January/February 1992
To endure the test of time, scrap recyclers must be ready to meet the challenges of a changing industry.
By Herschel Cutler
Herschel Cutler is executive director of the Institute of Scrap Recycling Industries (Washington, D.C.).
Buoyed by widespread concern for the environment, recycling has risen to the top of the public agenda in recent years, and it promises to be an issue of overriding importance for the remainder of the century and beyond. That could mean good news for scrap recyclers in terms of business opportunities and recognition of their contributions to society. But it also poses unprecedented challenges that threaten the entire scrap industry.
By the end of this decade, in all likelihood, recycling will have been redefined to encompass many new materials and participants. In fact, the industry has already seen the beginning of this change: Some scrap recyclers have expanded their businesses beyond metals, paper, textiles, plastics, and glass to handle "nontraditional" materials, such as rubber, wood, and construction debris. And some are facing new competitors, including waste haulers and municipalities.
A Future of Changes
These modifications could be just hints of things to come in the near future, as society—that is, the public and their elected representatives—not the scrap industry, dictates what recycling is. This does not mean that society will take control of the recycling business (though some public entities, to some extent, have already demonstrated their desire to do so). It does mean that society's needs will likely establish a roster of materials that must be recycled in the public interest.
If the scrap industry responds with a willingness to process, market, and consume these items, it could have a unique opportunity to participate in untapped business activities. If the industry ignores the public's signals, however, it could end up losing markets—or worse.
A similar outcome could result if scrap recyclers fail to recognize and actively respond to society's increasing role in determining how and under what conditions recycling will be accomplished. The scrap industry is already heavily regulated, operating under a long list of requirements governing areas such as air, water, and soil protection; safety and health procedures; employment practices; local licensing; noise control; and record maintenance for over-the-scale transactions. The growing public concern for the environment, coupled with the critical need for effective recycling and waste management, will undoubtedly prompt government and the public to exert ever-more oversight on scrap companies. What's unknown is how stringent new regulations might be and how their requirements will affect individual segments of the industry.
Thus, it is in the best interests of all recyclers to work with governments and assist in the creation of a more involved and informed regulator. If the industry fails in this regard, the likely result is that many scrap firms—some with long and proud histories of recycling since long before that term was coined—will be unable to continue. People will be hurt; investments that seemed solid will be wiped out; generations of effort will be erased.
Indications are that such devastation will stem not only from regulations governing the scrap industry, but also from new bans or "limited-use" doctrines implemented to eliminate the potential dangers of certain materials. The manufacturing use of some substances, for example, likely will be attacked and discontinued because of the toxic characteristics they might possess under particular circumstances.
In fact, a review of recent actions on the state, national, and international levels demonstrates that this is already a reality. Aseptic drink containers have essentially been banished from sale in Maine , the U.S. government has banned leaded fuel, and legislatures throughout the world are in the process of outlawing chlorofluorocarbons (CFCs).
The sheer volume of proposed legislation dealing with strictures and/or bans on certain materials offers hard evidence that such a trend can only expand and be strengthened in the years ahead. And as this occurs, the way recyclers conduct business and the materials they handle will have to change. For instance, if cadmium—which has already been banned in Sweden—is found by other governments to pose such an unacceptable toxicity risk that its use is forbidden, recyclers of items that have been coated, plated, or alloyed with cadmium would have to adopt new purchasing, processing, and marketing practices.
Working Toward Survival
While these predictions don't paint a very pretty picture, they offer the industry a glimpse of where recycling might be going so that scrap firms can chart a course to long-term survival. To quote Patrick Henry: "For my part, whatever anguish of spirit it may cost, I'm willing to know the whole truth, to know the worst and to provide for it. The battle, sir, is not to the strong alone, it is to the vigilant, the active, the brave."
How, then, should the industry proceed? What actions will help ensure the future of scrap recyclers who are committed to surviving and prospering in the 1990s and beyond?
Listen. Sort through the "noise," hear what is being said, and keep an open mind. What, for instance, could the following tell paper recyclers? Production of 1,000 plastic shopping bags requires 32 kilograms of oil equivalent, while paper bag production requires 47 kilograms of oil equivalent per 1,000. Does this indicate that the reported energy advantage of plastic bags will eliminate the need for paper bags, thus reducing demand for secondary paper? Does it signify that paper processors should begin thinking about plastic recycling to replace this potential market loss?
And what is the message of this passage? Through weight savings and improved aerodynamics, an average car weighing 2,200 pounds, including 110 pounds of plastics, used 4 percent less fuel than its heavier counterparts. That fuel savings translates into 4,000 to 5,000 fewer gallons consumed over the life of a car. If such fuel savings offset some of the current objections to the increased use of plastics in cars, this could translate to increased headaches for automobile shredder operators. To those metallic scrap processors who are considering adding plastics to their processing capabilities, however, the notion of replacing metal in automotive and other applications could simply offer a change in their marketing strategies. Scrap recyclers must read between the lines to discover market changes that could seriously affect their business.
Recognize the Issues. Acknowledge that the public will demand improvement, reward those who help to resolve problems, perhaps punish those who do not, and possibly opt to do the work itself. The solutions found may be good, bad, or indifferent, but as long as society perceives a problem, there will be solutions.
Thus, almost without regard to cost, recycling as defined by the public will occur. Somehow, somewhere, someone will do it. For example, indications are that glass cullet increasingly will be reused in new glass, as well as in glassphalt, drainage fill, or some other application. Used tires, too, likely will find expanded markets as an aggregate in rubberized asphalt, as a fuel for cement kilns, and as an erosion-control material. And paper—which reportedly makes up 40 percent of the municipal solid waste stream—will also be recovered more and more, especially after more mills retrofit their equipment to handle secondary feedstock. Society has said that this recycling must happen, and it will happen.
Change as Required. Be prepared for change, for it is inevitable. Never get too comfortable with the present because, by that time, it is already the past.
For instance, if the overall demand for raw materials grows, scrap may have to "battle" virgin materials both for some of the expanded market and to retain its current market share. This rivalry will become more intense as the public demands more recycling, since the availability of vast new volumes of recyclables would require scrap recyclers not only to capture much of the new demand, but probably also to win some of the existing virgin-material market share. Furthermore, if the demand for recycled-content products is flat, recycling growth can only come at the expense of virgin materials.
Consider Alternatives. Never rest on your business laurels by assuming that your operation is indispensable or insulated from risk. The scrap firms that prosper through the remainder of this decade will likely be those that have addressed how to make themselves unique and more appealing to scrap suppliers—including not only industrial accounts and other traditional generators, but also government and the public. This requires companies to consider what is important to their potential suppliers and to determine how they can address those needs so that government and/or scrap generators don't attempt to do the work themselves.
Don't underestimate the initiative of the public sector. Who would have believed several years ago that Americans would separate their recyclables from their waste and place them on the curb? How many thought that Americans would wash labels off containers, even when they aren't required to do so? Contrary to popular belief, Americans can be told what to do and how to do it and will actually embrace the order—for the right cause.
In addition, many thought that Americans would never tolerate beverage container deposits, or bottle bills, but 10 significant states have proved that assertion to be fallacious. And on the corporate level, why are sellers of substitutes for chemical solvents succeeding? Who has ensured the success of natural cosmetics? As members of society we all have.
Study the Competition. Don't believe that your only competition is "Joe down the street," who has always been there, or even the new firm that has established curbside collection programs in your area. If your analysis stops at that superficial level, the point is missed. For just as the industry, the world, and the composition and attitudes of the population are changing, so is the real and potential competition.
Would you consider defense contractors to be a possible competitive threat? Probably not, but if such firms continue to face a reduction in defense dollars and if the public keeps demanding "peace dividends," these contractors will surely be looking for replacement business and promising new markets to enter. Market researchers always gravitate to "hot" markets when exploring diversification options, and what's hotter today than recycling and waste management?
Anticipate What Could Happen
Perhaps the most important action scrap recyclers must take to ensure their survival is to realize that if something is possible, there's a chance—sometimes a good chance—it will occur. It wasn't too many years ago, for instance, that Honda made only motorcycles instead of the largest-selling car in America . And no one really expected the fall of the Berlin Wall, but it was possible and it happened.
There is absolutely no reason to assume that the recyclers of tomorrow will look anything like today's scrap companies or that the marketing strategies that fit current needs will work in the future. The presence of new players in today's recycling business—states, localities, waste haulers, and others—has thrown the old rules out the window. In many parts of the country, for instance, governments pay a subsidy to firms to take newspapers. One municipality has announced that it has been so successful running its own material recovery facility that it's opened a second operation. "We are displacing the mom-and-pop facilities and the Boy Scouts," the state boasted in a brochure announcing the facility's debut.
In another situation, a city pays its waste contractor a differential fee when the price of recyclables drops below an agreed-upon market price. When the price rises above that specified price, the contractor splits the profit with the city. This is today's private enterprise—not business-as-usual in the traditional scrap industry—and scrap recyclers could face the loss of emerging markets as well as traditional markets to these new enterprises. Try as some might to deny it, these changes are facts, these changes are here, and these changes will continue.
If Patrick Henry were a scrap recycler today, he might observe: "Gentlemen may cry peace, but there is no peace. The war has actually begun. We have no choice." This is the time for forward thinking, not retrenching. This is the time to recognize opportunities, not to despair. This is the time to move out and accomplish, not to circle the wagons. •
Editor's note: This article was adapted from a speech presented at ReMA's 1991 Top Management Seminar. The association's next Top Management Seminar will be held Nov. 14-16 in Sanibel Island, Fla.
To endure the test of time, scrap recyclers must be ready to meet the challenges of a changing industry.