Business Services

Recession-proof waste management industry: Down in the dumps

The current recession has not spared even the solid waste management industry, considered a recession-proof sector dealing with basic amenities such as waste collection and disposal services. The impact of recession has been rather indirect – in the form of less waste production by other industrial sectors – but has nevertheless been more severe than expected.

“Unlike some of the less severe recessions during the last half of the 20th century, declines in volumes this time are impacting the entire solid waste industry”, said Bruce Parker, president and chief executive officer of the Washington D.C.–based National Solid Waste Management Association. “The economy is the issue that is affecting the whole industry.”

The massive slowdown in residential and commercial construction has substantially reduced the construction and demolition waste that need to be processed. The same was the case with manufacturing. Also, with a drop in consumers spending, less packaging is being required by the suppliers. As fewer people eat in restaurants, the eateries are buying fewer products, leading to production of less waste.

The manufacturing side of the solid waste management industry has been affected by the declining solid waste volumes. Manufacturers of mobile trucks and transfer trailers, along with stationary equipment like balers, compactors and containers, have adopted various cost-cutting measures to accommodate a drop in revenues. Equipment manufacturers have reduced their workforce and eased the pace of production as solid waste companies are delaying the purchase of new equipment.

Another major impact of recession on this industry was a drop in the prices of recyclable materials. As the mills reduced the quantity of material purchase, some of the recycling facilities had to slash their workforce, cut back working hours and initiate other cost-cutting measures.

To combat recession, Houston-based Waste Management Inc. announced a restructuring program in Q1 FY2009, for which the company will have to incur $50 million. However, the company expects the restructuring exercise to result in annualized savings of more than $100 million. Vermont-based Casella Waste Systems Inc. is also in the process of what the company’s Chairman and CEO, John Casella, mentioned as a “comprehensive effort to improve all aspects of our operating structure and daily business practices”.

In the coming months, the industry is unlikely to see any major turnaround. Standard & Poor’s (S&P) has forecast a 42% decline in housing starts this year. This in turn would reduce the production of construction and demolition waste. Also, S&P anticipates a 3% decline in GDP for 2009, a forecast that paints a gloomy picture for the industry as well as its client segments.

According to Waste Management Inc., the collection and disposal volumes are anticipated to be lower during the remaining part of 2009 as compared to the same period last year. Also, the company anticipates the recycling commodity prices to remain subdued till Q4 FY2009. However, the pricing for collection and disposal services is expected to be positive, as majority of industry players are putting more emphasis on margin growth and Return on Invested Capital (ROIC) at the expense of market share.