Waste & Recycling Services
Need-to-Know Information About Waste Brokers
The broker presence in the waste industry is owed largely to the fact that there is no single, national waste hauler which is truly competitive from a pricing standpoint in, say, even 70 percent of the US landscape.
In most industries, you would find viable options for companies looking to consolidate all of their business with a single national partner.
If you’re looking for a national light bulb vendor, pest control vendor, or uniform service vendor, inevitably in these industries you’ll be able to find a handful of players that are viable options to service your business in all or essentially all of the continental US, and they’re going to be competitive with local and regional players—usually more so due to economies of scale.
Why the waste industry landscape is different
If you’re a buyer for a national company and your locations are distributed pretty evenly across a broad US footprint, there are going to be locations in many parts of the country where your costs with any national waste hauler are going to be not just a little bit less competitive than whatever “optimal” is in those markets, they’re going to be dramatically less competitive than optimal in those markets.
Either you will overpay to your hauler by a wide margin because they are borderline-viable, or you will pay them a fee to act as a broker to subcontract the services in areas where they are truly not viable. Either way, you will be paying for expense management services that may or may not be viable.
Implications for buyers
Imagine that you were spending $1,000,000 per year on your waste services and you’re looking at one of the national players as an option—let’s say it’s “national hauler #1.”
Let’s stipulate that in 60 percent of the country, “national hauler #1” was the optimal choice from a cost perspective. They have the ability to be the most competitive player in those parts of the country, and the spend in those parts of the country is truly optimized.
Keep in mind, these are big assumptions—just because you’re with the right hauler doesn’t mean you’ve actually found the best form of expense management, nor does it mean that you’ve negotiated truly optimal terms—but let’s make these assumptions for now.
In the other 40 percent of the country, the areas where “national hauler #1” did not have the advantages (geographic presence, landfill ownership etc.) that hauler partner is not going to be 5 percent or 10 percent worse from a cost perspective, they are likely to be 40-60 percent worse, or more, than the optimal alternatives.
Backing out to the macro, you realize that if 40 percent of your locations are 50 percent above optimal market value, your entire account is 20 percent afield from optimal market cost levels.
Brokers take advantage
With most expenses, consolidation really is the path to cost savings and effective business expense management.
But as we’ve discussed, this is not the case with waste.
This reality created an opportunity for brokers to enter the space and cobble together networks of local and regional haulers and put together pricing packages for large national companies seeking to utilize a single supplier for their waste services.
As long as a combination of the fees they’re paying to local and regional haulers for the service including their own broker fees for consolidating invoicing and managing payment to the hauler network is less than, say, 20 percent afield from optimal, then they’re likely to win some business.
Brokers have been particularly successful among businesses that are strongly inclined to sign only a single agreement across the category.
If you’re a buyer for a big-box retailer or a large national chain of restaurants, auto parts stores, grocery chains, etc., in other words, companies that are generally inclined to consolidate a supplier base to single vendor programs, then it’s understandable why you might think that a broker might be the best option for you.
But, there are significant imperfections with respect to aligning with a broker, and so we saw opportunity here for Fine Tune to offer a better solution.
Imperfections in the broker model
The first shortcoming relates to transparency.
If you’re an expense owner with a brokered waste agreement covering hundreds or thousands of locations, it is highly likely that you don’t even know which direct hauler companies are servicing your accounts. You may even find that your broker partner is unwilling to share that information with you. If knowing who is performing service at your locations from a legal perspective or from a market intel perspective matters to you, that’s a major strike against aligning with a broker. So that’s one area where transparency is a problem.
Simply put: the broker customer usually doesn’t know who they’re doing business with.
The second substantial shortcoming, as it relates to transparency, involves not seeing or knowing what’s actually being paid to these mysterious haulers servicing your accounts.
Your broker sends you a consolidated invoice, but all that invoice really tells you is what that broker is charging you for the services which were rendered by all of these mysterious haulers for that particular month.
It doesn’t tell you the payments actually being made to those haulers by your broker.
Why businesses live with these imperfections
The fact is, the broker relationship does provide a modicum of convenience.
Many procurement professionals at large national companies have obviously opted to prioritize convenience with respect to waste services.
Maybe procurement resources are limited and so the decision is made to choose the path of dedicating less time and resources to waste so you can spend more of your time focusing on other areas of expense management.
It’s an understandable decision, but part of what you’re sacrificing is visibility and control and knowledge about your waste services. Because clearly--from the standpoint of gaining knowledge and control for what it costs to dispose of your waste, the broker path really doesn’t give you that.
Biggest broker red flag
In any relationship where you’re going to be lacking in visibility and a deep understanding of what your supplier partner is doing, you would hope that you at least had a healthy alignment of interests. You would want to know that you and that partner wanted the same thing.
This is where, time and again, we see there are better ways to manage waste services than aligning with a broker.
You and the broker are typically not aligned in any sort of healthy way, from an interest standpoint, but rather are engaged, whether you know it or not, in a very typical buyer/seller joust.
The broker does not want what you want.
The broker wants you to spend more whereas you presumably want to spend less. You cannot necessarily trust that the broker is always going to be acting in your interests because on many occasions doing so would cause them act contrary to their own interests—and that’s a hard thing to expect.
If you have a bad month, does your broker have a bad month?
Take this, for example
If you’re supposed to have a run rate of $100,000/month in recurring spend but in one particular month $10,000 of bogus charges finds their way on to your invoices and the resulting spend for the month was $110,000, was that bad in any way for your broker?
Generally speaking, the answer is no. It’s not bad for your broker when you spend more than you should--and in some cases, it may even be good for your broker if their invoicing methodology involves a percentage-of-spend calculation.
If the broker is taking 15 percent of the action, and your spend goes up by $10,000, they just made an extra $1,500 because you got overcharged by some hauler you’ve never met.
With brokers frequently marketing themselves as customer advocates, it’s critical for buyers to understand the truth, approaching the category with an awareness of the fundamental imperfections in the waste broker-customer relationship.