Last week, U.S. stocks entered a bear market, a designation triggered when the Dow Jones Industrial Average declined to 20% below a recent high.
The decline came remarkably fast, with two primary factors at play: a rapid rise in severity around the new coronavirus and a surprise decision by Saudi Arabia to flood the global oil market, sending prices for that all-important commodity downward.
At the outset of 2020, those two issues weren’t anywhere on the global business radar. And yet here we are, still before the dawn of spring, facing economic uncertainty the likes of which we have not known since the 2008 recession.
It’s all a not-so-gentle reminder that when it comes to trying to run a business (in recycling or any other sector), there’s only so much planning an owner or manager can actually do. Inevitably, sweeping factors affecting the operation will come in fast and unannounced, in some cases changing the entire landscape in which we all operate.
And make no mistake: The economic turmoil is going to affect the business of materials recovery in North America. The key for operators is moving forward in an educated manner.
First, know the uncertainty is hardly over. Though we have entered a bear market, day-to-day volatility has been the norm, and it’s too early to really say how prolonged this economic struggle may turn out to be. A quick reversal is not out of the question.
That being said, public health experts are saying the situation around COVID-19 is expected to get worse before it gets better, and by and large, major countries across the world have struggled to execute well-coordinated responses. So it’s fair to say we’ll be existing in a COVID-19 shadow for some time.
This will likely mean a cutback on investment and spending across many economic segments. Plastics pollution concerns, the effects of National Sword and more have brought a notable influx of outside money to materials recovery initiatives around the world over the past several years. Don’t be shocked to see that investment activity start to cool down.
Along similar lines, corporate and government leaders will likely have a greater focus on pandemic response than anything else for the foreseeable future. That will mean less attention on sustainability initiatives, though it’s worth noting that sustainability and public health are increasingly intertwined topics. Nevertheless, expect to see some stalling of the momentum around concepts like the circular economy, zero waste and others that have helped boost the business of recycling of late.
Meanwhile, shipping and logistics are areas that have quickly seen fallout from recent events.
As a result of manufacturing slowdowns in China amid virus complications, fewer ships and containers are arriving on U.S. shores, meaning fewer are available to make the return trip to Asia. The Wall Street Journal recently reported U.S. railroads and truckers serving ports are also being affected, with drivers struggling to pick up and drop off containers because of reduced gate capacity at ports. That all could result in higher shipping costs in the coming months.
Finally, there is the issue of commodity values. The fall in oil prices will be yet another factor leading to lower pricing for virgin plastics, which use petroleum as a feedstock. This reality will force decreases in prices for recycled plastic.
At the same time, some metals markets could see upswings because in times of uncertainty, money tends to move out of stocks and into gold and other precious metals seen as safer bets. That could bring a boost to electronics recyclers that recover materials containing those types of commodities. But plenty of unknowns exist in this area as well, and in general, if manufacturing hits a prolonged slump, that diminishes demand for virtually all recovered commodities.
So, as the operator of a recycling operation, what exactly do you do now?
First, take a breath. At a juncture like this, it’s natural for business leaders to feel like they are caught in the market headlights. We can tell ourselves to expect the unexpected, but the truth is that when the unexpected comes roaring in, it’s hard to know how to respond.
The first step may be to just remember to make one decision at a time. Business challenges related to the wider market are likely to pop up again and again in the coming months. As a manager, all you can do is rely on your experience and take the time to make the choices you know are right for yourself and your company.
Strong leadership tends to emerge when business gets tough and the path forward is uncertain. We’ve just entered one of those times.
Dan Leif is the managing editor of Resource Recycling and can be contacted at [email protected]