Minimum-Wage Increases Set to Raise E-Commerce Logistics Costs

CBRE says in a report that the warehouses with more than 500 people may see annual labor costs grow by $1 million or more

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CBRE says many warehouse workers already make more than the federal minimum wage so the impact of higher local increases may be muted for a time. PHOTO:BLOOMBERG NEWS

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ERICA E. PHILLIPS

March 18, 2016 12:01 a.m. ET

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Rising minimum wages in cities and states around the country could raise the costs of e-commerce operations.

In a report released Friday, analysts with real-estate brokerage firm CBRE Inc. estimated a $1 increase in average hourly wages could add more than $1 million in annual costs to a warehouse operation employing 500 people. For e-commerce facilities, which can be two-to-four times more labor-intensive than a typical warehouse—especially during the busy holiday shipping season—the impact could be even greater, the report said.

“E-commerce and other businesses that are tied to these dense locations will see the greatest impacts” from rising wages, Mr. Levy said.The growth of e-commerce is fueling greater demand for distribution centers close to densely-populated areas as retailers face increasing pressure to get goods to customers faster. But urban population centers also are where local efforts to raise minimum wages are the strongest, said Spencer Levy, CBRE’s head of research in the Americas.

Los Angeles, San Francisco, Seattle, Chicago, Washington, D.C., are among cities that have approved increases in the minimum age beyond the federal minimum of $7.25 an hour, and campaigns are underway in more cities and states around the country. Eleven states are slated to have a minimum wage above $10 by 2022. During the holiday season, when labor needs rise to meet surging demand, the effects will be even greater, researchers said.

Minimum Wage by State

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State	2016	2017	2018	2019	2020	2021	2022
Oregon	$9.75	$10.25	$10.75	$11.25	$12.00	$12.75	$13.50
District of Columbia	$11.50	$11.74	$12.01	$12.29	$12.58	$12.88	$13.19
Vermont	$9.60	$10.00	$10.50	$10.75	$11.01	$11.27	$11.54
Alaska	$9.75	$9.95	$10.18	$10.41	$10.66	$10.92	$11.18
Massachusetts	$10.00	$11.00	$11.00	$11.00	$11.00	$11.00	$11.00
Washington	$9.47	$9.67	$9.89	$10.12	$10.36	$10.61	$10.86
Minnesota	$9.00	$9.50	$9.72	$9.94	$10.18	$10.42	$10.67
Michigan	$8.50	$8.90	$9.25	$9.46	$9.69	$9.92	$10.16
Connecticut	$9.60	$10.10	$10.10	$10.10	$10.10	$10.10	$10.10
Maryland	$8.75	$9.25	$10.10	$10.10	$10.10	$10.10	$10.10

Still, e-commerce businesses aren’t likely to relocate to avoid higher wage requirements, Mr. Levy said, since that would raise their transportation costs—a much larger factor in the logistics budget. On average, about 50% of supply chain costs go toward transportation while labor accounts for about 20%.

Instead, some facilities may consider installing automated operations to cut down on labor costs.

Levy said the immediate outcomes may not be “quite as dramatic” as the analysis would suggest, since many e-commerce workers already make more than the local minimum hourly wage. The average wage for a warehouse worker in the U.S. is nearly $12 an hour.

In many regions, however, new minimums could surpass the average wages in the next few years, and supply chain networks will have to adjust.