Hedging Snowfall Risk

[machine]

We Average 3 snow falls a year in Cincinnati, Ohio. The third one in March was very weak and drove Q1 Revenue below the expected target. I was counting on the Revenue to be there; it didn't come, either did the snow. <p>I wanted to know if any of you use partial hedging to mitigate any loses due to insuffient snowfall? What Futures Contract Do You Use? Tempture Futures or per inch/cm of snowfall in certian area and time frame?<p>We have preperation costs that have to be covered.(I'm not interested in selling our clients snow removal service even if there is no snow at all)

 

[GeoffDiamond]

I know this will sound crude. Only look you live in an area where snow is up and down from year to year ( well it is everywhere).<p>Have people have a seasonal rate, i know they may be charged for you doing nothing. Only if you want even revenues it is what ya have to do, do it and have even revenues, don't do it and suck it up.<p>You have overhead all winter, ie gas, insurance, truck payments, the list goes on and on. Each of of my plow trucks new cost a min of 27K. How do you expect me to justfy that cost on 3 storms a year. You just can't do it.<p>Now in a my seasonal contract i have a &quot;record storm clause&quot;, mean more that 16&quot; of snow is billed you at an exta $XXXX.<p>This year my number of plows was sightly below normal, so i made more money. However some year i plow more, so i make less money. However you are always getting $XXXXXX per month every month, keeping revenues early.<p>That is the only advice i can give to keep reves up and even.<p>Geoff

 

[Deere John]

I agree with Geoff and his recommendation regarding contracts. What I do is &quot;expose&quot; myself to about 20% by-the-timers, as we call them. The B-T-T accounts are generally people who insist on paying by the time, but also pay well by the time (no cheepos). In light years, we lose, but still look good. In heavy storm years (ie 24-28 plows), we look alittle expensive, but the extra revenue is used to offset the costs incurred in the seasonal contracts. Did I say that clear enuf?? Hope that helped.<p>----------<br>John<br>

 

[plowking35]

This goes back to a good mix of customers.<br>There is one contractor in NJ that did over 1.5 million with 6&quot; of snow, so heavy snow isnt needed to make money.<br>We have about 70% seasonal, and 30% per inch, that way when we get no snow we still cover overhead, and when we get blasted, we still have extra revenue from the per inch customers.<br>Also the per inch customers pay for 2/ 0-3&quot; snow falls in months that we recieve less then 3&quot; of snow. That helps cover the ins., truck payments and so on. Most commercial people will realize that you have expenses and are willing to help cover them.<br>Dino <p>----------<br> Professional Ice and Snow Management <br>Products:Services:Equipment www.sima.org

 

[OBRYANMAINT]

WHEN YOU GUYS SET UP MONTHLY CHARGE DO YOU ALSO INCLUD SALT APPLICATIONS IN IT?