When it comes to recycling on a large scale in the U.S., Republic Services is one of a select few doing it across the country.
While Republic's executives may have chosen to present a lower public profile than others in the months since China's import restrictions shook up the industry, that doesn't mean they haven't been equally engaged in addressing them. In fact, the company's Vice President of Recycling Pete Keller was discussing the early effects of China's National Sword campaign at WasteExpo back in May 2017.
Waste Dive caught up with him again in early fall, as the effects were just beginning to set in, and tracked the company's more recent reactions in a February earnings call. With tighter standards seemingly here to stay, material getting displaced in certain states and broader conversations underway about the future of recycling itself there has been plenty to cover.
Waste Dive sat down with Keller at WasteExpo in Las Vegas last week to hear about his recent trip to China and how the company is responding to these challenges.
The following interview has been edited for brevity and annotated for context.
WASTE DIVE: What were your general takeaways from last month's trip to China?
PETE KELLER: Certainly the mixed paper ban seems like it's going to hold for the foreseeable future. There's still some confusion about inspections and customs and acceptance and protocol. There are still maybe some inconsistencies.
This has been a big change obviously in a relatively short amount of time. So whenever you've got this much change it takes a little bit of time to work through those things.
There's stronger demand for Asian-based fiber and you can see that in the pricing that folks are having to pay for that material over in Asia, China specifically. I think the run on virgin pulp pricing is well-documented.
Is that a blip? It seems unsustainable for the manufacturers.
KELLER: I suppose the number of trees that you can cut down is relatively unlimited, but there's also the matter of pulping capacity. So the folks that make pulp have capacity as well, and generally speaking they run near capacity. I would expect that in today's market they're running at capacity.
And I'm speaking globally. So whether it's Brazil, whether it's Russia, whether it's the U.S., whether it's Canada ... wherever the pulp may be coming from.
The point is there's been a run-up on Asian fiber, recovered fiber. There's been a run-up on virgin pulp. So the Chinese are doing what they need to do to source their mills. Whether or not that's sustainable, the only arbiter of that will be time.
So more material is being exported to Southeast Asian countries as a result. Are they doing anything any differently, or do they just have lower standards?
KELLER: Different standards. You know there is always the chance that those countries could be fast followers as well as it relates to quality standards. I wouldn't suggest they're doing anything different. Those mills obviously can consume mixed paper, they can consume a MRF bulk grade whether it's OCC, whether it's newsprint. They've got the technology, they've got the cleaning equipment, and a lot of that capacity is new in the last couple years.
But that capacity is not new because of some of the restrictions. That capacity is new because those economies are emerging. And that capacity was created to supply those emerging economies.
So there's a question to be posed about the sustainability of those secondary markets for what once was going to China.
Keller noted that regardless of the data being used, it's clear that alternative markets in these Southeast Asian countries can't make up for the volume China was taking.
Have you been able to move any more material to domestic buyers as a result?
KELLER: The domestic mills have sort of operated at capacity, right? There's been some announcements about new investment and that's great. Pratt and even some of the other U.S.-based paper makers are making incremental investment in the capacity that they have ... but that stuff doesn't come on overnight.
Depending on the location, depending on what part of the country, I mean you could be looking two, three, five years for something significant to come on.
Anywhere else I should be looking? I've heard some talk about Europe or South America. Is any of that viable or is it really going to be domestic or Asian markets?
KELLER: Yeah I mean anything at scale ... In South America obviously there are some emerging economies there as well, but South America is rich in natural resources and they haven't necessarily had a history of importing recovered materials.
There's probably a discussion to be had about supply coming out of the marketplace. Because, again, if there's not a draw in terms of demand ... I mean you can't continue to stuff stuff in a sock. And so at some point that'll begin to solve for itself as well.
As Keller alluded, material has been piling up or disposed in small quantities in states such as California, Massachusetts, Oregon and Washington. Last month, Republic asked multiple municipalities in Washington's King County for temporary disposal permission for mixed paper.
Taking King County as an example, what was the thought process that led to that decision?
KELLER: I think simply put, we can't put our people or our assets at risk. If you think about these facilities, it's a ton in, a ton out. And if we're not moving material in a timely basis out, we don't have the luxury of seven, 14, 21 days of storage at these facilities. We have to move material out.
It hasn't been consistent, and it hasn't been steady, but we've experienced some days where we can't move material out.
Even at zero or negative pricing?
KELLER: At any price, at any cost. There's no availability of shipping containers. No ships are calling in anytime soon ... You see this path and then we just have to make a decision. But again, we're always going to try to do right by our contracts.
We've got obligations that we always want to be keeping the promises that we make. We can't put our people and our assets at risk. We just, you can't. Right? So in those instances we've been transparent, we reached out to our customers. We've been on our front foot. We're not doing anything in the darkness of night.
After covering challenges with sourcing shipping containers and adjusting trade routes, the conversation turned to factors that are more within Republic's control. One recent example was new equipment from CP Group for mixed paper at the company's Seattle MRF.
Can you speak to plans for upgrading MRF equipment in response to all of this?
KELLER: So yeah we're looking at that, certainly in those markets that have been heavily reliant on export.
We're still sort of in the fine tuning, tweaking mode, but seeing significant quality improvements [in Seattle] and that's really about throughput. We've got to get back to a point where the material that we used to be able to process on a daily basis [can be processed] on a daily basis.
One of the more immediate reactions to the quality requirements are the contamination restrictions with slowing machines down and adding labor. And even then, you know, we're not making the grade.
So we know we can't continue to do that and we have to make incremental investments. So yeah we're looking at that in a number of locations. We actually have some other pieces of technology that are being, I suppose I'll say, manufactured right now. Then we're in final determination where we're going to drop those in.
For mixed paper or other commodities?
KELLER: Newsprint. Fiber grades. We're doing some evaluation on OCC as well, because there's all kinds of things happening in the industry, but the cardboard boxes are getting smaller because there's a lot more of it in the residential stream.
So a lot of our systems have been designed to capture big cardboard, but not small cardboard. So we're evaluating all that as well.
Another key part of what China has banned are mixed plastics. That has led to the material being dropped from curbside and drop-off programs in multiple states. Currently plastics 1, 2 and 5 are seen as the only ones with much value in most markets.
It seems like mixed plastics are a small enough fraction of the stream that they're a much lower priority than fiber?
KELLER: So when you consider the 3, 4, 6, 7, it's 20-30% of the resin fraction. Then the resin fraction is 3-4% of our total receipts ... It's a pretty small number.
Now, the mixed plastics have received a lot of attention for the last few years because this mixed plastic marketplace — whether it's economic, whether it's quality, whether it's something else — has sort of been an issue for people. But it's really a small part of what we do.
It seems like more a cultural or symbolic thing, tying into "zero waste" and other goals. Since we all use them in our homes people are more inclined to want to recycle them. Maybe that's why they've gotten so much attention?
KELLER: Maybe. There's probably a discussion to be had — that the industry has to have and frankly the U.S. populace — around maybe getting back to basics, making sure that we're focusing on the right things.
[There is] a lot of talk about getting this little sliver or that little sliver. Let's just get all the cardboard, all the aluminum and all the clean paper we can get, right? Because there's still a lot. There's much more of that opportunity out there.
Along those lines, Waste Management has been emphasizing the need to think about "recycling" rather than "diversion" in its latest earnings call, as well as public appearances.
Waste Management's latest messaging has been about recycling the right things rather than trying to divert everything at the cost of higher contamination rates. Is Republic in the same camp on that?
KELLER: [You can] think about recycling as recycling, or recycling about ultimately creating a raw material for the marketplace. Because that's really what we do. We create a raw material for the marketplace.
If you have unlimited supply through mandates, through weight-based mandates, and there's little to no regulation addressing the demand side, at some point you have to have a conversation about the liquidity in the marketplace. You've got all this coming in, and I mean we just historically have not had a big focus on the demand side of the equation as an industry, as a populace, in terms of public policy.
So that's a little bit different I think than maybe some of the other messaging, but certainly there's a conversation that could be had.
How do you work with partners on that? Everyone is in a market with these goals. Los Angeles comes to mind. Do you come back and tell them, "Look, this isn't going to happen?"
KELLER: Some of it's about transformation of the business model as well. So you think about a business model of five, six, seven years ago, it relied heavily on the value of the material that was being extracted from stream.
Anything's possible, but there has to be a recognition that those types of things come with a cost. So that's part of the conversation as well, is just transforming the business model and making sure that comprehensive planning, program recyclables, long term goals are durable.
So long as those costs are being recovered, whether it's at the front door, whether it's at the back door, whether it's in the middle. I think that's really the conversation. How do you create robustness and transparency around the business model, with those customers?
Last summer, Republic acquired ReCommunity — previously the country's largest independent recycler — with a total of 26 MRFs right as news about China's import restrictions was beginning to set in.
How has the ReCommunity integration been going?
KELLER: It's been six months since the close and operationally going pretty well.
There's a lot of moving pieces that go along with integrating that number of sites all at once, but I mean the level of communication has been great. They've got some really talented people that have joined our team, some good assets, some good relationships. So we're excited about that. And we're frankly still working through identifying all of the synergy and all the opportunity.
So there's been some really good things that we've been able to accomplish. You know, timing is not great...
Anything in their portfolio that's been helpful in terms of adapting to the China restrictions?
KELLER: Yeah. Lots of stuff, but I'm not going to get into any specifics.
Fair to say there were more pluses and minuses with the timing?
KELLER: Yeah more pluses than minuses, for sure.