Last week I wrote an article titled “The Business of Cardboard Scrap: India” which went into detail about every aspect from collection to processing of cardboard waste in India. This is a follow up article, in which I shall detail certain economic metrics that are critical for your scrap collection, segregation & aggregation operations to be financially sustainable. This is my personal opinion, derived from my 15 plus years of experience in the field of waste management.
This article will discuss the need to look at multiple aspects before quoting a price to the customer for collection of their recyclable waste. The points of discussion will be:
- Volume in size vs Weight per load (Type of material)
- Type of truck used & loading capacity
- Own Logistics VS Outsourced
- Current market conditions & time of the year
- Other Expenses (Police, GST, Warehousing)
Volume in size Vs Weight per load: This is an important metric to understand as it can impact your logestics cost and profitability. If not understood properly it can lead to mounting losses! Imagine filling a 20 foot truck with empty PET bottles that are not bailed. Now Imagine filling the same empty truck with cardboard that is not bailed. Finally imagine filling the same empty 20 foot truck with Iron. What material do you think will provide the maximum load per trip? Iron, followed by cardboard & then PET. Both PET & Cardboard take up a lot of volume by space but that volume does not transform into weight. Hence you have truck that is loaded to the brim that is unable to deliver you cost savings in comparison to the same truck loaded to the brim with metal. Your cost per kilogram goes up drastically when the load carrying capacity of your truck is under utilised!
So it becomes critical for you to conduct a physical verification at the clients site to see first hand the type of material, how they have stored it (bailed, un-bailed, in the open) and the average load that will be required for you to be collected from the clients premises. Many large warehouses generate 100 tons or more of recyclables on a monthly basis. Hearing this you eyes may sparkle and mouth may water, but remember it’s not the overall weight per month that should concern you, rather you should be concerned about the average load per tuck that you can carry. Deploying multiple trucks, multiple times a day to collect a load that can easily be accommodated into one truck is an expensive proposition. This has been discussed in detail in my article “The Business of Cardboard Scrap: India”. Kindly do read it to get a better understanding of why this happens and how it can adversely effect your operations.
Type of truck used & loading capacity: Many Industrial areas and other parts of the country in India have truck unions that do not allow you to deploy your own vehicle for collection & transportation of materials. So first find out if there is union that operates in the area as this is bound to cause rates for logestics to go up. That said whether you are operating in an area that is union controlled or not, it’s imperative to consider certain important aspects about rented trucks or trucks in your own fleet. The first thing to understand is the legal loading capacity of the truck. We all know that trucks in India are frequently overloaded, which not only causes wear and tear on the trucks and the roads that they ply on on but it also increases your risk of getting fined by the police or the truck breaking down, all of which directly impacts your profitability. Most unions or private truck owners don’t allow you to over load, or simple tell you that any additional cost incurred due to any fault of yours shall be paid by you on cash to them. Rented trucks also work on a strict time line, so you must be certain that your client will provide you with the required load & corresponding documents within a stipulated time, as once the clock starts ticking you end up paying a per hour waiting charge.
Some other considerations to look at are:
- Is the client located in a neighbouring state? If Yes then you will need to deploy a national permit truck if you plan to get the goods to your warehouse. This will increase your logestics cost as all fees concerning your vehicle must be added onto the cost of collection. The case will be similar if you rent a national permit truck
- No entry timings: This needs special consideration as you may only be able to service your clients requirements between specific times, leaving you a thin window to undertake the task or find a local vendor to outsource the work too. Agin each option comes with a financial cost.
Own Logistics VS Outsourced: I have touched on this subject matter above briefly, but here are some points that you need to consider when looking to deploy your truck VS outsourcing one.
- Do you already own trucks for this purpose? If yes then have you calculated all associated costs including salary of driver, helper, papers, insurance, cost of financing, maintenance etc.
- Is your truck paid off or are you still paying instalments?
- Are looking to buy a truck solely for this purpose, or will you be utilising it to generate revenue by leasing out to others also? Also, if you are looking to buy a truck just for this purpose, then make sure that you have long term contract in place with the client that they cannot wiggle out off. Other wise you are stuck with an asset and no revenues coming in to service the debt.
- There are some advantages of using a rented truck over an owned one, such as zero liabilities of expenses. You use use it when needed and don’t when when the need is not there. Maintaining trucks and drivers can be a massive headache, so be thoughtful and through in your decision to take this headache on.
Current market conditions & time of the year: You must keep your self updated with what is happening in not only the domestics scrap market but also the international scrap market. There are some excellent resources available online, which I shall mention and talk about in a separate article in the coming weeks. When looking at plastic scrap look at current and future predictions of oil also as this will determine future prices of plastic scrap. Look at the current economic condition and health of key industries that utilise scarp in the manufacturing processes. Industries such as auto, paper, packaging, etc. Scan regularly for any new policies that may impact your business, such as the current vehicle scrapping policy in works and the new EPR draft (Read More About This EPR Draft By Clicking This Link) doing the works.
The time of the year is also every important when determining what you can offer to your clients to purchase their recyclables. Some items, specially metals, cardboard, paper & PET are subject to price fluctuations during certain times of the year due to the supply and demand cycle. This data is not readily available and access to this can be gained by understanding how supply and demand for various materials work by studying the market. The other way of course is if you have been working in the field and have access to historical data pertaining to movement of scrap prices. Agin more on this in detail in subsequent articles.
Other Expenses: There are many other aspects that may be overlooked, but are as important in not more as points mentioned above in this article. These include:
- Police Expenses: Rupees 48,000 Crores off bribes are paid to the police every year by transporters (Read This Economic Times Article). The sad fact is that it does not matter if you have your papers in order this expense is given. They will always find a way to harass you, so build this cost of corruption into your costings.
- GST: Though compulsory, many people don’t pay GST or only pay part of it. This is specially very prominent in the metal sector where most smelters only pay 9% GST when the government rate is 18%. It is also highly prevalent in the plastic recycling sector which is mostly unorganised and refuses to pay GST. In the case where they do pay GST, the prevailing GST rate of 5% is reduced from the offer price. So keep this mind when calculating you costs and associated revenues
- Warehousing: This is a major cost head specially when you are running a recovery and aggregation operation along with collection. You warehouse design can help reduce labour costs substantially. The type of machinery in use can help reduce both labour and electricity costs if selected properly. More on this next week.
I hope reading this article has added value to you! Another interesting read that you may enjoy is “A $500,000 lesson I learned: Certainty coupled with hope is the enemy of growth“