Business Trends: Like Salt in a Wound

Bob Lautenbach, Jr., one of the owners at Bob’s Snowplow in Grand Rapids, Mich., has seen prices for a ton of salt rise from $42 to more than $113 during the past year. Lautenbach says that this year is the first he has had to guarantee his order and had to commit in June. Last year, Lautenbach says the final few salt truckloads his business received were “extremely expensive” because he had to pay extra trucking fees to bring salt from Ohio. And Lautenbach doesn’t want to continue increasing his service prices to offset salt costs. One client (with 76 locations and a five-year contract) has refused to renegotiate their pricing with Lautenbach, although some smaller clients have been more sympathetic about his business’ situation.

Still, what is the reason for the dilemma facing Lautenbach and other contractors who rely on salt supplies?

Referring to factors that have affected the price and availability of salt for snow removal, Dick Hanneman, executive director of the Salt Institute, calls it a “perfect storm.” Prices can be 50- or even 100-percent higher than they have been for the last few years and shortages can push prices even higher. With eight to 12 million tons of road salt being used every year in the United States, the price increases can really add up.

BAD WINTERS, BAD PROBLEMS

The winter of 2007 was severe in Wisconsin, Iowa and Illinois, which caused several problems for salt distributors. The melting of accumulated snow and ice resulted in high waters, which made rivers such as the Mississippi difficult to navigate. This resulted in the shortest shipping season on record for salt producers. Intense competition for barges on the Mississippi didn’t help. But the final blow was Hurricane Ike, which resulted in closure of the Morton salt mine and salt mines throughout Louisiana, a heavy salt-producing state.

With the reserves of both suppliers and customers nearly wiped out, many Midwestern contractors are trying to protect themselves this year by not only replenishing supplies, but also increasing their orders by as much as 52 percent. With increased demand, the only place to get more salt is offshore, which is also driving prices higher.

Salt shortages and price spikes have also made it difficult for snow removal contractors to budget, bid and order materials.  Hanneman recommends that smaller contractors need to “understand the supply chain.” Unfortunately, state agencies, municipalities and counties have larger orders and are going to be supplied first. In order to be higher than your competitors in the “pecking order” Hanneman says be one of your supplier’s best customers. “Pay your bills on time,” he explains. “Contract with someone for a certain amount of material and then accept that amount.”

Other suggestions from the Salt Institute include establishing a quid pro quo relationship with long-term salt suppliers by trying to order worthwhile quantities, allowing some flexibility in the delivery schedule, providing prompt payment and for rapid unloading of delivery trucks.

STORE AND SAVE

Hanneman also recommends starting early and taking delivery early. Contractors who don’t already have a storage area have a choice of building one or more of the permanent fabric and frame structures or building temporary surge piles at their facility.
 
The Salt Institute Web site (www.saltinstitute.org) suggests looking for sources of salt storage or contingency storage off-site. Recommended options “may include unused industrial and military complexes, unused concrete, blacktop and aggregate producing and plant facilities and unused industrial silos that have sufficient corrosion resistance.”

Lautenbach co-ops his salt storage and orders with two other contractors who have a storage facility and equipment for loading. Although he pays extra for the storage and equipment use, he finds that the price is fair and the difference is offset by the discount for ordering in larger quantities.

Troy Clogg, owner of Detroit-based Troy Clogg Landscape Associates, built a new temporary storage facility this year to guard against shortages. Clogg says that he will spread the cost out over five years, but like Laudenbach, he had to lock in on his order early.

“The gist of what we did was to use a little foresight and take more risk to negotiate a salt price earlier than we have in the past and then pay for it,” Clogg explains. “The real deal is that it has gone from a ‘just-in-time’ kind of inventory management to speculating what you will use for a season and then pre-buying it to get a consistent price and availability.”

Proper salt use and storage center upkeep can also help keep costs down. The Salt Institute recommends inspecting and maintaining storage facilities before salt deliveries, as it is difficult to repair storage buildings after they have been filled. In addition, the Institute also advises that applications of salt be controlled so as to distribute the correct amount for the prevailing weather and road conditions.

Truck-mounted infrared sensors can more accurately calculate the appropriate application rate than wall mounted thermometers, which measure temperatures several feet above the road. Pavement temperature is the critical measurement for applying chemicals and abrasives in snow and ice control operations.

SALT ALTERNATIVES

Some snow removers are experimenting with a mixture of sugar beet juice and salt, which is less damaging to concrete and metal equipment.

Beet juice is a waste product that, when mixed with salt, is a more effective way to treat icy and snow-covered roads. When using the combination beet/brine for pretreatment, it stops melting snow at about 20 degrees below zero, compared to a salt/brine that will stop melting snow at about 18 degrees. It also leaves a residue on streets that negates the need for reapplication after a light snow.
 
In addition, the beet juice product (known as Geo-Melt) coats the salt and makes it less corrosive to vehicles, equipment and roadway infrastructure. Geo-Melt also makes the salt tacky, which reduces the tendency of salt to bounce off the road into surrounding areas
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Even though Geo-Melt is more expensive than salt brine, some contractors believe that its net cost could be lower, given that one treatment lasts about twice as long. It also can reduce or eliminate the use of calcium chloride in colder weather, which can be extremely  corrosive to older, steel-bodied vehicles. However, Clogg notes that beet juice forms a somewhat sticky substance that can cling to cars and other surfaces.

Clogg says he had seen virtually no liquid use in Detroit until 2008, but now it’s everywhere.

“Historically, salt in the Detroit area has been very cheap relative to other markets, but now contractors are scared that they won’t be able to get salt,” he explains. “We chose to invest in salt this year rather than go through a complete change in equipment needs, training and product storage.”

However, Clogg adds that his company is setting up one liquid truck and “trying many liquid products until we find the one that we think works the best.” He has found that the down side to using liquids is that they have to be applied before forecasted bad weather. And in this economy, few want to pay for what they don’t need.

In the end, Clogg says that salt problems are separating the business thinkers in the industry from the non-business thinkers.

“A lot of people have had the luxury of buying what they needed only minutes before they needed it, but that’s not the case anymore.”

However, Clogg admits that there is no guarantee that thinking ahead makes for the best decision.

“I believe I’m trusting the right information based on what I know. However, if salt prices should suddenly plummet like gas prices have, that would be the worst thing that could happen to me this year.”