eCommerce

The Factor Driving Up eCommerce Logistics Costs

The minimum wage increase is set to affect many industries, and eCommerce is no exception — particularly in the realm of logistics.

The Wall Street Journal shares that a new report from real estate brokerage firm CBRE estimates that, for a warehouse operation with 500 employees, a $1 increase in average hourly wages could result in $1 million in additional annual costs. That number could be even higher for warehouse ops at eCommerce companies, notes the report, given that those can traditionally be two to four times more labor-intensive than other types of businesses (particularly during the holidays).

Spencer Levy, CBRE’s head of research in the Americas, posits that the confluence of the demand for faster eCommerce delivery service and a higher minimum wage occurring simultaneously in urban centers could result in a notable effect on eCommerce companies’ labor costs, commenting (via WSJ) that “eCommerce and other businesses that are tied to these dense locations will see the greatest impacts.”

With the WSJ story noting that Los Angeles, San Francisco, Seattle, Chicago and Washington, D.C., are among cities that have approved increasing the federal minimum wage of $7.25 an hour, while the minimum in 11 states is set to exceed $10 by 2022, the CBRE’s perspective is that the effect on eCommerce operations could be even greater — again, particularly as they may need to bring on additional workers during the holiday shopping season that brings a sharp increase in order volume.

All that being said, WSJ goes on to share Levy’s theory that the higher wages are unlikely to compel eCommerce businesses to relocate from urban centers, given that the transportation expense therein (towards which about 50 percent of supply chain costs go, compared to about 20 percent towards labor, on average) would make it cost-prohibitive.

Therefore, rather than moving their warehouse operations entirely, it is more likely, shares the outlet, that some eCommerce companies might look to automating them to offset rising labor costs.

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