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Benefits and Drawbacks of “Fixed Costs v Quote Based” HHG Removals

It is worth highlighting that removal fees for household goods can be one of the biggest costs to a company in the first year of an overseas assignment. So when the time comes to review your household goods providers, it’s important to ensure you’re comparing like-for-like in terms of service delivery and price; it is possible that a cheaper provider’s service may not match up to your service expectations.

To make informed decisions on how to achieve the best value without compromising quality or coming face-to-face with unexpected and excessive fee increases, mobility professionals and procurement teams need to be aware of the options. This blog looks to explore the two most commonly used options as well as exploring the benefits and drawbacks of using a panel of household goods suppliers.

The two most commonly used pricing options are quote-based and fixed rate.

The Fixed Rate option is basically a rate card approach of fixed aggregate removal costs over a set time period. Sometimes it can specify costs as an itemised fixed price basis, country by country. This might typically include Origin Services, Freight, Customs Clearance, Destination Services etc. To ensure best market rates for each component, rates are benchmarked and reviewed annually. This approach reduces the burden on your procurement process and means your assignees don’t face the inconvenience of multiple surveys.

However, fixed rate costs can’t be completely rigid and require some flexibility. Freight costs can fluctuate significantly and the supplier can not be expected to absorb such cost differentials; this could ultimately risk financially destabilising the supply chain. Similarly, the client should benefit directly from any reduction in freight costs.

Fixed Rates offer greater transparency in the costing of household goods removals. They allow the client to clearly identify where direct costs have been incurred without the risk of hidden mark-up fees and enable more accurate forecasting of assignment costs. The overall savings of averaging the cost of moves throughout the contract duration may well outweigh the advantages of the alternative method.

Also, unlike Quote Based options where quotes can sometimes reflect “off peak” rates, Fixed Rates do not take account of seasonality. Crucially however, you are less exposed to the increase in costs during the “peak” season when network capacity among  moving companies is high.

The Quote Based option usually occurs when mobility policies request either the assignee or the Relocation provider to obtain two or more quotes from different household goods providers. This method may offer greater choice, but not necessarily greater control of cost. Typically, each provider will visit the assignee’s property to conduct a survey before preparing a quote (the most competitive quote is usually chosen). This option means the company and the assignee have a greater administrative burden in having to arrange surveys, qualify quotes and compare final costs. It is also possible that unless the process is carefully controlled, each household goods supplier may not be quoting on a like-for-like basis.  It is crucial for the client to provide the breakdown of line items and not simply request a “door to door” quotation.  Leaving this area open to interpretation by the household goods suppliers not only provides little transparency but also means clients are unlikely to be provided with comparative quotes.

One advantage of this model is the flexibility it allows to take advantage of off peak periods when network capacity is generally higher and suppliers are more likely to provide a more competitive price, although it does not promote control over costs during peak periods, which can risk inflated rates when providers have less capacity. Also, a provider may be able to make cost savings by combining shipments, grouping part-loads from other clients or utilising vehicles already bound for the destination location.

Benefits and drawbacks

Robinsons would advise getting quotes from at least two household goods suppliers. We believe constantly benchmarking quality and price is essential, and a panel of suppliers will always provide a stronger benchmark. Against this, multiple quotes can sometimes create additional hassle for the assignee and can be time consuming. Sometimes a model of only one survey for the assignee has been chosen and the details of the survey have been shared with other suppliers in order to get direct comparison quotations without burdening the assignee.

However there are disadvantages, working with a panel can make it difficult to get close working relations.  Because the household goods supplier is part of a panel, the relationship never gets close enough to make a real difference to both parties as suppliers know they will only get a maximum % of the business. This means there is potential for the client to miss out on new initiatives and the supplier may feel there is insufficient incentive to develop new innovative services.

Finally, in our experience, when clients have a panel of suppliers, there seems to be a reluctance to bring the panel together for the benefit of the client. We would encourage all clients with a panel of suppliers to bring them together, brainstorm ideas and innovate for their benefit.

Olympic Challenge

From July 27 to August 12 this year, all eyes will be on London for the London 2012 Olympics. They are followed by the Paralympic Games from August 29 until Sept 9 2012.

With the Queen’s Jubilee and Wimbledon tennis championships also due to occur in London this summer, the capital will be hosting the world’s elite athletes and vast numbers of spectators and visitors, from the UK and overseas.

The pressure will be on London’s infrastructure to handle the numbers, the transport and security implications not to mention the extra administration. There’s no doubt it’s going to have a major impact on the UK and especially London – including in some ways you may not have considered.

For example, it’s certain to have a profound impact on mobility programmes for organisations relocating employees to the UK and, more specifically, London, around the middle of 2012.

The experiences of our partner offices in two other recent Olympic cities, Sydney and Beijing, suggest that the impact is likely to be huge and wide-ranging.

The message is clear – things will not be running as normal in the UK and particularly in London during much of next summer, so its imperative to build the Olympics into your planning for 2012 and make necessary allowances

Immigration. Need a visa? Apply early.

As yet, UK immigration has made no official announcement regarding changes to immigration processes for employees on assignment in the lead-up to the Olympics, and the UK Border Agency has not released plans to increase resources for this event.

However, we understand that a special visa category has been created for athletes and officials travelling to the UK for the games, with most athletes expected to obtain their visas well before the start of the games.

If this is confirmed, then given the sheer numbers involved, realistically we can expect delays in processing visa applications as we approach the start of the Games and also during the games. So we would urge anyone requiring a visa in the months running up to the Games to apply well in advance.

In Beijing and Sydney, lead times for visa approvals extended due to the volume of applications. Throughout the lead-up to and during the Games, there was repeated movement of the goal posts for restrictions to visa and work permit regulations.

Housing

Demand for accommodation in the capital for the peak period between June and September is already rising and landlords are seeking opportunities to capitalise on the higher rental costs they can demand.There have also been cases of fraud reported, where overseas visitors book accommodation online and pay deposits for “ringer” properties which are listed on websites but do not actually exist. Companies that operate “lump sum” policies for their assignees may be vulnerable to similar scams.

Some London landlords close to the Olympic area are also attempting to insert an ‘Olympic Clause’ into their leases, indicating that they are willing to take on leases, but only until the start of the Games. They will also only accept a lease renewal on condition that the tenant is willing to vacate the property from the end of June until early September.
In Beijing and Sydney, occupancy of rented accommodation following the Olympics dropped to below 50% capacity.

Temporary Accommodation

In Beijing and Sydney, prices for serviced accommodation and hotel rooms tripled leading up to and during the games. Some serviced accommodation companies in London have already been quoting minimum length contracts to relocation companies. Following the Olympics in Beijing and Sydney, occupancy rates dipped to below 20%.

Logistics, Household Goods Moving and Parking

The Olympics will present a significant logistical challenge for household goods moving operations.
A number of “Olympic Traffic Lanes” have been identified on main arterial roads serving London and within key city areas. These are yet to be confirmed, but any reduction in the number of lanes will have a knock-on effect to delivery and collection times throughout the Capital.

The Olympic Traffic Lanes, to be used by the 18,000 athletes and officials, will be on a third of the 109 mile Olympic Route Network (ORN), which constitutes one percent of the Capital’s roads.Parking is also going to be affected, as parking bays are restricted for security purposes and to reduce congestion.  This will also make suspending parking bays for collections and deliveries dependent on property locations.

Our Sydney partners described the impact of the 2000 Olympics on logistics as ‘a bit of a nightmare.’ Main roads were blocked weeks before the event and traffic was gridlocked. Deliveries and uplifts were challenging and moving consultants out on the road faced serious delays.  We have to therefore assume that there was a significant impact on the Relocation industry in Sydney in 2000, we have to assume the impact in London in 2012 will be much worse.

Impact on customs and port procedures

If Sydney and especially Beijing are any guide, we should expect some effect to be felt in these areas, although there has been no announcement as such. Customs clearance regulations were revised, there were enhanced inspections on shipments and additional handling charges and procedures at ports, which slowed down all releases by a few days and added time to port storage charges and potential demurrage charges.

Security

Tighter security measures are expected to extend to customs procedures.  In the Sydney Olympics, the number of container and shipment inspections increased significantly which delayed more shipments and increased customs charges. In both Beijing and Sydney, the authorities vetted applications for visas extremely closely, especially if they came from states viewed as a potential terror risk.

The message is clear – things will not be running as normal in the UK and particularly in London during much of next summer, so build the Olympics into your plans and make allowances.

How’s your resilience in 2012?

Robinsons recently sponsored Simon Tyler to speak at the Global Mobility Summit Conference on a topic that remains central in the lives of executives across the world today – Personal Resilience.

As one of the world’s leading business and executive coaches, Simon has got some valuable and revealing insights into how we can all improve our resilience in the face of the considerable challenges awaiting us in 2012 and beyond.

We asked Simon to give us a New Year reminder of his key messages to help everyone get the best start to 2012.  We are sure you will find what follows interesting and very helpful in giving your personal resilience a timely boost.

‘In all markets in all countries economic changes, commercial pressures and personal ambition combine to create intense and complicated situations, which you (and colleagues, clients and customers) are working through day in, day out. It is not surprising that energy levels dip from time to time and your ability to keep going wanes. Any investment made in your resilience level will give a return. You will experience greater success as opportunities present themselves during 2012 if your personal resilience is high.In my experience resilience is made up of three components; your ENERGY reserves; what you FOCUS on and what you spend your time doing (ACTIVITY).

As you begin 2012 here’s a suggestion to raise your resilience in the area of your Energy taken from the conference: “Spending time with Positive and Empowering People”.

The people with whom you spend most time have the greatest impact on:

1. Your mood
2. Your attitude
3. Your thinking and view of the world
4. Your range of default decisions
5. Your vision and hope for the future

Consciously or unconsciously this select group of people, probably no more than five, are shaping your thinking, sharing their ideas and views and providing the space for you to share yours.

If there is something about your mood or attitude or current circumstance that isn’t quite right, or is in some way off track then look again at your high-influence five. Are they actually serving you, your goals, your desires? Do they stretch, support, challenge? Are they even bothered about your personal growth?

Once you have identified the five, consider what is going on in their world, what is their focus, are they on the up or the down?

Often this group are in place as a result of recent history or your geographical location. Until this group is configured by conscious design, your ability to shift your mood, attitude and results will be difficult.

Of your current panel, who do you need to reduce your exposure to? Who could join? Who will support you and gear you up for greater things?

Take action this week, the change action you need to take may be major, in which case start now. You could even begin ‘interviewing’ potential candidates to join your team. As your resilience levels rise, notice the role you have for others too.

Good luck and keep it simple.

Simon Tyler is one of the world’s leading business and executive coaches; he has become the simplicity bolt-on hired by many companies and individuals ready to shift away from the pain of complexity. He recently delivered the keynote speech at the Global Mobility Summit Conference in November 2011. This Simple Note is taken from his new book “The Simple Way” which is available from May 2012. Simon publishes a new Simple Note every two weeks, to receive them subscribe at www.simontyler.com