What are some of the biggest factors operators can expect to shape the waste industry throughout the rest of this decade?
Waste Today asked three industry observers about the trends they see as having a significant impact in the next three to five years. We interviewed Tyler Brown, a managing director with Raymond James & Associates, St. Petersburg, Florida; Michael E. Hoffman, president and CEO of the National Waste and Recycling Association (NWRA), Arlington, Virginia, and former managing director for Stifel Financial Corp., St. Louis; and Trevor Romeo, an equity research analyst with William Blair & Co., Chicago.
They found agreement on a few top issues, such as landfill capacity and continued strong merger and acquisition (M&A) activity, and diverged on others, including per- and polyfluoroalkyl substance (PFAS) and the adoption of electric vehicles (EVs).
Here are the top issues they’ll be keeping an eye on in the near future.
Michael E. Hoffman President and CEO, NWRA Declining number of landfills “We are seeing a pretty significant reduction in the number of landfills that are operating, and it’s predominantly a natural end of life. In many cases, they are smaller, municipal sites and they’re closing because they’ve come to the end of their natural airspace, and they have exhausted all of the options of going horizontal or vertical.
“Over a decade, I think you could see roughly 1,500 landfills come down to about 1,000, so that’s a 30 percent reduction. Everybody in the conversation—the service provider, the equipment providers, the customer, the politician, the regulator—everybody has to be aware this dynamic is happening. It will change the logistics. State departments of transportation will be aware of more long-haul movement because you’re going to move trash farther distances.”
Pragmatic PFAS management “I think PFAS is a far more manageable scenario if everybody steps back—everybody, all sides of this conversation—and acknowledges that there’s far more analysis that needs to be done on the current forms of PFAS versus the legacy forms of PFAS. We should work tirelessly to avoid unintended consequences of some of the regulatory choices that have been made specifically as they relate to, by definition, the rulemaking. A landfill, a wastewater treatment operation or a composting operation, under the ruling, are definitionally a generator. Well, they’re not a generator. We’re aggregators, right?
“But in the same breath, there’s a symbiotic relationship between wastewater treatment operations and landfills. They produce sludges, and landfills are great depositories. Can we recognize that might be the ideal form of sequestration?
“To be very clear, you are never taking PFAS out of our society. We’re always going to have the presence of PFAS going forward, … [but] there’s a pragmatic approach to it.”
Proactivity around emissions “In the context of our industry’s contribution to emissions, we need to be far more visible about how we are proactively reducing carbon intensity but also have to acknowledge that there will always be some level of carbon. It’s a complete disservice to everybody if you say that you legitimately can get to net zero in a short period of time.
“We, as an industry, should celebrate our own successes. We went lower intensity without anybody telling us to do it. As a vocational fleet, we will probably be the fastest mover to the next level of lower intensity. It will be a mixture of batteries early. There’s a fuel cell coming behind it, and there’s some technology that’s probably in the lab that I’ve never heard of. But you will see this fleet transformation, and as a vocational industry, we will lead that.”
Trevor Romeo Equity Research — Global Services, William Blair Shortage of landfill capacity “The biggest structural factor that we identified was the shortage of landfill capacity and how that drives a lot of different things. Strong pricing power, cost spread and margin expansion are three main components that should remain strong because of those structural factors.
“It doesn’t sound like there’s a shortage of space, necessarily. There is and there isn’t. If you think about waste being a very local business in certain areas of the country, like the Northeast, where you’ve got older cities, the population density is higher [and] the cities are closer together, there isn’t as much land space there. If you think about other areas of the country, though, like Iowa or the Dakotas or Wyoming, there’s plenty of open land there. It’s a question of finding the land and being able to permit it close enough to a population center where it makes sense.
“What we’re seeing is—and the Northeast is one [region] where we’re seeing a lot of this—you’re increasingly having to go farther and farther away to find that disposal capacity. We’ll likely be seeing a lot of rail and investments by these companies, shipping some of the trash from the transfer stations out to landfills in the Midwest or the Southeast because the Northeast just doesn’t have the capacity.”
Green growth “The growth of sustainable alternatives and other circular business lines should improve over the next several years, such as recycling and renewable natural gas (RNG). In terms of RNG, the regulatory aspect of this is one thing to watch out for in the next three to five years. The U.S. Environmental Protection Agency’s renewable fuel standards program is going to be a big driver of what happens with the value of RNG and RIN credits.
“With the public companies, you’re seeing a bit of a divergence in approaches. Republic Services has gone heaviest into EVs in a fleet. They service a good amount of urban population centers, where it makes sense to have the electric vehicle because you need that localized charging infrastructure, and it helps with the shorter distance between stops to have a lot more of the regenerative braking to charge the batteries. Whereas Casella Waste Systems serves mostly the rural Northeast and is still very much running on diesel.”
Increased consolidation “With more vertical integration and scarce landfill assets, we should see waste assets being concentrated in fewer and fewer hands over time. We think the competitive positions of the largest players in the industry will only get stronger and stronger, and a lot of the structural challenges facing some of the smaller players are increasingly driving them to sell to the bigger players. That’s driven a lot of the M&A that we’ve seen in the past couple of years.
“The largest players have extraordinary competitive positions. They are vertically integrated. They have assets throughout the entire value chain where they can push pricing that flows through to smaller players that aren’t vertically integrated, and it’s a cost headwind for them. So, if you’re a public company, you can absorb smaller players. You can get cost synergies out of that. You can increase your route density and your operating footprint. For a company like Casella, for example, they don’t have a national footprint, so they can use M&A to expand into new areas where they haven’t been. For the bigger ones, it’s about strengthening your presence in areas where maybe you’re not as strong but you already have some presence.
“What’s the end result? Over time, you’ll just see more and more of the assets concentrated under a smaller amount of owners. We’ve already seen that, for sure, and I do think it will continue.
“From a landfill perspective, about 65 percent of all the volumes are managed by the top seven companies in the U.S., but I think it probably continues to pick up a little bit going forward just because of some of the structural issues facing smaller players, more regulation, more capital intensity, the bigger players having more market power, and then also labor costs and maintenance costs and all that stuff have increased a ton the last few years, and that’s a big headwind for the smaller players too.”
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Tyler Brown Managing Director, Equity Research — Transports, Waste, Heavy Construction Materials Raymond James & Associates Consistent growth “First and foremost, we believe the industry as a whole will remain consistent with the prospects for inflation-to-inflation-plus pricing driving a durable margin outlook
“Further, while industry volumes have been anemic, an eventual pickup in housing and the potential benefit from nearshoring/reshoring/infrastructure stand to be volume tailwinds in coming years for the special, C&D, roll-off and, eventually, residential markets.
“I think it’s probably going to be a little bit more of the same, which is generally a good thing. With the focus on inflation-to-inflation-plus pricing, I want to give some optionality around volume because that has been a big topic. The volume has been weak, but if housing and some of those things pick up, I think it will get better.”
Technological advances “There are quite a few things going on, and we see the prospects for continued evolution in technology and implementation across the space, notably in automated recycling sort capabilities. I think there’s a lot of stuff happening in in-cab truck technologies, like cameras and routing software.
“Landfill air emission monitoring is going to probably be a big thing over the next few years and the slow adoption of zero-emission vehicles, including EVs. I do think EVs will be a thing, but it’s going to take time. Further, while RNG buildout timelines have been pushed out, we surmise the next few years will prove a ‘harvesting phase’ from substantial RNG investments that have been made across the U.S. landfill footprint that will probably come to bear in the next few years.”
Continued consolidation “Continued consolidation is going to be a pretty big trend. Consolidation will likely continue to play a role in both traditional solid waste as well as in specialty waste streams given the continued recognition of these critical infrastructure assets.”
Firm insurance premiums “We believe that the commercial auto insurance markets will remain ‘firm’ given continued litigation and surmise premium inflation will continue to be a source of inflationary pressure for haulers both large and small.”
The author is managing editor of Waste Today and can be reached at smann@gie.net .
