Submitted by Jack Russell on 10/03/2020
The U.S. Military accounts for 15% of America’s moving industry’s domestic and international business. The Department of Defense’s (DoD’s) program, Permanent Change of Station (PCS), contracts the support of over 950 transportation providers to conduct the moves. Among other things, the DoD covers moving expenses to include shipment of household goods (typically items associated with the home and personal effects of the service member and their dependents), privately owned vehicles (POV), commercial air travel, and temporary lodging.
This government program is a lucrative and growing business opportunity for an automotive transportation company, including A-1 Auto Transport Inc., due to the program’s stability and industry-competitive contracts offered. While A-1 already moves POVs within the DoD, it is in the company’s best interest to expand into providing household goods transportation services, due to the increased opportunity to gain contracts and generate revenue.
There are over 3M active-duty personnel, reservists, and civilians that the DoD employs. Of these, 650,000 employees move annually, each involving a PCS that enables military personnel to move their belongings to assignments in new locations. The program shields the service member from personally incurring the cost of moving, allowing them to hire a government approved moving and transportation company to facilitate their PCS. The DoD invests $4.3B on PCS moves annually, with an average cost per move of $6,727. This is a profitable opportunity for contracted transportation companies, as these cyclical and reliable revenue sources provide government-backed stability. Moreover, over the last twenty (20) years, these opportunities have become more profitable. As the DoD has tried to reduce the frequency of PCS moves, resulting in a 12% decrease, the PCS program has become more costly, increasing by 13%, which is an additional $500M annually.
As a result, the cost per move increased from $5,238 to $6,727, a 28% cost per PCS increase. The change in cost makes the value of each contract more significant for the transportation provider. The government revenue source is available to be earned by national transportation vendors, such as A-1, providing timely and reliable services, including Household Goods (HHG) and Privately Owned Vehicle (POV) moves. Currently, A-1 Auto Transport competes for a limited portion of DoD’s PCS contracts, moving service members’ POV with offices near many of the nation's largest military installation clusters such as Washington D.C., the Southeast, and southern California.
On average, a POV costs $1,288 per move, which is a $173 increase on the market average for coast-to-coast POV transportation in the United States. Given that the value of each PCS move is $6,727 and A-1 Auto only provides POV movement, it restricts the potential earning opportunity to just 20% of the total contracts available. By capping itself to POV moves only, A-1 Auto is missing out on 80% of the PCS contracts awarded by the DoD. A-1’s expansion into the home moving sector allows for earning a more considerable portion of the PCS contracts. Of the $4.3B spent by the DoD annually, $2.8B is spent on HHG movements, approximately 65% of the total DoD PCS budget.
HHG movements include expenses associated with the packing, transporting, storing, and unpacking of home and personal items. The American Moving and Storage Association estimates the average cost of an interstate household move to about $4,300, compared to the average cost of an HHG move of $4,373. The cost comparison displays a payment constant with the industry standards, yet PCS moves are independent of economic variability. For instance, in 2009, during a major economic recession, the average HHG contract awarded by the DoD increased to approximately $4,875 with over 700,000 total moves.
A-1 Auto’s established network of 40 terminals, experienced staff of drivers, maintainers, and logisticians, enable rapid expansion of services, resulting in increased earnings potential. With decades of experience shipping automobiles, boats, and RVs across the U.S. and internationally for the DoD, A-1 is conditioned to maneuver through the bureaucratic red-tape associated with government contracts. The existing infrastructure and automobile transportation department will shield the company against the challenges of the PCS program, such as the dense summer move cycle, customer service issues, and acquiring last-minute resources.
Moreover, A-1 Auto’s reputation for safe and reliable shipping addresses the issues of late deliveries, occurring 47% of the time and damaged household belongings, occurring 21% of all domestic moves. These moving delays and damages cost the government up to $50,000 per claim. Offering a solution to these issues by increasing the scope of service offerings is sure to make the A-1 a favorite of Transportation Command, the DoD’s organization responsible for awarding contracts. There are speculations that the DoD PCS contracts may become less profitable in the future.
While the U.S. Government is attempting to reduce costs associated with PCS moves by increasing the minimum time DoD service members spend at one duty station before being eligible to move again, this change is unlikely to happen anytime soon, if at all. In 2015, the United States Government Accountability Office (GAO) published a study where they analyzed the associated costs and move data, only to conclude that the DoD needed to ensure more accurate and complete reporting of personnel movement data. As of 2019, the Army Secretary, Mark Esper, looked to standardize all continental U.S.
tours and most overseas tours to 36 months in an attempt to “reduce PCS moves;” however, no concrete or unified plan has been put into action. A reform to the DoD personnel management strategy that significantly puts a dent on the PCS moves would require a program akin to the British Regimental System, which keeps a large portion of service members in the same location for the duration of their career. This approach would greatly diminish the ability of the private sector to take advantage of opportunities associated with PCS.
Major reform in the DoD personnel management strategy is unlikely, as the DoD has been committed to the current methodology since 1957, and is focused on the diversity of opinion in organizations, instead of the economic advantages of service member geographic stability. It is in the interest of auto transportation companies to maximize opportunities to gain contracts related to the PCS process. A-1 Auto Transportation Inc. has the opportunity to increase profits by expanding into the HHG transportation services. With this expansion, the company would not only become more profitable but also more resistant to changes in the economy.
Submitted by Jack Russell on 10/03/2020