Today’s guest post is from Brian Seipel, a Procurement Consultant at Source One Management Services focused on helping corporations understand their spend profile and develop actionable strategies for cost reduction and supplier relationship management.
There are plenty of opinions when it comes to the environment on both ends of the political spectrum. You can likely find thousands of posts across the internet on the topic, were you so inclined. I promise that this post doesn’t delve into either side’s take on the planet or our stewardship of it.
So where else might a post of recycling and politics go? More to the point, how does it align with news Procurement Pros may be interested in? As it turns out, plenty of Procurement pros have a stake in the fate of our collective trash.
And in terms of America’s biggest partner in the recycling process, China, we have a problem thanks to a ban set to take effect in Q1 of 2018.
Setting the stage
A good amount of paper, corrugated, and plastic packaging products can be recycled and reused to create new packaging materials. These same materials can also be transformed into other products and, likewise, other products can be turned into packaging. Plenty of packaging procurement initiatives touch upon recycled materials.
At the heart of this recycling transformation are the organizations who purchase these recycled materials so they can be remade into valuable products. Since the early 2000’s, these organizations have been overwhelmingly found in China. In terms of American exports of bales of scrap, China is our number one partner, with these facilities importing over $5.6 billion annually in American paper, metal, and plastic scrap.
It isn’t just the US that exports recyclable scrap to China – the International Solid Waste Association reported in 2014 that 56% of the world’s scrap was exported to China. Clearly, any disruption to China’s buying habits of this scrap material will have very real effects on recycling initiatives globally. In turn, companies involved in the purchase of products made from recycled materials should keep an eye on these import-export relationships.
So what’s the problem?
Recycling isn’t easy – a lot of work needs to be done to get scrap material in shape to recycle. It takes real resources to process scrap material. The cleaner and better sorted scrap is when it arrives at a Chinese factory, the easier, faster, and more lucrative it is to convert to recycled materials. As such, it isn’t surprising that China has been more and more interested in ensuring a quality scrap product in recent years.
This demand for better scrap material, and objection to what China is calling excessively contaminated shipments, have led the country to ban a number of solid waste imports.
This could potentially have a direct impact on the availability of “virgin” materials as we move forward into the ban next year. For example, fewer sources of recycled paper products could lead to a tighter pulp supply and higher costs.
How Will the Scrap Industry Respond?
Assuming China does, in fact, move ahead with plans to ban key scrap imports, American companies are going to have to come up with a response. Several are on the table:
- Forego recycling, and send scrap shipments to the landfill instead.
This is not the greatest of solutions by any means, but if companies take no steps to change behavior, this will be the natural result of a “do-nothing” stance on the problem.
- Fight the ban on a socio-political basis.
From the language of the ban, to the impact the ban will have on businesses both foreign and domestic, there is certainly opportunity to challenge China’s path forward in terms of viability.
- Add more quality controls.
In terms of recycling, an empty soda can is both garbage and a product. If China’s main concern is one of quality control, then steps taken to improve quality levels (in other words, ensuring a process that removes contaminates before bales of scrap are sent to China) may alleviate China’s concerns, and help move the scrap industry back on track.
- Further develop and strengthen alternative markets.
Local organizations may also benefit from building some diversity into their strategies. China put a very fine point on the issue with this waste ban, but their intentions aren’t new, either. China has been increasing their scrutiny of imported scrap bales for the last several years, leading to the rejection and return shipment of subpar bales – Some American exporters have used these intervening years to plan alternative outlets for their scrap. This may include finding other countries to export to, or finding local customers for this scrap material.
The Institute of Scrap Recycling Industries (ISRI) is a US-based trade association made up of organizations from 30 countries that represent the lifecycle of recycled materials; from processing to brokerage, to industrial consumers. ISRI released a nine page response to China’s ban, which provides a few key talking points – Essentially, ISRI’s opening response combines items two and three above.
The response opens by challenging the language of China’s ban, arguing that clarification is required on China’s end to better outline how the band will be enacted (ISRI suggests, of course, that China should follow guidelines developed by ISRI to achieve this goal. Simultaneously, the response calls China’s own capabilities into question in comparison to the United States’ recycling industry: “where it takes 1,150 tons of recyclable fiber to make 1,000 tons of new paper in the United States, it takes 1,300 tons of recyclable fiber to make the same 1,000 tons of new paper in China. As a result, Chinese manufacturers have come to rely on the supply of high‐quality scrap from abroad in order to stay competitive.”
It is too early to say what the true impact will be moving into 2018. The American scrap industry has set wheels in motion to fight the ban politically, as well as ramp up efforts to either improve scrap exports to China or find alternative destinations for the material.
One thing is certain, however. Moving forward, Procurement teams in markets that rely on recycled materials should keep their eyes open and attention focused on China’s next moves.