Warehouse Automation & Control Systems: Market Update

I concluded and published ARC’s research on the Worldwide Global Trade Management (GTM) Systems market about midway through last month. The feeling of accomplishment was short-lived because I woke up the next day and began the update to ARC’s Worldwide Warehouse Automation & Control Systems market research study.

ARC Advisory Group’s research into the warehouse automation & control market (let’s call it WAC for short) is an in-depth process that includes the analysis of large amounts of information and interviews with executives from numerous WAC companies. ARC’s discussions with executives are private, but we also compile and analyze a great deal of public, third-party information to create an anchor for our five-year market forecast. I recently began reviewing some of this third-party information to form a foundation for my research update. I will share some of that information in this post to provide a snapshot of the current state of the market. Hopefully this will provide you with some context about the warehouse automation market and its current economic environment.

Warehouse Automation Suppliers
Warehouse automation companies continue to be acquisition targets due to the expected high-growth rate of the industry. The most prominent examples from the past 12 months include Chinese firm Midea’s acquisition of Kuka (and therefore Swisslog) and Toyota Industries acquisitions of Bastian Solutions and Vanderlande. The performance of publicly traded market participants remains strong. Kuka reported a 24 percent increase in H1 2017 revenue for its Swisslog division, driven in large part by the WDS segment. KION noted in its H1 2017 report that it is expecting revenue for its Supply Chain Solutions segment to be in the range of €2.2 to €2.5 billion, which amounts by my estimates to a healthy double-digit percentage increase over 2016 revenues for the legacy Dematic and Egemin Automation organizations. Meanwhile, Daifuku and Knapp fiscal years concluded in March. Knapp achieved about 8 percent growth in the year ending in March 2017, while Daifuku reported a slight loss in its Logistics business that was negatively impacted by a strengthening Yen (but translates to growth as measured in USD).

Let’s look at some of the public, third-party information on the market and complementary economic activity.

Warehouse Automation Business Activity

  • The monthly Material Handling Institute Business Activity Index (BAI) is produced by economist Jason Schenker at Prestige Economics.  MHI Solutions Magazine notes that BAI data for the second quarter of 2017 indicated that the industrial part of the industry is improving. Meanwhile, industry projects supporting e-commerce operations are showing acceleration. However, the monthly index for July-September of 2017 has provided mixed results. In particular, the MHI index contracted (slightly) in September for the first time since June. At the same time, the Shipments reading fell deeper into contraction territory, while New Orders (a leading indicator) also registered a slight contraction. It is my opinion that the weak readings in September are likely just a monthly anomaly, but it may also be a sign of an inflection point in the industry’s regional growth rate.
  • The Conveyor Equipment Manufacturer’s Association reported strong growth for the first half of 2017. In particular, unit handling orders in the first half of 2017 were up 7 percent and shipments were up 16 percent, compared to the same period in 2016.
  • In Europe, the European Material Handling Federation reported that orders for “shuttles for boxes” more than doubled in 2016. However, order levels for other categories of storage and retrieval machinery remained below their highs achieved a few years ago.

Macroeconomic Update
The IMF’s October 2017 World Economic Outlook showed a slight 0.1 percent increase in its global growth forecast for 2017 and 2018. Global output is expected to grow by 3.6 percent in 2017 and 3.7 percent in 2018. However, the report also included a similarly slight reduction in growth expectations for the United States. The IMF growth forecast for the US is 2.2 percent in 2017 and 2.3 percent in 2018.

Final Word
As usual, business indicators are mixed. The negative indicators are recent but limited in time and scope. Moreover, global macroeconomic conditions look strong and warehouse automation & control providers note strong revenues and order books. Going forward, I will examine changes in warehouse automation providers’ bookings and revenues, the factors contributing to and inhibiting this growth, the investment initiatives of their customers, and the factors encouraging the investments by these warehouse automation end-users.

Next on the warehouse automation research to-do list –  today’s distribution operations, their most prominent pain points, and how automation is being applied to heal the pain.

 

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