The logistics sector, steeped in a history of automation, is once again embracing high-tech solutions driven by labor shortages, booming online retail demand, and promising technological advancements. McKinsey Global Institute highlights the industry’s remarkable potential for automation, particularly benefiting contract logistics and parcel companies.
However, despite the compelling incentives, logistics companies remain cautious about fully embracing automation due to various challenges. These include competitive dynamics in e-commerce, uncertainties surrounding the most effective technologies, procurement issues, evolving distribution strategies, and the mismatch between contract lengths with shippers and the extended lifespan of automation equipment and distribution centers.
Automation emerges as a solution to tackle three major hurdles confronting contract logistics firms. Firstly, labor shortages, notably in the United States, where unemployment rates are at historic lows, demand more efficient workforce solutions. While automation can help bridge this labor gap, it also raises concerns about workforce displacement and the associated impact on communities and labor costs.
Secondly, the logistics landscape has undergone significant transformation, driven by the surge in e-commerce. While this shift has been lucrative for logistics players, they’ve struggled to adapt to the transition from traditional business-to-business (B2B) operations to the more complex business-to-business-to-consumer (B2B2C) model. The urgency to meet online shoppers’ demands for faster order fulfillment calls for efficiency-enhancing automation solutions.
The third driver is technological advancements. Pioneering companies like Ocado Retail and CommonSense Robotics are at the forefront, showcasing the potential of automation through innovative technologies. These trends paint a picture of automation as a pivotal driver of the logistics industry’s future.
However, logistics companies proceed cautiously, with McKinsey research indicating slower growth in warehouse automation investment within the logistics sector (approximately 3-5% annually), compared to other industries like retail and automotive (6-8%) and pharmaceuticals (8-10%).
Challenges that contribute to this cautious approach include the dynamics of working with powerful e-commerce giants, the complexity of selecting the most promising automation technologies from a list of over 50, the challenges of procuring equipment, navigating the complexities of evolving omnichannel distribution networks, and the risks associated with contract durations that don’t align with the extended lifespan of automation equipment and distribution centers.