The labor market for distribution workers remains extremely tight.
In fact, in its quarterly earnings report last week, FedEx said it spend an extra $450 million in the quarter as a result of a labor shortage, which forced it to raise wages, pay more overtime, and use more external carriers.
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It cited an example of its sortation hub Portland, which FedEx said was operating at just 65% of the needed workforce, leading the company to reroute 25% of packages that should go to Portland to other facilities.
But no company has hiring needs like Amazon. Amazingly, since the start of the pandemic in March 2020, Amazon has hired 450,000 workers, most of them in fulfillment centers.
Why is Amazon able to find so many workers? Experts cite several reasons.
First, Amazon stayed open during the early months of the pandemic. So did Walmart, Target and some other retailers, but most apparel and specialty retailers were deemed not essential and were forced to close their doors (and thus DCs) for awhile.
Amazon probably picked up a decent number of workers for its FCs from these other retailers.
But the bigger factor is undoubtedly compensation. Amazon has made several upgrades to its total compensation package, starting a few years back with a $15 minimum wage, and raising the ante from there. Its benefits start on day 1 of employment. Recent Amazon moves included paying for workers' college tuition (something Walmart and Target already had put in place), higher hourly wages, sign-on bonuses, and other more.
In, September Amazon announced it was looking to hire 125,000 more employees in the US at an average starting pay of $18 per hour, reaching as high as $22.50 per hour in some markets. Those figures are much higher than most other distribution center jobs.
In addition, Amazon offers sign-on bonuses of as much as $3,000 in some FCs.
Whatever it is, it’s working. Amazon held a career day earlier in September, and now says it has received over 1 million job applications since the event.
But as tough as it is to compete with Amazon for DC worker, it comes at an increasing cost to the company.
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This week, for example, Morgan Stanley lowered its stock price target on Amazon due to the impact of much a higher headcount and rising wages on the company's bottom line.
According to a piece in CNBC.com Morgan Stanley analyst Brian Nowak estimates the monthly Amazon US logistics workforce this year will increase from 500,000 to growing to 700,000, with hourly wages and benefits rising to $21.82 from $18.82 over the past 9 months.
Those increases are expected to cause total labor costs rise about 60% (or close to $4 billion) in Q4 of this year versus Q4 of 2020. What’s more, Nowak seees labor cost per US sales unit rising by 50%. Due to the labor cost inflation, the firm lowers its EBIT forecast on Amazon for 2021 by 16% and drops its by 19% for 2022 – quite an impact indeed, as Amazon as usual chases growth at the expense of profit.
Is Amazon winning the labor recruitment battle? Why? Let us know your thoughts at the Feedback section below.
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