Cash in the USA – what’s next?

07th June 2017
Contributor:
Elley Frost
Elley Frost

Low interest rates, falling cash volumes and rising minimum wages have combined to reduce margins for conventional cash collection services. To survive, armored transport (AT) providers are streamlining services and targeting alternative products with higher product margins. But are these solutions right for merchants?

In a country of 3.8 million square miles, the transportation and banking of cash is a tricky business for any national retailer. CMSPI has decided to take a step back and look at the overall armored transport (AT) situation in the US.

Current position

There are four major national players in the US AT market:

Of the largest four global players – which include G4S and Prosegur – only Brink’s and Loomis offer AT services in the US. Figure 1 highlights the market shares of AT suppliers in the US, according to IBISWorld; highlighting the top four suppliers, together accounting for 94% of total industry revenue.

Figure 2 highlights the financial position of the four largest AT providers in the US. Loomis, with revenues of $875m, overtook Brink’s as the largest AT provider in the US in recent years1. However, all US AT providers are being affected by the ongoing decline of cash transactions. As cash usage falls – and consumers begin to favor non-cash alternatives – fewer traditional AT services are needed. As a result, many have turned to high value-added services to counter this weakening in demand, such as secure logistics or provision of more holistic cash management services (CMS) in order to boost revenues. Examples include:

  • Loomis: growth within the CMS segment through the provision of SafePoint, a smart safe solution for both retailers and banks.
  • GardaWorld: revenues being helped by the expansion of cash handling and management services including the management of Bank of America’s cash vaults
  • Dunbar: transferring of domestic operations towards higher valueadded services including logistics for jewelry and domestic overnight shipping
Figure 1: US Armored Transport company market shares

Competition levels

There are also around 90 other carriers active in the country, but these are smaller, more regional players. The geographical coverage constraints can limit the level of competition in the market. For example, there are certain areas where only one or two of the big four carriers operate – including Maine, Hawaii and Alaska – while there are other areas covered by none of the big four (see Figure 3). This means that, typically, a large merchant will either have multiple contractual relationships or have its staff walking to the local bank, which will in turn lead to a high number of banking relationships due to the regionality of bank branches across the US. This lessening of competition removes competitive tension in pricing and service quality. AT providers may also only wish to contract with a merchant if they can service a minimum number of sites; this makes procuring and agreeing optimized terms for the whole estate all the more difficult.

The challenges

Low interest rates

Low interest rates affect the demand for cash services as the incentive to move cash quickly to the bank is also low. This lack of incentive is reflected in lower demand for AT pickups, impacting AT revenues.

Minimum wage increases

Labor constitutes upwards of 60% of an AT provider’s costs so any increase is materially felt on the bottom line.

Decline in supplier customer base

The main consumers of AT services are retailers and banks, with Brink’s recently stating that these verticals cover over 80% of it’s customers.

Industry response

Price changes, efficiency savings and value added services

As the macroeconomic conditions and factors affecting the bottom line have worsened, AT providers have responded by increasing their prices for traditional services. In his most recent earnings call with investors, Loomis CEO Patrik Andersson highlighted US wage inflation as an issue, and expected pricing to customers to increase due to these changes.7 Others are moving towards efficiency savings to protect profits. For example, in Brink’s fourth quarter earnings call, CEO Doug Pertz spoke about the company’s strategy to focus on “a broad range of profit improvement actions… reducing overall fleet cost, reducing labor per truck, optimizing branch network… investing in a smaller more efficient vehicle that can accommodate both one-person and two person crews… new gas powered trucks… to replace old heavier diesel [trucks]…”

Figure 2: US Armored Transport company revenues (in US$ millions)

Figure 3: Heat map of Armored Transport carriers by state

In Summary

To conclude, in recent years, the US AT industry has been affected by various external factors, including low interest rates, changes to underlying costs and reductions in the customer base. This has led the industry to focus on efficiency savings and on higher margin products such as smart safes. These efficiency savings include depot closures, smaller vehicles, one-man vehicles and the acquisition of smaller players to reduce competition.

Retailers need to be aware of trends such as these when analyzing their cash management strategy. As the industry increasingly looks towards cash management solutions, retailers need to
think of the right balance for their company to bring in the most efficient solutions for the least cost. Without understanding the dynamics of the industry, merchants risk exposing themselves to higher prices, reduced service quality and technology solutions that they don’t need.

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