The pandemic has led to a higher number of Americans working from home. Spending more time at home leads to more trash getting accumulated in residential areas. Therefore, companies like Waste Management, Inc. have to undertake more truck trips to collect higher amounts of trash. That, in turn, leads to higher costs for waste removal businesses.
According to Devina Rankin, Chief Financial Officer, Waste Management Inc., “We need to have conversations about the level of service we are required to provide because it is different than what we signed up for.”
However, the waste removal industry has gone a major shift in recent years. Ever since China banned the import of waste in 2018, prices for recyclable materials have softened. Waste collection companies recoup a large portion of their recycling costs by selling materials such as plastic, paper, cardboard, and metals. So, the import ban has effectively hurt margins.
Recently though, there has been an emerging trend of greater domestic (US) demand for recycled paper and cardboard. Before the pandemic, about 70% of Waste Management’s recycled materials used to be sold to domestic players for use in toilet paper and packaging. That number has gone up to 80-85% since the outbreak of the pandemic.
Waste Management has also been successful in charging higher fees to residential customers in certain municipalities. According to Ms. Rankin, “The fundamental shift in residential waste is well understood and will make the conversations with municipalities increasingly effective.”
Volumes in residential areas are expected to stay relatively high in the coming months. How companies like Waste Management Inc. manage the shift from declining industrial/commercial volumes to rising residential volumes will be closely watched by investors. Shares of Waste Management, Inc. closed at $98.31 on May 12, down 1.71% for the month.