Study: Shipping Costs Might Be Affected By Minimum Wage Increases

Date: March 21, 2016 Last Edit: March 22, 2016

Data Suggests $1 Boost To Hourly Wages Would Add $1 Million Annual Costs To Warehouses

According to a report from real estate brokerage firm CBRE, increases to the minimum wage in cities and states across the US may increase the costs of doing business, especially when it comes to e-commerce operations. The Wall Street Journal reports that CBRE’s report found that every $1 boost in average hourly wages would increase annual costs for a warehouse that employs 500 workers by $1 million. When it comes to e-commerce facilities, which may be between two and four times more reliant on labor than an average business warehouse, the costs would be even higher. And, costs would increase exponentially during peak demand times like the holiday shipping season. CBRE’s head of Americas research, Spencer Levy, explained that the dense, urban cities that are most likely to see minimum wage increases are those areas most tied to e-commerce, and that these areas “will see the great impacts” from wage hikes. However, rather than relocate from these strategic urban areas due to rising costs, Levy projected that facilities may instead expedite efforts to automate their process in order to reduce labor expenses. Fortune pointed out that in the past, industries facing rising costs have moved away from areas where wages increase. However, growing demand for ever-faster shipping from customers using e-commerce sites makes it difficult for businesses that utilize warehouses to ship goods to relocate their distribution centers despite rising labor costs. Such relocation efforts would not only slow delivery times, CBRE found, but they would also increase businesses’ transportation costs.

What This Means For Small Businesses

Small businesses face mounting operating expenditures across their business, including shipping costs. In part, these expenses are being driven by an uptick in spending for labor. As the latest study shows, this troubling trend will only continue as more states push to increase minimum wages, leaving small businesses faced with difficult choices of whether to increase shipping costs to customers or decrease shipping offerings.

Additional Reading

NFIB offers shipping advice for small business owners.

Note: this article is intended to keep small business owners up on the latest news. It does not necessarily represent the policy stances of NFIB.

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