Every year brings with it new opportunities and challenges for demolition contractors and construction and demolition (C&D) recyclers. 2018 is no different. Construction & Demolition Recycling talked with four companies in the Southwest region of the U.S. about how shifting market conditions impacted their business last year, as well as what their perceptions are heading into 2018.
DEALING WITH THE CHALLENGES
John Sacco, president, Sierra Recycling & Demolition, Bakersfield, California, says that one of the biggest hurdles his business had to deal with over the last year has been shifting commodity prices brought about by fluctuating demand.
“The metals industry in 2017 saw a nice commodity price increase, so that was the good side of things,” Sacco says. “Plastics recycling was bad, and the mixed paper and cardboard markets were hurt because of Chinese regulations.
Jason Tankersley, CEO of The Fairfax Cos., owner of the Speedway Recycling & Landfill Facility in Tucson, Arizona, echoes similar sentiments.
“Markets have become extremely challenging with respect to recycling,” Tankersley says. “With China’s Green Fence and National Sword policies, plastic and paper markets have been decimated. We have not been able to move any of our sorted plastics in months. No mixed paper is selling, and the cardboard market prices are staying relatively low. Ferrous and nonferrous metals are also maintaining low price points.”
Joe Rizzo, vice president of business development, Cherry Cos., located in Houston, says low oil pricing continued to impact their heavy oil-based consumer clients in 2017. The uncertainty around recycled asphalt shingles (RAS) and adjustments surrounding the new silica standards from the U.S. Occupational Safety and Health Administration (OSHA) were also challenges the company was forced to confront.
Tillio Olcese, president of Olcese Waste Services located in Carson City, Nevada, noted that competition and issues with financing were two drivers of slow business in the region.
“Owners are not pulling the trigger on projects, especially bigger ones,” Olcese says. “Financing was one of the main reasons projects were not moving forward. Also, stiff competition in the demolition industry did not help 2017 numbers. Now, people with a backhoe are all of a sudden full-service demo contractors.”
MANAGING EMPLOYEE SHORTAGE
On top of economic and market challenges affecting the region, Tankersley says his business has faced challenges finding qualified employees for some positions. Due to the strength of the construction market, maintaining the company’s equipment has especially become a challenge due to a shortage of qualified skilled mechanics and drivers. This amplified demand has resulted in a rise in wages for these positions. Conversely, the lack of demand for plastics and paper has resulted in his company having to cut down on its sorting labor since the company stopped sorting these materials from its waste stream. It is currently only sorting cardboard and metals, which has changed its employment needs.
Besides recent market shifts, there are several long-standing issues are still negatively affecting the industry’s ability to bring in new talent.
“For our business and for related industries, you have to be able to hire people who can pass prework physicals and drug screening. That, for whatever reason, has always been a problem in our area,” Sacco says. “Finding quality people has been a challenge for years, and I don’t think this last year was any different.”
This dearth of qualified outside labor has placed an added emphasis on companies being able to retain their existing workforce, which is something Cherry Cos. strives for as a family business.
“Finding the right personnel in some regions has always been a challenge,” Rizzo says. “However, Cherry started as a family business and that culture still remains today. We promote from within when the opportunity arises from our great pool of employees. In addition, the down market in oil has provided some new candidates for personnel.” Although Cherry Cos. tends to hire within the company, Rizzo says there is still a shortage of qualified labor.
Green building and green building certification systems, such as the U.S. Green Building Council’s Leadership in Energy and Environmental Design (LEED), have long been a trending topic in construction circles. However, economic realities have tempered its impact when it comes to C&D recycling, even in more progressive states like California.
“California is on the forefront of regulation that sound goods, but the process of being able to recycle has become more difficult due to all the different regulations,” Sacco says. There is extra scrutiny on recyclers for airborne particles and stormwater, for example.
“The ramifications of green building on the actual recycler is just getting to be too much,” Sacco continues. “It is so burdensome that being profitable has become difficult.”
Olcese says that the pricing restrictions of green building have also made it impractical for developers in his region.
“We have seen very little, if any green building/LEED work in the region for private projects,” Olcese says. “This is the bottom-line issue with developers saving money. We have seen some LEED projects on the federal level; however, they are few and far between. In our experience, this really runs up the price tag substantially.”
Rizzo says that Cherry Cos. participate in a number of LEED programs, and that because they are a recycler of concrete, asphalt and steel, they are able to combinate 90 to 95 percent waste diversion regularly. However, the area’s cheap landfills have made it impractical to participate in some green building and LEED certification programs.
While Tankersley says that green building initiatives aren’t a major part of business in Tucson, a subset of environmentally conscious consumers present in the city has opened some opportunities for the company.
“I have not noticed a big difference in the green building industry here in Tucson,” Tankersley says. “I am on the Southern Arizona Home Builders (SAHBA) Green Build Committee and we have seen little interest by the larger homebuilders in participation. With stricter energy use standards being legislated, it seems there has been a move away from the need to label things LEED or green. However, I see some of the smaller construction companies trying to market to that niche.”
To recapture some of their recycling facility’s lost volume suffered when a local municipality discounted its tipping fees, Tankersley’s company started their own roll off division, Tank’s Roll Off and Recycling. This new business, specializing in green and wood wastes, works to appeal to the consumer who cares about sustainability, Tankersley says.
LOOKING FOR OPPORTUNITIES
The companies profiled in 2017 for the Southwest Regional Spotlight, “The Light at the End of the Tunnel,” were cautiously optimistic that the rebounding economy, new presidential administration and a boost in C&D recycling volume would spell good things for the year to come. Although the variables affecting the market subdued many companies’ revenues in 2017, there is reason to believe that there could be a rebound in 2018.
“By all leading indicators, based on the national forecast of an economy boost in 2018, we anticipate an increase in the upcoming year,” Rizzo says. “With oil prices continuing to show strength, the continued client-based education for recycling, increased public dollar money and the labor shortage lessening [in some segments], we anticipate great things in 2018. Challenges to overcome in this upcoming year will be the stabilization of businesses affected by the devastating impact of Hurricane Harvey.”
Just as Hurricane Harvey figures to play a prominent role along the Gulf Coast in 2018, so too do the wildfires that ravaged California throughout 2017.
Sacco is confident that the economy will improve in 2018, but questions how the state’s regulations surrounding the fires might affect the cleanup effort.
“The challenge for our state is always going to be dealing with the regulations that come along with progress,” Sacco says. “For example, is some of this cleanup material going to be labeled hazardous waste, and if so, who is going to be able to handle it? A big question is going to be how quickly [homeowners will be able] to get permits to rebuild?”
Tankersley shares a sense of optimism going into 2018, while acknowledging the key to growth lies in the company’s ability to cater to shifting trends.
“2018 is promising to be a better year than the previous two,” Tankersley says. “Tucson has had several Fortune 500 companies agree to move into our market and establish headquarters here, one being Caterpillar. The biggest opportunity is also our biggest challenge: competing with the cheap tipping fees [offered in our region] while gaining market share by appealing to those who truly care about what happens to their waste. Finding uses for waste is what we do, and we will just need to try harder to find a beneficial use for all this stuff.”