Inside Logistics

Forecast sunny for warehouse automation

Double-digit growth expected in next five years


October 9, 2019
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The warehouse automation market is forecast grow at a compound annual growth rate (CAGR) of 12.6 percent over the next five years; however, a temporary dip in revenue growth is expected between 2020 and 2021.

A recent report by market intelligence firm Interact Analysis outlines how, with the growing trade tensions between the U.S. and China, coupled with slowing demand in Europe, the global economy is looking increasingly vulnerable and many businesses are delaying capital expenditure. This is reflected in warehouse automation vendors reporting a sharp drop in their order intake.

“While order intake for large warehouse automation projects may be slowing in the short-term because of political and economic uncertainty, we forecast the market will return to double-digit growth rates by 2022 following the dip in revenue growth between 2020 and 2021,” said Rueben Scriven, market research analyst at Interact Analysis.

“In the mid- to long-term, the logistical pressures which e-commerce puts on distribution networks and the growing consumer demand for faster and cheaper online delivery options will drive long-term and sustained growth in the warehouse automation market.”

The report reveals how, during the past few years, the warehouse automation market has seen double-digit growth rates driven by the rise of e-commerce and omni-channel retail. Growing consumer demand for faster and cheaper delivery has seen many retailers investing in warehouse automation to reduce order processing times and to cope with the increasingly complex network of distribution channels.

Lack of labour availability has also been a significant driver for automating warehouses. With the U.S. unemployment rate currently at 3.8 percent, recruiting and retaining qualified staff is plaguing retailers and manufacturers alike.

This especially affects those exposed to e-commerce, where demand is more difficult to forecast and the seasonal spikes in demand can be several times higher than the rest of the year. In light of these circumstances, many retailers and manufacturers have implemented automation to alleviate some of these pressures.

With forecasts demonstrating the potential to slow in 2020 and in particular 2021, service, maintenance and aftermarket sales will become an increasingly important part of system integrators’ business models. Service and maintenance contracts are paid on a predictable and recurring basis, which means that as the installed base increases, the revenues generated from service and maintenance contracts also increase over time.

This alleviates some of the pressures from weaker order intake in the short term. And, while the typical margins for equipment sales tends to be between three and five percent, margins for service and maintenance can be as high as 15 percent, which improves profitability.

“While most system integrators will encourage their customers to take out service and maintenance contracts, the contract length and the level of service provided can vary significantly,” said Scriven.

“The propensity for customers to take out service and maintenance contracts is typically linked to a number of key factors, including geography, the type of company and its business model.”

Interact Analysis interviewed and surveyed over 40 the leading warehouse automation system integrators, suppliers and end users, over a six-month period, to gather information for the report.