Commercial Appeal

Kim A. O'Connell

COMPETING FOR COMMERCIAL contracts might seem relatively easy — for some. Big name hauling companies often have such extensive contracts with businesses and municipalities that they are fairly impervious to the pressures that might prevent a smaller company from entering the game. But to a smaller hauler, commercial contracts are like the proverbial carrot dangling just out of reach.

In August, Waste Industries USA, Raleigh, N.C., agreed to balance this inequity by selling some of its commercial waste hauling assets in the greater Norfolk, Va., area. In 2003, the company had acquired several commercial contracts in the region from Scottsdale, Ariz.-based Allied Waste Industries. As a result, the Justice Department raised concerns that the company had garnered too much of the region's small commercial hauling contracts — stifling competition in the heavily populated area.

Under the agreement, filed in federal court this summer, Waste Industries agreed to divest about 300 small-container commercial waste contracts to a new company or an existing small hauler.

Commercial and institutional waste forms a significant portion of municipal solid waste (MSW), even in small cities and suburbs, according to the U.S. Environmental Protection Agency (EPA), Washington. In 2003, according to EPA, waste from commercial locations — such as retail stores, office buildings, industrial complexes and restaurants — constituted 35 to 45 percent of all MSW. Local and regional factors, such as climate, economy and level of commercial activity, contribute to variations in commercial waste generation.

Whether large or small, waste haulers can expect stiff competition when they seek to acquire or extend their commercial contracts. But if they focus on customer responsiveness; offer an integrated system of collection, transport and disposal; keep overhead and ancillary costs low; and adapt to local and regional market forces, haulers stand a good chance of beating out a growing field of contenders.

Dominating the Field

Commercial collection contracts typically are profitable for waste haulers because they can collect and transport large volumes of waste more efficiently than the smaller volumes generated by residential service. Companies set their fees based on such factors as collection frequency, level of service, route density, equipment furnished and distance to the disposal or processing facility. Large containers require fewer vehicles or pickups. Many companies use state-of-the-art technology, such as global positioning systems (GPS) and onboard weighing systems, to ensure that routes are the most cost-effective and efficient they can be.

For the largest companies, vertical integration can help them to acquire and retain commercial customers. Houston-based Waste Management Inc. (WM), for example, has 1.6 million commercial and industrial clients across North America. “It's a growing sector,” says Wes Muir, director of communications. “People are looking for a company that will offer a fully integrated service offering — including recycling, disposal and special waste needs.”

Muir adds that a key to the company's success is reading the landscape to determine which commercial industries dominate. “As the largest player, we have the depth and experience to deal with the different kinds of waste streams,” he says. “We do see a lot of regional differences. Some areas might have a lot of construction waste; other areas may have more retail. Certainly, some sectors are outperforming other sectors.”

In the Pacific Northwest, Harold LeMay Enterprises, Tacoma, Wash., stays on top of the commercial collection heap through a combination of long-term franchises and municipal contracts. Washington is a highly regulated state, and collection rates are set through the Washington Utilities and Transportation Commission in Olympia.

“Having it as regulated as it is, we have turned ourselves into tax collectors,” says Norman LeMay, the company's refuse manager. “We're looking at long-term market share. We try to dominate the field, and we have a long track record. The nice thing is we don't have a bunch of stakeholders that we have to worry about each month, so we can try to have a market advantage on our side.”

That said, the company was forced to tighten its belt during the recent economic downturn. “It caught us a little short of equipment,” LeMay admits. “As the economy picked up, we realized we hadn't done the purchasing we should have done, and we had to scramble to catch up.”

Feeding Frenzy

Even for the big players, however, commercial collection poses significant challenges. Traffic in many cities is becoming more congested, fuel costs are skyrocketing, and maximizing route efficiency can be difficult in areas where one is gaining or losing customers. Larger companies also may feel pressure from scrappy smaller haulers looking to earn new business.

Despite its willingness to negotiate a settlement, for example, Waste Industries believes that competition for commercial waste in the Tidewater Virginia region was materially unaffected by the company's recent acquisitions — and in fact, it continues to be robust. In good faith, however, under the recent agreement, Waste Industries will offer shorter contracts to all new customers as well as existing customers who are interested in renegotiating. For the next five years, the company must also offer contracts with initial terms of no longer than two years and a renewal term of no longer than one year.

“We agreed to negotiate and seek an out-of-court conclusion, which was the better way to go,” Ven Poole, Waste Industries' vice president for corporate development, told the Raleigh News & Observer. “The market is still very competitive and would continue to be so whether we had to work with the Justice Department or not.”

Yet when a municipality opens the floodgates for haulers to compete for commercial contracts, that can create other dilemmas. The city of Rogers in northwest Arkansas, for example, will soon end its franchise agreement with WM to boost competition. The company previously had a monopoly on commercial waste collection in the area.

The announcement, however, led to what the mayor publicly called a “feeding frenzy” of other waste companies soliciting local business owners. Some businesses and city officials also have raised concerns about increased truck traffic in the small city — population 41,000 — with multiple companies collecting waste. Furthermore, the city is now considering whether to stop the current practice of billing commercial customers like residential customers to allow businesses to set up separate billing through whatever company they contract with. City officials are bracing for numerous calls, questions and complaints.

Catering to Customers

The fact that some large hauling companies are losing residential contracts, which is increasingly leading them into the commercial market, is fueling the competitive fire for commercial accounts. Nationwide, municipalities might de-privatize and choose to collect residential waste themselves, or they might contract out services to a lesser-known company with a lower bid.

In the Northeast in particular, municipalities are generally still privatizing, but they are increasingly going with smaller haulers, according to Jim Harvey, CEO of E.L. Harvey & Sons, Westborough, Mass. “It's pretty competitive,” Harvey says. “There's a lot of new people coming in — the Casellas, the BFIs, the Waste Managements, and a lot of little small guys too. Some of them have lost some pretty good-sized contracts … So they're increasingly focusing more on the commercial and industrial side.”

Harvey says that he has seen the region cycle through several different waves of commercial waste streams, such as industrial waste and, more recently, technological waste. Today, the company serves about 4,000 commercial and industrial clients throughout the Northeast, representing “a mix of everything.”

Commercial collection also is a significant part of Waste Connections' business. CEO Ron Mittelstaedt says commercial collection represents about 65 percent of the Folsom, Calif.-based company's total business. Industrial and construction waste collection represents another 10 percent. The remainder is residential. The company says that it has about 800,000 commercial customers, with nearly 150 sales representatives working to add more every day.

Once again, the success of the commercial sector varies widely depending on the region. “This is a commodity business,” Mittelstaedt says. “You can't make a gross generalization about what works and what doesn't. We have markets where our commercial is far more profitable than our residential — and vice versa. Generally, commercial is pretty on par with residential.”

When it comes to commercial waste collection, Jim Harvey believes, the secret to staying competitive is customer service. “You have to change with the times,” he says. “We offer many different services, such as security shredding. We're big on recycling — we set up programs for the businesses, we train their people … No matter what, we cater to our customers.”

Kim A. O'Connell is a Waste Age contributing editor based in Arlington, Va.

HANDLING NEW YORK CITY'S COMMERCIAL WASTE

Last year, commercial waste was center stage in the ongoing debate over how New York City's solid waste should be managed. In April 2004, the city's Department of Sanitation (DOS) released a Commercial Waste Management Study as the cornerstone of a comprehensive planning process designed to map out how commercial waste is handled over the next 20 years. This spring, the city took the study a step further, releasing the final environmental impact statement (EIS) for the draft comprehensive solid waste management plan, released in October 2004.

Among other findings, the commercial waste study concluded that the city's existing transfer stations were adequate to handle the city's commercial waste for the foreseeable future, and that regional mega-landfills had enough capacity to absorb transferred waste. Commercial waste constitutes 75 percent of New York City's waste stream, according to the DOS, and is handled by 62 transfer stations. In 2003, the city produced approximately 37,600 tons per day of commercial waste, an amount that is expected to increase by about one-third by 2024.

The final EIS examines the environmental impacts of redeveloping a marine transfer station on West 59th Street in Manhattan to handle a portion of the city's commercial waste, as part of a larger effort to switch from truck-based to rail- or barge-based waste transport. Refurbishing the Manhattan station, the EIS states, would help reduce the city's reliance on transfer trailers for waste transport, thus also reducing traffic and pollution. Furthermore, the move would shorten the time that haulers now spend carting commercial waste from midtown Manhattan to transfer stations in other boroughs, where the waste is prepared for long-haul export.

This spring, the National Solid Wastes Management Association (NSWMA), Washington, testified that the proposed transfer-station plan would cost about $2 billion over the next two decades, but would remove only about 250 trucks from city streets. David Biderman, NSWMA's general counsel, noted, “Is it worth spending $2 billion dollars to take 250 trucks off the road each day, when more than 32,000 trucks are on New York City's streets? This is probably not the most cost-effective way for the city to address truck-related issues.”

Commercial truck traffic has also raised concerns for New York-based Inform Inc., an environmental research organization that has launched a campaign called “Greening Commercial Refuse Trucks in New York City.” The organization seeks to facilitate the introduction of natural-gas powered refuse trucks into the city's fleet. Currently, just more than two dozen of the city's 2,500 trucks operate on natural gas, and no private hauling trucks do. This year, the organization has advocated that the New York City Council include a mandate for the purchase of new natural-gas trash trucks in air-quality legislation now under consideration.
— KAO