The tightest U.S. labour market this century is putting pressure on margins for freight haulers and warehouse operators as they bid for hundreds of thousands of workers to move packages during the peak holiday period.
Transportation and delivery companies from United Parcel Service Inc
Competition for seasonal workers has intensified this year as Amazon.com Inc
A risk for established delivery and trucking companies is that Amazon, which has beefed up its own delivery operations, could use its own networks more instead of paying vendors` higher prices.
Transportation companies must also weed out applicants who fail drug tests, and faced disruptions from summer hurricanes that idled thousands of workers.
The added costs are pinching margins at some of the biggest U.S. logistics companies. Last week, trucking giants Schneider National
Cowen & Co analyst Jason Seidl said solid freight demand should push truck contract prices higher, but earnings for the next few quarters could be "somewhat curtailed" by driver costs and the timing of contracts.
For UPS, cost pressures from peak season hiring and higher purchased transportation in certain locations could pressure margins and affect the success of the holiday season, Credit Suisse analyst Allison Landry said.
Trucking and delivery companies will try to offset higher wages by raising prices, said Craig Fuller, Chief Executive of TransRisk, which creates trucking futures contracts using industry pricing data.
Truck contract rates should increase between 6.5 and 12.5 percent in 2018 - the top of that range would be record-setting for the industry - and a "significant portion" will go into drivers` pockets, Fuller said.
Companies are seeking ways to offset labour costs. This year UPS rolled out peak season surcharges for residential packages, and has already announced increases for 2018. Separately, workers in UPS sorting facilities use Bluetooth audio linked to mobile devices to receive live directions on package routing, eliminating some 40 hours of on-the-job training.
Rival FedEx is building out a network of drop-off locations to reduce residential delivery costs, which are higher than drop-offs to businesses.
Economists predict faster wage growth as the labour market nears full employment. The unemployment rate is now 4.1 percent, the lowest since December 2000. [nL2N1N81OL]DRUG TEST TOLL
To get seasonal workers, employers are easing some hiring criteria but keeping others in place. For trucking firm Werner, which has invested in new trucks and raised pay, applicants were plentiful this year but qualified ones were not.
Werner hired just 2.7 percent of the roughly 100,000 drivers who applied, and eliminated more than 1,000 applicants who could not pass hair-follicle or urine drug tests.
"It`s very difficult in this market not only for Werner but for every carrier," Werner Chief Financial Officer John Steele told Reuters.
At one Seattle terminal, managers stopped requiring seasonal drivers to know how to operate a manual transmission, offer $700 bonuses for seasonal drivers who show up every day for a week, and cash bonuses for employees who refer peak-season hires.
Supervisors plan additional overtime pay as needed.
Median pay for truck drivers rose 4.1 percent from last year to $52,629, according to jobs website Glassdoor, well above overall wage growth.
As truck firms hiked wages in the past couple of years, industry employment has followed suit, Jefferies analyst Stephen Volkmann said.
For a graphic on trucking wages, see: http://tmsnrt.rs/2zC6YFf.
UPS is using messaging app Snapchat
UPS is also seeking 2,700 rural drivers to deliver packages using their own cars, expanding a 2016 pilot program, Tanguay said.
He declined to provide specifics on how close UPS was to reaching its goal of 95,000 seasonal workers. The labour market "definitely makes things more challenging to find people," he said.
Higher pay lured Seattle college student Forrest Lampe-Martin to UPS as a seasonal worker last year. The now full-time employee delivers packages for $18.69-an-hour plus overtime, well above the city`s minimum wage.
"I bring people things that they are eagerly awaiting," said Lampe-Martin, 23, said during a ride-along last week. "I feel like Santa with a brown suit."
(This article has not been edited by Zeebiz editorial team and is auto-generated from an agency feed.)
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