November/December 2012
As unlicensed processors bale and export whole tires to meet growing—and sometimes illegal—international demand, U.S. tire processors worry they’re losing feedstock for domestic markets, tipping fees, and even the industry’s good image.
By Diana Mota
For years U.S. scrap processors have bought and sold metal, paper, plastics, and other scrap commodities worldwide while the market for scrap tires and processed tire rubber remained almost entirely domestic. Out of 138 million scrap tires generated in 1994 that found markets, the United States exported an estimated 12.5 million whole tires, according to the Rubber Manufacturers Association (Washington, D.C.), which began tracking exports as part of its biennial reports on the U.S. scrap tire industry that year. The exported tires were not necessarily scrap, however. “We never broke those numbers out” to differentiate tires that were exported for retreading and reuse from those used as fuel or for other secondary purposes, says Michael Blumenthal, the association’s vice president. Exports were a “minor market.” Reports based on data from 1996, 1998, and 2001 found that exports stood at about 15 million tires in each of those years—about 5 to 7 percent of the annual volume of scrap tires generated. In 2003 exports fell to 9 million, or 3 percent, and in 2005 to about 7 million, or 2 percent. In 2007, RMA began reporting scrap tire data by weight. That year and in 2009, it reported the United States exported 102,000 tons, or 2 percent, of the scrap tires generated. Export levels might actually be higher, however, Blumenthal says. A state might not have reported all exported tires in its answers to RMA questionnaires, and tire collectors that don’t report to state agencies could be handling some exported tires, he notes.
Terry Gray of TAG Resources Recovery (Houston), a tire recycling consulting firm, characterizes the export market as historically insignificant for processed tire rubber as well. Over the past eight years, the United States exported relatively small quantities of ground rubber and tire-derived fuel, he says. RMA pegs the volume at about 30 million pounds of ground rubber exported in 2005, or 4 percent of the estimated 730 million pounds generated. In 2007, that increased to 100 million pounds, or 9 percent of the total 1.1 billion pounds, and in 2009 it reached 115 million pounds, or 7 percent of the estimated 1.6-billion-pound total.
The export picture began to change in 2008, these and other industry sources say, when exports—primarily shredded and whole, baled tires being shipped to Asian markets—started to increase. “The first year and a half, no one really worried about it,” says Brett Barstow, owner and CEO of Golden By-Products (Ballico, Calif.) and president of ISRI’s Scrap Tire Processors Chapter. “No one realized the impact it would have.” In the past two years, the growth in exports has “happened so fast you can’t even write a business plan to address it.” The proportion of scrap tires being exported seems to have more than doubled from 2009 to 2011, when about 15 million scrap tires out of 300 million recovered, or 5 percent, went overseas, Blumenthal says. These exports are not yet affecting the industry as a whole, he says, but they could.
Scrap tire exports are affecting tire processors in certain geographic areas
disproportionately, Blumenthal says. The impact has been greatest in states with container-cargo ports, Gray says, most notably California and Florida. California exported 11 million tires in 2011, more than double the 5 million it exported in 2009 and nearly 50 percent more than the 8 million it exported in 2010, according to the California Waste Tire Market Report: 2011 from the California Department of Resources Recycling and Recovery, or CalRecycle (Sacramento, Calif.). Of that total, 9.6 million, or 23 percent of the scrap tire stream, were passenger tire equivalents of baled and shredded tires, says Denise Kennedy of DK Enterprises, a Sacramento-based tire recycling consultant. Kennedy recalls first learning about a single company in California baling and exporting tires in 2007; by early 2008, three more companies were baling and shipping scrap tires to Vietnam, she says, and “it grew from there. Economics and the ability to operate without a permit for the majority of the balers was the driving force.” Blumenthal calls California the “perfect storm” of location, container-cargo ports, and availability of tires.
Exports out of Florida grew from 500,000 tires in 2010 to nearly 4 million in 2011, according to industry surveys, says Mary Sikora, publisher of Scrap Tire News (Leesburg, Va.). Such exports are affecting the Florida operations of Liberty Tire Recycling (Pittsburgh), says Don Rea, company president. “I’m also getting reports that [tire exporters are] sweeping up the East Coast,” he says. And the trend has moved inland: Barstow says he’s heard of “people in the middle of the country getting calls for tires” for export, and Gray and Sikora say exporters are working from Illinois and Missouri, respectively. Kennedy says she receives up to 10 e-mails a week from brokers or others who are looking for tires to export from the United States, and the number of balers has doubled since January 2011.
ISRI has long supported free and fair trade in scrap commodities, but tire recyclers give several reasons why the growing export of scrap tires concerns them. First, they say, companies collecting and baling tires for export often operate without required state or local licenses or permits. Second, these companies also collect tipping fees retailers add to the sale of new tires—fees intended to subsidize the cost of proper tire recovery and recycling. Third, many in the industry believe the exported tires are illegally ending up into China, which could give the industry a bad image. Finally, they worry that growth in exports could starve the still-developing domestic markets for scrap tire commodities. “This increase in scrap tire exports has created high barriers for legitimate tire processors, threatening the sustainability of the existing marketplace,” Kennedy says. Recyclers hope to work with regulators and others to assess the problem and find solutions.
License and Registration, Please
In the past three years, licensed and permitted processors have found themselves competing for tires against unlicensed and unpermitted haulers, Barstow says. Some of the haulers collect, bale, or shred the tires themselves, and then export the tires through brokers; others work as parts of a chain of unlicensed, unpermitted operations, from hauling to baling to exporting. For the most part, these balers set up shop before becoming licensed and permitted by regulatory entities, Kennedy says. In some states, the permit process is tiered based on the volume of tires a processor has stored on site. For example, in California, permit requirements, costs, and the time it takes to meet the requirements increase with the volume of tires the company handles, Kennedy says. A minor permit, which covers those who store 500 to 4,999 scrap tires at any time, can take six months to receive, while a major permit, which covers 5,000 tires or more, can take a year or longer, Barstow says. A major permit requires more from the facility in terms of fire suppression equipment and processes, which can add significant costs, he notes. Though some of these balers are now seeking permits, they are pursuing minor permits when they should be pursuing a major permit, Kennedy says. “If that’s the case, then they could still face legal action,” Blumenthal says.
These operators have an unfair advantage, tire recyclers say. “This isn’t about banning exports,” Barstow says. “It’s about leveling the playing field.” Everyone should operate with a license and manifest tires so they’re traceable, he says. Legitimate tire recyclers bear those expenses, whereas the illegitimate haulers, in many cases, are “a guy, a truck, and a cheap baler.” Because these operations export whole tires, “they don’t have to invest in large-scale equipment like we do,” he explains. “We’re competing with guys who have zero overhead.” In many cases, brokers will even supply the operations with a free baler, Rea says, and sometimes these operators haul the tires directly from the retail tire shops to the port.
Recyclers have complained to state regulators about this unfair competition, but the states don’t have the resources to pursue the offenders, Rea says. “We’d like enforcement of what [laws and regulations] states have on the books right now. I think it would certainly diminish the problem,” he says. Catching the haulers and balers isn’t easy, Gray acknowledges, “because these people are very mobile. They have one small piece of equipment they can hook to the back of a pickup truck.” It takes about 45 minutes to load bales into a trailer, Barstow says, so there’s a short window of time to catch them. “They bale, load, and the container is gone.” By the time regulators identify an illicit operation, it has moved. Or if they are fined, the companies can appeal their fines, which takes several months, he notes. “In the meantime, they continue to operate.”
Sikora suggests one approach that might make identifying such operators easier: Target trucks as they travel to the ports because many of the loads are overweight. Blumenthal agrees that the ports are a good place to start. “If you stop the supply of tires to ports, you can change the dynamics” that encourage such illegal operations, he says. Haulers are the weakest link in the supply chain, he points out. “You can’t go after the guys in the ports, and it’s hard to embarrass retailers” who supply tires to these haulers because they don’t care, he says.
The Tip-Off
Hand in hand with the export issue is the loss of revenue from retailer fees. Many states mandate that retailers collect a fee when they sell new tires, though the distribution of that money can vary. California collects $1.75 per tire sold and uses the money to fund tire recycling programs. A few states, such as Oklahoma and New York, have a state-mandated fee the state disburses to recyclers based on the volume of scrap tires they take in, among other factors, Blumenthal says. Retailers in most states collect an additional handling fee, with some of it going to tire haulers. In California, in addition to paying the state fee, the consumer pays a $1 to $3 fee on the purchase of a new tire for the recycling of the old one, Barstow explains. “The tipping fee is set by the marketplace and not by the state. The tipping fee is a function of capacity and competition.”
These fees help tire recyclers offset their business costs, he says, and unlicensed haulers or processors are undercutting this system by approaching tire shops and offering to take the tires off their hands for less money. Until recently, the fees paid to the recycler never dropped below 80 cents a tire, but now “these haulers are taking 50 cents per tire or less.” The tire shops get to keep what’s left, giving them an incentive to sell to the haulers. The haulers get the tires and the tipping fees that support those tires, he says, but they don’t necessarily adhere to the regulations in the state governing haulers, such as delivering tires to permitted processors or meeting weight limits. He calls it commodity theft. This practice “undercuts the financing that has maintained the health of the industry,” Gray says. Some tire processors have experienced a 60- to 70-percent drop in tipping fee revenue, Barstow says.
It’s difficult to track the fees because consumers pay when they buy a tire regardless of whether they leave a tire to be recycled, Barstow says. What tire shops report could be more or less than what they actually receive, he notes. “What’s the percentage of tires not being reported?” he wonders. California has considered switching to a system such as the one in Oklahoma, where the state disburses the fee revenue. Initially, it sounds like a good idea, he says, “but it comes at a cost. How much do you want your state involved?” If this export issue didn’t exist, would you say yes to such a system? Barstow asks, answering, “Absolutely not.” Recyclers could wait months for their money, he says. “You’d have to have some really strong banking to do that.”
Some stakeholders would like to see tires tracked better. In California, the manifest program, which tracks scrap tires, doesn’t start with the tire generator—the tire shops, auto dismantling yards, or other places where haulers pick up tires. It starts with the haulers, who must identify where they’re taking the tires. The problem starts with the generator, Barstow says. The state, however, is working to enforce regulations and help stop unregulated activity, Kennedy notes. Barstow thinks the issue needs more publicity. “We need to educate the general public,” he says. People are “paying out of their pockets to dispose of these tires. They should know where their tires are going.”
The Impact of Exports
The United States does not restrict the export of scrap tires, recyclers and others in the industry point out, and some of the export growth is legitimate interest in scrap tires from other countries. High fuel prices are most likely driving this demand growth, these stakeholders say. As a fuel source, “tire chips have a better Btu value than coal, which means they burn hotter,” Barstow says. “Chips also burn cleaner in a controlled, low-emissions burner. That puts a great value on that product.” Japan, for example, is importing tire-derived fuel to replace some of the energy it previously generated in its nuclear plants, he says. “They have a great, great need for power.” He doesn’t expect demand for tires used as fuel to let up anytime soon.
What’s problematic, however, is that most of the demand is coming from countries such as Vietnam and South Korea, where U.S. scrap tires arrive legally and then travel into China, which bans such imports, Kennedy says. This illegal activity “could make us all look bad,” Rea says. It’s an even bigger problem if the companies receiving them don’t handle them in an environmentally sound way and end up polluting the air or the environment, Kennedy adds, and it has the potential to give the U.S. tire recycling industry a black eye. It would take time for a negative image to take hold, however, Rea says. “Right now, not that many people are aware of it.”
Blumenthal doesn’t expect the illegal movement of scrap tires into China to slow down soon. Appetites are huge for whole scrap tires, he says. “This is Economics 101. This is about supply and demand.” Everyone involved, from unlicensed haulers to importers, will do it as long as they can make money and don’t get caught, he says. Then again, he adds, “if something happens in China and someone gets embarrassed by this, it will stop immediately, or they have a real change in energy policy. Those are the two things that would stop the importation. At this time, that doesn’t seem to be on the horizon.”
Domestic Market Impact
With reports of unlicensed and unpermitted haulers and processors capturing tipping fee dollars and exporting material that in many cases travels illegally into China, the frustrations of legitimate U.S. tire processors are understandable. Not only do these illicit operators have lower costs, they also are reducing the domestic tire rubber feedstock, making existing recyclers compete harder for less material. Kennedy estimates the tire flow for some processors is down 15 to 20 percent in some parts of the United States. Smaller processors will have a hard time riding this out, Rea says. Some in the industry worry this could be the beginning of the end for domestic tire processing. “Processing facilities are volume-sensitive,” Gray says. If the supply of tires dries up, Rea says, “we might not have enough tires for the products we make.” He adds that “a lot of jobs in our plants could be jeopardized if we had to shut down,” asserting that something similar has already happened in Australia. “I’ve heard about 50 percent of their tires are now going to China.”
If the problem doesn’t correct itself, other U.S. scrap tire processors could decide to export whole tires, which would further deplete the feedstock for domestic markets, Rea says. Companies looking for tires to export already have approached some U.S. tire processors for material, Blumenthal says. He doesn’t believe processors will take the bait unless there’s a dramatic change in the economics of the industry. “Main-line processors have demand for their products, and the return is much greater” domestically than what they would get by selling to exporters, he says. “They should fight this every step of the way.”
Even if the price were right, some also worry about the volatility of switching to primarily an export market for scrap tires. Export markets depend on many variables outside the industry’s reach, Gray says. “A sudden change in international energy policies or economic conditions that we have no control over could cause exports to stop.” Such activity could result in a proliferation of stockpiles of scrap tires, he notes. Without domestic processors and consumers of scrap tire rubber, “we wouldn’t have the capacity or infrastructure to deal with them,” Gray says.
Next Steps
Tire recyclers are trying to determine the scope of the scrap tire export issue: How many tires are being lost to overseas markets and how many companies are affected? “It’s the most critical issue the industry has to deal with,” Blumenthal says. He wants people to understand why they should “get upset about a bunch of old tires.” The illegal activity is “hurting legitimate companies that pay taxes and provide jobs.”
Kennedy suggests tire recyclers should reach out to regulators at the state and local levels to make them aware of problems with unregulated balers, processors, or haulers and how it’s affecting a U.S. industry, either on their own or through a coalition of industry stakeholders and related nonprofit organizations. “We need to get the information out there,” she says. She, Gray, Blumenthal, and Sikora are part of a subcommittee of the U.S. Environmental Protection Agency Scrap Tire Workgroup that’s writing a white paper on the scrap tire export issue to help states develop policies and share best practices in response to it, she says. The legislative committee of ISRI’s Scrap Tire Processors Chapter also has begun studying the issue with the goal of developing an ReMA policy on the matter, Barstow says.
Scrap tire processors are unlikely to give up without a fight. “Too much effort, sweat, blood, and learning curves have gone into making this industry,” Gray says. “I’ve watched a good, environmentally sound industry evolve. It’s difficult to see it so potentially, dramatically affected by something that appears to be out of our control.”
Diana Mota is associate editor of Scrap.
As unlicensed processors bale and export whole tires to meet growing—and sometimes illegal—international demand, U.S. tire processors worry they’re losing feedstock for domestic markets, tipping fees, and even the industry’s good image.