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HR Magazine - October 2000: A Journey of 1,000 Miles Begins with a Sound Contract

By J. Stephen Mumma  10/1/2000
 

HR Magazine, October 2000

Vol. 45, No. 10

How to get the best relocation deal for your company.

 With the growing economy, U.S. companies are expanding across the map—and thousands of employees are moving along with them. The number of corporate moves is almost the same as personal moves, according to the American Moving and Storage Association (AMSA). In 1998, 42 percent of household goods moves reported were classified as corporate employee relocations, compared to 43 percent as personal moves. The rest were classified as government or military moves. During 1998, the number of reported employee relocations reached nearly 299,000, up from 279,526 in 1990.

This means HR staffers and managers are overseeing a rising number of employee moves each year. And in a great many cases, their companies are contracting one or more van lines to conduct those moves.

There are several issues to consider when negotiating a relocation contract with a household goods (HHG) carrier. Here’s a rundown of the main decisions to be hashed out when working up a relocation contract, some suggestions on negotiation and a few pointers on what to look for in a HHG carrier.

Keep it Personal

The first advice is to meet face-to-face with a representative of the prospective HHG carrier to promote the most effective, direct communications possible. Allow the carrier to see your facility and to get a feel for your business and company culture. Visiting your facility and meeting your staff will give the carrier a better feel for your business, the personalities in your administration and the standards you will expect. On the same note, plan to visit the van line agent’s facilities and meet the staff. A tour of the offices and warehouses will give you the opportunity to ask questions and talk to employees you meet during the tour, which is a good way to gain insight into the company’s approach to doing business and its attitude toward quality and customer service.

“An HR manager should not make any decisions about a relocation contract without a minimum of two personal meetings with the carrier representative,” states Karl Rau, assistant vice president of contract administration at Atlas Van Lines in Evansville, Ind. “There are details and pricing decisions that require careful consideration. It takes both parties working closely together to determine needs and [to] develop a plan that’s going to create an optimum partnership between the company and the carrier.”

The van line’s information and communications system is an important factor in maintaining good relations. Find out if the carrier can be reached day or night, how that can be done and the name of your contact. If your department relies heavily on e-mail and the Internet, ask about the van line’s e-mail system and if an intranet might provide a link for your company.

“The van line’s communication and information systems are really important when you look at their overall capabilities and how you’re going to stay in touch with them on a day-to-day basis,” stresses Sally Coffin, corporate carrier manager for Intel Corp. in Chandler, Ariz. “For Intel, this factor can carry just as much weight as several other benchmarks that we look for in a household goods carrier.”

Doing the Research

The first order of business is to determine your employee relocation needs for the next year or two as closely as possible. Also, the van line representative will ask whether you plan to transfer employees only within the continental United States, or if moves are anticipated to Canada, Alaska or any other global location? Other questions you need to be prepared to answer are:

  • Is your typical relocation permanent or temporary?
  • Will any of your employees require storage for their household goods?
  • Will they need to have automobiles or pets transported?
  • Do you anticipate relocating an entire office or division within the next year?

Based on your answers, the carrier representative should first assess whether the van line has a network of trusted, quality moving agents and backup facilities available to handle the volume and locations of the moves you anticipate, especially during the busiest summer months. If the carrier and its network of partners cannot handle the volume of moves you anticipate, you may have to begin looking at another carrier or consider contracting more than one van line to get the job done.

Ask the agency representative questions about fellow agents and agents used outside the booking agent’s geographic area. You should be concerned with the average frequency and severity of damage claims reported on their moves, who directs their operations, the quality of their warehouse facilities and whether the agents who will conduct these moves are experienced in corporate relocations. Ask for names of other companies the agent has served and use those companies as references on the van line’s work, if possible.

“Even though we think of household goods moving as a pretty basic service, moving companies and their way of doing business can differ greatly,” notes Robert Brizuela, director of relocation at Charles Schwab & Co. in San Francisco. “Be careful to choose a carrier that’s a good match for your company’s culture and for its relocation needs.”

The Tariff

The tariff is the schedule of rules, rates and charges for the transportation industry set by the Household Goods Carrier’s Bureau Rate Committee, a division of AMSA. Because it is a complex system and subject to change, dealing with the tariff is probably the most daunting issue facing HR people when working on a relocation contract. But taking a simplified approach can help, Rau says. á

“It’s not a good idea for relocation administrators to get caught up in the tariff because of its complex nature,” Rau explains. “The better way to determine what moving charges will be is to start at the other end. Find out what services the majority of employee moves will require and the company will cover, then work with the carrier to determine a cost estimate based on those items.”

Taking this approach at the front end will accomplish another essential task: determining which moving services the company will authorize for the average move and which it will not. Typical authorized services would include packing, loading and unloading for the primary residence and warehousing costs when household goods must be stored. Services not typically authorized may include the packing of goods in a vacation home, the transport of an automobile or the transport of large exercise equipment.

The other tariff-related decision to clarify is whether to freeze tariff rates for the term of the contract or to go with the rates that are in effect when each move occurs. Just as with interest rates on a bank loan, freezing the tariff precludes the company from paying higher rates if the moving service raises those rates during the course of the contract. On the other hand, freezing will also prevent the company from benefiting from any rate reductions should they occur.

The Corporate Discount

With few exceptions, companies that contract with a carrier for a pre-determined number of employee moves will receive a discount on tariff rates. On average, corporate discounts fall between 48 percent and 58 percent and may be based on different factors, such as the number of moves anticipated and whether or not the company has chosen to freeze its tariff rate. Companies may expect a somewhat less generous discount if they opt to freeze tariff rates for the duration of the contract.

While relocation administrators may find that they can negotiate a deep discount with some carriers, it’s important to remember that cheapest isn’t always best. If the carrier agrees to an extremely high discount, the quality of employee moves may suffer because there’s simply not enough money left for the mover to provide top-notch services.

“There’s a definite correlation between price and service, and I’ve learned through the years that the deeper the discount goes, the more likely you are to find quality issues,” states Lynn Davis, director of global relocation services at Gap Inc., a company now initiating more than 1,200 moves per year.

Brizuela adds, “Five years ago, pricing and discounts were the issues we looked at first in our relocation contracts, but we found we did not get the best results that way,” he says. “Cost is still an important issue, but now we’re more concerned with service, the way the carrier takes care of our employees and how claims are handled.”

Terms of Pricing and the Discount

Once an agreement on the discount level is reached, the corporate discount can be applied in a number of billing situations. Here are some of the pricing options available through most van lines:

  • Bottom-line discount pricing. This option means the company is charged only for services, labor and materials that are actually provided for each employee move, less the agreed-upon discount. It is the most common pricing method employed in corporate relocation contracts. Remember that your corporate discount will not apply to work performed by third-party companies such as household appliance technicians and real estate agents. Also, cost for the storage of household goods is usually addressed separately.

  • Single-factor pricing. This gives an all-inclusive rate for a menu of services and is calculated according to the weight and distance of each employee move. Single-factor rate pricing is easier to understand than the bottom-line discount method, but it doesn’t give an accurate reflection of actual services provided. This method can be cost-effective in a move that requires most or all of the services included in the package but may not be as cost-effective for employee moves that don’t require some of the services included in the single factor rate. The corporate discount your company receives will be built into the single-factor billing rate.

  • Performance-based pricing. This ties the corporate discount into the customer’s satisfaction level with services provided by the carrier. In essence, the carrier is rated by the relocating employee on different service categories, and, the better the carrier rates, the lower the discount on services provided. On the other hand, if the employee perceives the quality of the move as “less than expected,” the company receives a greater discount. This kind of pricing can be especially effective when applied to a move that involves very expensive household goods and is most often used when the company is relocating an employee whose relative value to the company is considered to be “high end.”

The Contract and Employee Satisfaction

Before finalizing the relocation contract, you must agree on the duration of the contract. The typical contract will run from one to three years. Some are reviewed on a quarterly basis to address any problems or concerns. On contracts that are designed to run two or more years, a yearly pricing review may be written into the contract to allow for new cost agreements based on any changes in the tariff.

When negotiating your contract, be sure to determine whether your company or the carrier will provide post-move employee surveys so that you can gauge your employees’ satisfaction with their moves. Post-move surveys are indispensable in determining the quality of the carrier’s work. In many cases, both the carrier and the company send the employee a questionnaire once the move is completed. The van line normally sends the results of the survey to the company.

The Value of the Relationship

The final word of wisdom here involves the company’s relationship with the carrier or carriers who conduct their employee moves. Remember that, as with any business relationship, mutual respect can set the stage for a productive, successful partnership.

“I’ve always made a point to build a friendly relationship with our carriers, right down to the packers and movers,” Davis says. “We all like to feel appreciated, and I think we all do a better job when we feel our work is valued. The same goes for the people who take care of your employee moves. If they feel you respect them, the natural response is to pay you the same level of respect.”

J. Stephen Mumma is senior vice president, marketing and agency services, for the relocation services group of Atlas Van Lines, based in Evansville, Ind.

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