According to AIRINC's 2021 Mobility Outlook Survey, cost predictability is the top request from the business to global mobility departments. Cost containment was third. But as mobility professionals look down the list of line items on relocation and assignment cost projections, are there any benefits that have remained unimpacted by the rangy reach of this global pandemic? Probably not. Let's consider a number of those items to get a sense of how the pandemic has impacted global mobility budgets.
- Real estate costs: Home sale and home purchase costs have never been higher. In a recent post, we shared that 2021 has broken records when it comes to home prices, with median housing prices rising 23.6% in May compared to the same period last year, reaching a record high of $350,000. Then in June it went up further. For companies offering assistance with a home sale (BVO, AVO or reimbursement directly), these are expensive high-cost line items that are at an all time high for programs.
- Rental costs are up too: Ok, this one may not impact your U.S. domestic program costs quite yet. Despite rents rising to record levels in so many locations, lease breaking fees that get reimbursed to employees are for previous leases, so the increased rents will impact budgets down the road when those leases get broken. (#Giveitayear) It is impacting the employee who will now have a bigger deposit and more expensive rent to pay out each month. Check out our latest post on the pandemic rental wars. This will impact your expatriate assignment housing costs. As those go up so too do tax costs for providing the benefit!
- Household goods shipments: We know air freight and sea freight for international shipments hit historic cost levels in 2020 and have remained quite high into 2021. On the domestic shipment side, stepping back to mid 2018, we explained why U.S. domestic freight costs were increasing at that time. Because of the pandemic, so many additional things increased the cost of this benefit. Labor shortages including a lack of enough drivers, container shortages, capacity limitations, fuel cost increases, increased cost for packaging materials and crating, and longer transit times along with the need for longer storage times have all driven costs up on relocation shipments. Looking back, moving during the pandemic in the summer of 2020 might have been a great time to relocate from a cost and service level perspective! Additionally, peak season may be (yep, here it comes....) "unprecedented" and will likely extend beyond September which means the ongoing elevated demand will keep costs higher for longer.
- Temporary living: Per month rental costs for furnished (corporate) apartments have escalated due to high demand and less flexible lease terms. During the pandemic, the dried up demand and need to control costs saw corporate housing providers pare down their inventories on furnished temporary apartments. In particular, three-bedroom unit costs dramatically increased - if there were even any of those units available. Every service provider and RMC suggests budgeting for an additional two weeks minimally simply due to faster real estate sales and longer shipment transit times. Locations like San Francisco are expecting greater fluctuation in pricing due to the pandemic and changing ordinances. We are expecting 30-day leases to be approximately 10% more expensive for 2021. This one has my vote for what will lead in exceptions by year end.
- Pets: More and more programs are covering pet transportation as part of the relocation package. The number of pet dogs and cats in the US increased from 140 million in 2019 to 149 million in 2020, representing approximately 7% growth. That growth greatly outstripped pre-pandemic projections, which expected an increase of 1%-2%. Now that so many more employees have pets, it's a benefit being utilized more. We posted on the pet situation back at the end of April, and as a reminder, the cost for shipping a 40 lb. dog (or even a less weighty cat) via professional pet transport from Minneapolis to San Francisco is right around $3,500.
- Transportation: Rental cars, car shipments and fuel have been dramatically impacted by the pandemic. Rental car costs and car shipments, just back in April and May, went through the roof as Americans wanted to let loose and start traveling. We wrote a post on the "Carpocalypse" and how it was impacting global mobility. Many rental car companies chose to sell off much of their unused inventory as travel evaporated due to the pandemic. Ongoing, the semiconductor chip shortage is creating a slow down on new car availability and rental car companies have been challenged to restock to meet the demand. And for auto shipments, the number of rental and used cars needing to be moved due to shortages in those industries has had the car carrier industry facing some unprecedented challenges with very high prices. On the fuel side, while initially oil and gas prices dropped in 2020, gasoline prices are predicted to jump heading into the second half of 2021 and on into 2022 as the economy mends from the pandemic. And while airfare dropped dramatically due to the lack of demand as the pandemic got started, we expect airfares to continue to rise to pre-pandemic levels in the coming weeks, and likely move even higher in the months ahead. Rising fuel costs will also push flight prices up as we move into the rest of the year and on into 2022.
In a LinkedIn poll, almost 70% predict there will be an increase in relocation costs on a per person basis for 2021 versus what they experience pre-pandemic in 2019.
With all of that said, here are a few potential realities then for companies to consider given the impact of the pandemic on global mobility costs:
- In competitive recruitment situations, where the candidate would need to relocate, these higher costs could be an issue and your level of support may make the difference on winning or losing talent.
- If you provide a lump sum, understand that it is not going as far as it was even a year ago. Employees may be more (or even much more) out of pocket for moving expenses than they were before.
- If you had moves that have been on hold and costs that were calculated are from 2020, it would be worth reworking those cost estimates to consider where costs could be coming in now, particularly if you utilize purchase orders (POs) in your invoicing process. Hiring managers may prefer a heads up communication about this issue and potential impact on their budgets. Alternatively, consider your program details and set a prescribed percentage increase to use on a per move or per tier basis.
- If you had dreams of cost reductions for the program, there is no real magic bullet at this point other than reducing the number of people you relocate, removing or capping specific benefits, and/or realizing that there's going to be a pass-along impact to your employees who relocate as it will cost them even more.
- Anticipate that given the variety of issues at play, your mobility program is likely to experience an increase in exception requests and approvals, and this will drive up costs. If exceptions arise and are denied, expect that this could be a somewhat "noisy" year for the program.
According to Forbes, companies will pay about 15% more per move in 2021 than they did previously. While it's a little early for us to give a specific percent increase as many moves are in the midst of an extended peak season, depending on a program's volume, locations, policy benefits, the types of moves and the types of people moving within the program, that 15% may or may not be correct. But consider whether you have communicated with stakeholders to make them aware of how the pandemic has impacted the various aspects of relocation and assignments and alert them to the possibility that they could see increased costs on many of the relocations. While cost estimates aim to get an accurate prediction to the business, this has been a volatile year with many complicating factors involved.
Of course, in a typical year, there are certain times when moving becomes a little pricier than others, but the last year and a half has been trying for those who were looking to move for a reasonable price. “May through August is the peak season for moving, so naturally, we’re always busy, and rates usually increase by 20%. However, this and last year was a bit different than most,” Josh Morales, CEO of International Van Lines, told Forbes Advisor Home. Morales explained that after Covid-19 hit the United States, manufacturing across relevant sectors slowed and gas prices increased. “Everything from [the cost of] packing supplies to trucks increased. Therefore, moving costs increased.” Then, there’s the sheer volume of people who, as a result of Covid-19, decided to move somewhere else.