Analysis targets Historic Use and Questionable Bidding Tactics behind High Salt Prices
ODOT to deliver report and recommendations to Governor Strickland
COLUMBUS (December 15, 2008) – Calling for more coordination among agencies responsible for keeping roads safe and passable during winter months, an analysis of the road salt market by the Ohio Department of Transportation (ODOT) points to a combination of historically bad weather, inflexible contract specifications, and questionable bidding tactics as driving forces behind an unprecedented increase in salt prices.
At the request of Governor Ted Strickland, ODOT experts examined the salt market after the state and its local transportation partners experienced dramatic spikes in the price of rock salt, with cost increases ranging from 50%-300% above last year’s prices.
The report, delivered to the Governor’s Office today, details how the salt market significantly departed from the state’s historical experiences in terms of lower competition and higher prices. Among the findings:
Bad weather led to historic consumption: More than 20.3 million tons of salt was used nationally during the 2007-2008 snow season, the second prolonged winter season in three years. Not only did ODOT use a record 906,623 tons of salt, other Midwest states consumed significantly more: Wisconsin, Minnesota, Iowa and Illinois collectively consumed 700,000 tons extra of salt. These states then placed early salt orders to replenish their stockpiles, which depleted reserve supplies and drove up prices.
Contract specifications led to artificial shortages: Ohio uses contracts that set a minimum amount of salt the state guarantees to purchase and a maximum amount the contractor must make available. Typically, the min-max contracts are set at 50-150: the state agrees to buy 50 percent, but may purchase 150 percent of the contract’s volume. As a result, for every one ton a salt supplier is assured to sell, it is legally obligated to stockpile two extra tons of salt. The need for suppliers to maintain such large inventories of salt due to these contracts results in a considerable portion of available materials being taken off the market. In practice, however, it’s unclear whether Ohio’s salt vendors are even able to deliver the full 150 percent of any particular contract.
Domestic preferences led to reduced competition: Of the five Midwest salt-producing firms, only Cargill and Morton Salt operate mines in Ohio. Under the state’s domestic preference statutes, these two firms are guaranteed to win contracts when competing against each other. During this year’s state bidding process, however, ODOT received only one bid in many counties from either firm; Morton and Cargill never competed head-to-head. Revising the current domestic preference rules could encourage more competition and eliminate the type of county-by-county monopolization behavior experienced across the state.
The analysis also offers recommendations for future salt contracts which should reduce the likelihood of a repeated spike next season. Most notable is a recommendation to encourage more local governments to work closely with ODOT to purchase salt.
The report suggests that Ohio agencies work together to develop an information network to buy and sell salt between one another, thereby allowing agencies with too much and those with too little to share their pre-existing salt inventories before purchasing more salt from the mines.
To read the full report, click here.
For more information contact: Scott Varner, ODOT Communications, at (614) 644-8640
or your local ODOT District Communications Office.