FedEx, a company literally built around efficiency, just suffered one of the most shocking financial reversals in recent memory.
Despite a 14% rise in revenue—increasing that total to $22 billion—during the August-ended fiscal quarter, FedEx saw its profit drop a staggering 11%. Per-share earnings were down over 13%. Since this news was released last week, FedEx (FDX) stock has tumbled nearly 12%.
“The impact of constrained labor markets remains the biggest issue facing our business,” FedEx Chief Operating Officer Raj Subramaniam said.
That is putting it mildly. A sorting hub in Portland, OR, had just 65% of the required workers to handle its typical package load. That forced FedEx to divert 25% of the volume bound for that location, which added trucking routes and contractors to the payroll. About 600,000 packages are being rerouted each day.
Wage premiums and overtime are not solving the problem. Late deliveries are causing customer complaints and more people are choosing to shop in stores rather than wait for delayed packages.
Across its divisions, salaries and employee benefit expenses rose 13% during the quarter, including an absurd 27% increase in its Ground division. FedEx’s only remedy is to raise prices an average of 5.9% early next year—the largest such increase by FedEx or rival UPS in eight years.
White-collar businesses are dealing with similar challenges. New initiatives that pay younger workers to get trained are taking hold. Companies are not sure how well this will work, but they are running out of options.
Jobseekers know they control the market and they are waiting for a role that will fit what they are looking for in life, not just in work. Employers are often forced to offer candidates immediately for fear of losing a precious worker.
Recent events and years of looking at labor as a commodity mean that the War for Talent will continue to push wages and benefit costs up. People want to know how their compensation will help them make meaningful progress. Smart organizations should be considering how they will keep workers, differentiate themselves from their competitors, and redesign jobs to be more employee-centric. Adding mechanisms to understand what each person wants and needs and being able to customize programs at the individual level to hit those targets will separate thriving organizations from failing ones.
The bottom line is this: both employers and employees must figure out how to get more value out of paychecks, or there will simply not be enough workers to fill the openings. Companies that connect the dots between compensation and the outcomes their people want are poised to win the War for Talent and the next decade of profits.