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Toronto Moving Industry News

 

Analyzing the Perfect Storm: the Present State of the Moving and Storage Industry

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Mobility magazine, June 2010

The moving and storage industry is experiencing a number of unfavorable circumstances that have converged to create “the perfect storm” from a business perspective. Reed analyzes the issues that have lead to the current situation by drawing on views from economic and demographic experts as well as notable industry leaders.

By Eric Reed, CRP, GMS

“The Perfect Storm” is “an expression that describes an event where a rare combination of circumstances will aggravate a situation drastically.” When most people hear the expression, they think of the popular movie by the same name that was released in June 2000. The movie was based on the true story of a swordfishing boat called the Andrea Gail and its crew of six who were lost at sea during a massive storm that hit the East Coast in October 1991.

David Valle of The National Weather Service described the storm as the result of three separate weather systems coming together with deadly consequences. The storm created sustained winds of up to 60 miles per hour and waves of up to 75 feet in height, leaving “extensive and widespread” damage along the Atlantic seaboard.


Analyzing the Perfect Storm

The moving and storage industry is experiencing a number of unfavorable circumstances that have converged to create “the perfect storm.” Based on the most recent mobility statistics from the United States Census Bureau, only 11.9 percent of the U.S. population relocated from March 2007 to March 2008. This was the lowest rate recorded since the government began tracking this trend in the late 1940s. The historically low trend reportedly continued during 2008 and 2009, when long distance moving in particular remained stagnant. What caused this significant decline in the U.S. mobility rate?


A Significant Decline

On January 10, 2010, the New York Times posted a blog on its website, “A Nation of Hunkered-down Homebodies.” Several noted experts participated in the blog and provided their opinions (based on research and experience) as to what factors led to the U.S. decline in mobility rates. The blog provides interesting insight into what became “the perfect storm” for the moving and storage industry.

Lawrence F. Katz, a professor of economics at Harvard University, attributes the decline in mobility during the last two decades to four converging factors. The first is “the natural consequences of the aging of baby boomers.” Mobility rates tend to decline as individuals grow older. Baby boomers make up a significant portion of the population and now are between the ages of 46 and 64. Therefore, Katz' says the aging of this segment of the population has reduced, and will continue to reduce, overall mobility rates. Katz also attributes the decline in mobility rates to falling home prices where homeowners are “locked in” to their homes because of negative equity that reduces mobility rates, particularly in distressed regions of the country. The third reason he gives for the decline is the subprime crisis, which created “economic distress in typically fast-growing areas such as Florida, California, and Nevada, further slowing labor mobility to expanding regions that ordinarily drive U.S. job recoveries.” And fourth, the lingering credit market that affects the creation of jobs in “economically vibrant locales” resulting in slower labor mobility.

Peter Francese, founder of American Demographics magazine and a demographic trend analyst, says there are two “structural reasons” why fewer people move: an aging population and the growth of dual-career families. He states, “people in those groups are in their prime working years, they have kids in local schools, and have for the most part put down roots in their communities.”

It is noted that dual-career couples and families make up approximately one-half of all marriages, which makes it “next to impossible” to move when one spouse is offered a better job out-of-area. Francese believes that individuals in their 20s or early 30s are less likely to have formed community bonds and are more likely to relocate. The good news is that Generations X and Y, who now are roughly between 15 and 34 years old, outnumber the Baby Boomer generation. Francese predicts that when the recession is over, “…millions of them will move anywhere there's a hot job market.”

Richard Florida is director of the Martin Prosperity Institute at the University of Toronto. Like Katz and many of the other experts, Florida says the housing market is a big factor in the country's reduced mobility: “the popping of the housing bubble has left millions of Americans unable to sell their houses, underwater on their mortgages, and stuck in their homes.” He also notes the effect of reduced workforce mobility on the economy: “The mobility slowdown clearly hurts both individuals by limiting their ability to pursue economic opportunities and the economy as a whole by limiting its flexibility in matching workers to jobs.”

While many of these factors have converged to create the current slowdown in relocation activity, it is useful to explore what effect these issues are having on the moving and storage industry from the perspective of various industry leaders.


Views From Industry Leaders

To gain insight on the present state of the moving and storage industry, I interviewed five industry leaders. My goal was to take a cross-section of individuals from different organizations of different sizes and interests to gain a balanced, industry-wide perspective. The following is a summary of what each of these leaders had to say:

Linda Bauer Darr is president and CEO of the American Moving & Storage Association (AMSA), based in Alexandria, Virginia. AMSA is the national trade association for the professional moving industry. Bauer Darr says one of the primary challenges facing the industry today is the loss of business because of the downturn in the housing market. She states that, “…there are a lot of distressed sales, a glut of unsold homes, and very few new home sales… until more people are in their jobs and feeling secure about their own personal futures, they're not going to buy homes or move as often.”

Her other concern is a loss of market share within the industry to what is often referred to as “rogue mov­ers.” Rogue movers are unethical movers who come into the industry without the appropriate moving authorities, insurance, and moving experience. Bauer Darr states that “they cheat consumers, raise expectations, and then deliver very little. Sometimes they even hold the customer's household goods hostage!” Bauer Darr's concern is that they are taking business away from professional movers and giving a “black eye” to the moving and storage industry. To overcome this challenge, AMSA has developed a professional mover certification program called ProMover. To receive the ProMover certification, a moving company must pass a background check, meet several rigid requirements, and complete a signatory agreement stating they will uphold the AMSA code of ethics. As Bauer Darr sees it, “We hope that the ProMover certification will become the future standard for consumers who are choosing a mover. Before anyone chooses a mover they have to feel safe.” She equates the ProMover certification to that of the REALTOR® certification in the real estate industry where consumers can feel comfortable they are dealing with a true industry professional.

Bauer Darr says that opportunities still exist for professional movers willing to diversify in today's economic environment. “Companies need to decide how they are going to offer more choices to the consumer. Consumers don't always want to go with the top-of-the-line ‘soup to nuts' move. Sometimes they want a mix of services that, in the past, have not even been considered part of a professional move.” She offered examples of these “mix of services” as: containerized moving, labor to help load and unload containers, and renting a self-moving rental truck. She admitted that integrating these services may not be easy, saying, “…I think that the challenge for movers will be to fit those options into their traditional business model and make it successful.”

Mike Wolfe is president of Allied Van Lines and northAmerican Van Lines based in Westmont, Illinois. He says the two primary economic challenges in the industry today are the difficult economy and the housing market. According to Wolfe, “The drastic fall in home prices is a unique storm that the industry does not have significant experience in weathering. Transferees that are in a loss position on their homes have a significant barrier to moving.” Wolfe says the industry needs to stay in touch with consumer's changing needs. He also says that the industry's current over-capacity of driver's and trucks has resulted in additional pricing pressures. However, “this dynamic has the potential of ‘whip-sawing' in the opposite direction as the market returns to normal, and the industry could be faced with a significant shortage of drivers.”

Wolfe states that in today's environment, “companies that have unique ways to help customers manage through the new pitfalls that corporations face during the relocation process will be able to differentiate themselves. Service providers that can bring innovative solutions to control costs will be able to improve their position in the marketplace.”

Glen E. Dunkerson is chairman and CEO of Atlas Worldwide and Atlas Van Lines based in Evansville, Indiana. Dunkerson believes that the economic recession really has caused the industry to be in a “depression” for longer than a year because of various factors like housing and labor. He went on to state that some consumers are asking moving companies to succumb to unrealistic expectations to do business with them, while moving companies continue to reduce their costs and price to survive, adding, “We are such a service-focused industry. We don't manufacture anything, you can't modernize a process in terms of getting a new machine to improve efficiency—it's all about people… you can only cut so far before you start impacting your customers. That's the fine line our industry has to recognize. How far do you cut until you have ultimately impacted the level of your service?”

Dunkerson also is concerned that “non asset” based moving brokers that promote themselves through the Internet are affecting the industry's market share, saying, “These (moving brokers) are coming in and re-selling our services with slick websites and nice marketing campaigns… I'm not talking about relocation companies… I believe the ‘true broker' of our service is a concern to me and I know to some of my peers.”

When asked if new opportunities exist in the market today for professional moving companies, Dunker­son says there is a huge untapped market in the “do-it-yourself segment.” He explains that the current perception is that the self-move option is much cheaper than the full-service move option. However, he points out that “the consumer needs to start comparing the ‘true' cost of these two moving methods. If they do, I think they'll be surprised.” Dunkerson suggests that the “true cost” of self moving should include: truck rental, equipment rental, fuel, time, and potential problems. “When you compare the two services ‘apples-to-apples,' they are pretty darn close in cost and you get so much more in the full-service move,” he says.

Donald Hill is president and COO for Alexander's Mobility Services based in Tustin, California. Alexander's is a multi-location agent with Atlas Van Lines. Hill says the industry is seeing a “shrinking market” because of the economic downturn, a declining job market, the sluggish housing market, and changes in employee relocation.

Hill explains, “Fewer corporations are offering home buy-out options, which makes it more difficult for employees to sell their homes and move to their next job. As a result, we're seeing smaller, non-homeowner moves.” Hill has seen the average size of a move drop from approximately 14,000 pounds to 9,000 pounds. At the same time, he also is seeing an increase in the popularity of “lump-sum” moving benefits among corporations, which has had an effect on his company: “For a company like ours, who doesn't deal in the ‘C.O.D. world' (individual consumer private moves), that brings on new economic challenges. We need to know how to sell and be more competitive in that market, adopting more of an ‘inside sales' approach rather than the way we have always sold in the past. That leads to additional costs at a time that we really can't afford additional costs,” he said.

In addition to the industry's current overcapacity, which has resulted in a “downward pressure on pricing,” Hill also sees a trend toward the “commoditization” of professional moving services. As he explains it, “we're no longer seen as a specialty-type service, but rather something you can buy on any street corner… we have continued to lower our prices and allowed RFP auctions and competitive ‘bid boards' to treat our service like a commodity rather then the specialty service that it truly is.”

Like other industry leaders, Hill believes that opportunities exist in today's market for those companies willing to diversify. He suggests diversifying into areas such as, “…product distribution, logistics, or FF&E (furniture, fixtures, and equipment) business as well as project management in these fields.”

Hill went on to say that companies also could expand their opportunities by investing in technology that enhances the efficiency of their service delivery.

Kirk Jensen is president of Jensen Relocation based in Lawndale, California. Jensen is a single-location agent with Allied Van Lines. Jensen said that one challenge in today's environment is overcoming the perception that full-service moving is “too costly.” Jensen states, “Buyers see a large dollar amount for a large move and they're surprised by it. But once you divide up that ‘pie,' there's not a lot of money left over for profit.”

While profitability continues to fall, the cost of doing business continues to rise. Jensen said another challenge is the buying behavior of younger consumers. He explains that these consumers tend to select moving companies over the Internet based only on the lowest price without considering the differences in the quality of service. Like Hill, Jensen says that professional moving services are being “commoditized” by this type of buying behavior. Jensen went on to say, “Buying a service is not like buying a book. When you buy a book there are 10 million books just like it out there. Unfortunately many consumers have lost sight of that.”

Jensen has seen the decline in corporate employee relocations affect his business. He says that larger moving agents attract corporate business by promoting multiple locations and larger fleets, “that makes it difficult for smaller players like us to compete. To survive, I think smaller companies will need to find areas they can specialize in.”


Summarizing the Issues

It is clear, through these leader interviews and expert opinions, that the industry was hit hard by the economic recession and the depressed housing market. Corporations have pulled back on their employee relocation benefits, reducing both the number of moves as well as the size of their shipments. Overcapacity in the industry is driving prices and profitability down while industry expenses continue to rise. Mobility has decreased and should continue to decrease among the “baby-boomer” generation. Further competitive challenges also have taken their toll on the industry from Internet brokers to alternative moving services. Unscru­pulous movers are finding it easier to “dupe” unsuspecting consumers through the Internet, taking market share from legitimate movers and giving the industry a poor image. Professional moving services are increasingly viewed as a commodity by corporations and consumers as a result of Internet buying habits, RFP auctions, and competitive “bid boards.”


Moving Forward

New opportunities still exist in the industry for those companies willing to diversify their service offerings. Companies may choose to adapt rather than compete with alternative moving services that have eroded their market share in the past. Perhaps professional movers can reclaim a portion of the “self-move” market by educating consumers on the “total cost of ownership” when comparing a self-move to a professional move. Professional movers also should continue to search and develop technological enhancements that improve efficiency and service delivery. Smaller moving agents may find new opportunities through specialization of service.


Clearing Skies

The only thing that is certain in this present environment is that moving companies no longer can operate as if it were “business as usual.” As the industry begins to emerge from “the perfect storm,” those companies that are willing to change and adapt will survive and thrive. Perhaps the lessons learned from the present experience will lead to industry-wide improvements that will secure a brighter future for the moving and storage industry.

Eric Reed, CRP, GMS, is director of business development for Berger/Allied, Fullerton, California. He can be reached at +1 714 449 6671 or e-mail ericr@bergerallied.com . Full interviews with industry leaders can be viewed at www.ericreed-online.com .

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