The Cardboard Collection & Trading Business India
The corrugated paper sector in India constitutes players that function in the unorganised, semi-organised & organised spheres, from collection, aggregation, trading too processing. The sector employees lacks of individuals across the length and breadth of the country.
My intent of writing this article is to explain how the sector works from collection of waste cardboard to the final processing at mills. All information provided in the article is derived from my experience & knowledge of running a waste management company for close to 15 years with core competency in collection, segregation, aggregation and pre-processing.
The article will explore the following points;
1. Sources that generate cardboard waste in India
2. Type of Cardboard waste generated
3. Collection process & involvement of individuals and companies
4. The aggregation process.
5. Value addition through segregation
6. Process of selling scrap cardboard to mills
Sources of cardboard waste in India:
Cardboard waste is generated from Industrial manufacturing units, commercial establishments, stand along retail outlets, warehouses, offices, homes, kirana stores (Mom & Pop shops), public gathering such as wedding, concerts etc.
Types of cardboard:
There are primary four types of cardboard that are generated in India:
1. Brown Domestic Board (1st)
2. Brown Imported Board (Imported 1st)
3. Core Pipe
4. Colored Cardboard (2nd)
The notion of 1st & 2nd mentioned above is the language used locally to determine the type of cardboard that a vendor may have at his premises. Some mills don’t differentiate in rates when it comes to 2nd or 1st cardboard but some do. The general trend in the north is that the price of second cardboard is about .50 paisa below that of 1st brown board. Core pipe usually sells rupees 3 less than the 1st brown board. As far as imported cardboard is concerned, it may fetch a higher rate by a rupee or two depending on the mills/suppliers that you are working with and quantity on hand.
Collection process:
The collection process from the sources where the waste is generated is complex and engages a mix of the unorganized sector & the organized sector as mentioned below:
1. Industrial Sectors & Warehouses: As most of these establishments generate cardboard waste in bulk, they generally take rates from multiple sources. Contracts are either awarded through a tendering process by submission of rates online or by providing written submission of offer rates. In most cases these are fixed rates contracts for a period ranging from three months to one year. In most cases these warehouses are serviced by local vendors who have a registered proprietorship firm or company with requisite tax documents in place such as GST.
In some cases after the contract is awarded, the vendor sublets the contract to third party vendors to service. This happens due to multiple reasons. The first and foremost being that most warehouses small or large do not have bailing presses established at their premises. This makes stocking and storing the goods a huge challenge, taking up vast amounts of space. Further, most housekeeping staff do not even flatten the cardboard before disposing it, causing the vendor to deploy additional labour to undertake the said task. All of these results increased cost per collection as on an average you end up getting a load of about 1200 kilograms of un-bailed cardboard, which then has to be transported to your warehouse or that of a third-party vendor for the process of bailing it & to send it further to the mill. The overall volumes may be large in some warehouses, but in general volumes per collection are low, which means multiple trips for collecting a lot that could have easily been loaded onto a single larger truck if it had been bailed and sent directly to the mill.
For many companies collecting such material, this becomes a massive challenge, as this means that they would have to invest in additional warehousing space, invest in logistics and equipment for a contract which may or may not exist in few months’ time. Add to this local & regional mafia issues and it quickly starts making sense to hire local third-party vendors to do the job on your behalf. The other important factor in this are the low margins that most people or companies work on. Cardboard scrap business is a very price competitive sector in India, with companies or individuals losing contracts over ten or twenty paisa. Large organizations are only concerned about revenue generation from the sale of scrap. They want the highest possible prices, & the best possible service. Somewhere equilibrium must be found.
There are also many instances where the purchase rates are far below fair market prices for the material. This happens most due to three reasons. The fist is corruption within the organisation favouring a specific vendor and getting paid in return. This is common practice in the scrap industry here in India. The second reason is that of manipulating the weight of the goods loaded onto the truck. This generally happens when the rates are competitive or on the higher side. The per truck load weight in cohesion with the weigh bridge operator is shown to be less than what is loaded onto the truck. The difference is pocketed by the vendor & in some cases shared with clients employees.
2. Commercial Establishments: Malls & Office Buildings: Most malls have their house keeping look after there waste, but this system is broken into two sub systems of disposal and collection. From the malls end, most don’t pay for waste disposal. They sell their recyclable waste to local vendors, while expecting them to also collect all non-recyclable waste such as food waste for free from their premises. This is mostly handled by the unorganized sector and local contractors. All the waste collected from retail outlets/food courts is bought to a central garbage disposal area mostly in the basement of the mall. The vendor proceeds to collect the waste from here and pays the mall a fixed monthly fee depending on the amount & type of recyclables being generated in the waste. The second system that is deployed is that of selling large quantities of cardboard scrap that is generated from standalone large format retail outlets within a mall. This again is done through a tendering process with cardboard waste collected on a daily basis. None of the malls deploy a bailing press that compacts waste. Once again the primary goal of the mall and the retail outlets is to generate as much revenue from the waste as they can. In the recent new format many of the contracts for waste collection are being signed with the facility management company, rather than with the mall directly on the same principals as mentioned above.
3. Office buildings: Office buildings are maintained and serviced by facility management companies, who then decide what happens to cumulative waste being generated from the occupants of the buildings. Most of these contracts are serviced by a combination of local vendors and the municipality in some cities. Some of the recyclables are removed from the waste by the housekeeping staff (which eventually ends up with small local scrap dealers that are spread across the country) while others end up in the hands of the local vendor collecting the waste. Once again, none of these office buildings deploy a bailer & segregation is questionable. Many office buildings have also contracted their dry waste collection to NGO’s who further contract the collection to local third party vendors.
4. Homes & Kirana Stores (Mom & Pop Shops): Collection from homes, mom and pop shops is mostly done by the unorganised sector. From household’s waste is mostly collected in a mix form by the local vendor who then proceeds to manually segregate the waste and recover the recyclables. From local kirana shops, cardboard packaging is collected by local vendors on their rickshaws at a variable rate depending on what the prevailing rates are being offered to vendor by the people higher up in the chain.
The aggregation process:
The process of aggregation can be broken down into three different modes of operations:
1. Primary collector & aggregator: In the case where primary collection is taking place from the premises of bulk generators, most of the cardboard waste is sent directly to an aggregator who bails it and then sends it further to the recycling mill. In some cases, the collector himself is the aggregator and he may or may not bail the goods before sending them to the mill. In such cases the cardboard is tied by hand using a plastic tie and bailed manually using a make shift two side open box. Smaller vendors who collect from homes, offices, kirana stores, typically store anywhere from 100 kilograms to 5 tons at the open plots of land, which in some cases coved with a tin shed. As many of these individuals cannot supply to the mill directly, they rely on intermediaries who collect the cardboard scrap from multiple warehouses, have a load of 5-6 tons in their trucks and then supply it to mills. Most of this cardboard waste collected from these warehouses and specially from contractors who predominantly collect from residential establishments is mixed, meaning coloured and brown board is mixed and manually tied together.
Many individuals who buy cardboard from local kirana shops and small retail outlets don’t even own a warehouse and never ever stock material with them. They simply collect and up sell the cardboard to local aggregators or kabari walas (scrap dealers). Typically on average, from collection to processing cardboard could exchange about three hands. The third spoke in the wheel are suppliers. Suppliers are the ones in whose name the material is delivered to mills. They may deliver it themselves or through aggregators. Suppliers in essence are finances, as they ensure that the aggregator gets paid on the spot or the next day once goods are delivered to the mill. They play a critical role in keeping the entire cash flow circle running, as mills typically take anywhere from 45 days to 60 days to pay vendors. Suppliers add a cost to their financing (typically anywhere between .50 paisa to 1 rupee and subtract this amount along with any report of moisture that the mill might have put on the goods received from the payment that they make to aggregators.
Value Addition Through Segregation:
There are two separate ways in which value to can be added to cardboard during the segregation process:
1. Segregate brown board from colored and bale it separately
2. Segregate good quality reusable cardboard boxes: These boxes are segregated according to size and are sold to moving and shifting companies and traders of fruits and vegetables for the purpose of packaging and transporting produce to agriculture produce markets. The real good stuff (Mostly larger in size) is sold to box manufacturers who use this material to make new boxes of different sizes again. The economics of this are hard to ignore. If your material is good, you can fetch almost 40% above prevailing mill rates for the boxes, so if you are dealing in volumes and a certain percentage of your material is clean this is worth the manual effort.
Process of selling your cardboard to mills:
The biggest challenge of selling cardboard to mills is that of receiving payments on time. There are a few mills that are great pay masters and pay you the next day or maximum within a week, but most mills will take about 45-60 & more to pay you and by that time you have sent hundreds if not thousands of tons to them. This is where suppliers come into the picture. They ensure that your cash flow is maintained and keep a margin for proving you with the facility of paying you immediately or within a stipulated period of time. Conversely suppliers in many cases also make money by charging the mill owners a small per kg fee for providing extended credit, making money on both ends of the equation for a financial risk.
Deciding how you want to structure your cardboard recycling operations will depend on your financial/operational capabilities, volumes and cost of securing raw materials along with your understanding of how the scrap cardboard market functions including internal and external dynamics that may impact the price of raw materials.
I hope you enjoyed this article! Do leave a comment with you thoughts or questions. Next week I touch upon certain metrics that you need to pay attention too and which are critical if you are running or looking to start a waste collection, recovery and aggregation business.