recyclables through.  Magnets and eddy currents can grab the steel and aluminum, blowers could separate the lighter plastics, shaker trays could get the small light pieces into a different direction than the big pieces.  But in every Materials Recycling Facility (or Material Recovery Facility*), labor is high.  You need humans to pick out and grade different raw materials.   You can add two people and further grade (glossy magazines from newspaper, for example) or one person and send the bales to a paper mill with easier tolerances.   But each laborer adds value.  The problem is when the value added by labor (e.g. sorting plastics by resin, paper by ink and clay content, green from clear and brown glass) produces less than minimum wage.   If you pay a woman $8 per hour to separate two tons of material and only make an additional $5 on the sorted material, you cannot afford her.  This labor-to-value dynamic is just as important in E-Scrap recycling as it is in collection.

1.3  Collection:  The distance between residents in a city and a countryside is a part of the cost of both recycling and waste collection.  The economics and competition between waste and recycling collide.   Since you cannot affordably recycle road kill, dirty sponges, spoiled food, wet tissue, many high heeled shoes and chicken skin (sorry Zero Wasters), you are committed to running the Waste truck.  If you don't, ask Naples Italy and Seattle Washington (recent Waste Management strike) what happens to property values and pest control.  The recycling truck is therefore an "also ran", and has to collect material valuable enough to offset the convenience of running a single waste truck to a single landfill or incinerator.

Fortunately, despite know-it-alls like Penn and Teller saying otherwise, this works for a couple of reasons.  First, like a subway, you don't have to prove that the subway is faster than the cars on the commute.  Going to work by car may be faster, but if you eliminate the subway the people are all in cars and it's no longer faster.  Similarly, if you try shutting down recycling, you find that avoided disposal costs are more than the per ton at the landfill.  When you add the "value added" from income of sale of the commodities, you find a lot of multipliers and higher employment - not just at the sorting line but at the paper mills and refiners as well.

1.4   Markets:   There are "niches" in collection besides rural (high mileage costs) and urban.   Some recovered materials - especially glass (and especially especially CRT glass) have a small number of buyers around the world and face huge transport costs after collection.  This transport cost affects labor - you may decide to pay someone to sort plastic by color because the transport distance to a mixed-color market is higher.

1.5  Government involvement:  Both electronics recycling and curbside recycling involve government, through procurement law (government contracting), labor law, environmental law, transport law, etc.  Every time there is a real problem with waste management - a recycling fire, an abandoned speculatively accumulated pile, a fraud, illegal dumping, alleged malfeasance (usually a claim by a competitor with a different or better process) - we pay for a regulator to enforce rules and public contracts.   Recycling businesses must know the laws (ignorance is no excuse), but also anticipate how regulators are interpreting the laws.

When I started at Massachusetts DEP, the biggest friction was over how many staff the MRF operators hired to sort material and when they sold the material as mixed, ungraded, etc.  My predecessors had a contract which shared revenues from sale but not costs of sorting, so the government wanted the MRF to hire more people (a cost DEP did not share).  The MRF operator had more than one facility, and tended to meet the demand for highly sorted product from their plants where they didn't have to share the revenues per ton and therefore kept 100% of the value added by the additional sorting labor.  They claimed that the market was finite, or transportation differences meant X and Y.

What struck me my first month at DEP was that 3 full time paid government staff earning $75Kish per year were telling the recycling business owner how many people to hire at $8 per hour.  There was a general "market creation" person on our staff, but he wasn't plugged into the material generated at the MRF except for "problem materials" like plastics, glass aggregate, etc.   I said that 65% of the tonnage from the MRF (at the time) was paper and magazines, and the paper mills were highly regulated, and we'd do better by spending DEP's time at the paper mill opening markets for the MRF which were "win-win" with our operator.

We saved $64,000 per month soon after I took over the MRF contract.  Later, paper markets skyrocketed, and its debatable whether I deserved the amount of credit I got at MA DEP for the savings (about $1.5M the first year), but I was certainly better able to respond to those market changes than the staff who were focused on how many sorting staff it took to reduce glass aggregate.

I was applying actuarial knowledge, I realize in hindsight.   By focusing on the big markets that made a big difference, the 20% of material grades that were 80% of the volume, I could use the high salaried government staff more efficiently.  To this day, some people think I was a genius for saving that money, and some people just think I showed up and took credit for the sunshine when the fiber markets turned around.  Some people think that government procurement (emphasized market demand for the end materials produced from recycling) deserved most of the credit.  Some people think it actually helped to get out of the businesses way and that the low-interference model allowed private investors to gear up for the new markets.  Some people think that if I'd never have expanded the program from 6 staff to 20, the world would be better off.  Even if I was friendly to recycling businesses, that my department was a "friendly dragon" that was getting bigger and bigger the more staff we fed it... what kind of a dragon would it be when someone like me (inevitably?) left for the private sector?

The point is that the government influence on curbside recycling, for better or worse, was part of the recycling business landscape.  And there was nothing regulated as "hazardous material" or "toxic" inside the metal cans, newspapers, plastics bottles, and glass jars.  But everything I saw in government's interactions with paper mills, fiber supply, etc. applies to recycling.

The challenges to the government side are the same as you hear in any "big government" debate.   What is the value of enforcing against "speculative accumulation" when the market is so hot that people can't ship the goods fast enough?  Obviously none.  But what is the value when there is no market, and recyclers are waiting for a new mill to open?  Does it make sense for government to enforce against a pile collected one year plus one day, when a new market is opening at the end of the month?  Does government really know the difference between positive speculation (I have a purchase order for a new market opening in a month which will allow me to collect from the City for $1M less.  My competitor did not have clean enough material to sell to the new market, because he paid for fewer staff.  Does it add value for a government regulator to say that my material has been stored two weeks too long?

The problem is that governments tend to hire nice people who avoid friction, and to lose people with more specific knowledge to industry which needs that knowledge.  Government doesn't see the immediate cost of hiring someone who is not covering "minimum wage" and can pass the losses on as tax increases or deficits.  And in each of the 4 General Recycling there are break-even points, competitive strategies, speculations (hiring sorting is speculating on the value of mixed material), distances, and differences in quality.  Can a generalist in government really add value without reducing the market efficiencies?  What happens when a group with one strategy (e.g. shredding rather than hand processing) starts to market their strategy and schmooze or payola or otherwise influence government decision makers?

As the former recycling director at Massachusetts DEP when curbside recycling went from under 10% of the state to over 80% of the population, I hired about 40 people (growth of the program and replacement / attrition).  Each of the 40 hires in 7 years had about 40 applicants and 5 interviews.   Trying to put together a Recycling Regulatory program which didn't hire people I couldn't fire (state unions, appeals, and difficulty in hiring replacements) made it easier to just control (do less harm) than to make each person make each regulatory decision correctly.

I can imagine what the regulators job is like in Communist China.

Tomorrow:  Part 2 of the Facts and Strategies in Recycling Businesses.  The DIFFERENCES between E-Scrap (or EWaste) and curbside recycling.

*Recovery is actually the correct MRF acronym. I was at MA DEP when the management changed the R to "recycling" (because it sounded better at the time and we were marketing out budget at Ways and Means Committee).  As Fred Prins, owner of the first and largest MRF in Boston, discovered, you haven't actually "recycled" the material until you have found a market for it.  "Recovering" it from the waste stream butts against "speculative accumulation" when markets are slow or quality is poor.

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