FBA warehouses facing a labor crisis? Beware of the risk of delays in Prime Day

The original words in the internal document are, "If we continue to operate according to the current model, Amazon will exhaust all available labor supply in the U.S. logistics network by 2024." This conclusion integrates official internal data from many aspects. I have picked out two key issues to talk about with you.

First, the staff turnover rate of front-line warehouses. According to data from Amazon's internal documents, the place with the most serious staff turnover is Phoenix, Arizona. The turnover rate of local Amazon front-line employees has exceeded 200%, which means that after working for a year, the FBA warehouse in Phoenix has completely changed two waves of people. Even if Amazon has increased the treatment of front-line employees in the local area and even raised the recruitment reward to US$3,000, it will not help. The internal report predicts that the Phoenix area may be the first place where Amazon will face a labor crisis. More than 20 warehouses and distribution points and other facilities operated locally will face this problem by the end of the year.

Moreover, Amazon's capacity estimation algorithm is quite powerful. The report mentioned that this capacity estimation algorithm successfully predicted the areas and warehouses with capacity shortages on Prime Day in 2021, with an accuracy rate of up to 94%. Therefore, Amazon attaches great importance to this algorithm's prediction of Amazon's future. For high-ranking areas such as Phoenix, Amazon has already relaxed many policies. Many regulations and working terms that warehouse personnel need to abide by have been revoked or stopped in FBA warehouses in the Phoenix area. Even the local warehouse manager mentioned that Amazon basically will not fire workers in the Phoenix area unless they make a big mistake.

This is quite strange. When Amazon released its Q1 financial report in April, it also said that it needed to reduce excess warehouses. Why is there a gap in manpower?

Amazon's turnover rate has always been the highest in the United States. The average turnover rate of FedEx and UPS, which are both in the logistics industry, is 46%, and the average turnover rate of Walmart and Target, which are both in the retail industry, is 58%. Amazon's turnover rate during the same period was as high as 123%, almost more than twice that of its peers.

This results in Amazon replacing its employees too quickly. There are only so many workers in the U.S., and even fewer working in the logistics industry. According to Amazon's replacement method, all of them will have their turn sooner or later, so Amazon must be short of people.

However, warehouse space has little liquidity. Amazon expanded too quickly in 2020, hiring a lot of people and opening warehouses. These people left after working for two days with a turnover rate of 200%. The more people left, the faster Amazon could not keep up with the pace of hiring. However, warehouses cannot run away. Large customers like Amazon must sign contracts for several years to rent warehouses. Even if there are fewer people, the warehouses are still there and can only be sublet or used for other purposes. This is why Amazon claims that there is an oversupply of warehouses, but our goods are still slow to be put on the shelves or even burst.

At present, Amazon has three countermeasures: raising wages, accelerating automation to replace manual labor with machines, or focusing on better retaining employees, which definitely means reducing workload and relaxing work policies, none of which seems to be easy to implement. Moreover, these policies will not show results in a short period of time. This year's Prime Day is just around the corner. I am afraid of the wave of warehouse explosions after the first online shopping day in 2019.