With a rising labor scarcity, a surge in demand from online merchants, and some exciting technical developments, the logistics executive’s agenda is being pushed toward automation. As a whole, the transportation and warehousing business has the third-highest potential for automation, according to McKinsey. Contract logistics and parcel delivery firms are in the best position to reap the benefits. Considering that more than 80% of warehouses lack any automation, this shouldn’t come as a shock.
80% of warehouses use no automation whatsoever
At first glance, increasing automation seems to be the answer to the three most important problems facing contract logistics firms.
To begin with, there is a labor deficit. In the United States the labor market has become more competitive. There is a 50-year low in unemployment. The largest e-commerce centers now employ thousands of warehouse workers, several times more than the traditional distribution centers. During peak season, when labor is at its most scarce, these centers require even more labor.
In addition to labor scarcity, the cost of labor is also rising. Warehouse/logistics workers saw their wages rise over 10% from January 2020 to September 2021, some of the strongest salary gains since data was first gathered. At this moment, a typical warehouse facility’s operational budget is roughly 65 percent labor.
The second trend is e-commerce, something that is reshaping the whole logistics industry. Online sales are on the rise inexorably, as is widely known. Since 2007, e-commerce in the United States, for example, has had an average annual growth rate of 15%. Also, the range of different SKUs handled grew significantly. Logistics firms have benefited from this. For every $100 in online sales, a typical brick-and-mortar store spends only $3 to $5 on logistics, but e-commerce logistics companies get $12 to $20 for every $100 in sales.
Logistics firms have reaped the benefits of increased volume, but the sector is not without its hurdles. B2B2C is proving to be a challenge for many B2B networks. In many big logistics businesses, B2B warehouses dedicate a small portion of their warehouse to fulfill e-commerce orders. Some logistics firms have even been known to exploit e-commerce as a loss leader to attract new business for the shipping department of their organizations. However, as the volume grows, these setups become increasingly difficult to maintain. Automated systems may be the answer here, too.
There’s also the fact that automation technology has gone a long way in the last several decades. Several innovative technologies have been put to the test in JD’s fully automated warehouse. Others, like Boston Dynamics and Amazon have recently released new products.
These three developments provide the impression that increasing investment in automation is a foregone conclusion. In fact, a lot of warehouses are succeeding. In certain cases, new automated pallet-handling systems have reduced shipment-processing time by half. DHL has set up more than 100 automated parcel delivery centers across Germany so that delivery workers don’t have to sort and handle packages by hand as much.
Automation technology increased labor productivity by 0.35% each year. This sounds like little, but is on par with the impact of the steam engine between 1850 and 1910!
Looking at all this technological progress, one can easily envision warehousing and logistics to completely change in the coming decade. Artificial intelligence is expected to take over a large portion of the monotonous tasks that logistics businesses do by 2030. More automated high-rack warehouses with autonomous vehicles are expected to be built in the future. Managers will be able to “see” the entire operation through augmented-reality goggles, allowing them to better coordinate human and robotic resources. WMS systems will maintain track of inventory in real time and ensure that it is properly linked with the ordering system. Next to this, new technologies like Powerhouse AI will allow warehouses to automatically check and count their inventory. The software will also be able to get the dimensions of their goods in real time, which will help them make better use of their space or give them advice on the best way to configure their outbound pallets.
Due to these macro trends and the advancements in technology, company executives are increasingly motivated to mechanize or automate more processes because they know that they cannot rely on bringing in sufficient staff to run a predominantly manual operation, but also because they must find a way to accommodate growing e-commerce fulfillment volume and control inventory as best as possible in a time of supply shortages.
Automation in logistics is becoming increasingly popular as a result of these factors according to Peerless Research Group. There was a 13% rise in the average capital expenditures (capex) budget for equipment and technology in 2021 compared to 2020. Also, the median capex increased from 2020 to 2021, rising from $305,555 to $375,000. More than a third of all organizations had budgets in excess of $1 million, compared to just over a quarter of all organizations last year.
If this is not enough reason to start investing in warehouse automation, keep in mind that automation technologies have enhanced labor productivity by around 0.35 percent each year, which may not sound like much, but is on par with the impact of the steam engine from 1850 to 1910.