The recent demise of an RMC has sent shockwaves through the industry. FIDI Secretary General Jesse van Sas ask how movers and DSPs can protect themselves against the fallout from such events
So, it has happened: the bankruptcy of a relocation management company (an RMC in mobility industry jargon). Sure, Paragon Relocation was not a major RMC, but it was still a reasonably well-known one, active in some niche markets, and with a good reputation, at least until recently.
The bankrupt RMC leaves behind significant debts – of close to US$12m – mostly owed to its supply chain, among which are many movers and DSPs, including some FIDI Affiliates. Chances of recovering money from the failed business are close to zero.
This is a big loss for our industry.
There is a popular belief that RMCs are not prone to the usual liabilities in doing business. After all, they are part of the middleman economy, whereby any costs from the supply chain are just pushed on to the corporate client, plus a management fee. Where is the risk?
It is important to understand, however, that, while RMCs are indeed big companies – yielding a lot of power in corporate international relocation and having direct access to the major corporate clients – they are still businesses, and they can fail.
RMCs are attractive for movers and DSPs because they are large and supply huge amounts of work. Accepting their business, however, entails accepting their conditions, with long payment terms, continuous pressure on rates, free storage, a complicated way of invoicing, and auditing of your invoice by a third party, to name a few.
If you are happy with this, and you feel you are being paid a sufficient sum to cover all these extras, then by all means go for it. Reality tells us, however, that many entrepreneurs, including those in our industry, have an almost feverish focus on top-line revenue only, expecting this to result almost automatically into a profitable bottom line.
This, however, is seldom the case. Large contracts with ultrathin margins usually lead to an ultrathin and vulnerable bottom line, prone to further decline with the uncertainties surrounding our business.
It is also a reality that RMCs hold a vast part of the corporate international market. If you want to be relevant in that market, working with them is almost unavoidable. That is fine, as long as you maintain a healthy business mix of own-booked business, RMC work and agent work, and ensure that each of these delivers a healthy bottom line.
This means you should be selective in what to accept from RMCs or even large move managers, and perhaps even push back on their conditions, particularly on some of the credit terms they impose. That is your right as an entrepreneur, and taking your eyes off that aspect can lead to losses as now sustained by some movers and DSPs in the Paragon case.
One final thought on the middleman economy in which RMCs operate: middlemen are absolutely pivotal to how the modern economy functions. They are the critical connectors that really do help the flow of goods or services from those who have them to those who want them; they overcome all those informational and logistical challenges that can otherwise impede a transaction that would really make all parties better off.
In our mobility industry, however, they have evolved into incredibly large and powerful middlemen – and these are being fed by very long supply chains, incorporating very long layers of other middlemen. This combination, that whole business model, instead of creating value and efficiencies, often leads to very significant and unappreciated costs, which clients and supply chains are now starting to bear.
The balance of power has tilted and brought opacity in ways that are far from optimal. It could lead to a change, and perhaps even to a partial return of corporate clients doing direct business with the ones actually doing the work. Be prepared for that.
Jesse van Sas, Secretary General of FIDI Global Alliance
