UK Tyre Recovery Sector Fights Illegal Operations, Slim Margins

After experiencing more than a year of general economic recession, the UK tyre recovery sector enters 2010 functioning at roughly full capacity, with around 500,000 tonnes of tyres being collected last year. This puts tonnages on a par with the latest complete data compiled by the Used Tyre Working Group in 2008. However, while the UK has managed to limp out of recession with tyre recovery tonnages generally intact, there are signs that the same market pressures that have put the squeeze on new tyre profit margins are putting pressures on the collection part of the tyre life cycle too; and that regulation-dodging is still a problem.

So, while its good that tonnages in 2009 were relatively stable, the bad news is that illegal tyre collection and disposal activities are rife. What’s worse is that they complexity of such schemes has developed to the point that the disruption caused by rogue “white van man” collectors is now at the bottom end of a wide spectrum. This means large scale scam disposal rings and – in some cases – even franchise operations that are in operation taking money from tyre dealers, but not properly fulfilling their duty of care obligations.

In addition we shouldn’t underestimate the current scale of white van man and other low-level tipping either. With retail fly-tipping (tyre dumping on the yards and forecourts of retail depots) costing around £2 million a year and the Environment Agency estimating that local authorities, landowners, industry and the emergency services pay out over £2.3 million every year in investigating and clearing incidences of fly-tipping, it is clearly still a big problem.

This year there are renewed hopes that this situation can be improved. In response to what one source described as the “rampant” levels of crime in this area, industry insiders revealed that the Environment Agency will redouble its efforts to combat organised waste tyre crime with significant investment in the necessary personnel and resources to combat the Mr Bigs of black market tyre disposal. In order to make good on its commitments to catch more of those flouting waste regulations, Tyres & Accessories understands the Environment Agency has appointed a waste tyre specialist to run an intelligence-led operation against the largest illegal operators.

However, reservations remain about any future enforcement regime. The powers that be are generally seen as well intentioned, but with something like a 2 per cent enforcement rate, this means that companies are only likely to be visited once every 50 years. This is good for those (like the audited TRA members), because it means they won’t have to go through the inspection rigmarole too often. The problem is that rogue elements may be able to evade suspicions.  The Environment Agency’s response to this is likely to be to adopt a targeted approach and therefore focus on those thought most likely to be flouting regulations. Whether or not individual inspectors will want to inspect some of these premises when they get there, or whether they will opt for checking the more respectable depots (which, as we have seen with Health and Safety inspections in the tyre retail and wholesale trades, are sometimes inspected disproportionately often because they are an easier option) remains to be seen.

Undervaluing collection operators undermines recovery structure

Another issue of concern to the tyre recovery and reprocessing industry is maintaining the value of tyre products throughout the lifecycle. Currently retailers are charging consumers £1 or more a tyre to dispose of their old tyres, as an environmental fee. Before this became common practice a couple of years ago, there were suggestions that it would be difficult to introduce a green fee to retail customers. In practice large numbers of retailers (some of them the largest in the business) now charge around £1.50 a corner to take away motorists’ old rubber. The problem, for the tyre recovery sector at least, is that some collectors are getting paid as little as 42 pence per tyre. This has in turn led to the suggestion that the so-called green charge is becoming something of a profit stream in its own right.

Nobody would disagree with the fact that retailers need to cover the costs of the storage, sorting and disposal of end-of-life tyres, however the question is whether or not margins of this level are justifiable. First of all there is the question of fairness to the consumer. How would they feel knowing that two thirds of what they paid to dispose of their tyres is surplus to requirement? But to be balanced one also has to consider that large chains such as Kwik-Fit (which has to pay around £250,000 a year to clean up after the retail fly-tipping imposed on it) has an unfair responsibility to safely dispose of tyres it did not produce through the sale of new products. Nevertheless arguments like these put forward by retailers large and small don’t answer the question of how to keep value flowing in the market. And when you consider, as we have seen, that a significant minority of non Responsible Recycler Scheme retailers are supporting unaudited disposal routes (and therefore tyre collectors and recycles that don’t have the costs of meeting all the guidelines), the argument is that consumers could be forgiven for asking where their money goes.

In addition to the question of fairness there are the wider implications of how low collection values will affect the recovery and disposal business as a whole; and how this will in turn affect the manufacturers and retailers at the start and mid-point of a replaced tyre’s life. The point is that if tyre recovery companies are only paid 40 pence per tyre while fuel costs have continued to increase, the amount of money they are able to pay the main disposal routes (cement kiln businesses like Sapphire, for example) is severely impaired. And if this is the case, waste tyres’ value as an energy source will be reduced. When questioned on this subject, TRA director Peter Taylor put it this way: “[Undervaluing tyre collection] is undermining the recovery structure in quite a reckless way.”

A European perspective

Figures for 2008 and released in November by European Tyre & Rubber Manufacturers’ Association (ETRMA) show that pan-European end of life tyre recycling and recovery rates exceeded 95 per cent. The 2008 data shows the proportion of end of life tyres in landfill across the continent has decreased from more than 60 per cent in 1994 to around five per cent today. The number of old tyres receiving ecological treatment, the ETRMA notes, has increased by an average of four per cent yearly.

ETRMA suggests that the data “demonstrates the efficiency of the strategy deployed by its European tyre manufacturer members in anticipating the regulatory, environmental and economic challenges imposed by the EU landfill ban.” However, while in 2008, 60 per cent of the 3.3 million tonnes of end of life tyres in the European market were collected and treated under Producer Responsibility obligations this doesn’t take into account the fact that roughly a sixth (around 17 per cent) of this figure was collected by responsibly disposed of by Responsible Recycler Scheme/TRA members in the UK alone.

Across Europe energy recovery continues to account for around 35 per cent of collected tyres, material recycling is the market to have most benefited from falling landfill usage. Between 1994 and 2008, the recycling rate has grown to 40 per cent, showing that the recycling applications market is being sustainably consolidated.

During the course of researching this article, one tyre recovery company representatives told T&A that the recovery/recycling business is “fairly recession proof.” This may be true in terms of tyre arising tonnages – people are still driving and therefore tyres are still being replaced – but this doesn’t take into account the pressures caused by illegal/unregulated activities and the market volatility associated maintaining cash flow in the whole value chain.

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