Transformational technologies

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Automation and robotics will transform traditional manufacturing and warehousing practices in ways that will fundamentally alter freight flows, reports Mike King

PricewaterhouseCoopers (PwC) recently concluded that huge volumes of air and ocean business could be at risk as mass 3-D printing is introduced into production processes, in a study reported on in the Autumn 2016 issue of CAAS. But some believe the automation of factories, supply chains and distribution channels offers an even bigger challenge to traditional East-West trade flows.

The reasoning is simple: as technology reduces the need for cheap – often Asian – labour, this enables manufacturers to locate production nearer consumer markets. And while shorter supply chains can reap vast cost savings and improve the responsiveness of manufacturers to consumer requirements, they also reduce transport demand, with long-haul air and ocean movements typically from Asia to Europe and North America the most likely to be impacted.

Sebastiaan Scholte, CEO of Jan de Rijk Logistics and a member of the board of advisers at cloud applications firm Lanetix, says the introduction of robotics and automation technologies into manufacturing processes had potentially negative consequences for trade, and for companies that rely on it including forwarders. “Some of the trade flows currently exist because of labour intensive products being produced in cheap labour countries” he notes. “China’s labour cost is increasing but, since robotics and automation is making some of the labour redundant, there is less need to move products around to produce it somewhere else cheaper. This could make it possible to produce closer to the consumer markets.”

A leading ocean forwarding executive at a major integrator says that for large 3PLs, new technology such as robotics offers opportunities for complex solutions provision. However, forwarders and logistics companies with smaller footprints that were more reliant on end-to-end transport could be adversely affected by slower or negative volume growth on major trades.

“We’ve been studying how technology such as automation will be implemented by our customers, and we expect to see some production move closer to consumer markets in the West, which will limit ocean and air volume growth, for sure,” he says. “I couldn’t put a figure on it, but if you also look at 3D printing then the cumulative effect will be a change in trade flows and the demands made of solutions providers. How that plays out will depend on which companies can follow their customers up the logistics value chain by using technology to find solutions. But for sure, we could see slower demand on trunk routes, certainly on the front haul.

He continues: “Of course, there are also implications for shipping lines as well. In percentage terms it wouldn’t take much in the way of a drop in demand due to the migration of manufacturing out of Asia to hurt anyone with a presence on ex-Asia trades, be they a shipping line, a forwarder or whoever.”

Logistics jobs

Scholte makes the point that the protectionist arguments about “bringing US jobs and companies back home” made by both US Presidential candidates had missed the point. “It’s not simply the case that American jobs have been moved abroad and those blue-collar positions can be dragged back,” he says. “This is about automation and robotisation. Some studies predict that 40% of jobs will disappear in the future. This is across the board, everything from assembly lines, to drivers being displaced by driverless cars, to warehousing and admininstration. Lots of these jobs will go in future.”

Indeed, according to leading experts, the productivity gains offered by the latest automation systems not only threaten trade patterns, but also the viability of low-skilled logistics and warehousing jobs in Europe and the US, and the ability of developing countries to rapidly boost economic performance through industrialisation and mass employment.

In a widely noted study published in 2013, Carl Benedikt Frey and Michael Osborne examined the probability of computerisation for 702 occupations and found that 47% of workers in America had jobs at high risk of potential automation. In particular, they warned that most workers in transport and logistics “are likely to be substituted by computer capital”.

Although new technologies also create new jobs, research firm Gartner has predicted robots will take over a third of all US jobs by 2025. “Gartner predicts one in three jobs will be converted to software, robots and smart machines by 2025,” says Gartner research director Peter Sondergaard. “New digital businesses require less labour; machines will make sense of data faster than humans can.”

Roland Berger, a global strategy-consulting firm headquartered in Munich, recently conducted a study that found that the robotisation of logistics would lead to the disappearance of 1.5 million jobs in the Eurozone in the next ten years.

Roland Berger’s study noted that the return on investment of logistics automation solutions would soon drop below three years thanks to flexible and collaborative robotic solutions. These new solutions, which are now helping human operators and machines to work side by side in the same warehouse without the need for any major transformation, are causing companies to rethink the way work has been organized over the last few decades.

“Robotic logistics solutions have developed at great pace since the giants of the internet made them the spearheads of their expansion plans,” says Mehdi El Alami, principal at Roland Berger. “The cost reductions and the maturity of the solutions are such that we are now approaching a tipping point before the widespread presence of robots in warehouses.”

According to research by Roland Berger, the cost threshold at which robotic solutions become viable in most of Western Europe is now between €100,000 and €110,000 per unit. As such, the total hourly cost of a robot is around €18 to €20 per hour when the average cost of a human operator is €14 to €15 per hour in the Eurozone.

“In the long run, the increase in productivity, the lengthening of the lifespan of robotic solutions and the drop in equipment prices will all be factors in favour of robotisation, while the cost of human labour will continue to rise structurally,” explains Didier Bréchemier, Partner at Roland Berger.

Emerging economies

But it is not just jobs in high cost labour regions such as the US and Europe that are at risk from automation. Industrialisation and mass employment manufacturing have been the engines which have historically fired rapid economic growth. China followed South Korea and Japan in using its cheap labour to boost economic development, and countries across Asia would like to replicate China’s journey from low to middle income status by encouraging manufacturing.

For most, that means grabbing a piece of the global manufacturing pie by opening up labour markets. But not only may some manufacturing jobs be ‘going home’ to take advantage of increased productivity as a result of new technologies, many are already automating production lines in Asia even in places such as India and Indonesia where under-employed young workers are many and cheap.

Your reporter recently visited a flour processing mill in Indonesia where managers said the ROI of replacing 300 workers with basic robots was “3-5 years”. The workers in question were earning USD$80-100 per month.

For many poor countries with inadequate infrastructure and poor workforce skills, or too many layers of red-tape, attracting manufacturing and making the leap from a poor to a middle or rich country before the cost of robots and automotive solutions makes mass-employment manufacturing obsolete is a race against time.

Wolfgang Lehmacher, head of supply chain and transport industries at the World Economic Forum, says the use of robotics and automation technologies could see some countries in Asia and Africa miss out on the mass manufacturing economic growth that has through much of history catapulted economies from ‘low’ wealth to ‘medium’ or ‘rich’, with China representing the most recent example.

“Whether developing economies can still benefit from advantages in labour cost depends on the speed of development of the country and the speed of adoption of the autonomous supply and value chain model,” he says. “Slow movers risk that they only benefit from the portion of production required to serve their local market, if at all. This is due to the trend towards more regional and local manufacturing.

“Some countries might even miss this opportunity when markets are small in size and production is more efficiently organized regionally using the larger and stronger economies as the basis for local and regional supply.”

He continues: “Governments need to ensure high speed industrial development. National competitiveness can be achieved through easing the protection of local industries and ensuring a highly efficient cross-border supply chain ecosystem. This means the minimum level of trade barriers for imports and exports, sufficient digital and physical infrastructure, light paperless administrative processes, and efficient vertical business ecosystems, with the complete set of suppliers. This will not only help the local economy to grow but also attract foreign investment.”

The implications of this trend could also impact on migration patterns. The United Nations estimates that sub-Saharan Africa’s population will roughly triple over the next half-century, to about 2.7 billion. Without the traditional industrialisation development model to create suitable employment and wealth, many are likely to look to Europe’s porous borders for employment opportunities.