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MARKET WATCH

Generating Old Corrugated Boxes and Revenue: Large Retailers Capitalize on Non-Core Activities

Posted by Suz-Anne Kinney on February 10, 2014
Grocery stores, big box stores and other large retailers generate large quantities of recycled materials including corrugated boxes. The majority of this recycled material is generally comprised of the boxes that consumer goods are shipped in. In the recycling industry, these boxes are known as old corrugated containers, or OCC. Strong domestic markets exist for this material, and a good deal of OCC is exported from the United States to Mexico, Canada, China and India. As consumer interest in sustainability continues to increase (as it has over the last 10-20 years), demand for packaging solutions that have higher recycled content will also increase. And as that happens, the value of OCC recycling efforts for large retailers will increase.

The options that large retailers have for removing OCC from their waste streams and improving their sustainability profiles and their ability to generate revenue from non-core activities include :

1. Selling directly to a pulp or paper mill that purchases OCC to re-process it into chipboard (cereal boxes, paper towels, tissues, paper or new corrugated cardboard boxes). To do this, a mill re-pulps the cardboard, and then separates and bleaches it. The fibers are then screened to remove contaminants and washed to remove ink. Finally, the fibers are pressed and rolled into paper, which is then converted into new recycled packaging materials.

If a retailer is in close proximity to a mill, or if individual stores ship their recycling to a centralized, generally regional, facility that then sells OCC directly to the mill, this option is ideal, as it removes the intermediary from the transaction and can therefore increase the retailer’s return on its recycling program.

2. Contracting with a waste disposal company—called suppliers in the recycling industry—that picks up the OCC on a regular schedule from either individual stores or a centralized location and then sell it to a pulp or paper mill.

It is important to note that suppliers of OCC to pulp and paper mills are experts in OCC markets for this material. They generally have relationships with domestic and international buyers, and they can help funnel OCC to buyers offering the best prices.

Risks associated with this option include vendor service quality and reliability. Because OCC takes up considerable space on the loading dock—space that is always at a premium—keeping the material moving on a daily or weekly basis is essential. Smooth operations out of the back of the store are also essential, as many retail locations have strict rules about how much OCC can be stored  and for how long, as well as limits on when trucks can pick up this material. As a result of these requirements, vendors must be reliable.

Other risks that can be avoided with the right vendor contract terms include :

  • Length of the contract: 10 years is too long.
  • Index used to determine market price for rebate or payment: it should move with the market and be a regional rather than one national number.
  • Failure to include a re-negotiation mechanism: extraordinary market swings that significantly disadvantage one party should trigger re-negotiations to prevent either party from excessive financial harm.

Topics: wood products market price data, forest products market price data, wood bioenergy decision support service, paper products market price data, recovered fiber market price data

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