Addressing Labor Shortages in Warehouse and DC Operations

This article was originally published on March 4th, 2019.

UPDATE: The SCRC has partnered with FHI to produce a white paper based on the insights from the 2019 workshop on addressing labor shortages in warehouse and DC operations. To view the white paper, click here.

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A group of executive joined SCRC faculty and staff for a one-day workshop held on February 28, 2019.  Companies represented included Advanced Auto Parts, John Deere, Hanes Brands, UPS, FHI, Lenovo, GSK, Altria, and UNC Healthcare.  The topics of discussion covered a wide spectrum of issues associated with the current state of the challenging job market, including the current landscape, key criteria for consideration of labor outsourcing options, alternate models of employment, dealing with seasonality, variability, the emerging Gig economy for labor, new ways of hiring workers, and how to motivate and engage young people in the  millennial generation.

A recent story in the Wall Street Journal trumpeted that “The job market doesn’t get much better than this.  The U.S. economy has added jobs for 100 consecutive months.  Unemployment recently touched its lowest level in 49 years (3.7%).  Workers are so scarce that, in many parts of the country, low-skill jobs are being handed out to pretty much anyone willing to take them – and high-skilled workers are in even shorter supply.”

This is good news for workers, especially those on the low end of the education spectrum, and the growth of new jobs will require in most cases a high-school diploma.  The shortage of workers is causing companies to look at non-traditional sources, including individual with a criminal record.  The Journal cited the case of one individual who  dropped out of high school in the 10th grade and started selling drugs, which eventually led to a lengthy incarceration.  When Mr. Wilson, 59, was released in 2013 he sought out training at Goodwill, where he learned to drive a forklift.  Those skills led him to a part-time job at a FedEx Corp. facility at an Indianapolis, Ind., airport.  He was promoted to a full-time job in 2017, and is now earning more than $16 an hour.  The Journal notes that if the Federal Reserve continues to keep rates low in the face of low unemployment, this condition could last for a good while.

What is the current landscape for workers?

The shortage of workers has hit the trucking and logistics industry particularly hard.  Freight rates are on the rise, and there are signs that the shortage are unlikely to abate.  The federal government is also recognizing this problem and is taking action.  Lawmakers in the Senate and House introduced on Feb. 26 legislation to address the urgent shortage of truck drivers.  The DRIVE-Safe Act updates federal law to empower the trucking industry to fill these gaps with a qualified, highly trained emerging workforce.  It removes age restrictions on interstate transportation by licensed commercial drivers and strengthens safety-training standards across the industry.  Young adults become eligible to seek commercial driver’s licenses at age 18 in most states; however, federal law currently prohibits these commercially licensed adults from driving across state lines before age 21.

Many of the participants are seeing a number of shortages, and increasing wages is also impacting operating costs.  Truck driver salaries are up, with private fleet drivers earning as much as $86,000 annually in 2017, with an entry level median position of $53,000.  These gains don’t show signs of slowing down.  Many other jobs such as Material Handler, pickers, and other general warehouse position are bretween $12,00-$14,000, with fork life operators making up to $16 range.  Many participants noted that when Amazon raised their warehouse rates to $15 an hour, many of the companies were already paying far more than this, and the working conditions were often better than what workers encountered at Amazon. The American Trucking Association expect a shortage of roughly 70,000 truck drivers in 2019, which will increase to 175,000 by 2026.  The promise of “driverless vehicles” is unlikely to materialize during this period.  This is also a very fragmented industry, with the larger trucking firms such as Schneider only having 2% market share, and the bulk of the industry being independent owner operators.  Contingent workforces are also a trend occurring in the general industry, as a study by Intuit showed that by 2020, 43% of the American workforce (7.6M) would be independent contractors (contingent workers).

A number of other comments by executives at our workshop emphasized how these problems are impacting operations.

• “Our challenge is primarily recruiting millennials and finding modern ways like social media to recruit them…
• Since Amazon came in with higher wages, there is pressure from the industry to increase wages now…
• We don’t have a shortage of candidates, but at least 50% of the job candidates fail drug and background employment checks, mostly marijuana and DUI arrests, etc. Once we hire them, keeping them in the warehouse is a whole other issue!
• Automation can solve labor issues.. but requires multiple-million dollars investments.. maybe driverless trucks is the answer in the long run…
• We are also losing 50% of truck drivers, as most of them are aged 50-60 years… If we have enough warehouse workers, we can’t get products in and out if there are no truck drivers!
• As machine learning and AI is ramping up, it will be important that we look at our automation strategy. To do this, we have to look at our data, which for the most part is in a very antiquated state.
• “As employees near retirement, our ability to get new employees into the business and attract people into this type of work is a real challenge. One facility has low turnover and one has higher turnover – we see a real difference in slower productivity, more shipping errors, and less continuous improvement going on.”

We will have a number of follow-up blogs and discussions of what we learned from this workshop.  I want to thank everyone who attended for their great insights!