Warehouse labor cost-inflation has eased in recent months, though warehouse capacity remains tight in Europe and North America, according to the CFO of contract logistics giant GXO Logistics Inc.
In a recent phone interview, Baris Oran said that GXO’s (NYSE: GXO) warehouse labor costs are “easing across the world,” with the pace of inflation slowing from red-hot 2022 levels. Labor inflation is “decelerating as a percentage” of GXO’s overall costs, he said
The labor market isn’t “as tight as it used to be,” Oran said. “There is more availability” of warehouse workers, he added.
The U.S. market is two to three quarters ahead of Europe in experiencing a moderation of labor costs, Oran said.
At the same time, U.S. warehouse space remains constrained, Oran said. GXO is working with domestic real estate developers to improve access to capacity, he said.
Prologis Inc. (NYSE: PLD), the world’s largest logistics real estate developer and operator, has said that rents will rise by more than double-digit levels this year as e-commerce demand remains strong but supply shrinks due to the impact of higher interest rates on warehouse investment.
GXO operates more than 900 facilities in 28 countries, covering 200 million square feet. Spun off in the summer of 2021 from XPO Inc., (NYSE: XPO) GXO is the world’s largest pure-play contract logistics provider.
GXO said in a forecast earlier this month that it expects to double its revenue and triple its earnings before interest, taxes, depreciation and amortization (EBITDA) by 2027. The company said it is confident in its long-range forecasts because its business is generally predictable and operates on multi-year contracts.
“We are an infrastructure business, not a transportation business,” Oran said. “We have a huge runway ahead of us.”
Oran said that consumers in the U.S. and Europe remain resilient in the face of macro challenges. “What we see is that demand for units continues to grow,” he said.
The key issue in coming months is how well they will continue to withstand the impact of higher interest rates, Oran said. GXO has expanded into the direct-to-consumer (D2C), supporting many of its customers into the fast-growing segment.
GXO expects that its customers will aggressively expand IT projects as they look to automation to drive out costs in the wake of slowing demand for their services, according to Oran. “There are a lot of automation-related discussions underway, and we expect them to continue,” he said.