Report highlights warehouse labor tightness caused by e-commerce surge in key cities
It’s not unusual to see stories chronicling the number of seasonal workers that the large integrators need during the holiday season.
But that’s really a cute angle that masks a much bigger labor issue building in the United States: the rising cost of freight-related labor in the country’s biggest distribution center markets, and how those rising costs are driving companies to develop distribution facilities in smaller, mostly Midwestern metropolitan areas.
This is really a development that highlights two dynamics: the extent to which e-commerce growth is driving the need for larger amounts of labor; and the extent to which freight-related labor can be a driver of jobs in areas that have previously been reliant on manufacturing.
A new report from Jones Lang LaSalle spells out the scenario: “The bulk of this e-commerce leasing activity took place in major MSAs (metropolitan statistical areas) like Central Pennsylvania, Dallas–Fort Worth and the Inland Empire (of California),” says the report, If You Build It, Will They Come?
“While these larger markets remain very active today, there is a growing shift to secondary Midwestern markets. MSAs like Indianapolis, Columbus, Cincinnati and St. Louis have all seen a spike in e-commerce deals over the past 24 months. Each now ranks in the top 10 nationally. Indianapolis, in particular, has seen the e-commerce sector account for 61.2 percent of ‘big-box’ activity during this time frame. While central location is a major factor in the rise of these Midwestern cities, so too are e-fulfillment labor demand and wage implications.”
Here’s where things get interesting. The growth of e-commerce has been so large and so rapid it has squeezed the labor market in the areas where retailers would prefer to locate industrial facilities to manage freight.
“The combined impact of considerable leasing activity from e-commerce-related operations and a constrained supply of available labor has increased wage rates for warehouse labor at a faster rate than any other occupation,” the JLL report said. “On average, industrial markets with elevated levels of e-commerce leasing activity have seen median wage rates for laborers and freight stock employees increase by 5.8 percent from 2013 to 2015; meanwhile, in the same areas wage growth for all occupations only increased 2.7 percent.”
At the RILA Supply Chain Conference in Orlando last week, I spoke with Matthew Powers, executive vice president at JLL in charge of growing the firm’s Retail/e-commerce Distribution (ReD) platform. Powers joined JLL in mid-2016 after spending time in as a real estate executive with Walmart.
The combined impact of considerable leasing activity from e-commerce-related operations and a constrained supply of available labor has increased wage rates for warehouse labor at a faster rate than any other occupation.
Powers emphasized that these second tier cities are experiencing the cascading effect of demand from e-commerce retailers, and those retailers could soon see a tight market for labor there too, given current growth rates.
The issue, as pointed out in the report, is that e-commerce freight activities are particularly labor-intensive. While Amazon is making waves with robotic warehouses, JLL noted that “Despite significant automation, the e-commerce industry’s effect on demand for labor has been magnified by its heavy employee counts and severe seasonal spikes as compared to nonfulfillment-driven operations.
“More traditional warehouse facilities, which replenish retail stores and distribute wholesale goods, have an average employee count of one per 1,500 to 3,000 square feet. Meanwhile, large-scale e-fulfillment operations typically have an employee count of one per 700 to 1,000 square feet. As a result, e-commerce-focused leasing can drive local demand for labor at a rate two to three times that of traditional warehousing operations.”
Another factor at play in the labor shortage noted by JLL: the U.S. economy is at the tail-end of an era when the Federal Reserve kept interest rates low to drive down unemployment and drive up wages. With unemployment below 5 percent, labor markets have tightened, especially for jobs that require specific skills in certain cities.
And that has an effect on traditional warehousing employers in cities that are key to e-commerce fulfillment.
“As the economy reaches full employment, wage growth is expected to increase as employers compete for qualified labor,” JLL said. “The rise of e-commerce and the need for large-scale distribution facilities have exacerbated this effect in many major industrial markets. A dwindling supply of labor has forced traditional warehouse and distribution employers to compete with large fulfillment operations, which often can offer well-above-average hourly wage rates.”
What does this all mean? Well, it places an another pressure on retailers trying to profitably serve customers across a range of channels. For traditional retailers carving out their omnichannel path, the very channel that is growing the fastest is the harder to derive profit from, especially if labor rates in key warehousing regions is getting more expensive.
“Expect the rise of e-commerce and the complexities coming from heightened consumer delivery demands, the resulting demand for industrial facilities with atypically high employee counts has constrained available labor,” JLL said. “With ‘big-box’ leasing around the country continuing to flourish and unemployment rates steadily reaching new lows, continued wage growth for warehouse associates is expected to outpace many other employment sectors, putting upward pressure on overall total landed costs.”
This trend also underscores the extent to which jobs tied to freight, and more specifically, international trade could go a long way toward providing employment to those disenfranchised by the United States’ import-reliant economy. Freight jobs aren’t just restricted to regions around ports, airports and parcel hubs. The amazing growth of e-commerce means that freight and logistics jobs will grow in number across the country.
