Trucking Companies Profit From Selling Used Oil, Turning Problem Waste Into a Revenue Stream

Not long ago, getting rid of used oil was a problem for fleets. These days, for some fleets used oil is now a profit center.

When Con-way Truckload, Ann Arbor, Mich., gets rid of its used oil, it is sold to a refinery that pays the carrier $1.50 a gallon — which extrapolates to $4,800 a month, or $57,600 a year, for the 3,200 gallons it produces monthly.

As oil prices rose and third parties got better at reprocessing it, the entire market changed. Today, the price of a gallon of used oil varies widely throughout the country and is based on a variety of factors — including transportation costs, volume and the quality of the oil, among other variables — according to trucking executives and industry experts.

It is up to carriers to do their homework to secure the best price for their discarded oil, said Randy Cornell, vice president of maintenance for Con-way Truckload. Cornell said he puts out a request for proposals on his used oil.

“You bid it out and say, ‘We’re going to produce X number of gallons a month on the average. What will you give for it?’ ” Cornell said. Con-way ranks No. 3 on the Transport Topics Top 100 list of the largest for-hire carriers in the United States and Canada.

The value of used oil also depends heavily on the end market for the product, which is unique to geographic regions and the markets that are available in those areas, industry experts have said.

In California, for example, used oil is considered hazardous waste, so it has a slew of reporting requirements. The added administrative costs decrease the value of a gallon to anywhere between nothing and $1, an oil refiner said.

Mitch Miller, owner of MinStar Transport, Eagan, Minn., said he stays on top of prices by talking to his colleagues.

“When we’re meeting with peers, they ask how much we’re getting for our oil. We try to network and stay on top of it,” he said, adding that he gets between 60 cents and 90 cents a gallon these days.

Kyle Treadway, president of Kenworth Sales Co., West Valley City, Utah, which operates 20 truck dealerships in the Mountain and Western states, said his locations collect about 5,000 gallons of used oil a month. He averages higher rates in metropolitan areas because of increased competition for the used oil. Treadway said he negotiates rates periodically and is currently getting about $1.10 a gallon.

“It fluctuates just like any of the petroleum products,” he said.

John Wesley, CEO of re-refiner Universal Lubricants, Wichita, Kan., said, “The economics have changed considerably in the last 10 years. It was a tremendous [profit-and-loss] shift where you spent money to get rid of waste and then it turned into a profitable good guy.”

“There was a point when used motor oil was seen as a waste stream and not a revenue stream,” said Scott Perry, group director of vehicle supply management for Ryder Supply Chain Solutions, Miami, which ranks No. 12 on the for-hire TT 100. “You paid to have it re-moved, but as re-refining technologies have been perfected, it has become more valuable.”

Perry sells his oil to re-refiner Safety-Kleen Systems Inc., Plano, Texas. He said he looks at prices of ultra-low-sulfur diesel, oil products and virgin crude oil quarterly to help determine a fair rate.

“We have a mechanism that gives the provider and us transparency and shows the value of the oil in the marketplace,” he said.

However, Perry said, Ryder’s contract is proprietary, so he couldn’t disclose the terms. Safety-Kleen declined to comment.

Evergreen Oil, Irvine, Calif., is the largest re-refiner in the state and maintains one- to three-year contracts with its customers. The contracts range from a fixed price to an indexed price based on either the Platts recycled fuel oil price or the Nymex, said Darwin Hall, senior vice president of the company.

Bill Hinton, vice president at United Solutions Inc., Leominster, Mass., a regional recycler with operations in Ohio, Indiana and Kentucky, said the challenge in using the indexes is that they don’t take into account regional demand.

“You have to look at competition,” he said. “Where are the re-refiners?”

Other factors also come into play. For example, Hall said the drier used oil is the more value it has.

“If it is stored in tanks outside, it needs to be covered, not mixed with other wastes, and the lids need to be screwed on tight,” he said.

Hall and Hinton both said they test used oil from new customers to ensure it meets their acceptance criteria.

“Not everything we pick up is refinery grade, so it has to go to the burner market, which has a different value,” Wesley said.

The used oil can be re-refined into motor oils, marine diesel and even Tiki torch oil. It is also sold as a burner fuel to the asphalt industry and is sometimes burned in steel mills.

It isn’t just the value of a gallon of used oil that is benefiting fleets. In an effort to win business, bundling services among used-oil purveyors has become commonplace, and carriers have been able to negotiate prices that include the disposal of other fluids and contaminated materials.

Gerald Mead, vice president of maintenance for P.A.M. Transportation Services, Tontitown, Ark., said the fleet gets paid $1.43 a gallon for used oil, plus it’s also able to dispose of antifreeze, cleanup materials from spills, and oil and fuel filters free of charge. That arrangement results in profits and savings of about $72,000 annually, he said.

P.A.M., which ranks No. 62 on the for-hire TT 100, recycles oil at all nine of its locations, and Mead negotiated a contract rate with adjustable commodity pricing based on oil prices.

What’s more, Mead used his knowledge of used motor oil’s value to negotiate the environmental fees dealerships often charge.

“I went back through our invoices and told the dealerships we’re not going to pay those fees. We know it is of value, and they can get paid for it,” he said.

Even with the value of used motor oil, Treadway said, Kenworth Sales Co. still charges environmental fees to help cover expenses associated with disposing of other chemicals and oily rags, cleaning uniforms and maintaining the necessary paperwork.

Industry officials told Transport Topics that carriers need to exercise caution when selecting whom they work with for recycling. Although carriers are passing their used oil along to recyclers, they still are liable for the material.

“Ask a company what they’re doing with the oil and find out what type of environmental insurance they carry,” said Scott Parker, executive director of Nora, An Association of Responsible Recyclers, in Haymarket, Va.

Jim Price, environmental health and safety manager for Valley Power Systems, a member of WheelTime Network LLC, Greensboro, N.C., said he uses several purveyors to pick up his used oil.

Before signing on with a company, Price said, he checks out the firm on the Environmental Protection Agency’s website, runs a Dun & Bradstreet background check and inspects the transport vehicles.

“If they’re going down the road and a wheel falls off, we’re coming to the party,” he explained, meaning that his company could be held liable and get pulled into a lawsuit.

Because Valley Power Systems, based in City of Industry, has several locations in California, Price takes extra precautions. Although the oil from their pickups could be mixed with that from other producers, Price said, he prefers to have his own hazardous-waste manifest.

“If they mix our oil with other oil and one of them happens to be contaminated with PCB, we could be held responsible for a portion of the load,” he said. PCB, or polychlorinated biphenyl, is classified as a toxic organic pollutant.

Con-way’s Cornell said he also ensures his agreements specify that the company buying the oil is following all applicable laws.

In addition to selling used oil, a number of carriers continue to burn it as a fuel source to heat their shops.

MinStar’s maintenance facility, NorthStar Diesel Service, also in Eagan, Minn., installed a waste-oil heater for its six-bay truck shop in 2011. The location sells its oil six months of the year and burns it for the other six months.

“The savings that we have recognized in the first year, $3,000, are a 55% reduction of our heating bill,” Miller said, noting that the heater cost $10,000.

Tina Phillips, international sales and marketing manager for used-oil heater manufacturer Clean Burn Inc., Lancaster, Pa., said heaters cost between $4,000 and $14,000, with the average return on investment taking 2.5 years. The heaters are not allowed in some areas, including California and New York City.

Miller said the heater needs to be cleaned monthly, but it has not required any additional maintenance.

Given the increasing value of dirty oil, Kevin Ferrick, manager of global industry services for the American Petroleum Institute, Washington, D.C., said carriers and shop managers have to decide if it is better for them to sell used oil rather than burn it.

That is exactly what happened to Treadway. Kenworth Sales has eliminated waste oil burners at its locations as it remodels.

“We can sell the waste oil more profitably than we can consume it ourselves,” he said.

For Con-way Truckload, burning oil still makes sense. Cornell said the price for a gallon of used oil would have to increase dramatically to offset the savings Con-way gets from burning it to heat its inspection bays.

“Right now, it is much more cost-effective for us to use it to heat the facility,” he said.

Even with the amount that is burned for heat, Nora’s Parker said more than 1 billion gallons of used oil are collected and recycled each year.

Exxon Mobil Corp., Shell Lubricants and Chevron Corp. did not respond to requests for comment.