November 18, 2021

Constraints to Hiring and Retaining Labor in Logistics

How does the logistics industry handle supply chain disruptions with limited resources?

Collage with worker moving box with forklift and data visualization graphics

Disruption is the new normal for logistics industries. And the ongoing labor shortage exacerbates an already strained supply chain.

Key Takeaways

  • 4.4 million Americans quit their jobs in September of 2021. Of those, more than 11% worked in logistics.
  • 7 in 10 operators experience difficulty in hiring, an 11% increase from 2020.
  • The average turnover rate for logistics providers sits at 31%.

At the start of Q4, executives mentioned “supply chain” a record 3,000+ times on earnings calls. In one week (November 1-8), The New York Times wrote at least 10 articles about ongoing supply chain disruptions. And 82% of consumers are concerned that supply chain disruptions will “ruin their life plans.” With a strained workforce unable to absorb the shock of these disruptions, the entire supply chain is at its mercy.

18 months of compounding disruptions #

The first supply chain labor issue started in China. Factory shutdowns lasted well into February, which led to stock-outs and panic buying in the States. Remember the “Great Toilet Paper Panic of 2020”? Toilet paper was out of stock in 70% of all U.S. grocery stores, inciting fear in the average consumer. Once news outlets broadcasted the implications of such stock-outs, many shippers tried ordering inventory early to prevent similar issues from happening again.

Fast forward to February 2021, 43% of supply chain professionals said they were investing in safety stock. The influx in product orders from shippers inundated manufacturers and ports. In June 2021, port operations off China’s southern coast operated at just 70% capacity, creating unprecedented congestion. It takes roughly 80 days to transport goods across the Pacific, twice as long as before the pandemic.

In June 2021, port operations off China’s southern coast operated at just 70% capacity, creating unprecedented congestion.
Fortune, June 2021

For today's consumers, that means as much as 20-25% of the goods stuck on ships are unlikely to make it onto shelves in time for Black Friday. With headline after headline emphasizing supply chain disruptions, consumers are shopping earlier, ensuring they’re able to complete their purchases ahead of stock-outs. In fact, more than 50% of consumers are already shopping ahead of Thanksgiving, an uptick from 43.2% in 2020.

The supply chain needs people to fix these problems. But, for many warehouse and logistics providers, the labor supply just isn’t there.

Labor supply is slim, but demand is high #

There are more open jobs than available workers in the U.S. In Q2 2020, the labor force participation rate dropped dramatically to 60.2% and has been slow to rebound, in large part due to the workforce getting older and baby boomers entering retirement. By the end of Q2 2021, job openings rose to 10.9 million. And the available-worker-to-opening ratio fell to 0.8. It’s an employee market, and the logistics industry is no exception to the trend.

Supply Chain Economics line chart showing Labor Force Participation Rate drop in early 2020 due to U.S. Recession
Labor Force Participation Rate
The labor force participation rate dropped dramatically to 60.2% and has been slow to rebound.
U.S. Bureau of Labor Statistics, October 2021

The Flexe Institute recently surveyed more than 170 supply chain professionals for further insight into the labor issue in the recent report, “The Economics of Labor and Supply Chain Disruptions.” It found that 71% of survey respondents agree that competition for qualified workers is high—7 in 10 logistics providers experience difficulty in hiring.

Outside of fierce industry competition, supply chain organizations state that the top two hiring challenges are:

  1. Not enough qualified applicants (46%)

  2. Jobs are “too physically demanding” (44%)

Bar chart showing Reasons for hiring challenges with Not enough qualified applicants being the top reason
Survey Question: In your opinion or experience, what are the reasons for hiring challenges?
7 in 10 logistics providers experience difficulty in hiring.
Flexe Institute, September 2021

The most challenging jobs to hire are frontline workers—labor-intensive roles, many of which require specific certifications:

  • Warehouse associates

  • Machine operators

  • Transportation

  • Warehouse management

Machine operators must have experience with hand trucks, pallet jacks, and other necessary warehouse equipment. And transportation industries typically require a Commercial Drivers License (CDL) and a clean driving record.

Bar chart showing Most challenging logistics positions to fill with Warehouse associate being the most challenging
Survey Question: Which positions are most difficult to fill?

The “Great Resignation” in logistics #

Hiring challenges are at the forefront of labor issues, but employee retention isn’t any easier. Approximately 4.4 million Americans quit their jobs in September of 2021. Of those, more than 11% worked in logistics.

According to the Flexe Institute Survey, 43% of survey respondents say it’s currently harder to retain employees than in 2020, and the average turnover rate is sitting at 31%. Similar to hiring challenges, respondents state that employees leave because they found better jobs or the work is too physically demanding.

Bar chart showing Reasons for employee attrition with Found a better job being the highest
Survey Question: If known, what are the primary reasons for employee attrition?

Mitigating the national labor shortage #

Logistics companies are on the hunt for effective strategies to attract and retain talent. Predictably, the most popular initiatives come down to two things. Increase wages, and improve benefits.

Bar chart showing Actions to take to increase hiring rates with increased wages being the most effective
Survey Question: What actions does your company take to attract talent?
Bar chart showing Actions to take to retain talent with Increased wages being the most impactful
Survey Question: What actions does your company take to retain talent?

Among companies (78%) that increased wages since 2020, 60% say increases exceeded 10%, which is above standard cost-of-living increases. Of those survey respondents that increased wages, 48% say they experience increased productivity and throughput.

But, until employees sign hiring contracts, the issue of labor shortages persists. Warehouse providers are turning to alternative strategies to manage inventory and fulfill orders. Twenty-three percent of warehouse providers plan to implement automation to handle peak season volumes. And 31% plan to implement on-demand labor strategies to reduce the burden of hiring or retention.

48% of logistics providers experienced increased productivity and throughput after increasing wages.
Flexe Institute, September 2021

Labor outlook for 2022 #

A majority of Flexe Institute survey respondents (73%) say they’ll experience hiring challenges through at least Q1 2022, and 63% say they’ll continue increasing wages to compete in the current labor market.

Recent legislation may complicate things further. In November, the President signed the infrastructure bill into law, requiring millions of skilled workers to complete slated projects. The pending hiring effort may further dilute the available logistics labor pool. Thus, adding additional competition to an already highly competitive market.

Time will tell if increased wages and benefits at logistics companies will attract and retain enough talent. In the meantime, the world will continue experiencing the wrath of bottlenecks. It's clear that without a sufficient workforce, the supply chain isn’t just disrupted. It breaks.

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