It's unfortunate the rest of the U.S. economy isn't firing on all cylinders the way the industrial property sector is. Demand is strong, space can't come online fast enough, and, after more than a decade of lean times, DC workers are finally seeing more money for their efforts.
These also make for good times for Brian Devine. A 20-year staffing veteran and senior vice president of Atlanta-based EmployBridge, Devine in 1999 launched ProLogistix, a division of EmployBridge dedicated to specialized warehouse and distribution center staffing. ProLogistix has since become a leading provider of logistics talent in the U.S.
Devine recently spoke with Mark B. Solomon, executive editor-news, to discuss the outlook for labor and how managers will need to balance the realities of higher pay and margin pressure.
Q: How are the supply-demand scales balancing for peak season?
A: Based on what we've seen over the past three years, we expect the demand for hourly labor to increase by about 28 percent over the headcount needs of the third quarter. This large increase will be on top of the already-tight labor market we are now experiencing, so recruiting for this peak season will be even more challenging than it was in the last few years. The good news for associates is that over half of the positions created during the peak season of 2015 turned into full-time positions. That compares with just 10 percent of the positions converting to full time in 2013 and 2014.
The current labor market will require companies to pay peak season premiums of $1.50 to $3 per hour to attract and retain workers through the fourth quarter. Additionally, weekend shifts and second and third shifts will require a $1-per-hour shift differential during this upcoming peak season to meet demand. I anticipate that companies will have to include more part-time positions to attract people who want to work just 20 to 25 hours per week. Fortunately, many of the jobs created during the peak season have a very short learning curve, so employees can be productive with just a few hours of training.
Q: It sounds like workers have bargaining power?
A: Workers are in a better position now than at any time since 2007. With unemployment rates well below 5 percent in major logistics markets, good workers are reaping the rewards of an employer base that has become more creative and generous in its attempts to attract and retain their services. The generosity starts with a competitive pay rate. We know the most important factor in attracting employees is competitive pay. Secondarily, employees want job security so they can gain a sense of financial stability. After over a decade of stagnant wages, we have seen an 11-percent increase in pay rates for logistics employees in the last 24 months, and I anticipate that rate of pay increases will continue for the next year.
Q: To what levels can wages rise before they become a pain point for managers?
A: I expect average pay rates for hourly logistics employees will rise until we get to $14 per hour. At that point, we should start to see some leveling off. That will put associates' wages in line with their spending power back in 2002. Wages will vary depending on the availability of labor in a specific market and the minimum wage laws for each market. Another important variable affecting pay is the complexity of the position. For instance, an associate who is expected to operate four different types of forklifts will warrant a higher pay rate than an associate who is operating only a sit-down forklift.
Q: What do your customers tell you about the role that robotics or other forms of automation will play in managing through peak season?
A: I get a mixed response. On one hand, technological improvements in robotics allow some functions to be performed by a robot at a much lower cost than having a person perform that same function. But that activity has to be repetitive enough and be required to be performed for a duration long enough to warrant the cost associated with purchasing, setting up, and programming the robot to perform the task. Many of today's consumers want their purchases to be customized, which creates a higher demand for the flexibility you can only get by using employees.
Q: To what extent can automation offset the impact of a shortage of human labor?
A: The use of automation can help make employees significantly more productive. We are seeing automated solutions implemented in almost every aspect of a distribution or fulfillment center's operations from a basic corrugated box assembly to a complex conveyor system tied to a pick-to-light station. The combination of the right automation and the right work force can drive down labor costs considerably. While the use of automation and robots reduces the headcount requirements in a facility, the remaining positions often require an advanced skill set to optimize the capabilities of the new technology.
Q: Looking beyond peak and into 2017 and 2018, what is the most likely scenario confronting warehouse operators?
A: In the near future, I expect to see the "Uber-fication" of positions within distribution or fulfillment centers. For example, companies will digitally post various schedules for 100 order selectors on their website, and associates who have been previously vetted and certified can go online and choose the schedules that work best for them. The labor market will be able to react in real time, so companies will be able to make quick adjustments in schedules or pay rates to attract the required number of associates.
Some of the changes facing warehouse operators will be determined by the timing and duration of our next recession. In recessionary times, labor becomes more plentiful, and while I do not anticipate a retraction of the pay rate increases that we've seen in the last 24 months, any further increases would be unlikely.
Q: New federal overtime rules have broadened the universe of workers that are eligible for overtime. What will be the impact on warehouse staffing costs and availability?
A: The changes will impact warehouse supervisors and managers with annual salaries of less than $47,476. Hourly employees will not be affected by the new ruling. Currently, most salaried employees earning more than $23,660 are exempt from overtime pay. Under changes to the Fair Labor Standards Act, effective Dec. 1, salaried employees must make more than $47,476 a year before they will be exempt from overtime pay. Companies will have to be prepared to pay more employees overtime or to change their salaries to meet the new threshold.
This change takes effect in the middle of peak season, so companies have to take this into consideration for the end of the year.
Q: The growth of e-commerce and a broad recovery in the industrial market is leading to more project approvals and construction of new DCs. Is the labor market big enough to accommodate the ongoing expansion?
A: The Bureau of Labor Statistics (BLS) tracks a segment of the population it classifies as "Not in Labor Force." These are people 16 years and older who are neither working nor unemployed. They might be in school or retired or simply not actively looking for work. The number of people "Not in Labor Force" has grown by more than 17 million people in the last 10 years. We now have over 94 million people who fit this description. I'm certain that companies will find ways to attract many of these people back into the work force. By increasing pay rates and offering flexible work schedules for students, retirees, and stay-at-home parents, we can meet the demand for more workers.