Rumpke's Reign

Michael Fickes

Chaos struck the garbage industry following a slew of government regulations that altered the way landfills had to be managed. Innovations in commercial waste handling led to a reconfiguration of the markets and to heightened customer expectations. In addition, the public, newly informed about the crisis in a growing solid waste stream, started to demand recycling.

Next, came a consolidation frenzy when companies bought each other in a mad scramble to satisfy these new market realities and, in the process, built revenues, operating capital and profitability. One company purchased 115 other waste management operators.

These events are not snatched from today's headlines. Rather, they harken back to the 1960s in Illinois, Indiana, Kentucky and Ohio. The winner of this Midwest consolidation lottery was Rumpke Waste Inc., a family owned waste collection, landfilling and recycling business founded nearly 70 years ago in 1932.

Today, Cincinnati-based Rumpke is a $250 million, mid-sized waste management company, with nearly 2,600 employees and 1,600 trucks, including rear loaders, front loaders, roll-offs and service trucks. It owns six landfills and operates three others. Rumpke collections flow through seven transfer stations, four of which are company-owned. Rumpke also owns nine recycling facilities.

As the solid waste industry battles modern-day problems of volatile markets and consolidating private companies, Rumpke executives survey the waste business with an experienced eye and lay plans, secure in the knowledge that the company has faced many of these problems before and always has managed to ferret out the opportunities inherent in an unsettled marketplace.

"People keep reinventing the wheel," says William Terry, Rumpke's chief operating officer. "It happens in the public sector when district directors turn over.

"Thus, you have to be constantly alert, and not just for emerging trends, issues and policies; you also have to be attuned to those [companies that] are discovering waste management ideas that are not necessarily new and raising those ideas to new levels of importance in public discussions," he says. "For example, some people today are just discovering recycling, while companies like Rumpke have been in the forefront of that business for more than 40 years."

In the hectic modern world of waste management, Terry strives to keep his company focused on time-tested fundamentals. "In our business, what's really important is growing one collection customer at a time," he says. "[Using this focus] allows us to deliver an essential public service," he continues. "When you focus on things such as private and public competition or on shareholders interests vs. public interests, you lose sight of the fact that garbage removal is essential to public health and safety. What we really do is collect garbage and get paid for the value that service adds to the environment."

Rumpke's consistent 60-plus year record of growth is grounded in the company's balance in the marketing of all the components of waste management. Each business area makes its own contribution to the whole. Each business area may take reasonable risks, but never without a fallback position offering low-risk opportunities for success.

But before anything else can happen in a waste business, the fundamentals first must be satisfied by a truck driver picking up trash.

Collection: Going the Extra Mile Rumpke collects trash from residents under municipal contracts and direct subscription agreements, as well as from commercial customers. From time to time, the company loses collection customers to smaller and larger competitors.

"Companies often come into our areas and offer lower prices," says Jack Kerr, Rumpke's general manager, who is responsible for collections, transfer stations and landfills in Illinois, Indiana and Kentucky. "Many times, smaller companies don't know what their costs are and don't know what to charge. Larger companies offer lower prices to gain market share."

In either case, Rumpke refuses to compete on price, acting on its corporate philosophy: Charge a fair price, provide excellent service and avoid "junk yard feuds" with competitors over price. "We have to make a profit, and we have to stay in the black," Kerr says.

However, Rumpke employees believe that the company's standards and service record ultimately will win back lost customers. For example, two years ago, a competing company blitzed a Rumpke district with aggressive price offers and ate a big hole into Rumpke's market share of commercial collections. Within a year, as the competitor's contracts came due for renewal, Rumpke's market share began to come back as customers left the lower-priced competitor and returned to the Rumpke fold.

"We stress the idea of providing worry-free service," Kerr says. "We tell our people to take good care of customers and not to worry if a competitor undercuts [our] prices. We may lose that customer, but if we have provided service on a higher level than the competitor can offer, we will get the customer back."

What constitutes good service at Rumpke? While many companies train employees to follow the contract requirements, Rumpke stresses flexibility. For example, if a municipal contract specifies a three-can limit and 60-pound cans, Rumpke will collect extra bags and will accept a can if it happens to weigh 70 pounds.

"If it is legal to pick up, and we can finagle a way to get it into the truck, then we'll do it," Kerr says. "Once in a while, someone will have extra trash, and we try to pick it up. This [effort] means a lot to customers. However, if a particular customer regularly abuses the system, we'll have a rep offer a contract increasing service [to that customer].

"We also train employees to stop and pick up waste that has blown out of the can and to set the cans back up, off the road," Kerr continues. "If it's raining, we put the lid back onto the cans or turn the cans upside down. These little things mean a lot to the customer - so much so that when we lose customers to lower-priced services, it often is only for a short while."

Other value-added Rumpke services include designing, building and installing compaction systems for commercial customers, and designing waste packages for building construction. "Some customers need more than a standard compacting machine," Kerr explains. "Maybe a business or plant needs a chute that goes through the wall or a compacting system with pre-pressure to deal with bulk materials. We design and build compaction systems for customers, and we can incorporate these features into the equipment we design."

Rumpke's construction waste packages include construction and demolition containers, portable toilets and waste and recycling audits designed for newly constructed facilities.

Feeding Rumpke Landfills Rumpke trash generally travels through one of seven company-owned or -managed transfer stations on its way to a landfill or recycling center. Kerr manages three Rumpke-owned transfer stations in Indiana and currently is developing three more.

According to Kerr, Rumpke's transfer stations have one purpose: to feed company-owned or operated landfills. This holds down the cost of disposing of company-collected trash. Lower disposal costs, of course, raise the profits on collection revenues.

In addition, trash transferred by third-party haulers generates additional revenues for the transfer stations and the landfills.

"We probably could move our trash to closer landfills without our transfer stations," Kerr says. "But by moving the material as economically as possible to our landfills, we can offer better prices on the collection side."

On the revenue side of the transfer operations, Kerr estimates that trash brought in by other waste haulers accounts for 20 percent to 25 percent of the volume passing through Rumpke facilities. "That business is almost totally a matter of pricing," he says. "If the price you offer at transfer is less than the price of a close landfill, you will get the business."

Rumpke's transfer price is approximately $8 per ton, plus the landfill charges, which range from $19 per ton to $35 per ton in the Rumpke trading area. While price represents an important component when it comes to marketing landfill capacity, "service is important, too," Kerr notes. "A number of independent, third-party haulers use our facilities when they could go to other equidistant landfills. They come here because they are treated better. We maintain our roads and make it easy for them to get in and out quickly."

Another selling point for Rumpke landfills is an excellent environmental compliance record.

These marketing angles are more or less important in areas with more or less available landfill space. Within Rumpke's four-state marketing region, some areas have excess landfill capacity, while other areas don't have enough. Rumpke facilities in Indiana and Kentucky, for example, operate in an environment with more landfill space than trash.

Rumpke's integrated approach to the business dilutes this problem: The company uses its landfills to take care of its own collections first, accepting material from other companies within the region to make the profit and loss numbers work.

On the other hand, Rumpke generally restricts waste inflows into its landfills to materials coming from the region surrounding the landfill. This restriction serves two purposes: It helps to preserve landfill capacity and it boosts Rumpke's community relations.

"Most people don't like the idea of living next to a landfill, let alone next to one that is accepting waste from four states away," Kerr says.

Community Friends, Not Foes Rumpke fights its public relations wars through direct personal contact with communities, especially when there is a problem. Take, for example, the community opposition Kerr faced in 1992 when he sought approval for a major landfill expansion in Georgetown, Ohio: A well-organized citizens' group not only opposed the expansion but wanted the landfill closed.

"The public isn't educated about what a modern landfill is," Kerr says. "My job in Georgetown was to provide information to the community about what our landfill was and what we were trying to do with it."

Kerr, then a Rumpke district manager, campaigned like a politician, speaking at the Rotary Club, the Lion's Club and other local groups. He arranged for a local television station to tape a program about the landfill. He also founded a citizens' advisory group and invited landfill opponents to the site to examine the operations and study its records.

The campaign lasted 18 months, eventually overcame the harshest community criticisms and earned approval for the expansion.

"Our community efforts have two goals," Kerr says. "First, we try to educate communities about the waste management business and how we approach it. Second, we work to be a good corporate citizen by participating in activities important to the community."

For example, in Colerain Township, near Cincinnati, Rumpke has built a six-field softball complex. The company owns and operates the complex, which Kerr describes as "the best in the region."

Rumpke also sponsors events for local 4-H clubs and county fairs - all under the theory that the garbage business, like politics, is local.

Seeing Trash from its Better Side Rumpke Recycling Inc. was formed in 1989 - a time when most states were implementing legislation mandating waste reduction and recycling. The new subsidiary refocused the company's then 30-year-old recycling business on the new governmental priorities.

Steve Sargent joined the company as director of recycling operations and created a business system that matched recycling's realities.

Sargent recommended securing long-term contracts for fiber with paper companies before Rumpke made any moves toward building facilities. The fiber markets were key to the business structure because fiber constituted about 60 percent of the material that Rumpke collected on its recycling routes.

From the beginning, Sargent locked in 7- to 10-year contracts with paper mill recycling operations. Why would those companies agree to such long-term contracts? "The No. 1 concern of a paper mill or other manufacturing [company] is to secure long-term sources of feedstock," Sargent says. "At a paper mill, for example, it is expensive to run out of fiber. Today, we have long-term agreements with companies that will take other kinds of recycling materials, including aluminum, steel and plastics."

Under these long-term contracts, Rumpke guarantees a certain amount of tonnage. In turn, the mill guarantees a pricing structure with a floor price. The contracts generally do not limit prices on the high end. Such contracts form a structure that prevents disaster when prices fall through the floor, but does not limit upside profits.

"These kinds of contracts enable us to offer a more stable market to our customers, generally the municipalities," Sargent says.

Nevertheless, Sargent also insists on shared risk clauses in municipal collection contracts. Thus, when prices fall to the floor price, the company still can afford to collect recyclables.

Municipalities agree to these clauses because Rumpke can produce contracts with buyers that guarantee continuous markets despite price volatility. In other words, municipalities want to avoid situations in which falling prices drive their recycling company out of business, leaving uncollected recyclables on the street.

"There are two costs in recycling: the cost to collect and the cost to process," Sargent says. "If the whole process costs $2.50 for a unit of recycling, and you know you can recover $1 from a guaranteed floor price contract on the sale of the materials, then you have to get a floor price of $1.50 from the municipality on the collection side. Of course, that's not a problem when fiber is worth $150 per ton. But you have to plan for the worst case."

Under this business plan, Rumpke has built a network of recycling facilities in major cities in Indiana, Kentucky and Ohio. Each site has been selected to meet the service needs of municipalities, the delivery needs of processors and manufacturers, and the logistical requirements of Rumpke's own waste hauling divisions.

"We feed our facilities through our transfer station and hauling network, which allows us to consolidate loads and transfer recyclables within a 50- to 100-mile radius of the recycling plants," Sargent says. "This regional network also allows Rumpke to provide recycling opportunities for many non-urbanized areas.

"Naturally, the cost of handling and transportation must be added to these services, but with our high-volume regional facilities, we can minimize our processing costs per ton and allow a greater percentage of our customer base to participate in recycling," Sargent says.

PET Peeves Nothing is perfect, however - as exemplified by the polyethylene terephthalate (PET) plastic market of 1996-'97. Prices plunged from historic highs to historic lows in a matter of months. Rumpke's business structure protected the company from the worst consequences of the failing market. Nevertheless, Rumpke executives decided that the PET business required some strategic changes.

In 1997, the company installed a complete debaling, sorting, grinding and washing system to produce PET flake at the company's Dayton, Ohio, material recovery facility (MRF).

The Dayton facility was selected because it had room for expansion and offered a central location for shipments from Rumpke's transfer stations and other MRFs.

The goal of the expansion was to sell bottle-grade PET flake and try to stabilize the prices that Rumpke receives for PET. "Unfortunately, our grinding and washing system was not able to produce flake that was clean enough to meet those specifications," Sargent says.

But the business plan for PET also included a fall-back position. "We have been able to refocus our efforts on the fiber and strapping markets for PET, and we're quite pleased with the results," Sargent says. "Full-scale operations now are underway, and we expect to produce 10 million to 12 million pounds a year."

Does Rumpke plan similar undertakings for other materials? "PET is one of the few materials that you can do this with," Sargent says. "Paper mill equipment, for example, carries huge costs.

"In addition, we had an opportunity to partner with another firm to install the PET processing equipment," he continues. "That made the costs reasonable."

So, Rumpke does take risks and make mistakes, but not often, and never without a fundamentally sound fallback position that offers a relatively sure chance of success. Because in the end and in the beginning, a waste business succeeds by making a profit on collections. Everything else is extra. Rumpke has built its business by making sure that the extras never compromise the basics.

Collection Operations

* Trucks and Body Types 646 Navistar rear loaders; 204 Mack, International and Ford roll-offs; 107 Mack front-loaders; 144 Navistar recycling vehicles

* Containers Rumpke manufacturers most of its own containers through Rumpke Ironworks Inc.; waste wheelers from Rehrig-Pacific

* Customers 350,000 residential; 320,000 yardwaste; 49,000 commercial

* Collection Employees (Solid Waste/ Yardwaste) 1,058 drivers

* Collection Employees (Recycling) 450 drivers

* Service Area Illinois, Indiana, Kentucky, Ohio and West Virginia

* Collection Services Provided Business; industry; residential waste collection; construction/demolition debris removal/ recycling; recycling

Landfill Operations

* Landfill Equipment 225 pieces of equipment, mainly from Caterpillar (crawler dozer, crawler loaders, trash compactors, dirt compactors, water scrapers, skip loaders, scrapers, articulated dump truck, rigid frame dump truck, track hoe, track excavators)

Recycling Facilities

* Equipment 3 Excel horizontal balers, 1 Densi-Can densifier, 3 electromagnets, 1 HRB baler, 5 Rumpke-built horizontal balers, 1 Dover combo-flight feed conveyor

* Amount of Recyclables Processed Rumpke Recycling currently processes more than 34 million pounds per month; its capacity is 50+ million pounds per month

* Sources of Recyclables Residential (55%); commercial (35%); industrial (10%)

* Employees More than 450 full-time

* Tipping Fees Rumpke Recycling charges a variable tipping fee for co-mingled recyclables. Average landfill cost is approximately $24/ton

Transfer Facilities

* Equipment Caterpillar IT rubber tire loader; rubber tire back hoe; J&J and East trailers; Keith Walking Floor

* Annual Amount of Refuse Processed Ohio: 189,00 tons Indiana: 72,00 tons

Other Services/Divisions

Rumpke Sales and Service (farm equipment); Rumpke Power Components; Rumpke Hydraulics; Rumpke portable restrooms