We often discuss how to collect or sort blue box recyclables but if they aren’t marketed effectively, your program’s finances may suffer. But how do you know? Here’s what an expert had to say.
Recyclable Materials Marketing (ReMM) surveyed 14 Ontario municipalities that represent 77% of Ontario’s population to identify the most common marketing approaches and the pros and cons of each. Here’s a summary.
MRF contractor markets all material (with or without revenue share): used by 8 programs surveyed
PROS
- Contractor may have incentive to produce higher quality materials to maximize revenue
- Potentially higher revenue by leveraging volumes from multiple sources
- Greater flexibility for contractor to negotiate with end-markets
- May reduce risk to municipality
- Contractor manages logistics
CONS
- If revenue share not factored in processing fees municipality will not realize benefit
- Dependent on contractor to market materials & assume risk
- Lower prices or lack of pricing transparency if broker sells material to markets it controls
Municipality/Association markets all materials: used by 4 programs surveyed
PROS
- Price & movement transparency
- Closer relationship with end-markets to understand challenges & opportunities
- Ensures accountability
CONS
- Assumes financial risk & staff administrative costs (marketing, accounting, logistics)
- May have less flexibility to negotiate with markets due to municipal guidelines
- Limited leverage – marketing from one facility vs multiple facilities
Municipality markets containers, MRF contractor markets fibre: used by 1 program surveyed
PROS
- Contractor manages largest portion of stream
- Contractor may assume risk based on agreement
- Municipality has transparency of container pricing & movement
- Fibre price based on published formula
- Contractor manages logistics for fibre
CONS
- May lack transparency into exact prices received by contractor
- Contractor includes fibre risk in processing fees
- Administrative cost of dual approach
- Municipality assumes risk for containers
- Limited ability to leverage volumes
Municipality secures the services of a broker to market materials: used by 1 program surveyed
PROS
- Potentially higher revenue by leveraging volumes from multiple sources
- Lower administrative costs for municipality
- Greater flexibility for broker to negotiate with end-markets; not constrained by municipal guidelines
- Reduced risk based on structure of agreement with broker
CONS
- May lack transparency into exact prices received & location of end-markets
- Broker receives fee for services
- Reliance on contractor to market all materials & assume risk
- Lower prices or lack of pricing transparency if broker sells material to markets it controls
Co-operative marketing (municipalities bundle tonnes): not currently used by any programs
PROS
- Shared administrative costs
- Larger supply base commands collective negotiating power of member communities
- Ability to move partial loads by coordinating logistics from multiple municipalities to generate a full load
CONS
- Administrative costs – each municipality needs representation
- One member usually assumes majority of responsibility
- Staff changes may restrict ability to sustain participation in cooperative marketing
What’s the best approach for your program?
Based on the research, there are four questions to ask to help evaluate which approach may be best.
How much marketing risk can your program assume? Some municipalities are willing to assume the entire marketing risk; others aren’t. As Mike Ursu, Operations Manager, Region of Waterloo points out, “municipalities assume all the commodities risk either directly or indirectly through their contractor, so the best approach is either for the municipality to market the material or have a completely transparent relationship with someone else to market the material.”
Can your program dedicate a staff member to marketing commodities? You’ll likely need to have a staff member dedicated to marketing commodities so they can follow commodity trading trends closely and be prepared to maximize revenue potential for commodities that you choose to self-market.
Does your program recover enough material to gain access to key markets? Programs with a limited amount of material or that are located in remote areas may have restricted access to markets. Conversely, contractors and brokers market material from multiple sources to generate higher revenues and the ability to negotiate with end-markets to accept material from multiple sources when market conditions are poor.
Do you have flexibility to negotiate with end-markets? Strict procurement policies and guidelines (e.g. financial deposits/guarantees) may impede a municipality’s ability to negotiate with end-markets and limit the number of companies that will bid on its material.
Knowing your options is key
Phil Zigby, Client Services and Performance Management, from one of the municipalities consulted, the City of Guelph (self-markets), noted that they “use a variety of methods to market our blue box recyclables including but not limited to spot markets, brokers, direct to end users, and tendered contracts. It is important to be flexible and utilize the most appropriate options as the commodities markets are always changing. For example, we may use a broker to sell into a market place with limited or exclusive; or spot markets when we know there’s enough demand for a particular commodity that we don’t require external marketing services support.”
In addition, it’s important to review and evaluate the four questions, along with a financial analysis (in a forthcoming blog) to determine the best path forward.
For more information
For more information or advice on material marketing, contact CIF staff or Atul Nanda at atul@remm.ca.