Learn how higher fuel prices impact the shipment of household goods
There is no question that the recent rise in fuel prices has had an impact across the board on many industries. From pain at the fuel pump to increases in prices at the local grocery stores, people are spending more on a weekly basis. The talent mobility industry hasn’t been immune to the effects of increased fuel prices. However, the industry is making strides in developing more accurate estimates that account for higher gas prices. In the relocation industry, these costs are typically passed down from vendors to relocation management companies (RMCs) which, in turn, results in increased direct costs for companies relocating their employees.
In a typical relocation or assignment, anticipated relocation costs are calculated via a needs-based estimate. Meaning each relocation assignment is unique and could cost a different amount, depending on the employee’s needs. But just how much does the price of gas affect how much it is to move an employee? Which aspect of the relocation process is hit the hardest when fuel is expensive? Here is a breakdown has to why relocation costs go up when fuel prices increase:
Shipment of Household Goods
The largest impact of high fuel prices on relocation naturally resides within the process to ship household goods (HHG) from point A to point B. The packing and transporting of furniture and other belongings is a critical component of any relocation program. Companies that offer relocation benefits often will make sure to include covering, or at least reimbursing, an employee’s need to have their household goods shipped to their new destination. Industry-leading RMCs will obtain multiple bids from moving vendors to help ensure the best possible cost. In most cases, the RMC will have established partnerships with numerous vendors who are vetted and reliable, but they could reach out to a newer vendor for a better deal if need be. These bids from transportation companies are largely estimated on how many pounds of household goods need to be moved and how many miles away the destination is. These are two of the more obvious figures that are directly connected to gas prices and the total cost of the move.
What is the Impact of Fuel Surcharges on the Shipment of Household Goods?
With fuel prices quickly on the rise, take this opportunity to learn how fuel surcharges are calculated for domestic relocation HHG shipping. On the first Monday (or Tuesday) of every month, the van lines each go to the US Department of Energy’s (DOE) database to access the average cost of diesel for the entire United States. The average price has a corresponding number on a chart that most HHG vendors use, which will indicate what percentage to use for the fuel surcharge.
For example: If diesel is at an average of $4.84 per gallon, then the common surcharge would be 16%. The new fuel surcharge will be applied to any shipments loading after the 15th of that month.
HHG estimates are completed using the current fuel surcharge. The difference between the fuel surcharge when the estimate is completed and the load day fuel surcharge will result, sometimes ending in an increased amount, depending on market conditions. Relocation experts have seen this happen before when fuel surcharges spiked in 2009 and impacted moving expenses.
It is worth mentioning that fuel surcharges are always non-binding, even on talent mobility policies that may hold some type of guarantee not to exceed cost estimates. This type of HHG estimate is commonly used by RMCs as part of an overarching, comprehensive cost estimate that is used to help companies gain a clearer picture of the total projected cost of relocation.
Do Companies Need to Update Relocation Policies?
Many companies look into what are called “Capped Relocation Policies.” Meaning, there is a pre-approved, maximum budget the company is willing to pay up to for moving the new employee. Working with an RMC helps companies to stay within that cap for each employee who is transferred. This policy design method is effective in helping to contain runaway costs and can provide a measure of consistency with your total mobility program spend.
However, in today’s environment, some capped policies are quickly eaten up by increased fuel surcharges. This is making it difficult for companies to stay within the approved budget while relocating. In some cases, the budgeted amount isn’t enough to fully execute the move and is leaving the employee to make up the difference. If a company finds this to be occurring frequently, a review of your policy caps might be in order.
This is another great advantage of working with an experienced RMC to ensure that your company is not overpaying for relocation costs while offering competitive relocation benefits within your industry.
GMS Is Here with Explanations on Relocation Costs
We know that the relocation process and the costs associated with it can be confusing. That’s why Global Mobility Solutions (GMS) offers free consultations to anyone who has questions about talent mobility. Our relocation experts will walk you through a common outline of relocation packages and their structure during this online or in-person consultation. From there, you make the decision if you would like us to help you either create or rewrite your relocation policies. When a company offers relocation policies to job candidates, they open their hiring field to a wider range of top candidates for any given position. Let GMS assist you in all of your relocation needs, contact us to start getting all of your questions answered.
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