Early this summer, the Los Angeles City Council voted to raise the minimum wage from $9 to $15 an hour. This increase follows California’s increase in minimum wage from $8 to $9 an hour last year and to $10 effective January, 2016. Under Los Angeles’ new requirements, the minimum wage will increase to $10.50 an hour in July, 2016, followed by annual increases through 2020 until the minimum wage hits $15 an hour.  A similar proposal is being considered by the Los Angeles County Board of Supervisors, which would dramatically expand the number of cities impacted throughout Southern California. 

According to the NCSL, 29 states and Washington DC now have minimum wages above the federal standard of $7.25 per hour. And, effective July 1, Washington DC will have an $11.50 per hour minimum wage making it one of the highest hourly wages within the US. The vote in Los Angeles has the potential to set off a surge of minimum wage increases across Southern California as cities and employers will be forced to match the higher minimum wage rates to remain competitive and attract employees. Seattle, San Francisco, Oakland and Chicago have already moved to raise their wages and there are proposals for minimum wage increases across the country including in New York City, Washington, D.C. and Kansas City, MO. 

How will this Impact my Business and 3PL Costs?

3pl costs minimum wage

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If you operate a warehouse in Southern California — or any of the other impacted areas — wages, overtime and related payroll taxes will increase significantly.  If you are outsourcing to a 3PL expect a series of potential increases in 3PL costs starting the first of the year, followed by a mid-year increase in 2016 and large annual increases for the next four years.

What can you do to mitigate 3PL Costs with the wage increases?

Whether you are personally for or against minimum wage increase, your business must address the impact of such significant and protracted increases on its ongoing profitability (and viability). Absorbing wage increases of $1.00+ per hour will have a significant impact on margins.  This will be one of the greatest challenges 3PLs and their clients will face in the coming years. Margins in the 3PL industry are already thin and competition is fierce. Here’s a few ideas of what 3PL clients may be able to employ to mitigate impending wage increases as it relates to increases in 3PL costs.

Don’t Wait.

Whatever you do, don’t wait. Increasing minimum wages in Southern California and across the state are a reality and there’s clearly a national trend. Act now, and proactively address this challenge and try to mitigate 3PL costs and the impact to your 2016 margins.

XB Logistics’ is a U.S.-based 3PL that specializes in operating Mexican-based facilities focused on serving its customers’ U.S. and Mexican distribution needs. It guarantees its customers 30% savings over their current 3PL’s pick, pack, ship and value-added service charges. To learn how, please contact mruiloba@xblogistics.com or visit us at www.xblogistics.com. 

 

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