Companies are costing jobs for no profit relying entirely on the insurance margin to drag them above break even. Here are some views.

By Steve Jordan

In the middle of April I got a call from Matt De-Machen, Managing Director of Matthew James Removals. Matt wanted to talk about costing and how to do it.  Only a day or so earlier I had heard some disturbing and, I felt, extraordinary news.  I wanted to talk about costing too.

The news I had heard, from a number of moving companies that had best remain nameless, was that companies were costing jobs for no profit relying entirely on the insurance margin to drag them above break even.  All their work, packing, shipping, delivery, everything, they were doing for no profit.  Barmy I would say. 

It seems that the whole moving industry is determined to talk itself down to rock bottom, and has been for years.  I remember my first day at work for Scotpac (now Crown) in August 1974.  I was a trainee shipping clerk.  My job that day was to check the salesmen’s costings.  They were all jobs to Australia and New Zealand. My boss told me to divide the price by the volume and it should be about £2.50/cu ft.  Do the same exercise today and you’ll come up with a figure of about £5.00.  The price has only doubled in 37 years!  At that time a three-bed semi in Hertfordshire could be had for £15,000 (about £450,000 today); a gallon of petrol was under 50p. People tell me that “The customers just won’t pay more.”  Well they would in 1974.  What’s changed? On the same scale we should be charging £50/ft today.

About 10 years ago I was working with BAR on some research.  We commissioned Cranfield University to help.  They surveyed 300 people who were about to move and another 300 who had recently moved.  One question of group 1 was: “What is most important about your move?”.  Group 2 were asked: “What was most important about your move?” Of group 1, 32% answered “The price”.  Of group 2, 37% said “The price”.  Conclusion: somehow the removals salesmen had convinced a further 5% of potential customers that price was the only thing that mattered. Extraordinary!

Matt’s costing system

Matt De-Machen wanted to share his new costing system with me so that I could tell the rest of the industry and, perhaps, convince them to take a more realistic view of just how much it costs to put a crew and vehicle on the road. He admitted that, until recently, he had not had a proper costing system and had, like many others, simple got what he could for each job.

Now Matt takes a more scientific view.  He has worked out exactly how much each vehicle costs per day allowing for: finance, maintenance, road tax, insurance, down time.  He knows exactly how much per mile they cost to run. He knows how much each employee costs including: holiday pay, National Insurance, uniforms, boots, etc. And he costs his packing materials individually, for each job, not simply adding on a rate per cubic foot to cover everything which will almost always be wildly wrong.

Having worked out his cost of sales, he adds on a healthy margin to provide a contribution to overheads and a profit. He makes sure he makes a profit on every job.

What is, perhaps, surprising, is that since adopting the new system, Matt still has a full order book.  Yes he’s lost some jobs but gained others and the work he has gained has been high quality and high margins.

Other views

Another Matt, Matt Faizey from M&G Transport in Solihull agrees Matt De-Machen. He says it’s a lack of education, confidence and knowledge on the part of business owners that causes their inability to get a proper price for the job. “But most importantly of all, many reap what they sow. Act, look, and give off the impression of labourers as opposed to educated, precise professionals and that is what you'll earn,” he said.

Ian Palmer from Whites is equally appalled by the practice of cutting prices to the bone.  “There is no future in this approach. What a crazy way to attempt to secure business,” he said. “My company is certainly not taking that approach, however I have been told today that one of the 'trade’ shippers/baggage operators has quoted a 20ft container ex-St. Andrews, Fife to Adelaide for £2700! Our client asked us if we could adjust our quotation which was for £4200. Lunacy! We have won the business at £4000 on the nose, so up selling does still work.”  He continued: “These are desperate times, but why oh why does this industry continue to short sell our ability, services and risk?”

Referring to the practice of relying purely on the insurance revenue to make a profit, David Trenchard from Britannia Leatherbarrows was uncharacteristically brief: “It’s suicidal,” he said.

The general view was that this kind of cost cutting is nothing new. The industry has recently seen a number of companies that have ceased trading and unrealistic costing may well be to blame.  Ironically, if international movers are covered by the IMMI scheme it will fall upon other members of the industry to move goods that have been stranded at cost price.  It is perhaps likely that these will be jobs that the companies now picking up the pieces originally lost to the failed company.  A bit hard to swallow for the rescuers!

Robert Bartup from GB Liners said that the moving industry has three problems: it doesn’t understand cost – cost is what someone else has; its ambitions are limited and it chases volume because it thinks that if it does that it will be all right in the end – in fact companies just goes bust more slowly; and there is no leadership upwards – nobody to say ‘no further’, they all chase prices down and down. “It’s sickening and stupid,” he said.

So, what’s the answer?  I don’t know; if I did I’d be doing it not writing about it.  But perhaps it’s time, now that rock bottom must be pretty close, for the industry to have a little more respect for what it does; more confidence in its abilities; better salesmanship to help customers understand the difference between a proper job and a poor one, in advance; better PR so the customers demand high standards; and, dare I say it, verifiable quality standards that people can recognise and understand. 

We live in what historians will probably call ‘the communication age’.  Maybe it’s time we started communicating.

What do you think? This problem will not go away unless movers make it go away.  What’s your solution?  Have your say at comment@themover.co.uk.