The State of Waste and Recycling: Strong Pricing, Key Trends at WasteExpo 2023

WasteExpo 2023 was held in New Orleans from May 1 through May 4. The show was very well attended with more than 13,000 attendees and 500 exhibitors.

In this edition of Business Report, we highlight the insights we gleaned from informative education sessions as well as from participants on the show floor on key areas of interest to the solid waste industry.

Pricing Strong with No Signs of Recession (Yet)

Unsurprisingly, all the participants we spoke to confirmed continued strong pricing with very high levels of customer acceptance. For the publicly-traded solid waste companies, the goal remains to price for cost inflation and garner some positive margin. In talking with a number of the privately-held haulers, higher pricing is not only necessary to recover rising costs but also to offset (at least partially) the impact of depressed recycled commodity prices.

Fairly uniformly, solid waste players we spoke to had not really seen signs of an economic slowdown yet, but there was an abundance of wary watchfulness—echoing what the publicly-traded solid waste companies noted on their first quarter conference calls. That said, there were a few participants who noted some temporary roll-off softness in markets closely tied to housing. Comments on seasonality were a little more nuanced and mixed. Several people noted that it felt like “normal” seasonality was occurring, while others noted relatively flat trends from March to April. However, those comments generally came from players in geographic areas that had experienced a milder winter (usually in the Northeast), so the yet unanswered question was whether the relatively flat trends were due to weather effects or an early economic signal.

Recycled Commodity Prices Are Expected to Grind Higher

In the “Market Update: The Case for Commodities” education session, Bill Moore, of Moore and Associates, noted that 6 containerboard mill projects that use old corrugated cardboard (OCC) as feedstock have either come on line or are expected to come on line in 2022 and 2023, adding two million tons of new capacity, and they are expected to run flat out. Unfortunately, he also noted that there is still overcapacity in containerboard, and some of the older, less efficient mills will be shut down. But on balance, he felt the market had bottomed and stabilized and box demand was expected to grow again; thus, prices should see a steady uptick, though likely not at a dramatic pace. This appears to be borne out by the recent RISI data just released on May 5, which showed mixed paper and OCC both rising around $5 per ton across most geographic regions to an average of more than $10 per ton and over $41 per ton, respectively.

With regard to plastics, the panelists felt that the bottom had definitely been put in and recycled plastics pricing should continue to increase. The fly in the ointment, however, is the expected increase in off-spec virgin plastic, which does more directly compete with post-consumer recycled plastic and destabilizes markets. Chaz Miller, of Miller Recycling Associates, also provided the insight that recycled plastics prices, notably HDPE, PET and PP, should also be bolstered by the increase in infrastructure spending driven by the Infrastructure Investment Act. Bottom line, the general consensus was that the bottom had been put in for recycled commodity prices in general, and pricing was expected to grind higher over the course of the year.

M&A—Looks Like Another Outsized Year

Show participants from the publicly-traded solid waste companies all echoed what the senior management teams had said on first quarter conference calls—another outsized year of merger and acquisition (M&A) activity was certainly in the offing. The pressures that drove more sellers to the table in 2022—labor shortages and supply chain constraints, among others—had really not abated, and now, higher interest rates are beginning to bite harder as well. Valuations (EBITDA multiples paid for businesses) were noted as being up, and higher interest rates have not yet really caused them to fall back as might have been expected. It was further noted that while tuck-in acquisition valuations were up more modestly, the multiples paid for platform acquisitions were up more definitively—on the order of at least one, and more typically, two turns.

Labor—The Need for Long Term Solutions

The labor constraints that have characterized much of the last two years were most often described as easing, while wage gains seem to be more generally subsiding to around 5%-6%, down from high single to low double digits. That said, there was industry-wide recognition that labor availability and attracting labor to the industry were longer term and more intractable issues that call for different recruiting processes. Increasingly, companies are going to high schools directly to capture the 18-year-olds who were not college bound, while in-house vocational training is increasingly on the rise. Changes in truck technology, particularly the industry shift to more ASLs and away from rear loaders, were credited with the solid waste companies increasingly being able to attract women drivers. Another common theme echoed was the need to tell the solid waste industry story better—not only are the companies great places to work with good benefits, but solid waste industry participants need to better convey what a great sustainability story the industry has in order to attract more young people into solid waste.

EV—The Talk of the Floor

At last year’s show, we noted that EVs had made their first real appearance. This year the number of fleet suppliers showcasing EV trucks multiplied, and they were all across the show floor, garnering substantial interest and discussion. That said, management teams in general were more leery—citing not just cost, range and payload factors, but also noting frequently that the supporting grid infrastructure was just not there yet. Republic Services appears to be the most all-in and on board of all the publicly-traded solid waste companies with regard to EVs; Republic’s management expects half of new truck purchases to be EVs by 2028. There was also significant discussion around the California Air Resources Board’s recent rule regarding zero-emission trucks AND a great deal of relief that refuse trucks had been given a six-year extension until 2042 to comply.

PFAS and EPR—Potential Risk and Opportunity in Both

With regard to PFAS, the largest risk is that landfills and composting facilities inadvertently fall into CERCLA’s (Superfund’s) liability clutches if the EPA designates certain PFAS compounds as hazardous substances, and industry participants are in active dialog with regulators and Congress to be designated as “passive receivers” of PFAS-containing material.  So, the recent Senate bill to protect and exempt some facilities from liability claims was very welcome to industry players and the lobbying organizations. At a minimum, players see higher costs for leachate treatment as off-site disposal avenues are increasingly restricted. On the other hand, right now, landfills are the logical repository for PFAS-contaminated waste, given the current uncertainty and controversy over incineration and the still prohibitively expensive emerging destruction technologies.

EPR has often traditionally been fought by the solid waste and recycling industry, but that appears to be evolving and changing. EPR is increasingly being viewed as a financing mechanism and an opportunity to increase recycled commodity supplies, particularly plastic, which is necessary as current supply is not sufficient to meet the brand companies’ recycled content commitments. That said, as a number of panelists noted in “The Rise of EPR: Unpacking the Details” education session ”the devil is in the details”, and solid waste recycling players MUST get involved as stakeholders at the table so the industry has a voice in how EPR programs are structured and enforced, and ultimately, who has control of the waste.