Over the past few years, the adoption of warehouse automation has been based on a number of factors. There is the growing consumer demand for faster and cheaper online delivery options which has seen many retailers investing in warehouse automation to reduce order processing times and to cope with the increasingly complex network of distribution channels.
There is also the labor shortage due to 3.8% unemployment, which makes it much harder to both recruit and retain a workforce. This worker shortage 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.
While a recent report by Interact Analysis, The Future of Warehouse Automation – 2019, showed that the warehouse automation market will grow at a CAGR of 12.6% over the next five years; it also predicts a temporary dip in revenue growth between 2020 and 2021.
Other factors affecting the market causing some decline is growing trade tensions between the US and China, coupled with slowing demand in Europe. This making the global economy increasingly vulnerable and many businesses are delaying capital expenditure. This is reflected in warehouse automation vendors reporting a sharp drop in their order intake.
Elsewhere, the report provides insight into slowing market growth. 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.
Furthermore, while the typical margins for equipment sales tend to be between 3% to 5%, margins for service and maintenance can be as high as 15% which has a positive impact on 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 Rueben Scriven, market research analyst at Interact Analysis.
“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.
“Looking at the wider picture, there is reason to be optimistic. 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. 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.”