Amazon: Labor now ‘primary capacity constraint’ even as workforce approaches 1.5 million

The availability of workers became Amazon’s primary challenge in keeping packages moving smoothly through its system in the third quarter, not the normal limiters of storage space or fulfillment capacity, the company’s chief financial officer told reporters after its earnings missed expectations.

“As a result, inventory placement was frequently redirected to fulfillment centers that had labor to receive this product,” CFO Brian Olsavsky said on a media call. “This resulted in less-optimal placement, which leads to longer and more expensive transportation routes.”

Olsavsky said the overall shortage of labor in the U.S., combined with Amazon’s increasing need for workers has resulted in increased wages and sign-on incentives as companies compete for scarce workers.

Amazon’s efforts to keep this from impacting customers was a big reason it incurred higher costs than expected in the third quarter, leading to lower-than-expected profits. The company says the trend will continue in the fourth quarter, which includes the critical peak shopping season.

As of the end of the third quarter, the company reported 1.468 million full- and part-time employees, up 30% year-over-year, or an increase of 133,000 people from the end of the second quarter. Most of the hiring has been in the company’s fulfillment network, Olsavsky said.

Amazon is currently recruiting an additional 150,000 seasonal employees for the holiday season.

The direct employment numbers do not include more than 260,000 drivers who work for independent Amazon Delivery Service Partners companies.

Olsavsky said global supply chain constraints, and inflation in the cost of materials and services have also raised the company’s expenses, combining with the labor challenges to add about $2 billion in operating costs in the third quarter.

The company has been saying for months that it was spending more to attract and retain workers in the tight labor market. Its average starting wage in the U.S. is now $18/hour.

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