The average price of solid waste collection and disposal services has been increasing at an estimated average rate of 1.6% annually from 2014 to 2017, although price increases have varied somewhat among service providers. Recent price growth can largely be attributed to the rising cost of complying with new and changing regulations, such as landfill capping standards and changes to the Clean Air Act of 1970. These changes have been forcing haulers to invest in new collection trucks and other related operating equipment and machinery, thereby increasing their operating costs.
In addition, rising demand has been driving price growth. Businesses and households are among the largest buyer segments for solid waste collection and disposal services. During the past three years, growth in the number of businesses and households has led to higher levels of solid waste generation and demand for market services. Furthermore, rising construction activity has been pushing up demand for the collection and disposal of C&D debris during the period. Service providers have expanded their operations to meet heightened demand, encouraging them to raise prices for solid waste collection and disposal services.
Fortunately for buyers, falling transportation costs have been partially offsetting the impact of rising demand. The price of gasoline has been falling due to oversupply in the three years to 2017. The decrease in gasoline prices has resulted in lower fuel costs for haulers and thus a reduction in the fuel surcharges passed to buyers. Moreover, many national operators have been investing in more economical vehicles to reduce their sensitivity to volatile gasoline prices, which has further reduced transportation costs and limited price growth.
Although price volatility varies among local, regional and national service providers, it has remained low on average. Buyers benefit from low price volatility because it makes it easier for them to properly budget for purchases. Low price volatility has somewhat reduced the negative effects of price increases on buyer power. To further mitigate the impact of rising prices, buyers are encouraged to establish long-term contractual agreements now to lock in current rates.
Prices for solid waste collection and disposal services are forecast to continue rising an average 1.9% annually in the three years to 2020. Demand will remain strong during the period as industrial activity continues to grow. Rising demand, coupled with a return to growth in fuel prices, is expected to result in an accelerated rate of price growth. Fortunately, price volatility is expected to remain low, shielding buyers from extreme fluctuations in price.
One of the primary drivers of price growth during the period will be continued growth in industrial production levels. According to the Environmental Protection Agency (EPA), industrial facilities generate about 7.6 billion tons of industrial solid waste each year. The IPI is forecast to rise as the global economy strengthens in the three years to 2020, indicating further growth in the amount of waste generated by industrial firms and higher demand for waste collection and disposal. Likewise, the number of businesses and households is expected to rise, resulting in an increase in total waste production and further bolstering demand. Rising demand for waste collection services will lead to price increases.
The expected rise in suppliers’ purchase costs, particularly the price of gasoline used to power waste collection vehicles and operating machinery, is also anticipated to contribute to service price growth. The price of gasoline is projected to increase as OPEC nations agree to cut production levels during the next three years. As a result, service providers will find it difficult to increase their operating capacity to meet rising demand without raising service prices as well. Suppliers are therefore expected to pass their rising purchase costs to buyers in the form of higher prices.
Price growth will continue to vary across suppliers. It will take time for some solid waste collection and disposal service providers to implement price increases due to the long-term contractual agreements they hold with many of their buyers. Some haulers that have not increased their prices during the past three years will likely choose to implement price increases in the next three years to ensure that their prices stay on par with market trends. Therefore, it would be beneficial for buyers to enter into a long-term service agreement soon to lock in current prices.