Since joining the industry in 2013, Vander Ark has been credited with unifying Republic's branding across dozens of regional assets, instituting new pricing disciplines and focusing more closely on customer service. During the recent WasteExpo investor summit, he said this latest leadership change "makes us better" and will free him up from daily operations to focus on bigger picture items.
Following the annual NWRA awards breakfast — where Republic employees were named both driver and operator of the year — Waste Dive sat down with Vander Ark to discuss labor retention strategies, why he sees big potential in recycling, keeping landfills competitive, how the company views climate change and more.
The following conversation has been edited for brevity and annotated for context.
WASTE DIVE: Republic has said its retention rates are improving, to some of the lowest levels around, and there are many factors at play. After the tax cut, you invested in locker rooms and new trucks, but didn't do bonuses like some others. How much of a factor is it in the retention results?
JON VANDER ARK: I think it's played a part. It's not the only driver. We have 300 collection facilities, we certainly have touched only the minority of those. Now, we had a range – [we] built a studs up brand new facility in Lewisville, Texas. Some have had more refurbs or remods. Others, fresh coat of paint in the break room, new coffee machine. Sometimes employee needs are pretty basic.
Wages have become more competitive in the industry lately, specific to certain markets. How much has that changed for you in the last couple years?
VANDER ARK: I think we're seeing wage inflation in selected markets. We want to be the place where the best people come to work and we want to be competitive with wages. We don't need to be the highest wage earner, because people come to work for lots of reasons.
Wage is one of them, but it's also the community. Do they feel connected? So we invested a ton of time, energy and effort into making people feel engaged. Does the supervisor every morning lay eyes on the driver? Does he know their spouse's name? Does he know their kids' names? Does he know what he or she did last weekend? Once they feel connected, that's what keeps them.
The conversation turns to how current uncertainty around immigration policies may be affecting Republic's recruitment and retention efforts.This includes risks for employees that came from countries with Temporary Protected Status. You can read more from Vander Ark and other industry executives about immigration here.
How has MRF labor been evolving at Republic as facilities see further investment?
VANDER ARK: Automation has two real game-changers for us. One is in recycling centers and the other one is on the back of truck. Long-term, I'm worried about low-skilled labor in the United States and the supply of that. Immigration is connected with that, over time. So we're we're making different CapEx/OpEx trade-offs when we build recycling centers than we ever have before. More technology, more lasers, more sorting.
For example, we just opened up a new center in Plano, Texas. It's got half the labor that we had in the previous one. And I see that as a further trend. Now we're not going to just blow up our recycling centers and start over, but equipment has an 8-10 year lifespan and we have to retool it and recapitalize. And when we recapitalize, we're recapitalizing with optical sorters, and more technology than we did before.
During the investor summit, Vander Ark said Republic was going to "reimagine" a "broken" recycling system, and CEO Don Slager described it as a "great growth business for us over the long term."
It seems like everyone's taking the same approach on recycling now — raise processing costs, figure out new contract terms, reduce your risk on commodities. Beyond that, what is Republic doing differently than others? Why are you so confident you guys can lead the pack?
VANDER ARK: Because we've done it before. So we did it in the fuel recovery fee. There never used to be a fuel recovery fee and we led the way and that's now an industry standard essentially. Part of the pricing model. We've done it with alternative index, when CPI was in the basement forever.
So we're the ones that led the way that said you either have fixed 3% or above — or water, sewer, trash, which is an index more closely tied to our industry cost structure — and the market moved. Five years ago, you'd rarely see that in an RFP. It's now becoming the standard in RFPs. So we can change the market. We've done it before, we'll do it again.
Could we see Republic being a leader in say your percentage of revenue from recycling? Waste Management likes to say it's the biggest recycler in North America. Could that ever be Republic?
VANDER ARK: It could be over time. Listen, I think recycling will grow over time at a faster rate than solid waste. About 80% of North American homes have access to a curbside program today. I think that number's going to keep going up. You go to West Texas, there's almost no recycling infrastructure and 20 years from now, that will be different.
So you'll see a continued build out of recycling, and you are going to see us lead the way, because it's the right thing to do for the environment, citizens, and our front line customers want it. Cities want it over time, they just need to pay for it and we've got to work through that together.
During Republic's recent Q1 earnings call, Slager mentioned how landfills "have not held up their end of pricing in the marketplace over the past several years" and said that would begin to change. Other companies have also begun talking more about the need to raise pricing.
As pricing is adjusted to cover the cost of landfill infrastructure, how will that change operations?
VANDER ARK: I think you'll see that more and more we're going to price a fair rate for everything coming in the landfill. So take special waste. Historically, that used to be more expensive than MSW. And because those come in big streams, the industry over time kind of got excited about that. Over time, that became the same price as solid waste and then became cheaper than solid waste. Now, it's more expensive to treat and handle than solid waste, because it creates more leachate, creates more gas, [you need to] put more infrastructure in the landfill.
We're looking at every individual stream that comes in and even all special waste is not equal. Some, that can be used for alternative daily cover, can be priced actually very cheaply because it's not really taking up space in a landfill. Where something that is wet or hot needs to be treated very delicately, handled sometimes with solidification, sometimes even a monofill application, dedicated cell. So we want to price accordingly.
Does any of this change your long-term financial outlook on landfills? [CFO Chuck Serianni] said yesterday some of the older legacy sites are more expensive for post-closure. Does the evolving liquid factor change anything for newer sites?
VANDER ARK: The quarry-filled landfills, unlined, with all kinds of toxins put in there, with little regard for the chemistry and biology that was going to take place, I think that's behind us. Now, we still have some legacy pockets here and there we might deal with, but just the science of Subtitle D and the science of landfills has advanced dramatically.
Landfills are living breathing organisms so they're still dynamic. We've gone more vertical than we ever expected to go ... Solid waste is pretty flat from a volume standpoint, and as special waste continues to grow, the landfill's doing different things, and we're learning as we go. Some of those things over time they're becoming more expensive, and that goes back to pricing, which isn't a problem, but people need to pay their fair share.
Vander Ark goes on to note Republic has a network of 20 leachate treatment facilities, of various types, at sites around the country as another way to manage this evolving stream.
Looking ahead, we can anticipate federal emissions rules may be taking effect. There has been talk of a carbon tax and other ideas. How much of a financial factor is that potential for new regulatory pressures on landfills?
VANDER ARK: Landfills are an easy place to put a tax and you see that in some jurisdictions more than others. California would be a good example of that. Massachusetts is another good example.
We want the government to do things that are good for the broader economy. I am not worried about the economic impact of that, on the industry or on us individually, because we have a very good history of passing those costs along to our customers.
The risk is always you don't want to be stuck in the middle. You've got flat revenue on this side, and rising cost [on the other side], and then you get squeezed? I think there's little chance we're going to get squeezed ... We want to do the right thing for the environment, but crippling the economy is not good for the environment over time. So, some of the carbon taxes that have been proposed, the devil's in the details. That's got to be done thoughtfully and intelligently so that business can adjust and the economy can flourish in that environment and not get penalized.
Waste Management CEO Jim Fish, for example, has previously talked about the concept of what comes next after landfills. I don't hear that from Republic as much. You think there's a good place for them, of course adapting to changes?
VANDER ARK: I do and listen, could there be some technology that could ... laser garbage or some enzyme that eats garbage? Yeah, we are highly connected to university research, start-ups, that ecosystem. If anything hits, we think we will be well-positioned to take advantage of that, over time. But people have been working on that, thinking about that about that for 40, 50 years, and we haven't seen anything yet. [I think] the death of landfills has been overexaggerated.
Going back to the concept of a carbon tax or new regulation potentially being a burden on the economy if it moves too quickly. We hear, conversely, that if climate action isn't taken soon enough, we're going to feel effects on the economy anyway. Would it be fair to say Republic thinks the open market can solve it, or is there a place for some regulation?
VANDER ARK: We're not opposed to regulation and coming up with a framework, or a fabric, where free enterprise and government regulation work together to combat climate change. Climate change is real, and we think very deeply and about our sustainability footprint, over time, and minimizing that as we go forward.
Vander Ark mentions both fleet electrification, a concept Republic will be piloting in the coming months, and more landfill gas-to-energy infrastructure as examples of relevant projects.
Dialing in on climate risks, every company has plans and certain regional assets are a concern. Puerto Rico comes to mind, I know you took a hit there during [Hurricane Maria]. What have you learned in the last couple years from some of these disasters?
VANDER ARK: Hurricanes have been a part of the business for a long time, and flooding and other natural disasters. We have a whole institutional capability on that.
When you're in crisis you don't want to be designing plays, you want to be running plays ... We think first about our people. Our people have to be safe ... Then we think about our assets, they need to be protected. Are our trucks on high ground? Have me moved all the computer equipment? ... The only reason I say customers third is because if you don't take care of your people and your assets, you have no chance to service your customers.
So we don't like to be the last one to finish before the storm. We want to be the first one to start after it. So we're conservative on the front side, and then we get very aggressive on the back side because we're prepared. We can get back to work quicker than anybody. Puerto Rico, we were operating more than a week before our closest competitor, because we were prepared.
Disaster debris seems to be coming in almost so frequently it doesn't throw off your quarterly landfill volume comparisons at this point. Is what's happening with climate a net opportunity, if you can adapt, or is there still some concern it could be a drag on business?
VANDER ARK: I would express humility. I'm always a little skeptical on any given event. Somebody, either a climate change believer or a climate change skeptic, both claims the event for themselves and fits it into their broader narrative and thesis. I don't think you can take any single event and draw a conclusion. For us, every event is different.
When you get wind — first of all we're concerned about loss of life, the community, the employees — but when you get wind, quick moving, that ends up being something that's real economic opportunity for us. When you get slow moving rain, that's something that ends up being a net cost for us, over time. Lots of leachate comes out of the landfill. There's not a lot of damage, which doesn't create a lot of debris and roll-off opportunities over time. Our service is backed up, often times because we can't get out, and loads are heavy.
The broader view is we want to take care of our people, take care of our assets, take care of our customers. If we make a little bit of money along the way great, but we don't look at our longer term model and think we're going to get a buck or two of the share price from climate change disaster recovery.
Conversely you don't necessarily see it as being a buck or two drag? You think you can kind of even it out?
VANDER ARK: We zig and zag, and we can pivot accordingly.