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Special Section - Snow and Ice Management09-06-16 | Feature

Special Section - Snow and Ice Management
Bring on Winter

The size of the private snow and ice management market in the U.S. and Canada is estimated to be nearly $23 billion. The Snow and Ice Management Association found that the industry grew 3.8% per year from 2009 to 2014, and is forecasted to expand 3.2% per year until 2019. In a survey conducted by the Accredited Snow Contractors Association, 74% predicted increased business this coming season.
Photo: Deere & Company

Will this snow season be better than last; one the Accredited Snow Contractors Association termed "a mild winter many of you would like to forget," or will it be even worse for the snow and ice management industry? Though long-term prognostications are available, the Farmers' Almanac, which offers its own prognostication based on a mathematical and astronomical formula, also submits these weather folklores as forecasting tools:

"If the first week in August is unusually warm, the coming winter will be snowy and long."

"If a cold August follows a hot July, it foretells a winter hard and dry."

So look back at the weather of the previous two months in your area for a possible glimpse at your coming winter. To help prepare for it, this special section provides information on the industry's status, best management practices, equipment innovations and more.

Assessing the Conditions

SIMA reported that nearly 80% of the estimated 110,400 snowplow operators in the U.S. are sole proprietors. Before and after winter, 92% of operators work in other industries, especially landscaping.
Photo: The Toro Company

One in four companies achieve a profit margin of 50% or more while two in 10 register a margin of less than 20%. The majority of the accounts for services are residential at 34%, followed by retail accounts at 27% and industrial accounts at 26%. Billing methods range from a seasonal contract to charges based on per hour, per push, per inch or per event.
Photo: Case Snow Management

The Snow and Ice Management Association released its first ever impact report in order to, according to Martin Tirado, SIMA's CEO, better understand the industry as the association sets out on its mission of building professionalism and best practices.

"The impact report confirms that the industry is exceptionally fragmented," states Tirado. "The top four largest operators account for less than five percent of overall revenue. With an industry of more than 22,000, we see an opportunity to grow the association and bring value to a greater number of snow and ice management professionals."

An Overall Look
Here are some of the findings of the report compiled by independent market research and strategy firm WolfWorks Consulting under SIMA's PR firm Singer Communications.

The amount of money that the service industry accounts for in the U.S. and Canada was pegged at nearly $23 billion. And that's just the private sector's contribution. The public side is estimated to kick in another $3-4 billion.

The four types of buyers of snow and ice management services, and their respective share of the pie are residential, 34 percent; retail (primarily small businesses), 27 percent; industrial (typically commercial offices and facilities), 26 percent; and other (hospitals, airports and the like), 17 percent.

Of the estimated 110,400 snowplow operators in the U.S., nearly 80 percent of them are sole proprietors. Because of the seasonality, the majority of operators work in other industries with landscaping being the most common. Only eight percent work exclusively in the snow and ice industry.

The Accredited Snow Contractors Association's "State of the Snow Industry" report presented an optimistic outlook with 74 percent of survey respondents saying they expected increased business this season, 58 percent predicting growth over the next five years and 49 percent planning to invest in their business.

Money Matters
ASCA's survey found that on average, a company consists of 10 full-time and 6 part-time employees, 23 seasonal laborers and 13 subcontractors, and handles 70 properties for 54 clients. Those properties averaged 23 percent single-family, 12 percent multi-family, 58 percent commercial and 7 percent government. Plowing was the chief service, 52 percent, and brought in an average profit margin of 42 percent. Salt and de-icing, 32 percent, had a little higher return on investment at 47 percent. Margins on snow disposal and walkways were 35 percent and 30 percent respectively.

The top billing method according to this survey was seasonal contracts, followed by per push, hourly, per event and per inch. SIMA's report had somewhat different results regarding this with per push and hourly both outpacing seasonal contracts. It found that a typical operator earns $152,100. Two in 10 achieve a less than 20 percent margin but one in four report a profit of 50 percent or more.

Trends
According to SIMA, the industry grew 3.8 percent per year from 2009 to 2014, and is now expected to expand 3.2 percent per year until 2019.

The flourishing commercial real estate market with its increased spending on new construction and higher occupancy rates is cited as a boon to the snow and ice field. So to is the increase of corporations outsourcing the winter maintenance of their outdoor facilities. Expectations are for the industry to consolidate a bit as some operators go to work for larger firms rather than working independently.

Troubling Winds of Change

Slip and fall claims against snow and ice management companies number more than 30,000 a year, according to the Accredited Snow Contractors Association. The average settlement is $15,132.

Snow and ice management companies that can't find coverage through standard carriers, who are ceasing service to the industry, are left with the option of using excess carriers, which the American Association of Managing General Agents says are not licensed by a state, so do not have to follow state-issued rate regulations. As an example of the effects of that, snow and ice management companies that also provide landscaping services can reportedly pay up to six times the rate for insurance in the winter as they do in the summer.
Photo: Wolfdesign

In the midst of all this mostly positive news, LC/DBM was notified of storm clouds appearing on the horizon for snow and ice management contractors – ever increasing insurance rates and insurance companies actually ceasing coverage for the entire sector due to the high cost of slip and fall claims.

Randy Strait, the owner of Arctic Snow and Ice Control, which has 650 operators, and the inventor of the Sectional Sno-pusher that he sells through Arctic Snow and Ice Products, cites a specific business model that leads to substandard service as the chief cause. He detailed it in the following manner.

Certain companies, some of which had no experience with snow management, some even in areas that get no snow, use satellite photo technology to first identify parking lots in states that do get snow, then create service bids, contact the property managers, find out what the potential customer had been paying for snow and ice management, and underbid that amount.

Once a contract for service is won, the national companies find local service providers and offer them the discounted work. And as in most cases of snow and ice management services, the service provider is solely liable for slip and falls.

Strait knows all this from personal experience.

"I plowed Home Depot lots all over the Chicagoland area," he relates. "Then they signed with a national company who scratched the price in half. Home Depot called me up and told me that I didn't get the bid, but they said "you still have an opportunity. The service provider that got the bid will be contacting you.'"

He declined due to the unsustainable amount of money he was offered.

And that wasn't the only large account Strait's company lost to these types of business practices. He had a number of Target accounts and says that during his first five-year contract period there were no slip and fall claims. He received a second five-year deal with a 15 percent raise and additional stores.

"The third year into that contract, I got a cancellation," recalls Strait. "They hired a company out of Orlando, Florida, to do their snow."

He received a call from that company telling him that since he did such great work, he will get first opportunity to do that work again.

"They wanted to pay me $18,000," Strait says. "You cannot service a big-box store for $18,000. You'll have slip and falls all over the place."

Another Culprit
Kevin Gilbride, the executive director of the Accredited Snow Contractors Association, acknowledges that the business model in question, which he says has been around for about 15 years, exists and can be viable.

"There is no issue with it if they are hiring quality contractors to do the work, they are paying them the right price so that they can get the work done properly, and everybody is holding the right liability," he states.

And Gilbride points out that there are advantages to subcontracting such as not having to spend time winning the original contract. But when the factors he mentioned are not in place, he says the model is broken.

Drawing attention to the main issue in all this, prohibitive rates for insurance when a company can even find it, he puts blame on the unfair transfer of liability from the property owners to the snow contractors.

"As long as that continues to happen, this industry is going to continue to become uninsurable," says Gilbride.

According to him, there has never been any legislation to prohibit the transfer of liability so property owners realized that they could put indemnification clauses in contracts to do so even if that contract limits the service provider's ability to decide when services are needed. And that is the big problem.

"If the contractor has the full ability to make the decisions on the property, the contractor does hold all the liability," Gilbride reasons. "And that's OK because now they are able to control what to do on that property without the restrictions from the property owner."

But a contract's provisions can include items such as a two-inch trigger – preventing plowing until two inches have accumulated – or specifics as to when to salt or not. So conditions for slip and falls can exist, the contractor can do nothing about it, but is still liable if they do occur.

"Ultimately when a property owner can pass down their liability to the lowest common denominator, they do not care what type of service they are receiving," Gilbride states.

Help on the Way?
To relieve the situation, the ASCA is pushing legislation that will prevent property owners from passing on all the liability to the snow and ice management companies.

A model bill is waiting for Illinois Governor Bruce Rauner to sign as this is being written. Another one has cleared Michigan's House of Representatives and is waiting for approval from its Senate. Bills are also under consideration by lawmakers in New York, New Jersey, Pennsylvania, Indiana, and Massachusetts.

These developments make Strait hopeful.

"As soon as these big box stores learn that they can't pass the buck anymore, it is going to be really interesting," he says.

And ASCA is also taking their case to Capitol Hill. Gilbride explains why.

"It is up us to tell them what is going on so they are at least aware, and hopefully do something about it."

Blades Vs. Pushers