New supplier contribution approach FAQs

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About the new approach

When will the new approach be implemented? Fixed pricing for each material type will commence from the February 2020 invoice with the transition to the new approach from the April 2020 invoice.

From April 2020, invoices will be calculated using actual supply volumes in arrears and the fixed price. Each supplier will be able to calculate in advance exactly how much their invoice will be before they receive it because their invoice will be based on their own supply numbers.
What do I need to do to prepare?
  1. Read the briefing paper
  2. Sign up for the webinar; have your questions answered
  3. Continue to report actual volumes by the 15th of every month.
  4. Note that the new fixed pricing per material type will be charged from 1 February 2020 invoice and that the final true-up will be in the 1 March 2020 invoice.
  5. Review your internal processes and make adjustments if required
Why was April chosen to start new approach? April 2020 was identified as the ideal month for the commencement of the new approach, as suppliers would be using a lower volume month to determine their supply volume in arrears and there are no quarterly MRF payments.

Starting after April would require a higher fixed price to ensure sufficient funding is collected to cover the peak months later in the year.

To help manage supply chain price negotiations, EFC will commence their fixed pricing from February 2020 invoice, even though the new invoicing approach will not commence until April 2020 invoice.

Pricing and contributions

How is the fixed price calculated in the new approach?A new supplier contribution approach for the NSW CDS will be implemented based on 12-month fixed container pricing by material type. The fixed pricing has been developed based on:
  • historical supplier volumes and estimated growth in line with population growth
  • historical and projected growth in redemptions through the network of return points
  • historical and projected redemptions through material recovery facility operators (kerbside collections)
  • network operator handling and processing fees per container and for each material type
  • fixed costs including scheme coordinator and compliance fees maintaining scheme account balance equal to two weeks’ forecast redemptions to ensure scheme liquidity and to hold long term pricing
  • all listed pricing is ex GST.
Is this an arrears approach?The new system is based on an arrears approach by using actual volumes of containers supplied and declared by each supplier to calculate the monthly invoice. Contributions are required to fund scheme operations in the following months. (e.g. April invoice will use March actual supply volumes x fixed price = to fund May scheme costs).
When will we know what the 12-month fixed price per material will be?Pricing for subsequent years will be published prior to 1 October to assist suppliers in preparing for February price changes.

EFC will also undertake quarterly reviews of pricing and only make any required adjustments in the event of any significant changes from what has been forecast.
When will the last true-up adjustment occur?The last true-up will occur in the March 2020 invoice including the:
  • monthly adjustment for advanced contributions for January invoiced in December, and
  • quarterly adjustments for advanced contributions made for October-December for kerbside collections by material recovery facility operators.
Note: there will be no monthly true-up adjustments for advanced contributions for February and March or quarterly MRF true-up adjustments for January-March 2020. Any variances will be reconciled every 12 months and used to offset future annual price adjustments.
Will I be paying for March twice during the transition?No. March actuals will be used to calculate your April invoice.
Why is there different pricing for each material type? Does the scheme favour particular material types like liquid paperboard?Scheme pricing by material type reflects the redemption rates and the actual costs of recovery for each material type. Redemption of liquid paperboard is very low and therefore the costs of collecting and managing the small number of liquid paperboard containers is spread across a much higher supply number. As consumer awareness of the ability to return liquid paperboard increases, redemption rates will improve and pricing will move closer to parity.
Are you going to reveal your historical redemption rate and your forecast redemption rate so we can see if these prices are reasonable?Historical redemption rates can currently be calculated using the information contained in the true-up newsletters that are published monthly online. The following table contains the average annual redemption rate per material type for the current year and the first year of the fixed price approach:

 

Feb 2019 – Jan 2020

Total Redemption Rate

Feb 2020 – Jan 2021

Total Redemption Rate

Material Type

Total Redeemed*

Total redemption paid**

Redeemed and Paid

Aluminium

69%

67%

72%

Glass

81%

76%

83%

HDPE

46%

43%

43%

PET

63%

59%

69%

Liquid Paperboard

19%

19%

23%

Steel

24%

24%

19%

Other plastics

15%

14%

28%

Other materials

59%

59%

44%

Notes:
  • The Feb 2019 – Jan 2020 redemption rates shown in columns two and three are a combination of actual figures and forecast figures calculated when the fixed pricing was finalised in October 2019.
  • *Redeemed containers include all of the containers that have been delivered for reuse and recycling during the period. This measure represents the true redemption performance of the Scheme.
  • **Total redemption for which a refund was paid by the Return and Earn Scheme. Due to some Materials Recovery Facility (MRF) operators not having a refund share agreement in place with local councils as is required by the legislation, these MRFs were unable to claim the containers delivered for recycling and reuse, resulting in a saving for suppliers.
Why is there a greater difference between the new fixed price for aluminium and the twelve-month average price if no change is made to the supplier contribution approach compared to other high volume material types?It is important to note that the method used to forecast pricing for the current supplier contribution approach is different to that used for the new approach and in practice the current approach would experience some variance due to the true-up process. Therefore, the average pricing under the existing supplier contribution approach and the fixed price cannot be directly compared and should be used as a guide only.

The key drivers for the new fixed pricing for aluminium considers that supply will experience minimal growth and, based on historical trends, redemptions through the network are expected to increase. From the commencement of 2020, it is expected that all redemptions through MRFs will be eligible for claims with all share agreements between MRFs and local councils in place for the first time since the regulation came into effect. This will see paid redemptions grow from 67 per cent to 72 per cent driving fixed price for aluminium.
Have local councils contributed funds to the scheme from the saving’s they made from the shift from kerbside collection to CDS depots?Local councils do not directly contribute towards meeting the costs of the container deposit scheme.

Local councils do, however, participate as indirect users of the scheme through their relationships with Material Recovery Facilities (MRFs). MRFs who have processing or refund share agreements in place with a local council are entitled to receive a refund on every eligible container they collect and/or source through the council kerbside recycling system.

Payment terms and reviews

Why hasn’t the 7-day payment term been extended?Consideration was given to extending the existing payment terms from 7 to 14 days; however, this created a significant risk that the scheme would have insufficient funds to operate during the transition period and in future times. This risk could be mitigated by increasing prices in the lead up to the transition or borrowing money. However, this would add additional costs to the scheme.

The Department and EFC has therefore decided to retain the current 7-day payment terms because:
  • it reduced the need for additional scheme costs;
  • it aligned with payment terms in schemes in other jurisdictions, and;
  • the new supplier contribution approach gives suppliers more time to plan for invoice payments, by providing greater certainty of upcoming invoice amounts. Invoices will be based on two key pieces of information that suppliers will already know before the invoice arrives – the supplier’s actual supply volumes and the fixed container price.
What is the purpose of the quarterly review?While EFC has a high level of confidence in the modelling and the intention is to hold prices for the full 12 months, EFC will review the prices on a quarterly basis and only make adjustments in the event of any significant changes from what has been forecast.
With the quarterly review is there a tolerance which will determine if the rate needs to change both up and/or down?Extensive modelling and stress testing have been undertaken when establishing the fixed prices for each material type. The fixed pricing includes maintaining a scheme account balance equal to two weeks’ forecast redemptions through the network to ensure scheme liquidity and to hold long term pricing. EFC has a high level of confidence in the modelling and the intention is to hold prices for the full 12 months, and an adjustment would only be made in the event of significant changes from what has been forecast.

Invoicing and adjustments

Can I opt in for quarterly invoicing instead of monthly?Small suppliers (that supply 300,000 or less containers per annum) can opt to move to quarterly invoices.
What happens to any newly signed suppliers who are found not to have signed up previously? Any new suppliers found to have not contributed for any historical supply will be charged the historical monthly costs based on the final true-up prices for each month as at March 2020.

The proceeds from these historical invoices will be added to the scheme account. Any surplus funds or deficiencies will be reconciled every 12 months and used to offset future annual price adjustments.
Will existing suppliers be charged the new fixed priced for historical adjustments?No. For periods prior to February 2020 the final prices determined at March 2020 will be used. For periods from February 2020 onwards, the fixed prices will apply.

Adjustments will only impact the individual supplier. The proceeds from these invoices will be added to the scheme account. Any surplus funds or deficiencies will be reconciled every 12 months and used to offset future annual price adjustments.
What happens to the proceeds of any individual supplier adjustments?Suppliers adjusting their reported supply volumes will be individually invoiced for the changed amount with no impact to any other supplier.

The proceeds from these historical invoices will be added to the scheme account. Any surplus funds or deficiencies will be reconciled every 12 months and used to offset future annual price adjustments.
Does EFC make a profit from the 12-month fixed price model?No. The NSW CDS operates as a cost recovery model.

EFC must use the NSW CDS account solely for the purpose of making and receiving payments in accordance with the scheme payments and contribution methodology and not for any other purpose. EFC receives a fixed fee for its services irrespective of the payment approach.

Reporting and communication

Will monthly reporting continue? Yes. EFC will continue to provide monthly reporting to provide visibility to suppliers on scheme performance, measured against forecasts.
Will these changes be communicated to industry bodies and organisations? Yes. EFC are communicating these changes to industry bodies and organisations. This will be done through briefings and the relevant bodies’ communication channels.
Your information guide indicated that you were trying to achieve alignment with other schemes however you are moving away from ACT. How are you going to address this?This change brings us in closer alignment with jurisdictions like Queensland with regard to fixed pricing. EFC has commenced working with the ACT government and is committed to achieving greater harmonisation.
I still don’t understand the new approach, where can I get further information and help?For more information or if you have any questions about the new supplier contribution approach or the NSW CDS, please contact the EFC Customer Service Team on 1800 813 887 or email info@exchangeforchange.com.au.