In 2014 and again in early 2020, we posted blogs on the impact of falling fuel prices on global mobility programs. Well, the tables have turned, and we find ourselves reflecting on the impact of rising fuel prices on programs already feeling the weight of high inflation and creeping interest rates.
The following table[i] illustrates how dramatically the price of fuel has risen over the past few years:
Fuel prices are obviously at the heart of the transportation industry, and the efficient movement of goods, to many businesses, is key to their success. Even if transportation is not critical to their operations, organizations with global mobility programs will feel the effects of higher fuel prices through their employee relocations.
Shipping household goods and vehicles is a substantial relocation expense and a good starting point for this discussion. Most tariffs contain a fuel surcharge condition protecting the moving company from fuel price increases occurring after a contract has been signed. This also protects the client in the sense that the tariff specifies the terms for its application and calculation. In the rare cases where surcharges are not included in the tariff, there is the risk that service will deteriorate as profitability does, or that they will be arbitrarily applied without an agreed upon formula.
In addition to ground transportation, the cost of air travel and maritime shipping are significantly impacted. This means higher costs for other features of a mobility program such as:
– travel for house hunting, pre-acceptance, or final move
– other travel related to home leave or finalizing home sale
– air and sea shipments of household and personal effects
In traditional fixed services mobility programs, increased costs are generally absorbed by the sponsor. At the other end of the spectrum, with a lump-sum program, it is the transferee who will have to absorb any expenditures exceeding the allowance based on outdates prices, unless updated.
A first impulse in reaction to higher program costs is to implement cost containment: add caps on expenses, impose stricter eligibility rules, eliminate certain services, etc. However, the current tight labour market, changing work environment and employee empowerment means that employers will need to find creative ways to attract and retain their talent, including relying on comprehensive relocation benefits. Reducing or tightening benefits may not be an option.
The more policies are flexible, the better they can manage the financial strain while providing the transferee the services needed. A well-structured Core/Flex program will provide transferees the basic services required along with a budget to tailor the assistance to what is important to them. For example, the basic, or Core, portion of the program can cover the shipment of household goods up to a maximum weight, and any excess can be funded under the Flex portion. The same approach can apply to the shipment of vehicles; one under Core and the other through Flex. The non-Core benefits are funded through the management of a flexible account made available to the transferee for a wide selection of services. Some of the flex-funded services will not be required or of interest to the transferee, freeing the value of those services for use elsewhere. The result is cost management and a satisfied transferee.
Where a Core/Flex program already exists, a recalibration of the services offered under the basic and flexible portions will help reduce the impact of higher costs.
Ward O’Farrell Consultants has over 25 years of experience in program and policy review, evaluation, design, and management. Our many proprietary tools include a benchmarking tool to evaluate the competitive standing of mobility policies, reflecting the costs of relocations for employers, transferees, and suppliers. We have also developed a tool to assess the relevancy of lumps sum amounts and fixed allowances.