June 3, 2016

Wages for warehouse labor to continue to climb—along with all else in the DC

Hourly workers' wages must climb $2 to be competitive, staffing firm says; owners brace for higher costs, and higher demand.

By Mark B. Solomon

In 2002, the average hourly wage for a warehouse and distribution center worker in the U.S. was $10.31, according to Atlanta-based staffing firm ProLogistix, which on a weekly basis employs about 12,000 people in industrial facilities nationwide. By 2012, that same hourly wage had risen, on average, by a measly 15 cents. During the same period, the Consumer Price Index (CPI), the federal government's broad measure of the direction of consumer prices, had climbed about 22 percent.

Since the 2012 peak shipping season, however, wage growth has accelerated. Today, the typical warehouse worker pulls down $11.46 an hour, according to ProLogistix data. The increases are expected to keep coming at least for the next 18 months to two years, plateauing about the time the next recession kicks in, according to Brian Devine, the firm's president.

That's because even with the gains over the past four years, average wages have risen only 11 percent in total since 2002, while the CPI has increased 31 percent during that time, according to ProLogistix data. It will take another $2-an-hour increase, to levels approaching $13.50 an hour, for wages to be considered competitive and finally pull workers even with 2002 levels on an inflation-adjusted basis, Devine said.

Wages in that range should also attract a large number of new entrants, and end whatever labor-market tightness currently exists, Devine said. (ProLogistix could not quantify the extent of a labor shortage.) In addition, a worker earning wages in that range would be less prone to jump ship to a rival for more money, Devine added.

But the prospect of labor stability will come at a price for warehouse owners, operators, and associated executives, Devine said. For example, the $1-per-hour wage increase since 2012 has increased the compensation costs—wages, benefits, and government compliance expenses like FICA and unemployment tax—by $500,000 for a 200-employee facility, according to Devine's calculations. Consultancy CBRE Inc. said in a March report that a $1 increase in average hourly wages amounts to a $1 million rise in total annual labor spend for a 500-employee facility.

Labor is not the only warehouse line item that's going up. The cost of buying lift trucks will rise by 3.4 percent a year over the next three years, according to recent data from consultancy IBISWorld Inc. Pallet jack costs will increase 3.7 percent a year over that time, the firm projects. The cost of a wood pallet will increase by 2.9 percent a year over the next three years, while the cost of services like building and maintaining heating and air conditioning systems will climb 2.7 percent a year during the same period, IBISWorld said.

The good news for warehouse executives is that costs are rising in concert with increased demand. According to real estate advisory firm Colliers International, which represents mostly "big box" owners and tenants, the U.S. industrial-vacancy rate declined in the first quarter to 6.3 percent, the 22nd consecutive quarter of declines and the lowest vacancy rate in more than a decade. More than 63.8 million square feet was absorbed in the first quarter, a 9.6-percent increase from year-earlier levels and a signal that demand continues to outpace supply, Colliers said.

Frederick Regnery, a principal at the firm, said he sees nothing in to alter the trend in the near term. Corporate users are now approving large projects that had been postponed during the downturn, Regnery said in an e-mail. Supply has been constrained for years by disciplined developers who didn't overbuild leading into the recession, Regnery said. As a result, the market has yet to catch up to the virtual absence of speculative, or "spec," projects that got the residential and commercial real estate markets in trouble nearly a decade ago, he added.

Perhaps most profound is what Regnery called a "structural shift" in the way consumers purchase products, and the manner in which companies fulfill and distribute them. The phenomenon of e-commerce is "creating demand for new types of modern DC facilities."

"This is the most landlord-favorable market in my career," he said.

The massive fulfillment centers being developed for, and occupied by, e-tailers, traditional retailers, and distributors are driving up costs ranging from hourly labor to equipment and technology to a multifold increase in the number of parking spaces to accommodate a bigger workforce.

Demand for workers will rise as fulfillment moves away from building pallet-sized shipments that move in a business-to-business network to the more labor-intensive work of handling individual items, known as "eaches," which are picked, packed, and shipped to a residence, Devine said.

About the Author

Mark B. Solomon
Executive Editor - News
Mark Solomon joined DC VELOCITY as senior editor in August 2008, and was promoted to his current position on January 1, 2015. He has spent more than 30 years in the transportation, logistics and supply chain management fields as a journalist and public relations professional. From 1989 to 1994, he worked in Washington as a reporter for the Journal of Commerce, covering the aviation and trucking industries, the Department of Transportation, Congress and the U.S. Supreme Court. Prior to that, he worked for Traffic World for seven years in a similar role. From 1994 to 2008, Mr. Solomon ran Media-Based Solutions, a public relations firm based in Atlanta. He graduated in 1978 with a B.A. in journalism from The American University in Washington, D.C.

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