Treasure in L.A.’s Trash

Cruising the streets of South Gate in search of America’s hottest export, Jose Gonzalez hit the brakes outside a liquor store. He struck pay dirt, not in the refrigerated section, but in the cardboard-filled dumpster out back.

“With a full load I can earn around $20� at a recycling center, Gonzalez said, pointing to the flattened Budweiser cartons in the bed of his battered pickup. “I’m told that they’ll end up in China.�

Critics have long accused Los Angeles of exporting trash to the rest of the world. But L.A.’s blockbuster isn’t Hollywood action films or celebrity diets. It’s the cardboard box.

Foreigners are gonzo for America’s high-quality used packaging, newspapers and office scraps, last year snapping up 10.5 million tons for recycling in their home countries. In the process, they’ve turned wastepaper into America’s biggest-volume export.

“The United States is the OPEC of wastepaper,� said Kent McEntee, editor and publisher of the Paper Stock Report, a Cleveland-based trade publication. “We produce more of it than anybody, so if you want it, this is where you come.�

And come they have to Southern California. The Los Angeles region has become a hotbed of used-paper merchants, drawn like ‘49ers to the region’s mother lode of waste. Convenient ports and cheap outbound ocean shipping rates have helped solidify L.A.’s standing as the nation’s used-cardboard capital. Not to mention an arid climate that helps keep scrap collectors honest.

“There are a lot of tricks,� said Pomona businesswoman Yan Cheung, who got her start buying wastepaper in humid Hong Kong, where cheats tried to weight her scales with soggy loads.

Her wastepaper exporting business, America Chung Nam Inc., is thriving in sunny California. In little more than a decade, the company has grown from a shoestring operation into America’s No. 1 volume exporter. Last year the company sent 153,900 containers of U.S. wastepaper across the Pacific Ocean to Asia. That’s more than twice the number of outbound sea freight containers shipped by global giants such as Procter & Gamble Co. and Dow Chemical Co., according to logistics trade publication the Journal of Commerce.

Laboring under a massive trade deficit, the U.S. holds the dubious distinction of claiming garbage as a prime export. But Americans can at least take pride in knowing that the quality is second to none.

“If U.S. wastepaper were a pretty girl, she’d be a 9 or a 10,� said Baldwin Park-based exporter Stephen Young, president of Allan Co. “It’s the best in the world.�

To the casual observer, one brown box looks pretty much like another. But experts such as Young know that the beauty of these and other U.S. paper products is more than skin deep. The secret is virgin wood pulp. Blessed with abundant forests, the U.S. is home to some of the best-built corrugated boxes on the planet, endowed with so much sinewy wood fiber that they put flimsy foreign-made cartons to shame.

Countries short on timber, especially developing Asian nations, covet these russet beauties, chopping and boiling them to recover the valuable fiber, which is then used as feedstock for their paper mills. That might seem like a lot of trouble until one considers that used corrugated paper fetches around $100 a ton, compared with about $460 for a ton of virgin pulp. Used office paper, old newspapers, box-factory scraps and other waste are similarly prized.

China Drives the Market for American Castoffs

Foreigners aren’t the only ones to spot value in American wastepaper. U.S.-based paper mills consumed nearly three-quarters of the estimated 47 million tons recovered last year, according to the American Forest and Paper Assn., turning it into new corrugated cartons, newspapers, cereal boxes and grocery sacks.

But foreign demand for U.S. castoffs is growing rapidly, up nearly 50% in the last five years alone, driven largely by a single buyer: China.

An emerging manufacturing powerhouse, China recently surpassed Japan to become the world’s second-largest paper consumer behind the U.S., thanks to burgeoning domestic demand and a soaring export trade requiring packaging for Chinese-made goods.

Rampant deforestation and tough government restrictions on logging mean China must rely heavily on recycling. In the last few years it has catapulted from being a bit player to the largest single buyer of U.S. wastepaper. In 2001 it purchased 3.6 million tons, accounting for more than one-third of all U.S. wastepaper exports, according to the Paper Stock Report.

“China is gobbling everything in sight,� said David Lee, general manager of Bestway Recycling Co., which retrieves, sorts, bales and ships thousands of tons of wastepaper annually from its four Los Angeles-area recycling centers. “Ninety percent of everything we collect is going there.�

On a recent afternoon at his company’s South Gate recycling yard, half a dozen 40-foot shipping containers bearing the logo of China Ocean Shipping Co. sat waiting to be loaded with dozens of 1,500-pound bales of wastepaper. Nearly half of the material Lee’s firm processes comes from L.A.’s curbside recycling program. Thus the junk mail, newspapers and old boxes Angelenos deposit in their blue bins today will be reborn within weeks in China as shipping cartons, tissue boxes, Chinese-language newspapers and disposable diapers.

Getting all that material from here to there is the specialty of wastepaper entrepreneurs who have flocked to the region to be close to the source of supply. Southern California is home to 18 of the 100 largest exporting companies in the nation, 10 of them engaged in the export of wastepaper, according to the Journal of Commerce.

The biggest is Pomona-based America Chung Nam, which is on track to ship 3 million tons of wastepaper this year, almost all of it to China. Founder Cheung was born on the mainland and studied accounting before entering Hong Kong’s rough-and-tumble wastepaper trade in her 20s. There the youthful number cruncher came face to face with the realities of her new profession.

Teaching Waste Haulers That It Pays to Be Tidy

Hong Kong recycling yards were dirty, smelly places matched only by the business tactics of some of her customers. Loads of wastepaper were contaminated with water and garbage, due in part to slothful collectors but also to opportunists looking to juice the scales to make a few extra Hong Kong dollars.

Cheung set out to educate waste haulers about the value of tidiness, paying premium prices for the best quality. According to Cheung, that irritated a wise guy with the local triad society--Hong Kong’s version of the Sopranos--who informed her that he didn’t want anyone cleaning up the local recycling trade, much less some fresh-faced female.

“I was too young to be scared,� said Cheung, now 45. “I just kept on doing what I thought was right.�

Nevertheless, by 1990 she realized she needed a bigger base of supply to meet China’s growing demand for wastepaper. So she set up shop in the U.S., which last year consumed nearly 100 million tons of paper products.

Today, America Chung Nam employs 80 workers, and it posted sales of $238 million in 2001. Though the dollars are relatively modest, the company’s export volume is huge, propelling it to the top of the Journal of Commerce’s list of the nation’s biggest exporters, ahead of household names such as Philip Morris and General Electric.

America Chung Nam operates a couple of its own recycling centers, where small-time scavengers can earn quick cash for a load of old boxes. But it gets most of its material through contracts with commercial waste haulers, large retailers and supermarkets and through joint ventures it has formed with recycling yards. In China, the company’s holdings include a mammoth paper mill, a box plant and a disposable-diaper-making facility, fed in part by the wastepaper it collects in the U.S.

For Cheung, the L.A. region’s warm weather, large Chinese-speaking population and seemingly unlimited supply of top-notch used wastepaper is truly the California dream.

“So much supply ... and the quality is incomparable,� she said.

Still, the former accountant isn’t taking any chances. America Chung Nam’s 15 inspectors visit suppliers such as Bestway Recycling regularly to ensure the quality of what they’re buying. They stab the giant paper bales with wand-like meters to test for excess moisture and check outbound shipping containers before they’re sealed to make sure no garbage has been substituted for paper.

Veterans such as quality-control supervisor Axel Tong can tell a box’s pedigree at a glance. Rummaging through a pile of squashed cardboard at Bestway Recycling on a recent afternoon, he snatched up a piece tinted a sickly orange.

“This is Thai cardboard,� he said somberly, tearing the flimsy scrap between his fingers. “Very little fiber. The material has been recycled many times.�

Making a Dent in the Trade Imbalance

Spotting a caramel-brown Kellogg’s shipping carton nearby, he ripped off a flap, pointed to the downy, hair-like fibers sprouting from the edges of the tear and broke into a wide smile.

“That’s American,� he said. “It’s very good quality. The best there is.�

Suppliers don’t take offense at the constant snooping. In fact they credit America Chung Nam and other exporters for helping stabilize the U.S. wastepaper market at a time when American manufacturing is slumping and the domestic economy wobbling.

Ocean shipping companies are grateful too. America’s huge trade imbalance, which in 2001 totaled $426.6 billion, has created some wildly lopsided logistics, particularly on Asian trade routes. Hundreds of thousands of shipping containers land annually on U.S. shores stuffed with merchandise from China and Japan, countries that buy from the U.S. only a fraction of what they sell here.

Shipping lines don’t get paid for transporting empties back across the Pacific. So they offer rock-bottom rates on outbound wastepaper--as little as $300 for a 40-foot container filled with 23 tons of material--just to get a paying load for the return trip.

“All the carriers fight for the wastepaper,� said Matt Plezia, a planner with the Port of Long Beach, who says the material is his facility’s largest volume export, accounting for 15% of total outbound containers last year. “They’d rather have something than nothing in those containers.�

It’s a bittersweet trade for domestic box makers such as Lewis Eagle, owner of Carson-based Empire Container Corp. His industry has struggled with the economic slowdown and the continuing exodus of manufacturers from U.S. shores. Eagle’s business is off nearly 15% this year, and he doesn’t see it improving any time soon.

The only bright spot is that the corrugated waste left over from his manufacturing process is in high demand and has become a big contributor to his bottom line. Eagle sells two truckloads a week, knowing full well that they probably will end up in China, whose box plants are putting the squeeze on his livelihood.

“It has become a significant portion of my profits,� Eagle said. “But the more they buy from me means there is that much less manufacturing going on here. It’s a double-edged sword.�