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Feds eliminate quirky price-fixing rule for interstate movers

November 26, 2007

Interstate moving companies have operated for decades under industrywide price fixing blessed by the federal government. But the system--one Tony Soprano and the boys in the back room of Bada Bing would love--will end Dec. 31, ushering in price cuts and other changes that could affect the cost of a move.

The reaction by the largest moving firms based in Indiana varies widely. Some plan steep cuts in base rates intended to appeal to residential customers.

Other movers plan to publish tariffs--the documents that spell out standard terms and conditions--similar to those most recently set by the industry, so as not to confuse their big corporate customers.

Common among all is a plan to at least simplify tariffs that can run well over 100 pages.

"For most of our customers, all they want to know is, 'How much is it going to cost? ... Can you simplify it?'" said David Witzerman, executive vice president at Indianapolis-based Wheaton World Wide Moving.

Interstate movers have had the blessing of the federal government to collectively set prices the last 70 years, which might astound anyone in business who dreads the footsteps of antitrust attorneys from the Justice Department.

Tariffs were collectively hammered out, usually every year or two, by the Household Goods Carriers' Bureau, an arm of the American Moving and Storage Association. Federal regulators supervised the process.

It's one of the last vestiges of President Franklin Roosevelt's New Deal program, which, in the words of the board, "replaced free-market competition with cooperative action subject to regulatory oversight."

That was until last May, when the Surface Transportation Board gave the HGCB committee concrete shoes and declared that interstate movers will lose their antitrust immunity on Jan. 1.

That means firms like Wheaton World Wide, Evansville-based Atlas Van Lines and the almost 2,000 other signatories to the HGCB must publish their own tariffs by the first of the year.

The board's ruling "afforded us the opportunity to take a hard look at our business model and our costs," Witzerman said.

"We've taken a rate structure we had before and whacked it by 50 percent."

Wheaton's version of "whacking" shouldn't be confused with what Soprano did to "rats." Rather, Wheaton is taking an approach it figures will reduce confusion for customers and boost credibility for the business. It's making pricing simpler and more realistic by getting rid of the steep discounts that were applied to the collectively set rates.

Witzerman said it wasn't unheard of for a moving firm salesman to discount rates 60 percent or 70 percent, a markdown so drastic it can lead to suspicion about the published rate or the service being provided.

"If it's marked down by 70 percent, you wonder what's wrong with it. I'm a little more suspect when something is marked down so much," he said.

Greg Hoover, marketing director at Atlas Van Lines, added: "The Surface Transportation Board said, 'How accurate can your prices be if you discount it 60, 70 percent?'"

The bottom line will be roughly the same to the mover, but "you won't be comparing these ridiculous discounts" among movers, said A.J. Schneider, director of marketing services at Wheaton.

Tricky transition

Taking a slightly different approach are Atlas and Fort Wayne-based North American Van Lines, which, for now, will maintain pricing similar to what is set by the HGCB committee.

Both firms have a higher percentage of corporate clients than Wheaton. Radically restructuring their prices could be disruptive for those customers, who often take quotes from multiple movers when arranging an employee's relocation, for example.

Under collective rate making, prices differed among movers. They applied varying discounts to the collectively set base rates.

But as movers eventually file more distinct tariffs, corporate clients will likely begin to ask for sample prices for several theoretical moves as a way to compare costs, figures Hoover, marketing director at Atlas.

"They might say, 'Here's five sample moves. Under your current tariff, how will you apply your pricing?'" he said.

All three big Indiana van lines plan to simplify their tariffs--in some cases cutting the number of pages from around 100 to just over 50 or 60 pages.

Wheaton recently published its new tariffs on its Web site, gutting some line-item charges to make things simpler to understand.

"What we decided to do is bundle those items together ... 'Here's your price,'" Witzerman said.

The average cost last year of shipping household goods to move an employee was $10,342, according to the Worldwide ERC Transfer Volume & Cost Survey.

Shipping household goods is the second-most-costly component of an employer-assisted move. Compensating for a loss on the sale of a home--at an average cost of $15,255--was the highest component of relocation, according to the survey.

Wheaton's strategy of lower base rates, less discounting and simplified tariffs aimed at individual consumers might pay off. A number of employers are getting out of the business of arranging moves, leaving the logistics to the employee to handle.

"It's, 'Here's $10,000. We don't care how you use it,'" said Jeff Freeman, a senior manager at Relocation Strategies Inc. The Indianapolis firm has quarterbacked the relocation of corporate offices for companies ranging from Alcoa to WellPoint.

Devil in details

Still, not that much is simple when it comes to interstate moves in the household-goods moving business.

Even in Wheaton's new tariff, which thinned from 99 pages to 64, readers will find maddening caveats. For example, those moving around Easter time take heed: Overtime hours apply "during any hour on Good Friday when service is provided in the New York City area (ZIP codes 100, 101, 102, 103, 104, 105, 106, 107, 108, 109, 110, 111, 112, 113, 114, 115, 116, 117, 118, 119, 123, 125, 126 and 127)."

Nevertheless, Witzerman said the company's new tariffs are a good thing for customers and for the local moving company, rattling down a list of even more maddening line-item costs from its previous industry-based tariff.

The change is not without cost. Wheaton, a private company with $160 million in annual revenue and 150 Indianapolis-area employees, had to hire an analyst to help with its new rate structure. It found a former General Motors Corp. purchasing expert from Kokomo.

About 20 percent of Wheaton's business is with corporations, 40 percent with private individuals, and 40 percent military/government contract business

The company can't afford to pass on to customers the cost of handling its own tariffs, given the competition in the market, Witzerman said. "We're going to take a haircut somewhere in our margins."

Recipe for inflation

Some argue that the industry's arcane collective rate setting had gotten out of control, with tariff increases roughly every year or so. Eventually, prices became overinflated, necessitating steep discounts not even a brash car dealer would tout.

"Given the maturity and vitality of the motor carrier industry, the [collective rate setting] system is incompatible with a free-market-based and fully competitive system," the Surface Transportation Board said last May. "Collective rate making, even when subject to heavy discounting, can lead to higher prices."

The board said technological advances, such as the Internet, make it easier for carriers and shippers "to exchange the information necessary to solicit and generate rate quotes in a timely matter."

Collective rate making in the motor carrier industry dates to the Great Depression. One concern when the system started was that the motor carrier industry was economically unstable and that cutthroat competition might destroy it, according to the STB, which succeeded the Interstate Commerce Commission in 1996.

The American Moving and Storage Association said collective rate making also resulted because, in the 1930s, no one carrier was large enough to provide service on a national basis. Often, a shipment was handed off to several carriers along the way on a coast-to-coast shipment. A common tariff made the process easier.

The federal board's action does not directly affect in-state moves, which are regulated by the state.

Disparate government treatment

The ability of interstate motor carriers to fix prices, under federal supervision, contrasts with other industries under the wrathful watch of the Justice Department--notably ready-mix concrete companies in central Indiana.

Starting in 2005, the federal government went after several area concrete producers for illegally setting prices, including Irving Materials in Indianapolis and Builder's Concrete & Supply Co. in Fishers.

Irving paid a $29.2 million fine, at the time the largest in a domestic antitrust investigation. Several other firms paid fines and some of their executives became, as Tony Soprano would say, guests of the state.

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