Today’s post is a guest post by Ben Cross, Vice President, Business Development for University Moving and Storage. University Moving and Storage is a premier supplier of moving, storage and distribution services to household, corporate and government clientele since 1969.
Home Sales Sluggish to Start 2018
The moving industry follows the real estate industry: when people buy a home, they move. Last year ended as a robust one for real estate, with home stock increasing 6.5% according to Zillow (or $2 trillion) making it the best year since 2013 for home values. People were moving and shaking in 2017, and it felt like a great year to be a mover. Will 2018 be the same? No, probably not. Already we have seen home sales down in December of 2017 and January of 2018, amid forecasts that they would actually rise. We have also seen interest rates in the mid 4% range and based on what the Fed does, it could keep some from buying.
Corporate Moves May End Up As Consumer Moves
On the relocation end, the elimination of the moving expense deduction will probably not increase shipping volumes. If anything, it has the potential to shift more corporate transferees into the consumer market, as lump sum policies are adopted. While the consensus that lump sum programs are bad for productivity and for the onboarding experience, some corporations may choose to eliminate household goods as a managed benefit. This could negatively impact the two-thirds of transferees who move in peak season from May 15 – September 15. Corporations enjoy fixed household goods discounts which do not fluctuate, however, consumers are at the mercy of the marketplace where move pricing can change 30% in three months from February to May. It is our hope that corporations continue to understand that offering household goods benefits to employees is more beneficial for business and talent management. If corporations do not, they might find it more difficult to compete with companies who do or entice their existing talent to continue to move.
There is also an argument that the corporate tax reduction from roughly 35% in 2017, to 21% in 2018 will stimulate growth and boost employee mobility. The flipside of this argument is that corporations will use the reduction in tax for share buybacks. My own prediction is that the net effect will be a reduction in corporate moves and a slight uptick in consumer moves if home sales snap back to forecast by May of 2018.
Rising Costs of Household Goods Shipping
Some of the major national vanline carriers have recently announced rate increases for their corporate clients to ensure that they will continue to retain drivers. These price increases are driven by three factors:
Capacity: Driver retention and recruitment is a zero sum game. When a moving company on boards a new driver, 90% of the time, the driver came from another van line. There are very few new over the road drivers being created and those that are coming into the business are more than offset by those leaving the industry. In order for van lines to win the war for talent in the driver seat, they will need to have better paying shipments than other van lines.
Artificially Low Prices: Years of artificially low prices are coming home to roost. Each time a van line goes through a Request For Proposal process, some client somewhere gets a better price. After years of these processes, van lines cannot continue to operate this way. We have seen massive consolidation and closure of van lines and agencies over the past decade. Currently, my estimation is that 80% of the national account driver capacity is operated by a very small number of companies. This consolidation has streamlined van lines but, without price increases, the van lines will be forced to do so.
Increased Cost of Materials: Unlike fuel, which has surcharges built in that can fluctuate with market conditions, there is no relief from the rising cost of cardboard. Yes, cardboard cost is killing pricing! Did you know that a typical household move of 13,000 lbs uses about 180 cartons? The largest supplier of packing materials to the household goods industry has already announced an increase of 7% on cartons and an increase of 12% on packing paper. Further increases are expected in the next 12-18 months due to the increase in demand from other e-commerce shipping companies like Amazon, Walmart/Jet and Blue Apron.
Overall, the good news is that despite tax changes which remove moving incentives, there is still more money for corporations to move people and very good reasons for corporations to offer household goods benefits. From a capacity standpoint, there are a few excellent van lines out there who still offer wonderful service and can handle corporate volumes. The only bad news for shippers, is that to access that high-quality capacity, the price of household goods moving will go up slightly.
About Relocation America International
Relocation America International is a full service relocation management company dedicated to providing innovative relocation services, value added support, and superior customer service to clients relocating families domestically and internationally. Visit http://www.rainternational.com for more information about our services or contact us at email@example.com.