DC Velocity - September 2019

newsworthy

THE WAREHOUSE AUTOMATION MARKET COULD FACE challenges ahead as global economic forces threaten revenue growth, according to a study conducted by the U.K.-based research firm Interact Analysis.

The market for warehouse automation equipment is expected to continue growing at an average double-digit pace over the next five years, with orders increasing at an overall compound annual growth rate (CAGR) of 12. 6 percent, the researchers said in the report, “The Future of Warehouse Automation—2019.” But they also expect a temporary dip in revenue in 2020 and 2021, largely due to trade tensions between the U.S. and China and slowing demand for automation equipment in Europe.

The global economic headwinds are causing some companies to delay capital expenditures, leading to a drop in order intake—and thus revenue—among many warehouse automation vendors, the report’s authors said. This situation makes it increasingly important for vendors to emphasize service, maintenance, and aftermarket sales, a strategy the authors said would alleviate some of the pressure from weaker order volumes in the short term.

Despite the revenue dip on the horizon, the study predicts double-digit market growth in 2019 as well as a solid long-term outlook.

“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,” 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.”

FedEx Corp. will end its ground-delivery contract with Amazon.com Inc., dialing back its tight relationship with the Seattle-based “frenemy” that supplies vast volumes of parcels even as it continues to build its own private delivery network.

This is not the first crack to open up in the relationship. Just two months ago, the Memphis-based carrier declined to renew its FedEx Express unit’s airfreight contract with Amazon.

Amazon’s relationships with FedEx, UPS Inc., and the U.S. Postal Service have grown increasingly tense of late. The e-commerce giant relies on those carriers to deliver its flood of smile-branded boxes while it simultaneously develops its own capabilities in third-party logistics (3PL) and last-mile delivery services.

In May, Amazon broke ground on a $1.5 billion expansion of its air cargo hub at the Cincinnati/Northern Kentucky Airport. The new facility is expected to open in 2021. And in 2018, Amazon ordered a whopping 20,000 delivery vehicles from Mercedes-Benz Vans as part of its move to launch parcel-delivery fleets around the country.

FedEx’s decision may allow competitors to seize the moment and capture some of Amazon’s business, said John Haber, founder and CEO of the consulting firm Spend Management Experts. “As for who will be handling the volume—this may be spread to UPS, USPS, or other, regional carriers,” he said. Atlanta, Ga.-based UPS could be particularly well positioned to pick up much of that volume, possibly without having to cut its pricing to get Amazon’s business, he said. “UPS has built out a regional super hub for sorting and processing packages and is also in the midst of expanding to seven-day delivery,” Haber said. “By FedEx saying ‘no’ to Amazon, it gives carriers like UPS leverage in holding their pricing.”