Direction November/December 2017 - 30

NOVEMBER | DECEMBER 2017

MAKE NO MISTAKE, NEW STRATEGIES AND
INCREASED DIVERSIFICATION ARE ESSENTIAL
IF YOU WANT TO INCREASE PROFIT MARGINS.

Direction

30

that have already adopted them), increased
challenges on the status of contract drivers,
and EPA requirements for skirts and rear
panels (boat tails) on trailers.
Regarding legislative issues, they
include pending changes to the
Affordable Care Act, which could
greatly impact health insurance premiums, as well as possible tax reform
that might eliminate the deductibility
of a move or interest on a mortgage.
Both of these would have a dampening
impact on household goods moves.
On the competitive front, freight
companies are increasingly getting into
the shipment of HHGs, third-party
providers are demanding decreases in
fees to satisfy promises to their clients,
and self-storage is predicted to grow
3.4 percent in 2018, which could
impact storage revenue.
The biggest demographic issue will
continue to be the chronic shortage of
OTR drivers. Drivers are retiring at
a much faster rate than those entering
the pool, and this will put constant
pressure on meeting customer needs
and maintaining labor rates across
the board, which are expected to
spike in 2018. Other concerns include
the fact that the U.S. population is
aging and will therefore move less.
Meanwhile, millennials want to live
in hip, urban settings, resulting in less
homeownership and fewer moves. In
other words, moving is not projected
as a growth industry.
Material costs, labor rates, interest rates, fuel costs and equipment
costs are all going up in 2018, and
competitive forces dictate that it
will be difficult to increase prices.
In addition, movement of household
goods is a changing paradigm that will
increasingly involve a combination of
containers, rail and freight, and will
greatly increase the complexity of

pricing moves. It is likely that tariffs
will not keep up with the increased
costs, further increasing the stress on
profit margins.
The age of technology is upon us,
and it is changing our lives in ways
that could not have been predicted
just a short time ago. It will not
be that long before robots replace
warehouse workers and driverless
trucks help to solve the driver shortage; the technology already exists for
both things to happen. With high
discounts causing razor-thin margins,
it is difficult to earmark a significant
amount of resources toward technological improvements, and moving and
freight businesses are a little behind
the technology curve as a result. It is
important, however, to keep up with
current technology, and increased
efficiency and profit margins will be
the ultimate result.
All of these factors dictate that two
strategies are paramount in facing the
environment next year, and going
forward: strategic diversification and
cost control.
IMPLEMENTING STRATEGIC
DIVERSIFICATION
Diversification is desirable for at
least two reasons: (1) Other lines of
business tend to be much less seasonal,
so that revenue can be spread more
evenly throughout the year; and (2)
profit margins tend to be somewhat
higher in various commercial opportunities than interstate moves. Over
the years, the moving companies I
have observed to be the most profitable are those that are able to generate
profits every month of the year
instead of losing money in the first
and fourth quarters. They accomplish
this by strategically adding non-HHG
services to their businesses.

Diversification is a long-term
strategy that should be part of the
culture of your business. I had a CEO
friend a while back tell me, "We do
not even allow employees to use the
term 'household goods' in pursuing
new lines of business."
This is contrasted by another CEO
who, when I urged them to get into
office and commercial moves, told me,
"Grandad moved people, dad moved
people, and we move people. That's
what we do. We do not know how to
move offices."
This is a cultural attitude that needs
to change from the ground up. Jeff
Bezos, CEO of Amazon.com, said
this about his company: "Every day is
day one." He is constantly reinventing
his company because he knows that
the environment is changing at an
alarmingly fast rate. The same goes
for the moving industry. Make no
mistake, new strategies and increased
diversification are essential if you want
to increase profit margins. Think
strategically, and build this concept
into the culture of your business.
STEPS TOWARD CONTROLLING COSTS
That brings me to what may quite
possibly be my favorite subject:
controlling costs. This is something
that is not done at all by some, and it is
done poorly by many. I have been in
the offices of hundreds of CEOs, and
I rarely experienced one who knew
what comprised most of the costs listed
on their income statement. Worse
yet, few CEOs of moving companies
routinely measure the direct costs and
resulting gross profit associated with
any particular move or pack job. If
you do, congratulations! You are in
the elite 1 to 2 percent of all moving
company CEOs. The following are
steps that can help you take control of
your costs.
Separate your expenses into
direct and indirect categories on
your monthly income statement.
Direct expenses are directly related to
producing revenue and include direct
wages (packers, drivers, warehousemen, etc.), vehicle operating expenses


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Table of Contents for the Digital Edition of Direction November/December 2017

FROM THE PRESIDENT
INDUSTRY NEWS
WHAT’S NEW AT AMSA
AMSA PARTNER PROFILES
Piloting Profits
Challenged by Change? We’ve Got This!
WASHINGTON WATCH
ADVERTISERS’ INDEX
FAST FACTS
Direction November/December 2017 - Cover1
Direction November/December 2017 - Cover2
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Direction November/December 2017 - FROM THE PRESIDENT
Direction November/December 2017 - 9
Direction November/December 2017 - INDUSTRY NEWS
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Direction November/December 2017 - 12
Direction November/December 2017 - 13
Direction November/December 2017 - AMSA PARTNER PROFILES
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Direction November/December 2017 - Piloting Profits
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Direction November/December 2017 - Challenged by Change? We’ve Got This!
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Direction November/December 2017 - WASHINGTON WATCH
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Direction November/December 2017 - ADVERTISERS’ INDEX
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Direction November/December 2017 - FAST FACTS
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