November/December 2004
Market development, insurance, financing, regulations—those were just a few of the topics covered at ISRI’s first Tire Recycling Business Summit.
By Kent Kiser
The talk was indeed all about tires—scrap tires, that is—at ISRI’s first Tire Recycling Business Summit, held Sept. 20-21 in Chicago. The event, billed as the first business summit organized by tire recyclers for tire recyclers, attracted some 110 rubber recyclers and related professionals, who came for the summit’s educational workshops, exhibits, and networking sessions.
The summit opened with a keynote breakfast address by Andy Russell, former All Pro linebacker and team captain of the Pittsburgh Steelers who now serves as vice president of Liberty Tire Services L.L.C. (Pittsburgh), a tire recycling company. Using tales from his pro football days, Russell illustrated the importance of teamwork in achieving everything from a Super Bowl victory to business success.
After the keynote address, the summit turned to its slate of workshops, which were organized into five topic categories: finance; insurance; quality, environmental, health, and safety management programs; U.S. EPA trends and state issues; and markets. Here are some highlights from those workshops.
Fishing for Financing
Rubber recycling companies can face closed doors when seeking financing for their operations. Fortunately, they can take steps to improve their odds of securing financing, according to three banking and lending experts—Darren Davis of The Lending Source (Atlanta), Bruce Hostetler of Union Federal Bank (Indianapolis), and Bob Marino of Center Capital Corp. (Blue Bell, Pa.).
It’s important, for instance, to establish a relationship with your banker by taking them to lunch or working with them as a general banking customer. Explain your industry as well as your company so the banker understands them and develops a comfort level with them. Part of this relationship is being able to look at your financing request from the lender’s viewpoint, which means answering why they should invest in your business, the speakers noted. When you do seek financing, lenders will be most interested in your cash flow (including projected future cash flow), the state of your balance sheet, and your collateral. “How are you going to pay me back? That’s basically what I need to know,” said Bob Marino. Some lenders also assess applicants’ character and experience in their industry to gauge their lending risk.
In general, lenders like to review corporate financial statements for the past three years, a receivables aging report, revenue projections, and the personal tax returns of the guarantors. Keep in mind that submitting more information to your lender isn’t necessarily better—quality is preferred over quantity, the speakers stated.
In addition to private financing, rubber recyclers can apply for business loans from the federal government, including two programs under the Small Business Administration:
Certified Development Company (504) Program. These loans are mainly for purchases of fixed assets such as commercial real estate or equipment. Typically, a 504 project includes a loan secured with a senior lien from a private-sector lender covering up to 50 percent of the project cost, a loan secured with a junior lien from the CDC program covering up to 40 percent of the cost, and a contribution of at least 10 percent equity from the small business being helped.
Basic 7(a) Loan Program. Under this program, companies secure a loan from a private lender, and the SBA guarantees the loan for the lender up to a maximum of 75 percent of the loan’s value. The U.S. Department of Agriculture also offers Business and Industry Guaranteed Loans. These loans can be used for working capital, machinery and equipment, buildings and real estate, and certain types of debt refinancing. The primary purpose is to create employment and improve the economic climate in rural communities (defined as those with 50,000 people or fewer).
To learn more about these government loan programs, visit www.sba.gov and www.usda.gov. Recyclers interested in applying for these loans should contact their local SBA and USDA offices for referrals to banks in their area with experience in these programs, the speakers advised.
Insuring Intelligently Tire recyclers can improve their chances of securing the best, lowest-cost insurance for their businesses by heeding the following advice, said Monica McNally of RecycleGuard (Portsmouth, N.H.), the ISRI-sponsored insurance program that currently covers about 20 rubber recycling firms:
Choose Your Agent Wisely. Don’t select your insurance agent capriciously. Use referrals and check out how the agent has performed for other clients in your business. Also, McNally suggested, make sure the agent has staff who understand your exposures as well as access to many different insurance carriers.
Use a Limited Number of Agencies. If you bid out your company’s insurance, use a limited number of agencies. “You don’t want to let anybody and everybody in the door,” McNally said, because multiple agents can’t request a quote for you from the same carrier. If you do use multiple agents, assign them to get quotes from different carriers.
Don’t Bid Too Frequently. While it is helpful to get competitive quotes, bidding your insurance every year shows that you don’t really care about establishing a relationship with your carrier, McNally said. Also, annual bidding is demanding on your agent as well as the carrier. Most companies, she noted, bid their insurance every two to three years.
Provide Adequate Information. It may take time to provide the necessary information to your agent, but it pays off in the end. “More information puts your best foot forward and prevents problems and questions down the road,” McNally said.
Maximize Your Purchasing Power With One Insurer and Buy Package Policies. Buying a package policy—in which you select one carrier for your property, general liability, and automotive policies—can save you money through a “package” credit, McNally noted.
Consolidate Your Effective Dates. Having your various coverages come up for renewal on the same date will minimize problems during the renewal cycle.
Check the Insurer’s Rating. Several sources—such as A.M. Best, Standard & Poor’s, Moody’s, and Demotech—rate the financial strength of insurers. You may pay more to be insured by a top-rated carrier, but the extra premium may be worth it for the stability and peace of mind such companies offer, McNally asserted.
Once you’ve secured the insurance you want for your business, how can you control your premiums?
Reduce Your Losses. Your losses have a profound effect on your premiums. You can reduce your losses by examining them and implementing a program to prevent similar losses in the future. You can also improve your hiring and training processes (especially for new employees) and consider drug testing your employees, both pre-hire and random. “By reducing losses, you’re going to reduce the cost of your insurance,” McNally said. Consider Higher Deductibles. Selecting low deductibles means higher premiums for you, so raise your deductibles to the highest comfort level possible to glean lower premiums, she said.
Consider Avoiding Some Exposures. Certain higher-hazard recycling activities can increase your exposure to losses for little financial return, so perhaps you can eliminate those activities to minimize your loss exposure and reduce your premiums.
Transfer Risk by Subcontracting. You can reduce your risk of losses by subcontracting certain activities such as trucking, but you still need to protect yourself with insurance, McNally said. If you do subcontract work, make sure the subcontractor has appropriate coverage for the work being performed. (For more information on RecycleGuard, call 888/225-4725.)
Getting to Know RIOS
It isn’t easy achieving continuous improvement in the areas of quality, environmental management, and employee health and safety, which is why ReMA is developing the Recycling Industries Operating Standard.
RIOS, formerly known as SCRAP3, will be an integrated environmental, quality, health, and safety management system designed specifically for the scrap industry, noted John Hayworth, ISRI’s director of environmental management, and Ben Morris of Morris Recycling Inc. (New Albany, Miss.).
The general goal of RIOS is to help scrap recyclers achieve measurable continuous improvement in their environmental, quality, health, and safety management. This, in turn, will enable recyclers to:
• comply with laws and regulations;
• have more consistent processes;
• produce quality products more consistently;
• increase consumer confidence in the quality of their scrap products and, thus, boost customer satisfaction;
• improve their safety performance and, hence, reduce operating and insurance costs;
• establish a competitive advantage in the marketplace compared with firms without RIOS certification; and
• achieve greater profitability.
RIOS, currently under development by First Environment Inc. (Boonton, N.J.), is being designed to work for all sizes of scrap companies. It will be simple and user-friendly, offering a “toolbox” approach of forms, checklists, and action items, Morris noted. RIOS will also offer different levels of certification, from self-certification to second-party and third-party certification. In addition, RIOS will be flexible, allowing companies to implement only certain parts of the standard, such as the safety element or the quality component. In the end, the goal is for RIOS to be widely recognized as equivalent to ISO and other industry standards.
“What RIOS is all about,” Hayworth said, “is trying to enhance the industry’s image and bring more favorable business conditions to you.”
According to Reeva Schiffman of First Environment, RIOS is being designed based on the same “Plan, Do, Check, Act” model of other internationally recognized standards like ISO. In a nutshell, an environmental, quality, health, and safety standard based on this approach entails the following:
Plan. Assess your company’s profile, asking what your company does every day that could affect the environment, the health/safety of your employees, and the quality of your products. Then establish a policy in these areas, followed by setting goals with attainable objectives and targets.
Do. “After the planning, you go on to the doing,” Schiffman said. This includes training, setting procedures to make sure you’re in compliance, and establishing communication procedures internally and externally. “Make sure everyone knows which page everyone else is on,” she said.
Check. You’ll never know if your efforts and programs are working if you don’t check on them using internal assessments and compliance auditing, Schiffman stated.
Act. Acting includes reviewing, reevaluating, and making adjustments based on everything that has come before.
The State of Scrap Tire Markets
Tire Wire Gains Momentum. The tire wire market has come a long way in recent years, boosted by strong ferrous scrap markets and improved technology for recovering high-purity wire. “Five years ago, you couldn’t give the stuff away,” said Fred Bonney of Tire Disposal & Recycling Inc. (Salt Lake City). “Nobody wanted your wire no matter what it was like. If you got $5 a ton, you felt lucky.”
That reality forced his company, which processes truck tires, to develop a simple processing system that could yield salable tire wire. Through a series of photos, Bonney reviewed his firm’s processing system, which includes five tire shredders, a granulator, magnets to extract tire wire, and vibrating screens. A key component of the system is an inclined trommel that has slots measuring 1/8 inch by 3 inches. Clean wire falls through the trommel’s openings, while the wire with residual rubber stays inside and can either be processed again or sold with TDF chips.
A final vibrating conveyor and magnet upgrade the material to less than 1/2 percent rubber by weight, Bonney said. The clean wire is then baled and sold to a large scrap broker that supplies the Nucor steel mill in Utah. As of September, Tire Disposal & Recycling was receiving about $65 a ton for its tire wire, plus an additional $65 a ton from the state of Utah, giving it a total of $130 a ton, Bonney reported.
The company also sells its bead wire to a shredder operator, who buys the material for the equivalent of a ferrous sheet metal price, he said.
Tire wire has also become a profitable market for Max Daughtrey of Four D Corp. (Duncan, Okla.). Only a few years ago, his firm was paying $28 a ton to landfill the material. Since the spring of 2003, however, Four D has been selling “everything we can produce,” said Daughtrey.
Not only did demand increase for all types of ferrous scrap—including tire wire—but Four D installed vibrating conveyors and magnets that enabled it to upgrade its wire to about 95 percent purity. “You have to make the steel content high and the appearance look good,” Daughtrey said.
Four D sells its tire wire to a scrap processor in Tulsa, Okla., who uses the material to fill voids in scrap heats it supplies to a steel mill. Four D was recently receiving about $60 a ton for the material, though prices have been as high as $120 a ton. “We’ve sold more than 740 tons in the past 17 months and collected over $42,000,” Daughtrey said. More important, he added, “we’ve also recaptured I don’t know how much rubber. That material was going out in the trash, but now we’re able to make crumb rubber out of it.”
Four D also recycles the bead wire from its scrap truck tires. It chops the material into about four-inch pieces and mixes it with its tire wire.
Offering a steel mill’s perspective on tire wire, Vicki Roche of Gerdau AmeriSteel Corp. (Tampa, Fla.) noted that the recent strong demand for ferrous scrap has made it easier for tire recyclers to sell their wire. When scrap prices are high, she explained, mills look for any way to reduce their scrap costs, so they become “a little more open-minded to lower-grade items like tire wire.”
A mill’s interest in tire wire depends, in large part, on the products it makes. “Some mills can use it, some can’t, and that’s just the bottom line,” Roche asserted. In tire wire’s favor, it has good low-residual chemistry and is generally inexpensive compared with other scrap, often being priced at half the value of ferrous turnings, she noted. Also, a small amount of rubber in tire wire can benefit steel mills, lending carbon and energy to melts.
On the downside, tire wire in its loose form can pose handling problems for mills and can corrode quickly when exposed to the elements, Roche observed. Loose wire also has low density and can disappear into a mill’s baghouse or float off in the slag. If tire wire contains a lot of rubber, that can create smoke and add too much carbon to the mix, she said. Plus, questions remain about the “yielded value” of tire wire—that is, what metal value it contributes to the melt, Roche said.
Baling tire wire minimizes some of the above problems, such as density, handling, shelf life, and yield. Also, ISRI’s tire wire specifications have provided a way to measure the quality of the material, with most mills desiring tire wire with less than 5 percent rubber, Roche said. Additional work needs to be done, however, to assess tire wire’s yield in the furnace. In summary, she stated, “the steel mill community is trying to utilize this material,” adding “it’s just a slow process.”
A TDF Review. Tire-derived fuel (TDF) remains the leading end-use market for scrap tires, with some 130 million tires reportedly consumed as TDF in 2003. TDF is defined as any form of shredded tire that can be used as fuel, said Mike Sorcher of M.A. Associates (Overland Park, Kan.). The main consumers of TDF include:
• Cement kilns, which primarily use whole tires, though some can use two-inch chips including tire wire;
• Pulp and paper facilities, which use two-inch-minus material with 90 percent of the wire removed by weight. These facilities usually have traveling grate boilers, which burn wood waste and TDF on a moving grate. These boilers can consume 5,000 to 40,000 tons a year of TDF;
• Utilities, which also use two-inch-minus material, with some able to burn TDF with tire wire and others requiring it to be wire-free, Sorcher said. Utilities, which commonly use cyclone boilers, can consume 10,000 to 60,000 tons a year of TDF, with the material accounting for 1 to 6 percent of the heat value of the boiler. In the future, more utilities will require wire-free TDF because they will be installing new pollution control systems that can’t handle steel; and
• Industrial plants, which generally need a two-inch-minus TDF with 90 percent of the wire removed. Industrial facilities—as well as some pulp and paper operations—often use circulating fluidized bed boilers, which can consume 20,000 to 60,000 tons a year of TDF, Sorcher reported.
In the market, TDF is sold at a discount to coal and wood waste in the northern United States and at a discount to coal, wood waste, oil, and natural gas in the southern part of the country, Sorcher said, noting that buyers purchase their fuel on a heat-value basis (per million Btus) rather than by the ton. “In the end,” he stated, “you have to save them money.”
The Value-Added Route. Beyond TDF, recycled rubber is gaining ground in enhanced and value-added products, such as substrates for athletic fields, playground and recreation surfaces, tiles and flooring, animal surfaces, moldings, and landscaping materials. “Market growth for these materials has been exponential over the last two or three years, growing anywhere from 7 to 11 percent annually,” said Doug Barr of Barr Formulated Products Inc. (Wexford, Pa.). “The market potential is very strong in these niches.”
For tire recyclers, there are pros and cons to entering these markets, however, Barr said. On the plus side, it doesn’t cost much for an existing tire processor to enter the enhanced/value-added product market. There is limited competition in these more specialized niches, plus they offer a higher potential profit margin, Barr noted. There may also be government funds available for the purchase of these value-added products.
The products themselves also have advantages in the market compared with competing materials, he added. Using recycled rubber landscaping mulch as an example, Barr noted that it lasts “a long, long time,” is nontoxic and, hence, environmentally correct, and is generally easy to apply.
There are disadvantages, though. Recycled rubber mulch costs more than many conventional mulch materials, Barr said. By lasting long, it is unfavorable to landscapers. Also, rubber mulch isn’t well-known in the market, and the poor quality of previous rubber mulch negatively affects the reputation of current products, he pointed out.
Before entering the value-added niche, rubber recyclers must also recognize the potential liability issues of selling products directly to the public rather than raw materials to other industries, Barr said. Such products also have high consistency requirements, such as ensuring that colorized rubber mulch is the same shade from batch to batch.
Rubber recyclers interested in the value-added product market should ask these questions first, Barr advised:
• Do I—or can I—control the supply, cost, and quality of my rubber substrate?
• Do I understand the regional market, and have I established sales contracts and commitments?
• Do I have manufacturing specifications and controls as well as personnel dedicated to the production and quality of my product?
• Can I make a profit after all manufacturing and freight costs?
The answers to these questions will encourage some to become value-added processors and discourage others, Barr said, concluding that “this business is not right for everybody.”
Expanding AR Usage. As a product, asphalt rubber (AR) is considered a performance pavement and, as such, there are barriers to getting that pavement into the market against competing paving materials, said John Osborn of Rubber Applications & Technologies (Port Bolivar, Texas).
Still, when properly engineered and applied, AR is economical and competitive based on lifecycle costs, he said, noting that AR roads are generally quieter and require less maintenance than traditional asphalt roads. The recycled aspect of AR is positive, but that’s not a huge selling point to state or federal highway officials, who focus more on performance factors, Osborn said.
Currently, the most favorable markets for AR are California, Arizona, Florida, Texas, South Carolina, and New Mexico, he observed. When it comes to expanding the market, “mandates really don’t work,” he said. “They can help get things started. They can help state DOTs evaluate the cost/performance basis of AR, but they aren’t going to sustain the industry over a long period of time.” Similarly, subsidies only go so far. “If AR doesn’t carry itself in the market, the subsidies are going to run out fairly quickly,” Osborn said.
In the future, state highway officials will decide whether or not to use AR based on how it performs in tests under the Strategic HIghway Research Program. Thus, Osborn said, “it is important for crumb rubber-modified asphalt pavements to do well in these durability tests, specifically rut testing, to justify costs to DOT engineers.”
The Quest for Quality. Whether you’re making TDF, crumb rubber, or any other recycled rubber product, “there is no substitute for quality,” asserted Timothy Leighty of Recycling Technologies International L.L.C. (Hanover, Pa.). Years ago, recycled rubber products only had to be “black and bouncy” in terms of quality, but today “that is no longer the case” because “our customer base continues to become more and more sophisticated,” he said.
The first step toward quality is knowing your suppliers. “You’ve got to work with them, you’ve got to help them,” Leighty stated. “They need to understand what your expectations are. They need to understand what you need to make your facility run.”
It’s equally important to know your customers. “We need to visit our customers,” he said. “We need to be abundantly aware of what it is that they require.”
In addition to developing your supplier and customer relationships, you have to “know yourself well—not only your capabilities but also your limitations,” Leighty said, concluding, “We have tremendous opportunity to continue to grow this business. We must choose our destiny, or it will choose us.”
The Legislative and Regulatory Fronts
Preventing Tire Fires. Fires in scrap tire stockpiles are costly in both economic and environmental terms, noted Paul Ruesch of U.S. EPA’s Region 5 (Chicago).
Economically, states and the federal government spend millions of dollars a year battling tire fires. Environmentally, tire fires account for almost 4 percent—or 105,000 pounds—of polyaromatic hydrocarbons emitted annually into the air in the United States, Ruesch said. In addition, tire fires pose water problems due to oily runoff and seepage of pollutants into ground water, which can also harm soil.
Moreover, fires create ash, sludge, residual wire, and leave behind unburned portions of tires. This residual material is usually considered hazardous waste and must be handled in accordance with RCRA, he noted.
To prevent future tire fires, U.S. EPA is working to encourage the recycling of scrap tires and the mitigation of stockpiles, Ruesch said. One EPA effort is the Tire Cluster group under the Resource Conservation Challenge, launched by the Bush administration in 2003. This group has two main goals:
• to divert 85 percent of newly generated scrap tires to reuse, recycling, or energy recovery by 2008; and
• to reduce by 55 percent the number of tires in existing stockpiles by 2008.
Among its activities, the Tire Cluster group established subcommittees to examine the market segments of TDF, asphalt rubber, civil engineering applications, and crumb rubber, Ruesch said. The group also helped EPA draft a policy statement on the use of TDF, which is being considered by EPA headquarters. Plus, the group is developing a white paper examining the environmental characteristics and performance features of TDF.
Within the agency, EPA Region 5 has measured tire piles in the states it covers to establish a baseline for measuring future progress, and it has developed a guidebook of best practices for tire pile cleanups, Ruesch noted. EPA is also participating in industry forums—such as ISRI’s tire summit—to discuss its efforts in this area.
(To review EPA’s scrap tire resources, visit www.epa.gov/epaoswer/non-hw/muncpl/tires/index.htm.)
California Scrap Tire Dreamin’. When California established its scrap tire program in 1990, the program had three main elements, noted Martha Gildart of the University of Sacramento:
• a hauling registration and manifest program, facility permit requirements, enforcement actions against noncompliers, and cleanup of illegal stockpiles and tire fire sites;
• support for tire recycling activities through commercialization grants and loans; and
• grants to end-users, especially local governments.
This initial program was funded by a 25-cent fee per tire. In 2000, a new California law expanded the program, emphasizing the manifest and tracking components, permitting enforcement elements, and cleanups. The new law also increased the per-tire fee to $1, Gildart noted.
Under the program, haulers that carry more than 10 tires at a time must be registered with the state, and their vehicles must carry both the approved registration and decal for this activity, Gildart explained. Currently, this program covers 800 haulers operating more than 7,000 vehicles.
Scrap tires must be manifested from their point of generation to their end use, with the generator, the hauler, and the end-user each required to submit a manifest form, Gildart said. In her view, this manifest program was “a pretty serious mistake—it was far too complicated, too onerous, and too expensive. You do not get good compliance from the regulated public when you take that sort of attitude.” The program has also created a “mountain of paperwork” for the state, she said.
Under California’s current program, facilities that store tires must be permitted and must meet a variety of requirements regarding the height and width of piles, fencing, firefighting equipment, and more. This program feature has been useful, Gildart said, in that it has required tire recycling firms to improve their operations.
Assessing the other aspects of California’s scrap tire program, Gildart said that the enforcement efforts have been neutral, while the remediation efforts for stockpiles and tire fires have been effective through both state actions as well as grants to local governments.
The program’s commercialization grants, which average about $250,000 per grant, can be used to research and develop new recycled rubber products, purchase equipment, or conduct environmental tests. Grantees must provide matching funds, though the percentage of the match—such as 50 or 100 percent—changes from year to year. While these grants provide support up front, they do not provide ongoing support, which is important. “There’s a great need for additional support of some type to help tire processing operations,” Gildart said.
The final element of the program—grants to end-users—has succeeded in getting recycled rubber products “out there for people to see them,” she said. These grants also fund two asphalt rubber technology centers—in Los Angeles County and Sacramento County—to show local transportation departments the right way to use asphalt rubber.
Looking ahead, California could seek to simplify the manifest system in its scrap tire program, though there may also be a reduction in funding for enforcement under the program, Gildart said.
In other areas, California should lift its restrictions on the use of TDF in coal-fired facilities, Gildart asserted. The state should also provide greater support to crumb rubber producers to offset their high operating costs in general and today’s higher energy costs in particular. Finally, California—which already bans the landfilling of whole tires—should prevent the landfilling of processed tires as well. “As long as you have cheap landfill disposal of tires, it’s going to hurt the recycling industry,” Gildart stated.
Kent Kiser is publisher and editor-in-chief of Scrap.
Market development, insurance, financing, regulations—those were just a few of the topics covered at ISRI’s first Tire Recycling Business Summit.