Contractors revisit pricing after brutal 2013-’14 snow season.
One year ago, the National Oceanic and Atmospheric Administration forecasted average temperatures and precipitation in January through March 2014 for most of the United States – and above-average temperatures in the Northeast. It didn’t turn out that way.
“We had never seen a winter like that, and we are hoping it will be the only one like that,” says Mike Anderson, president of Snow & Ice Pros in Hammond, Indiana.
Winter storms dumped 91 inches of snow on northern Indiana, a region that averages 37 inches a season. Along with the snow, the winter was the second coldest in the region’s history.
“The combination made it very challenging,” understates Anderson.
Last winter’s chill is still being felt by snow removal companies and customers. The winter strained the resources of many snow removal operators, who scrambled to fulfill seasonal contracts and to keep supplied with salt. Customers became utterly dependent on the companies to keep their business doors open, their parking lots clear and their campuses functioning. It was a traumatic season.
Snow & Ice Pros has 130 commercial customers and some of them became anxious about the trucks and loaders returning to their properties time after time. Why? Some of these customers were paying for each clearing. Other customers paid one fee for unlimited snow removal.
“We give all customers the contractual option when they sign up,” Anderson says, noting that the company tries to keep some balance between the two types of contracts. The contractual balance guards against feast-or-famine business seasons. Had all customers been on seasonal contracts last winter, for example, the financial impact on the company would have been significant.
Anderson – who is chairman of the board of the national Snow and Ice Management Association (SIMA) – predicts there will be a shift in contracts this fall as customers factor in last winter. Such “reactionary” behavior is typical, he says. For example, the winter of 2012-13 was extremely mild, with about 20 inches of snow falling, so the company went into last winter with more per-event contracts in force.
“I expect we will see some swing back the other way,” he predicts. In other words, he expects more of his customers to ask for seasonal contracts.
The company is evaluating a change in pricing for seasonal and per-event contracts in hopes of tempering the swing. Anderson expects his customer base to be accepting of the price hikes.
“Our customers will understand that we have good, legitimate business reasons for the increase. No one likes increased costs, but it is not as though we are pulling numbers out of the air,” he explains.
Very expensive salt
Companies paid dearly for salt last winter when the salt stockpiles shrank causing the prices to explode. In northern Indiana, salt costs tripled, Anderson recalls, even though his company’s stockpiles are only 30 miles from the Lake Michigan port where the melting material is delivered to the region. Looking ahead, Snow & Ice Pros moved to larger quarters last spring and its salt stockpile area now is “1,000 percent” larger.
Hundreds of miles away in the Boston market, Brian Churchill suffered the same experience last winter – lots of snow, too little salt.
Churchill is vice president of The Groundskeeper, Inc., which generates about half of its annual revenue removing snow from commercial properties. The area typically deals with 4 feet of snow from perhaps 20 snow events annually. Last winter’s 35 storms left 7 feet of snow on the region, creating what Churchill describes as a “long and intense” season.
Because Groundskeeper has traditionally favored fixed, seasonal contracts, many customers got an especially good deal.
“We are going to look for a different ratio of seasonal and per-event contracts. We need to balance that ratio a lot better,” Churchill says. He ideally wants a 50-50 split, but would settle for 60 percent per-event contracts and the rest seasonal.
The other contractual change will address the salt issue. Churchill – like Anderson – plans to insert a “force majeure” clause into his 2014-15 contracts. The French term means that a party is excused from abiding strictly with the terms of an agreement when a “natural and unavoidable catastrophe” disrupts its financial logic, for example surprise salt shortages that spiral costs upward. In practical terms, the clause will allow snow removal companies to pass along to customers any unexpected and dramatic increase in the cost of delivering the service.
Churchill says his company, which has a customer base of just 20 “very large” customers, tried to cajole clients into letting Groundskeeper alter its fees during the season to cover the higher salt costs. Some clients were sympathetic; some held him to the contracts they had agreed upon.
“We had a lot of conversations last winter with our customers about suppliers taking advantage of the salt shortage,” says Churchill, a practice he stopped just short of calling price gouging. “About half of our customers said, ‘We understand the situation, we have read about it, pass on the cost.’ Others said, ‘You have a contract with us and we are going to hold you to it.'”
The company fulfilled the terms of contracts that weren’t renegotiated, and did so with a lot more awareness about conserving salt, Churchill says. In essence, a better business practice was forced upon the company. “We tried to be a lot more cognizant of what we were doing with the salt, how we were spreading the material.”
Consequently, Groundskeeper is investing in new salt spreaders with newer technologies that finely calibrate how the salt is distributed.
Carefully metering out salt was a lesson learned a long time ago by Gabriel Nelson. The president of Nelson’s Landscaping & Snow Removal Services says he learned in winters past to “miser the salt till the end.”
The southeast Wisconsin businessman says another company in the area ended up spreading table salt last winter, but Nelson’s Landscaping ended the season with a half-dozen pallets of bagged road salt to spare. It was a narrow escape from what he called a “brutal” season.
“I don’t care what kind of winter warrior you think you are, it was just plain brutal,” he says of the 2013-14 season. “It wasn’t the amount of snow, because we love that part. It was the arctic air. It was the duration of the arctic air that was the worst. It felt like an eternity and we deal with cold weather every year.”
The season taxed his team of 24 employees, who either work in the office or shop or man snow-clearing equipment. His fleet of machinery includes ag tractors with plows, pickups with blades, medium- and large-capacity dump trucks and 4WD scrapers and loaders.
Nelson did not, and will not, raise prices on customers in the dead of winter, he says. However, with the learning experience of another business cycle under his belt, he is making “adjustments” to his contracts to incorporate the lessons of last winter into next season’s agreements.
“The snow industry is not for everyone,” he says from the perspective of someone who has been clearing away the white stuff since 1999. “I have seen grown men cry and drop to their knees begging to go home. Wisconsin weather has that effect on those who don’t belong behind a plow. Snow careers can be quick and swift.”
Customers notice such breakdowns, no doubt. They certainly notice when a parking lot isn’t cleared on schedule. Back in Boston, Churchill is picking up business from snow removal companies that didn’t come through for their clients last winter.
“This month we have already seen new bids, new clients for us,” he says. “In a year like last year, two things happen: a salt shortage develops and winter hangs on for a long duration. Those two things will break certain contractors, so customers this year are shopping.”