06
Nov
08

the business of garbage

The raging torrent of capitalism has dipped into a recession that looks like it’ll be broad and wide and deep for the vast majority of this planet’s six billion inhabitants. Even the companies that usually ride the waves (rather than being buffeted by them like ordinary mortals) are struggling, missing their earnings forecasts, seeing their stock tank in a bear market, and being turned away empty-handed by banks that are no longer in a lending mood. Not so the giants of garbage. At least not yet.

Waste Management, which is based in Houston and has reaped a disproportionately large share of the trash Hurricane Ike left in its wake, reported a 12% spike in profits for the third quarter of 2008. WM revenues totaled $3.5 billion for the third quarter, and almost 10% of that total is profit. (For more on disasters, see debris. Various WM operations in the path of the hurricane expected increases in garbage ranging from 20% to 100% during the cleanup as people try to get rid of things spoiled and destroyed.)

The garbage industry, in numbers

The garbage industry, in numbers

Republic, with headquarters in Fort Lauderdale, is smaller than WM. Its revenues totaled only $834 million, and more than 10% of that was profit. Its reported earnings increase for the quarter was 32%. The company is looking to get bigger, having put in a takeover bid for Allied Waste, the second-largest garbage company in the country, presumably to take on Waste Management more effectively.

Allied, based in Phoenix, has been doing all right too. Their third-quarter earnings increased by 17%. Allied reports that total volume dipped by 4% because the economy tanked, but this loss was more than offset by the price hikes associated with fuel recovery costs. In other words, the price increase in collections that was meant to offset rising oil prices in fact outpaced the rise in prices and netted them additional profit. The same might well be true for WM and Republic.

So here a couple of conclusions:

  • Consumers pay many, many times over for the rising price of gas, once at the pump and then again, disproportionately, on their collection bill. (And at the cash register, of course.)
  • From a national perspective, the struggle between the garbage superpowers might look like competition, but considered locally it is not. And consumers pay for that too.

The last decades have seen the disappearance of small local garbage carters into the maws of gigantic conglomerates. If they’re small enough, the large companies underprice them until they go out of business. If they’re a little larger, they get taken over. Either way, local markets end up being subject to monopoly pricing.

The story of New York City illustrates the point. For decades, commercial garbage collection was mobbed up in the five boroughs, which resulted in artificially high prices. The operation is usually described as a cartel. In practice it was a network of small family-based operations that were either “made” (that is, a part of the mafia proper) or operated under the auspices of the business rules enforced by the mob. Then, in the late 1990s, the police ran an undercover operation that effectively broke the back of the mafia’s garbage empire. (See Rick Cowan and Douglas Century, Takedown, for a rousing tale of high intrigue.)

With the mafia monopoly out of the game, many of the small players continued to operate, now competing lustily with each other. Prices dropped precipitously. However, as is usually the case, paradise was a fleeting condition. Another giant, Browning-Ferris or BFI, which subsequently got sucked up by Allied Waste, moved into the market, underpriced the small haulers until they went belly-up, and then drove prices up again until they were close to the level they had been under mafia rule.

In the meantime, if you want to be in the stock market, you could do worse than invest in garbage. The market will contract, because people produce less trash in lean times. But garbage is not discretionary. The garbage giants can expect to do quite well, especially since climate change is likely to continue to produce cataclysmic garbage harvests for a long time to come.

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