Commodity Surcharges: Charge CardsPosted: January 27th, 2009
By Sarka Halas
Canadian Business Magazine
The airline industry isn’t the only one adding extra fees to their bills.
Many airlines started charging a surcharge in an attempt to preserve their bottom lines when the price of oil soared last year. But commodity surcharges may be creeping into other industries as well. Take the paper recycling industry. It’s been hit exceptionally hard by increasing supplies that have cut into prices, forcing some companies to add a surcharge on their collection services.
Nicole Stefenelli, owner and operator of Urban Impact, a Richmond, B.C.–based company that specializes in recycled paper collection and processing, started applying a 30% surcharge last October to replace the revenue she would normally have received from the sale of paper materials. She says many of her competitors have done likewise.
“At one point, we could sell one ton of cardboard for about $130,” Stefenelli says. “At the absolute bottom, the pricing was about $25 per ton. Since then, we have seen it creep up to about $40 to $45 per ton.” Although the prices of all recycled commodities, including metals and plastics, have taken a nosedive, the paper market, which includes cardboard, newspapers and mixed paper, was hit the hardest because it was so overwhelmed with supply to begin with. The surcharge is designed to get companies such as Urban Impact through tough times, but paper recyclers are not the only ones suffering. Even suppliers of once hot recyclables such as copper, steel and iron are having trouble finding buyers these days. That’s forcing companies to stockpile their materials and hope for better days, or, as some U.S. suppliers have done, landfill or incinerate these waste products.
Bob Garino, director of commodities at Washington, D.C.–based Institute of Scrap Recycling Industries Inc., says the scrap paper and metals markets have fallen so fast that containers filled with these materials are docked in shipyards, waiting to be unloaded, because buyers are refusing delivery on previously negotiated contracts.
“There are millions of dollars just sitting around, and this is really changing the way people are going to be doing business,” says Garino. “We are going to see more contract diligence in the future.”
Garino says surcharges haven’t been applied to major industrial metals yet, because, unlike paper, they still maintain relatively good values in the market.
But low commodity prices can also affect the bottom line in a positive way. For example, low oil and gas prices are a boon for the trucking division of Urban Impact. But that’s not enough to cover the decline in Stefenelli’s revenues. “We can’t say we don’t want to collect paper anymore,” Stefenelli says. “You can’t turn it off and just say, I’m not pumping oil or gas today and we’ll do it when the price is right. At this point, surcharges may be a matter of survival for us.”