Most commercial real estate and supply chain experts recognize the challenges the distribution industry encounters when it comes to labor availability. The U.S. unemployment rate has dropped to a nearly 50-year low. In September of 2018, three industries directly related to industrial real estate achieved all-time highs for total employed in the U.S. in truck transportation (1.48 million), couriers and messengers (756,600) and warehousing and storage (1.05 million). These record-breaking workforce numbers are the direct result of the increase in e-commerce distribution, which requires up to four times the amount of labor over traditional warehousing, in turn fueling an unprecedented demand for truck and courier drivers.
The insatiable need for labor due to the rise of e-commerce, combined with an economy at nearly full employment (3.7% in November 2018), means the amount of labor needed in distribution already is difficult to find in some markets. A breaking point with this labor shortage is looming on the horizon—so what can industrial occupiers do to reverse this trend?
1. INCREASE WAGES
While hourly wages have not increased significantly overall, rising in the U.S. only 3.1% year-over-year according to the Bureau of Labor Statistics, hourly rates for warehouse labor have increased 6.7% since 2017 per a recent Prologistix pay study. Some of this stems from the need to keep up with inflation, but the primary drivers behind these wage increases is to combat the shortage of labor. Staffing agencies are also driving wage increases, by telling employers that attracting workers requires them to increase hourly rates. Increasing wages can entice labor from the retail or food services industries, a target labor pools for distribution occupiers, to give warehouse work a shot.
Amazon, by far the largest distribution center occupier in the U.S., is at the forefront of this trend. In November of this year, they increased their minimum wage to $15 an hour for its U.S. part-time employees and those hired through temporary agencies. The company also acknowledged it would lobby Washington to raise the federal minimum wage, which has been set at $7.25 for nearly a decade. This move would have a ripple effect throughout the supply chain industry, assuming other retailers and third-party logistics (3PL’s) felt compelled to offer similar wages or risk losing employees to Amazon.
2. OFFER PERKS
Another way to attract labor is to offer more amenities and benefits. Distribution centers throughout the country are starting to look more like a creative office space with break rooms including couches, ping pong tables and basketball courts. Other perks include daycare for children. For example, Starbucks, an organization known for offering superior benefits to their employees, has a new association with Care.com to offer [email protected], an online service connecting families and caregivers at a heavily discounted rate. While this is an example of a retailer offering perks, as competition for labor intensifies, similar perks will be necessary to attract distribution labor. Companies are recognizing that in order to attract and retain talent, both in the warehouse and in corporate America, they must entice the millennial and Gen Y crowd. These groups as a whole are more likely to work for a brand that they admire, even in distribution capacities. According to a survey by PricewaterhouseCoopers on millennials in the workplace, development and work/life balance ranked higher than financial rewards.
REI, a company known for sustainability and supporting the community and environment recently opened a distribution center in Goodyear, AZ, that is one of the most sustainable distribution centers in the world. The building produces all of its own energy—not yet a common practice—and has one of the lowest water footprints in the world. And, in terms of employee perks, this REI location offers a fitness center, physical therapist, café, botanical garden, bike storage and air conditioning to offset the Arizona heat. “…we approached it as an opportunity to improve energy efficiency, limit our impact on natural resources and make a more comfortable workplace for our employees,” says REI on the major focus points when building this new distribution center.
3. INCREASE FLEXIBILITY
When financial incentives and environmental perks aren’t enough, providing a flexible workplace can do a lot to attract labor and improve retention. A company that offers flexible shifts based on employee rather than company needs can be very attractive for college students, part-time employees or people seeking a secondary stream of income. This could be why Uber and Lyft have become so popular in the U.S. population, with drivers setting their own hours around their schedule, and enabling them to work on their terms.
This flexibility greatly expands the labor pool to include working mothers, retirees and those with second jobs.
4. INTRODUCE AUTOMATION
No matter how creative companies become to attract and retain talent, there is no doubt that automation can reduce pressure placed on labor. By introducing automation into distribution centers, companies increase human efficiency by reducing the time it takes to complete any task as well as decrease the need for additional labor to accommodate demand, particularly seasonal demand. Reliance on automation will continue to increase as labor remains a scarce commodity and technology continues to advance.
THE NEW ERA OF DISTRIBUTION CULTURE
Occupiers are reinventing their distribution centers into more attractive and engaging environments that provide employees with elevated benefits, higher pay, and a quality workplace.
While there are definite shifts occurring to attract and retain labor, robotics and artificial intelligence will be key environmental ingredients to move online orders more quickly in this tight labor market. As this trend continues during the holiday season and beyond, Colliers will further explore a handful of U.S. markets’ affordability and availability of labor. Stay tuned for our next article in this series on current trends on labor in warehouses.
This article was written by the U.S. Colliers Editorial Board, whose mission is to produce new and noteworthy commercial real estate thought leadership pieces to create conversation around proactive content. The Editorial Board focuses on CRE trends in the United States, and is comprised of Colliers marketing, research, communication and service line leaders.