Labour force constraints threaten to weaken growth trajectory of logistics sector

Vacancies in Logistics and Delivery occupations are rising fast. Job posts have been trending up since January and in the past couple of months, have exceeded seasonal peak levels experienced in October/November. Currently, the number of roles being advertised is 173% higher than the same week in 2019, and far higher (circa six times more) when compared to the same period last year when the UK was in the throes of the first lockdown.

Online jobs site Monster report that over half of vacancies are for entry-level type positions, these typically can’t be filled by hiring people already working in the sector, firms must attract new workers into the sector. There is also a strong, and faster-growing demand, for experienced and qualified workers.

Economic recovery and increased competition for labour

The economy is expected to rebound strongly as restrictions are eased and total online job listings across all industries are now returning to pre-pandemic levels. The Confederation for British Industry (CBI) is predicting the UK economy will return to pre-Covid levels a year earlier than previously expected, upgrading their forecast to 8.2% GDP growth this year (up from a previous forecast of 6.2%), followed by 6.1% growth in 2022.

As the UK economy bounces back, competition for labour will intensify. The latest figures from the Office for National Statistics (ONS) show signs of recovery, the rate of employment in the UK increased for the fifth consecutive month in May. The number of people in employment rose by 84,000 in the first quarter of the 2021 and the unemployment rate fell to 4.8%, down from 5.1% in October-December 2020. Reed recruitment added 275,000 roles in May, up 26% month-on-month, and a 237% increase on May 2020.

E-commerce and the rising profile of the logistics industry

Over the past 15-months, the COVID-19 pandemic has accelerated growth in online retail and consequently amplified the labour requirements of related transport, logistics and warehousing operations. In 2019, UK e-commerce accounted for 3.4% of GDP. In 2020, it rose to 5.2% of GDP. E-commerce transaction volumes are forecast to rise further over the next few years and account for a greater share of GDP, reaching c.£150 billion by 2024 or 5.8% of GDP. As e-commerce continues to rise in importance for the UK economy, the needs of the sector including labour requirements must be considered a priority.

Aside from driving demand for e-commerce, the pandemic has served to elevate the profile of the sector. Supply chains were tested by reduced freight movements, capacity constraints and COVID-19 outbreaks in production facilities, highlighting the critical nature of the logistics sector in facilitating the distribution of essential goods such as pharmaceutical goods, PPE and food. And with non-essential shops closed, e-commerce came to serve as a public utility. The vital role of the sector has led the government to recognise employees in the logistics (and transport) sector as “critical workers”.

Brexit compounding a shrinking labour pool

The tightening labour market is further compounded by the UK’s recent departure from the EU. According to the CBI, 25% of staff working in warehouses in the UK are non-UK EU nationals (2018). Warehouse operators in the UK may face issues with recruitment, as they contend with the new immigration regulations for EU nationals.

The UK is to operate a points-based system for EU workers who wish to come to the UK. The system assigns a score according to salary level, education, English language ability and whether the job they are applying for is deemed as in demand. The average warehouse worker in the UK would not fulfil the criteria needed to accumulate the required 70 points. Flexibility is also an important element of warehousing and logistics labour requirements. Temporary workers are needed to enable retailers and distribution companies to flex-up during times of peak demand, such as Christmas. The current immigration system does not offer a route for seasonal workers to come to the UK for warehouse work.

Warehouse and logistics operators will need to look at how they attract and retain talent post-Brexit, this will become even more critical as the economy recovers and competition for labour increases. Reliance on immigrant labour pools has been particularly acute in urban locations.

Urban pressure points

E-commerce and the rising demands of consumers in terms of delivery times has meant increased need to hold goods closer to the consumer. As such, warehousing demand in urban areas has risen sharply. As the UK economy recovers and expands, urban locations are forecast to see the strongest growth in GDP and job creation. Over the next five years (2021 – 2026), employment in the UK is forecast to rise 6.6%, while in London it is forecast to grow 8.6% (Source: Oxford Economics). Cities such as Manchester and Bristol are also forecast to see strong growth, as is Northampton. As these urban economies expand, the challenge of attracting talent will become even more critical for operators.

Building design and worker wellbeing

Warehouse work environments have become a barrier for younger workers considering a job in the sector; discouraged by low quality workspaces, weak amenity offerings and poor transport connections. New entrants to the jobs market often have a preference to work in sectors where health, wellbeing, and lifestyle are prioritised. As the jobs in warehouses evolve to include more highly skilled professions and as competition for these workers intensifies, the warehouse work environment will play a more important role in recruitment and staff retention and can offer a key differentiator for companies seeking to attract staff.

Developers and occupiers need to focus on ways to improve the working environment in warehouses, with high quality facilities that offer enhanced staff facilities and amenities, and features such as air filtration, natural light, and better transport connections.

Traditionally, workplace wellbeing programmes and employee-centric design features have not been on the top of the agenda for operators; the benefits of providing these are often less tangible than the costs of implementing them. An increasing body of academic work is drawing attention to and quantifying the benefits to employers, in terms of staff retention, increased morale and reduced absenteeism.

The warehouse of the future: Shifting talent requirements

The number of jobs created in the sector has risen year-on-year. Even before Brexit, the sector faced challenges in attracting and retaining staff and with the labour pool set to shrink further, companies must look at ways to enhance their recruitment prospects or increase their operational efficiencies through the adoption of mechanisation and automation and thus reduce their workforce requirements. COVID-19 has heightened firms interest in automation technology, as a way to improve operational resilience and the means to rapidly flex-up capacity in a cost effective manner, while reducing their reliance on human labour.

A recent study into supply chain automation in the U.S. found that 65% of companies are planning to increase their automation investments within the next two to three years (Source: 2020 Honeywell Intelligrated Automation Investment Study). However, even if firms are willing to invest the necessary capex, many job roles simply can’t be mechanised or automated, and new technologies require specialist skill sets which means changing demands and talent requirements for warehouse staffing. The technology is not yet at the stage where it is driving a reduction in labour requirements and the warehouse of the future still requires human intervention.

Automation and robotics often require highly specialised technical skill sets that are hard to come by. Demand is rising for jobs such as process automation specialists, AI and machine learning specialists, robotics engineers and mechanics and machinery repairers. As new technologies are implemented, the demands of the workforce away from physically demanding, strenuous and monotonous tasks to more skilled technical tasks and operators need to upgrade their workers’ skills if they are to remain competitive which requires investment in reskilling, training and recruitment.

Warehouse operators and automation solution providers are increasingly looking to establish strategic partnerships with universities in order to collaborate on research and development projects, to ensure course curriculums are industry focused and to tap into their graduate pools. As the profile of the warehouse worker shifts and the need for highly educated and skilled labour grows, there will be implications for warehouse location selections. Rather than simply identifying pools of available labour, location choices will be influenced by proximity to educational facilities, the courses on offer and the availability of a young, educated workforce.