Reed: What do you see as some of the specific challenges for the moving and storage industry in the future?
Graebel: There are a couple of things. The first is a likely continuation of suppressed demand for services in the moving industry. The second is the continued homogenization or commoditization of the industry in the eyes of the customer. In terms of suppressed demand, the obvious issues are related to the U.S. housing market, the high rates of unemployment, and certainly what appears to be a long and extended period of marginal GDP (gross domestic product) growth. There also is the threat of ever greater national and personal debt burdens coupled with subsequent likely increased taxation, which creates a difficult commercial landscape to navigate and anticipate.
Aside from these factors, I believe going forward the market will demand greater financial transparency and accountability as well as further regulatory and operational compliance required at the state and federal level. I also believe there will be a continued expectation to further leverage technology deployments, coupled with verifiable increased security in the data that is passed between different participants in the moving services supply chain.
Ultimately, I think the bar of expectation for the customer’s “first and final mile” experience will also continue to rise. To put it succinctly, I think you have a very challenging environment where there is going to be a prolonged period of suppressed demand in a very commoditized industry with a regulatory environment and consumer base that is expecting significant performance improvements, technology innovation, and fiscal accountability.
Reed: Do you see any relief in the near future for some of the economic challenges we have seen in the housing market and unemployment?
Graebel: I think it’s fair to say that for the next five years or so, due the glut in housing, there will be a natural suppression in home values. This will, to a certain degree, keep homeowners tethered to their current homes. Financially, it will be very difficult for most folks to do anything more then make their house payments, avoid foreclosure, and keep their credit reasonably good. As such, I think the whole paradigm of homeownership in this country (which is a key factor in precipitating volume for the moving industry), is going through a major transformation and until there is stability in the real estate markets, comparatively few people will be motivated or in a position to initiate a move.
In my opinion, there is kind of a “yin and a yang” between unemployment, the return of a stable and growing housing market, and our overall economy. If we don’t see a tremendous wave of GDP growth that stimulates a reduction in unemployment, it will be very hard for people to increase their savings and ultimately become motivated homebuyers and home sellers to stimulate demand in the moving industry. It will also be difficult for people to increase their net worth so they have the ability to trade-up into new homes. These two things running concurrently should have an effect over the next five years in keeping our GDP growth as well as the demand for moving services running relatively flat.
Reed: We’ve seen a positive impact in home sales in 2009 through June of 2010, presumably as a result of the U.S. homebuyer tax credit program. We then saw a subsequent decline in homesales once the program expired. Do you view programs like these as simply a short-term fix or do you believe we should retain these programs over a longer period of time as part of an overall solution for reviving the U.S. housing market?
Graebel: I definitely believe there is a cause-and-effect relationship between the tax credits offered and a very condensed spike in homesales that we observed in our industry from May through June of this year. Beyond that, everything I see on the horizon, absent any further stimulus, is that we are going to start settling into a relatively sluggish “new normal” in terms of the velocity of housing transactions, the number of new homes starts, and the percentage of people who move annually—be it locally or nationally. Generally speaking, I do believe the homebuyer tax credits were a somewhat effective short-term fix, but I don’t think it is fiscally prudent to further increase our nation’s deficit spending by extending the programs. Ultimately, the real estate markets will recalibrate and although it is likely a very painful process, it is probably the only financially sustainable method by which the U.S. housing market can be revived.
Reed: Do you have any ideas on how the industry can overcome some of the challenges your mentioned as we move into the future?
Graebel: Yes and no. There needs to be a recalibration of supply a demand. Currently there is more supply in the moving industry then there is demand. Until that gets recalibrated, there is not a lot of room for a meaningful ROI (return on investment) in this industry for investors. As a result, I think it will be difficult for significant, creative innovations to materialize that could ultimately help break the cycle of commoditization and roll out some genuine value-added options or alternatives for our industry. You may ask, “are there things that the industry can do to overcome these challenges?” I think there are certain entities within our industry that have overcome these challenges, but on a macro-economic level a lot of those challenges really can’t be sustainably overcome until there is ultimately a recalibration of supply and demand.
Reed: And if you don’t see the demand do you see more consolidation and a reduction of service providers on the supply side of the industry?
Graebel: Yes I think that’s almost inevitable. It’s a low margin business with high capitalization and high seasonality. That is a recipe for running a very difficult business. Having said that, given the recent global financial crisis and slim industry profit margins, the industry doesn’t have a whole lot of attractiveness for investment capital to come into it. As a result, most of the innovation that is going on in the industry today is really a function of accumulated prior earnings as opposed to new earnings coming in and/or new investments coming into the industry.
Reed: So, as you mentioned earlier, for the innovation that does exists the drive is toward differentiation in order to overcome commoditization?
Graebel: Yes, I believe it is inevitable that there will be greater service segmentation going forward with corresponding price points associated with that service segmentation. Then the individual consumer niches will be greater aligned with the service segment that best fits their needs.
One thing we’ve seen in the very recent past is the evolution of a more “do-it-yourself” containerized model. In this model a container is dropped off at a residence for the consumer to load, as opposed to the more traditional full-service model where a household goods driver and their dedicated vehicle is at both origin and destination. The containerized do-it-yourself model is really on one extreme of the service delivery chain which then goes all the way up to a “concierge-like” service with dedicated crews and on-site managers assisting high-level corporate executives, on the other end of the service delivery spectrum. As the industry evolves there will be different service models with different price point segmentations that will align with an array of consumer needs—from the most basic to the most sophisticated. In the future the industry will do a better job then it’s currently doing in providing tiered levels of service based on consumer-defined needs.
Reed: Other then service differentiation, what other changes do you see in the industry over the next 10 to 20 years?
Graebel: The biggest one out there has to do with coming to grips with the implications of this vast new virtual world. It’s just exploding before our eyes and ultimately will influence consumer needs, behaviors, preferences, relationships and even their identities. Fundamentally what goes on today is that most businesses are led by what is known as “Digital Immigrants.” Digital Immigrants are those who are adapting to the daily use of evermore amazing technologies while trying to find the “sweet spot” of the “Digital Natives” who are ultimately their customers of the future. Digital Natives are generally people who from birth have been living in a “wired” world and are now entering the power phase of their consumption of goods and services. Their needs and preferences, in many respects, are significantly different then the needs of the consumer just 10 years ago—let alone 30 or 40 years ago when the major foundations of this industry were really laid.
Reed: How can the moving and storage industry adapt to these changes?
Graebel: Companies need to hone in on their “sweet spot” in terms of those service segments that I mentioned earlier. I don’t think you can be the most effective or relevant solution for all constituents or consumers of the moving industry of the future. Service providers in the future will have to focus on a couple of key segments with a host of really high touch/ high tech component wrapped around them.
The business itself isn’t really all that complex. It still requires people at the “first mile” to be lifting physical objects out of the residence into some conveyance of transport and then ultimately delivering it at the “final mile.” But there is a whole host of segments within that experience that can be either “slimmed down” or “added to” in terms of providing greater comfort, greater piece of mind, greater security and greater speed.
Just looking at transit times from east coast to west coast, some consumers have an expectation of four to five days transit while others may be willing to have 30 days of transit. But fundamentally our industry has lumped both ends of that spectrum together into one fairly common transit schedule. Unlike an airplane where you have three levels of service in the same vehicle, in terms of moving, I think you will have faster transit times for one segment of client and potentially slower and inter-model forms of transit for another group. As well, I think there will be a spectrum of service that revolves around such things as new versus used cartons, pre-screened/pre-qualified labor versus day labor performing the in home services and the kind of facilities goods are stored in.
Reed: So what we’re really looking at is providing the customer of the future with more choices.
Graebel: Absolutely. And greater alignment with their needs. That’s all part of the age we are living in today—greater customization right down to the individual level. That will not only be expected but required of sustainable organizations in whatever consumer niche they choose to excel in.
Reed: Do you see any changes in the pricing model of the future as a result of the 2007 Surface Transportation Board Ruling? Which, as you know, allows each company and van line to develop their own tariff and pricing guideline?
Graebel: I think simplification will be demanded by the customer. Comparability is one of the key determinants of a consumer finding what value proposition is best for them. With multiple pricing models available out in the industry today there is a somewhat cumbersome process of comparability. To a degree I think there will be significant efforts to make the pricing models of our industry more easily digestible for the average consumer.
Reed: You mention ”comparability.” As I speak with various industry leaders, many consider that as one of the biggest consumer challenges (since the industry was required to abandon the industry-wide tariff in 2008). In the pas,t having a benchmark tariff gave consumers the ability to easily compare pricing between different service providers. Going into the future we could potentially see hundreds of different tariffs and pricing models. Do you see any way of overcoming this challenge?
Graebel: To some degree, I believe the whole notion of a tariff as we have known them, will fade into the background other than to provide the definition of various services and to align with regulatory requirements. I think it is possible we will see more flat-rate, door-to-door rates based on the options that the consumer selects. Based on how the consumer selects from a menu of options, it will dictate the degree of high-touch service that the consumer will receive and the transit time associated with those moves.
Historically, tariffs themselves had high degrees of complexity and made it difficult for the average consumer to ferret through, let alone comprehend. I believe there will be a demand-side equation that will stimulate our industry to price its services more on the consumer’s terms going forward as opposed to the regulatory and industry terms that have dictated the design of tariffs and pricing formats in the past.
Reed: Do you see the employee relocation business growing, shrinking, or remaining stable during the next 10 years?
Graebel: I would answer that in two contexts: one from the domestic side and one from the global side. From the domestic point of view, I would have to say that it will be stable, at best, for at least the next five years. This is due to the issues in the housing markets and the relatively high levels of unemployment. This view coupled with the fact that each day, each month, and each year—more and more of the workforce is becoming a virtual workforce—and/or becoming more of a “free agent” or contingent/contractor type workforce. Whether it’s virtual, contingent, or contractor it voids the need, in some regards, for employee relocations. So domestically I see it remaining stable at best. What I mean by stable is the volume of business we have seen between 2009 and 2010 would become the baseline of the “new normal” even as the economy picks back up
On the global/international side of the business, I would absolutely expect growth over the next 10 years. This growth will be driven by the expansion of the “BRIC” (Brazil, Russia, India, and China) economies and several other significant emerging markets. As those economies expand certainly there are many companies that will have an opportunity to increase their overall revenues and their consumer base by simply going into new regions, new geographies, and new countries. I think we will continue to see the earnings of major corporations proportionately growing faster from their offshore entities as opposed to their U.S. based entities. Given the “global upside” available for many companies’ revenue and profit generation, it will likely bias their global talent management and mobility strategies to more keenly ensure the right people are in the right place, at the right time and thus hopefully this will precipitate some positive impact for the global moving and relocation industry.
Reed: Beyond employee relocation, how do you see the overall growth of the moving & storage industry during the next 10 years?
Graebel: It’s hard to anticipate very much real industry growth over the next five or 10 years. I believe the COD/Private Transferee segment of our industry has a new kind of competition with do-it-yourself, containerized services. This type of service ultimately siphons revenue streams from the traditional, full service door-to-door type of move. As a van line company, if your COD or corporate business becomes increasingly more containerized, then I think it is likely that a greater percentage of the transportation you provide becomes a purchased or arraigned transportation service (as opposed to providing the transportation on your own equipment). In other words, if a shipment is either going into a rail car or onto a freight truck, as opposed to being packed and loaded into a moving van, with a dedicated driver taking it to the final destination, that most likely decreases the amount of available revenue that is retained at the van line and within its agent network.
In terms of O&I (office and industrial) business, there is some pretty strong data to suggest that the average corporation is consuming far less square footage per employee and per dollar of revenue generated. This could be due to the recent phenomena of virtual workers and a larger contingent or contractor workforces. As a result, most companies today don’t have as many “seats,” so to speak, in their footprint as they may have required in the past. So while the typical office moving business itself will remain a significant business, each corporation will requires less square footage to conduct their operations. It then becomes just logical to assume that there will be a reduced demand for that segment in our industry in the future.
Another interesting segment in our industry is the military business. The United States has been at war for about the last eight years now, and there has been a high degree of mobilization of people during that period of time. This has really precipitated a large volume of business for the moving industry that, in many cases, has been a bit of a “lifeline” for our industry. To the degree that the world, or at least the United States, reduces its war-time mobilization of forces, the result will be a reduced level of demand for moving services in this sector as well.
Reed: How about the government sector of the industry? Many individuals predict that the U.S. government will become larger. Would that have an impact on the industry?
Graebel: Yes. I think that’s a niche that it would be fair to conclude will most likely continue to grow in the future. I don’t have any data to support this, but I would expect that the percentage of public sector employment will continue to grow while the percentage of private sector employment in this country will remain somewhat flat. As a result the sourcing and, oversight of those moves will shift to some degree more toward the government sector. So that is a niche that I think you can logically expect some growth in.
Reed: Getting back to what you stated earlier, about the mode of transportation in the future, its sounds as if you believe that local revenues will remain stable or increase for the industry, while transportation revenues may decrease if there is a greater reliance on containerized shipping through rail or common carrier trucks. Will the net effect be that moving & storage companies will focus more on local services like packing, loading, unloading, and unpacking as they learn to become less reliant on the transportation piece?
Graebel: I think that’s a very fair hypothesis. To some degree, it is possible the domestic U.S. moving business will begin to leverage more of an international service delivery model that relies entirely on outsourced transportation because there’s no enterprise in the moving industry that owns a global network of steamships and airlines to move shipments across continents.
Interestingly enough, (international) shipments are routinely getting from “Point A” to “Point B” very efficiently throughout the world. Customers have “peace-of-mind” that their goods are well cared for via the use of highly skilled local resources, coupled with out sourced transportation providers. This model is quite prevalent in Europe, for example, even on moves to and from neighboring countries.
In many cases, European consumers are serviced every day by skilled packers and loaders who load a container at the origin and then have the container transport provided on an outsourced basis to the destination where skilled local resources then perform the delivery. These Intra-European containerized road shipments are providing a high level of transferee service in a manner that is clearly different from traditional U.S. interstate shipments and in some ways is now influencing how shipments are getting moved in the U.S.
So as the U.S. moving industry moves more toward a containerized model for interstate shipments, it will still need to rely heavily on the performance of local craftsmen/movers. However, in my opinion, success in a containerized era will be hinged on the performance of the entity a client engages with to manage the door-to-door process. That provider will need to orchestrate and assure that the spectrum of services the transferee has selected at origin, via out-sourced transport and destination, are aligned with their needs and expectations. As such, this will probably change several aspects of how van lines and agents function today. It will still require that there be a solid foundation of skilled labor resources at both origin and destination in order for the model to really gain traction in the US marketplace.
Reed: Could this model help resolve the historic industry challenge of driver shortages?
Graebel: Absolutely. Although you have to remember that the decline of qualified drivers, in many regards, was set against the backdrop of an economy and housing market that was hyperactive in the 1990s and the early part of the 2000s. The job of being a truck driver requires many sacrifices in terms of financial investment and the amount of time spent away from home. Becoming a professional household goods driver was not a compelling profession during the most recent strong economy, when there were many other jobs available.
Now that we are at the bottom of an economic cycle (and hopefully on our way back up), I don’t think we are going to see as severe of a driver shortage as we have seen in the past. In part I believe this is a function of both a continued suppressed level of demand for moving services and a returning interest in the driver profession. As long as the economy remains flat there will be many people who will say, “yes, I would much rather do this then not have a job.” In total, I believe this industry does have an ability to attract good people into it perhaps more so than in the past 15 to 20 years and with different options and models emerging for transporting shipments, we most likely will not have the kinds of driver shortages we have seen previously.
Reed: Any closing comments regarding the future of the moving & storage industry?
Graebel: It’s a great time to be in the moving and relocation industries. Granted it is certainly challenging, but it is a great time to be at the center of all the dynamic changes we’re seeing in global economic interdependence and human mobility patterns.
If you listen to the futurists, there are some really crazy numbers out there along the lines of 95 percent of the people born in the next 100 years will be born into what we consider today to be developing nations. As the next 100 years of people enter this earth, 70 percent of them will live in urban areas. This tells us that there is going to be a number of emerging mega-cities that aren’t even on our “radar” today. That points toward a changing geography of work opportunities and locations of where work is performed.
Also, I believe there will be a continued evolution of “cloud computing” and virtual “24/7” teams that are able to (in a connected way) produce highly productive, highly creative outcomes for their corporations. This will increasingly become the “new norm.” Ultimately I think we are looking at an era where the world’s population will have more of a “global citizen” mindset—where individuals will, in a very fluid manner, move to where the opportunities converge with their lifestyle.
Demographically, we know where some of the new population centers will be occurring. We can also guess, from a lifestyle point-of-view, what the preferences, behaviors, and needs will be of people born in the future. From what I have read, one of their priorities/requirements will be to align their work opportunities with an ability to maximize their lifestyle. This phenomenon, if true, will certainly precipitate human mobility whether it is sponsored by an employer or whether it’s out of their own volition.
Figuring out how to resonate best with the customers of the future and building a sustainable organization that is “right for today and ready for tomorrow,” is really exciting to me, especially when placed in the context of an evermore emerging digital world. I think we will all be exposed to a great new era of “consumerism” that reshapes our industry and those companies who understand their consumers better then their competition will have an opportunity to flourish and exceed what they once thought was impossible!
Eric Reed, CRP, GMS, is director of corporate business for Berger Allied, Fullerton, California. He can be reached at +1 714 420 4268 or e-mail ericr411@cox.net. Visit www.ericreed-online.com for other industry articles and interviews.
William “Bill” Graebel, SGMS, is chief executive officer of Graebel Relocation Services Worldwide, Aurora, Colorado, and a member of the Worldwide ERC® board of directors.