The holidays are coming up and the warehouse and distribution center industry is facing a historically low labor shortage. Read about the staffing problems surrounding the DC industry from DC Velocity and let us know what you think. What are the solutions? What do you think about Devine’s workforce strategy?
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**Warehouse, DC labor crunch approaching crisis levels at worst time, survey finds
ProLogistix reports tightest job market since 2007.
By Mark B. Solomon
The warehouse and distribution center (DC) industry is facing its most severe labor shortage since 2007, a potential crisis that could affect peak holiday season fulfillment operations and carry over well into next year and beyond, according to ProLogistix, a firm that provides staffing services for warehouses and DCs.
Brian Devine, president of Atlanta-based ProLogistix, which for 15 years has conducted an annual survey of warehouse and DC labor trends, said his company and rival firms are having trouble finding qualified applicants to staff their clients’ warehouses as they ramp up for the holiday crunch. Three out of every four applicants never make it to interviews due to drug-related offenses or criminal histories, among other problems, Devine said. But even the total pool of warehouse applicants has been diminishing, Devine said.
At the same time, wages in the past three months have increased much faster than Devine said he had anticipated. Initially, Devine thought wages would rise in 25-cent-an-hour increments per quarter, resulting in a $1.00- to $1.25-an-hour increase over the next 12 to 18 months. Instead, wages are rising at levels that will result in pay gains of up to $2.00 an hour over that same period, he said. The sudden changes in wage trends will force many warehouse and DC managers to revise their 2014 and 2015 budgets to account for higher labor costs, Devine said. Most ProLogistix clients are aware of the problem and are taking steps to adjust, albeit reluctantly, he said.
Devine said he expected some level of increase because warehouse wages have been virtually flat for about a decade. For example, a forklift operator, on average, earns about 25 cents an hour more today than in 2004, Devine said. As far as forklift operators are concerned, the greatest demand today is for tech-savvy workers who are comfortable around machines that have become more automated, Devine said.
The shortage of qualified warehouse labor is likely to persist long after the holidays, Devine said. He couldn’t comment on whether this would become a multiyear trend, saying his firm’s forecasting capabilities don’t extend out that far.
The explosive top-line growth of Amazon.com and its voracious appetite for fulfillment labor is a factor leading to tight supply across the system, according to Devine. However, he said the segment would be confronting a labor shortage even if Amazon didn’t exist, adding that firms were scrambling for labor eight to ten years ago when Amazon was not nearly the potent force it is today. Seattle-based Amazon, the world’s largest e-tailer, has not announced its peak fulfillment staffing levels.
ProLogistix, which touts itself as the largest staffing firm dedicated to warehouse and DC labor, employs about 12,000 workers. Many of them start as provisional employees who hope to become permanent once they complete a trial period at a ProLogistix client. The workers remain on ProLogistix’s payroll even if they become permanent workers at a client’s location.
The immediate concern is the pre-holiday shipping season, when retailers, on average, increase warehouse and DC staffing by 43 percent in the three months leading up to Christmas. Devine worries that there aren’t enough workers to meet the burgeoning fulfillment demand. Even collaborative efforts with competitors to meet staffing levels are falling short, he added. “A customer needs 20 workers. We have 12. I contact a competitor to see if it can fill the remaining 8 vacancies, and they only have four candidates,” he said in a phone interview.
Due to the tight supply, companies that have yet to bump up workers’ wages, or don’t do it soon, could lose workers as they jump to other jobs paying 50 cents or $1 more an hour for pre-holiday work, Devine said. “There will be a lot of plundering” leading up to the peak of the holiday fulfillment period, he said.
Gilt Groupe, a fast-growing online shopping company headquartered in New York, is experiencing a tight labor market around its main fulfillment facilities in Louisville, Ky. “There is a lot of competition [for workers] in this geography,” said Michelle Ball, Gilt’s senior professional of human resources, in a phone interview from Louisville where she is based. Gilt’s Louisville operation consists of a 302,000-square-foot fulfillment center and a separate 100,000-square-foot location. It also manages facilities in Brooklyn, N.Y., and Las Vegas that are used mostly for cross-docking activities.
In an effort to widen its recruiting channels, Gilt, for the first time in its seven-year history, will perform in-house hiring to augment the work of its outside agencies, Ball said. It has yet to see the need to offer higher wages as a mechanism to attract or retain DC labor, she said.
Gilt employs 400 folks full time in Louisville year-round. During most of the year, the ratio of temporary workers to full-timers is about 35 percent; the ratio will swell to 50 to 60 percent as the company nears the height of the peak season. Last year, Gilt’s peak fell on the day after Thanksgiving, which has become known as “Black Friday” for the shopping frenzy that ensues on that day. Ball estimates that 700 full- and part-time workers will be on the job in Louisville at the peak of its holiday period.
UPS Inc., which plans to hire 95,000 seasonal workers—many at its main global air hub in Louisville known as “Worldport”—is so far having no problems attracting applicants, according to Susan L. Rosenberg, a company spokeswoman. “The application flow has actually been quite good,” she said. UPS has seasonal workers that return year-after-year just for the holiday period, Rosenberg said. The company has been successful in hiring returning veterans for seasonal work, according to Rosenberg. A portion of those workers transition into full-time jobs with the company, she added. UPS has also formalized a long-held practice of reaching out for retirees who might be interested in serving as driver coordinators and trainers during the peak period, she said.
UPS, which suffered a hit to its reputation during last year’s holiday as a last-minute deluge of online shipments clogged its system and led to delivery delays, has taken various steps to avoid a repeat this holiday. One of the most significant is that it will operate its full U.S. air and ground network on the day after Thanksgiving, the first time in its 107-year history it will do that.
A WORKFORCE STRATEGY
Devine advises clients to develop what he calls a peak-season workforce strategy. First, they should determine how many of the warehouse and DC positions are mission-critical and take all steps necessary to keep those workers from leaving. He suggested that companies, whenever practical, split full-time positions into two part-time slots and allow workers to share those slots to give each worker extra hours. Devine also recommended that employers consider incentives such as a “perfect attendance” bonus during the busiest peak period that would pay workers an additional $2 an hour.
Devine characterized his business as the “tip of the spear” of the U.S. economic cycle. Part-time workers are usually the first hired when the economy emerges from recession because businesses need additional labor but are reluctant to commit to full-time help. Part-timers are also the first to be let go at the start of a downturn because it is easier to shed those workers as part of a downsizing move. The labor tightness in Devine’s part of the world indicates that the “economy is stronger than it might otherwise feel,” he said.
Devine added that the higher wage costs could have a silver lining: It could help attract and retain workers that would either not be interested in the industry or might go to another field in search of more money.
**Solomon, M. (2014, October 2). Warehouse, DC labor crunch approaching crisis levels at worst time, survey finds. DC Velocity.