While many brands have made public commitments to make packaging recyclable, commitments to integrate PCR are lagging. A circular economy for plastic packaging can only be achieved by closing the loop and putting recycled plastic back into new packaging. Consistent demand for PCR incentivizes technological and infrastructure advancements which can lead to improved quality and decreased market volatility.
Note: This resource is educational and does not recommend common purchasing practices or commercial terms. Each organization independently determines suppliers, prices, volumes, specifications, and contract terms.
Finding a PCR Supplier
Many brand owners will secure supply of PCR through their converters, who often have established relationships with recyclers. However, if you are a brand owner wanting to buy directly from a recycler, or you are a converter, there are online resources available such as APR’s Buyers & Sellers Directory. Online marketplaces have recently emerged as another tool to connect buyers and sellers as well. It’s important to know that recyclers typically only process one or a few types of PCR resins, so if your packaging portfolio is diverse, multiple recyclers may be needed.
The following directories can assist in identifying the right recycler(s) for your needs.
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PCR Resource Directory
- The Association of Plastics Recyclers (APR) is an international trade association committed to the success of plastics recycling through networking, design guidance, and technical training.
- Canadian Plastics Recyclers‘ Circular Innovation Council developed the Plastic Action Centre, a knowledge hub that gathers information to educate, engage, and empower action on plastics.
- Circular.co connects a global network of collectors, recyclers, manufacturers, and brands on one digital platform.
- Plastics News covers the business of the global plastics industry. It focuses on commercial, financial, legislative, and market-related developments worldwide that affect North American plastic product manufacturers and their suppliers and customers.
- Stina Inc. focuses on critical research and tool development, designed to influence human behavior towards sustainable use of the world’s finite resources.
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Purchasing PCR Direct From Supplier or Through Converter
A brand can integrate recycled content into their packaging by purchasing the PCR directly from the recycler or by having the converter purchase it. Below are important considerations to in determining which option is most preferrable for your organization.
Converter Purchases PCR
- Traditional approach that most converters prefer
- Converters may purchase larger volume for multiple customers and be able to secure better pricing
- Converters process the PCR and thus are able to set quality expectations and address quality concerns as they arise
- Converters can select PCR grades that are most compatible with their processing equipment
- Handling numerous grades of PCR is not desirable for a converter, they prefer to use one across several customers
- Brand has less transparency into PCR price
- Brand cannot track volume usage directly (via purchase orders)
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Brand Purchases Direct from Recycler
- Can negotiate pricing based on PCR usage company-wide and across multiple converters
- Transparency in pricing
- Easy to track volume / usage
- Creates a direct relationship with PCR supplier
- Additional administrative work and coordination for brand owner
- Converters are accustomed to buying materials and may not agree to this arrangement
- Brand may not understand the material handling, equipment requirements, quality standards, or processing procedures when purchasing on behalf on the converter
Understanding Cost Drivers and Contracting Approaches
Understanding cost drivers and pricing mechanisms are key components of any sourcing strategy. Pricing for contracted PCR could be tied to published indices, virgin, or recycled resin. These pricing mechanisms could provide less volatility in the pricing as well as increased transparency into the cost drivers. Alternately, some buyers prefer to negotiate on the spot market, which is subject to more pricing volatility.
Significant price volatility can be challenging for suppliers and buyers in any market, but it is particularly challenging in a market that still needs additional investment in infrastructure and capacity to achieve a social good – a circular economy. To secure supply, stabilize prices, and incentivize investment, buyers may consider contracting methods that have successfully been used in other industries such as:
- Long-term contracts with a price minimum and a price ceiling can ensure sellers are able to cover their costs and buyers are protected from extreme market increases.
- Long-term contracts may also utilize a cost-plus pricing model. Under this approach, the supplier and customer independently negotiate a pricing formula based on agreed cost components and margin expectations. Pricing adjustments are made according to the terms of the contract and are specific to the parties involved.
- Infrastructure investment funds with offtake agreements can support investment in increased market capacity and offer a first right of refusal on volumes produced by that new capacity.
In addition to determining the pricing mechanism of PCR, it is beneficial for buyers to understand additional cost drivers to help eliminate unnecessary costs. For example, a wider accepted range of various attributes on a specification may create opportunities to source material at a lower price. These factors are described below.
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Examples of Price Change Mechanisms
Factors that May Impact PCR Costs
BALE SPECIFICATIONS
Bales with less contamination cost more but require less sortation. Bales with more contamination cost less but require intensive sorting or additional processing. This pricing variable is captured in the waste factor portion of the bales plus pricing equation.
CERTIFICATIONS & DESIGNATIONS
PCR material with special certifications such as “Ocean Plastic,” “Ocean Bound,” “Social Plastic,” and “Fairtrade” may incur a premium.
COLOR
Increasing the clarity required usually incurs a premium.
CONSISTENCY
The wider the range of acceptable PCR, the more cost effective. If a narrow range is required, it may require additional sortation or processing.
CONTAMINATION
A higher allowance for contaminants (such as black specs) typically results in discounted prices.
ECONOMIC CONSIDERATIONS
Supply and demand factors, such as the availability of PCR, impact PCR markets. Additionally, as virgin resin is a likely substitute to PCR, the price of virgin resin often impacts PCR markets.
FDA LETTER OF NO OBJECTION (LNO)
Food grade PCR may require additional processing steps. A satisfactory Letter of No Objection (sometimes called an “LNO,” “NOL” or “No Objection Letter”) specifies the identity of the plastic being evaluated and whether the recycling process is physical or chemical. The FDA will determine whether they’ve imposed conditions or limitations on the use of the postconsumer recycled material.
FREIGHT
The cost of shipping feedstocks to location for processing and shipping PCR to converter typically impact overall PCR costs. Additional transportation in the process increases costs.
LENGTH OF CONTRACT
Long term agreements may result in a discount.
MASS BALANCE CERTIFICATION
Leveraging material that is mass balance certified may increase price but can improve transparency and credibility of claims with the associated material.
ORGANOLEPTIC
Organoleptic properties of PCR, such as odor, may differ from virgin resin. Extra processing, often required for more sensitive applications, may improve the organoleptic properties but typically increases costs.
ORIGIN OF MATERIAL
Plastic collected in coastal regions, waterways, or through nontraditional methods may incur a premium.
PETROLEUM COSTS
PCR cost is indirectly and positively correlated with the price of petroleum and natural gas.
REGION
Feedstock (bales) have a noticeable cost difference by region as well as factors such as regulatory compliance and the cost of energy.
VOLUME
Higher volumes may result in a discount, though not in all cases as certain PCR materials might require investment.
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Contract Development Considerations
This portion of the toolkit gives an overview of what sections you may want to consider including in a PCR contract. This is not legal advice, and it is recommended to consult legal counsel when negotiating and/or signing any contracts.
Long-term contracts for PCR foster a reliable and robust market for recycled plastics and can result in discounted prices.
PCR contracts may include the following sections:
- Audit: Buyer may/may not perform audit, frequency of audits, days of notice prior to audit
- Certification: Name certifying body, certification standard, frequency of certification renewal
- Forecasting: Length of rolling forecast
- Inventory: Who carries inventory, how much, how long
- Locations: Manufacturing locations and destinations
- Ordering: Leadtime, delivery times, etc.
- Materials: Define material and specific grade(s)
- Packaging: PCR will be shipped in boxes/supersacks, with or without pallets, including dimensions and quantities
- Payment Terms: Decide length of payment terms, early pay discounts, etc.
- Pricing: Pricing mechanism, frequency of pricing adjustments
- Term: units of time or description of the duration of the customer-supplier relationship, which may include renewal(s) or evergreen provisions
- Quality: Define function and aesthetic requirements, testing requirements
- Quantity/Volume: Ordering quantities, supplier agrees to produce X, buyer agrees to buy Y – may include shortfall penalties
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Disclaimer
The U.S. Plastic Pact created this toolkit to assist U.S. Pact Activators in voluntarily purchasing postconsumer resin for their products and packaging. This toolkit does not contain any endorsements, recommendations, legal or financial advice, and should not be construed as such. The U.S. Pact and contributing authors are not liable for any business decisions that result from consulting this toolkit.