Logistics sweatshops

We have had a few posts about the reported poor working conditions in e-commerce fulfillment centers (see here and here). Now The Guardian has an article describing similar issues in distribution centers for bricks-and-mortar retailers (‘They shout at you and harass you’: how workers toil at Walmart’s US suppliers, Jul 25). Many of the complaints are similar to those heard about fulfillment centers: unrealistic quotas, poor pay and benefits, and a general disregard for worker safety. And, as with some of the earlier reports, these are being publicized by organizations tied to unions.

For my money, the most interesting part of the article is its characterization of the Wal-Mart’s supply chain in California’s Inland Empire.

While much recent attention has focused on abuses at the outsourced Chinese supply chains of companies like Apple, some experts believe Walmart’s US-based supply chain is built on a similar model, but one constructed within America US itself.

As is common in China, the supply chain is marked by layers upon layers of subcontracting. So, while every single box packed and unpacked at NFI Crossdock is destined for Walmart, the warehouse is owned, run and staffed by myriad other companies. The supply model has been dubbed “insourcing”, and experts say it is defined by ruthless cost-cutting as each layer of subcontracting seeks to eke out a profit margin.

“Walmart’s suppliers run out of places to squeeze out the costs, and they are left with the workers,” said Catherine Ruckelshaus, co-author of a recent report on the supply chain called Chain of Greed, that was produced by the National Employment Law Project.

Walmart is not the only big-box retailer supplied by the huge warehouses of the Inland Empire. Other major firms, such as K-Mart, Home Depot and Toyota, also work there. But Walmart sets the model for the others by its sheer size.

In some ways, this is not surprising. As noted above, retailers and their suppliers are running out of places to cut costs. Americans have come to expect cheap goods and a significant number of them will switch stores to save a few pennies. The anemic economic recovery and high commodity prices don’t help. Firms are left trying to cut costs where they can and labor intensive processes are prime places to go after. Unfortunately, it is not easy to automate cross-docking semis, so leaning on workers to go faster is really the only option. The fact that end consumers don’t see any of this certainly makes this all the more attractive.

Wal-Mart has largely denied responsibility.

Walmart says the labour conditions are the responsibility of its contractors. Indeed, the contractors themselves also then often subcontract, especially with staffing agencies who often supply most of the labour for the manual jobs.

Subcontracting is often an attractive way to avoid dealing with messy labor markets (the janitors in my building don’t work directly for Northwestern, just saying) and that is certainly the case here. These have got to be high-turnover jobs and going through a set of staffing firms that can track who lasted how long on different jobs probably results in a more stable labor force over time than if each warehouse in the Inland Empire hired on their own.

So how long does this last? I gotta think this will not change much over the next several years. In a different era in which unions mattered in America, this industry would be ripe for unionization. But those days are over and given the current labor market, one suspects that burned out workers are easy to replace. More generally there is the question of whether end consumers care. To the extent that these labor practices keep costs down, the resulting higher cost of relaxing them have to be shared by the firms and by consumers. It’s not clear right now that consumers care enough to bear their share of the costs.