Automation Won’t Fix Amazon’s Union Problems (NASDAQ:AMZN)

On April 1st this year, over 2,500 workers at Amazon’s (NASDAQ:AMZN) JFK8 made history by being the first labor union at AMZN in the US. This represents a major win for the union, and for organized labor more broadly, as they are the largest organizer labor group to gain a victory in decades.

I’ve seen many comments and articles about how Amazon will respond to the union vote success at JFK8, and pending votes at other facilities (with LDJ5 being the next upcoming vote), with most pundits strongly believing that AMZN will target 100% automation (almost as a punishment for the unions) to substitute its need for human labor as its labor costs increase.

Despite being a well-known leader in warehouse automation, AMZN is a long way from being able to completely remove the human component from its business, and unionization will continue to have a growing impact on AMZN’s business operations and financials for many years to come.

I look to explore the reality of 100% automation for Amazon in this piece and explain why it’s not so simple as just replacing every worker with a robot.

What Are The Union’s Demands?

The Unions are demanding 16 changes in working conditions, pay, safety and benefits. These are:

• Paid time off for workers injured at Amazon facilities
• 7.5% inflation adjustment wage rises for Tier 1-3 workers (the lowest level workers at Amazon)
• Recognition (through promotions) and wage increases for workers with specialist roles
• Remove overtime pay caps
• Increase break time to 20 minutes
• Private shuttle transportation for workers from St. George Ferry terminal and Matrix Park
• Unpaid time for late arrivals at work penalties should be calculated in minutes, not hours (for example, arriving to work 7 minutes late incurs a full 1-hour pay penalty)
• AMZN grant 5.5 paid sick days to Tier 1-3 employees
• Site shutdowns with pay during extreme weather events
• Remove three-year pay cap on Step-Plan raises
• Pay rises for employees who undertake additional training
• AMZN appoint an on-site accommodations manager
• Employees permitted to have mobile phones on their person in case of an emergency
• 85% of managers must have been internal promotions
• AMZN to remove anti-union propaganda from break rooms and work areas

The financial impact is estimated at $150m per 1% of the workforce unionized, according to Morgan Stanley’s Brian Nowak, so with $15b on the line (roughly half of AMZN’s FY21 profit), the stakes are high for AMZN.

What Would Full Automation Require?

There are two main inputs required for a business to automate its processes:

• Capital – Investment in automation is expensive, with large upfront setup costs and ongoing maintenance.
• Automation Expertise (Internal or access to external) – Automation requires specialist expertise and know-how, especially on an AMZN scale level.

I don’t think you’ll find anyone who could reasonably argue that AMZN doesn’t have access to capital or expertise in the field of automation. But for those who argue AMZN will replace all its entry-level workers with robots, there is a third input that the firm needs to consider.

The technology.

Automation Technology Has A High Bar To Clear

Human “pickers” and “stowers” are expected to deliver different rates depending on their facility location, with expected rates ranging from 50 to 350 units per hour (according to this Medium blog post) with a “takt” time of 7 seconds (the amount of time required to process an item).

The difficulties robots (and therefore automation) face are:

• Amazon’s product list is almost limitless, so every product may be different in size, fragility, and awkwardness of grabbing. Robots could very easily damage or destroy products they’ve not been programmed to pick up yet.
• Products don’t necessarily fit into their bins perfectly, and grabbing them without damaging the product requires a level of dexterity robots do not have.
• Humans are able to problem solve quickly and efficiently, and many pickers report that products frequently fall out of their bins and block the Kiva automated robots that traverse the warehouses, conveyor belts or just simply don’t get processed correctly. These errors can’t yet be resolved by robots, and require human intervention in all scenarios.

Check out a picker in action if you’ve never seen inside an AMZN facility before, and you’ll begin to see the challenges for robots.

Further, as of 2019, AMZN does not even use robots in warehouses that hold fresh food. Robots can’t discern fresh from ripe fruit or vegetables, and robot grabbers may damage, bruise or even pierce the produce, not to mention possible hygiene issues.

Lastly, AMZN themselves have stated that they don’t believe 100% automation is possible until at least the end of this decade, indicating that ongoing struggles with unions could have longer-term effects.

Amazon Will Fight Back, But The Problem May Be Already Too Far Gone

Amazon spent $4.3m between March 2021 and December 2021 on external labor consultants, including an organization known as the “Labor Information Service“. Labor Information Service’s activities include employing individuals they call “Third Party Persuaders” whose roles are to report on the actions of employees and engage with employees directly to persuade them against unionization.

But despite these efforts to curtail and suppress the ALU, the union was successful in winning its election. And while Amazon says they will explore all legal avenues to reverse the decision or call for another vote, the win has already become a symbolic victory for organized labor.

Any attempts by AMZN to overturn the election victory will be seen as Amazon quashing workers’ rights, ultimately playing into the hands of the union which will seize on the opportunity to highlight these actions as AMZN working against its employees’ interests.

But regardless of what AMZN chooses to do next, the labor movement has already begun building momentum, across the AMZN business, with the next vote set to take place at the LDJ5 facility.

The Amazon Labor Union Twitter account has nearly 100k followers, 45k followers on Instagram, 58k Tik Tok followers, and 4k followers on Facebook. And a Google search for “amazon labor union” yields 176m results, including 2.5m news articles. It’s hard for AMZN to argue that the union movement isn’t gaining traction, and it could be argued AMZN’s efforts to bust the union movement are only driving further interest and support.

For shareholders, it appears the best solution going forward is fast becoming for AMZN to engage in genuine and in good faith, to obtain favorable terms.

In summary, if AMZN could fully automate its workforce, it would have by now. But it can’t. Meanwhile the union appears to be growing in size, and here to stay for the long run.