In April I discussed the widespread impact of the Covid-19 pandemic on supply chain and fulfillment, and provided a WMS market update in which I predicted a market downturn in 2020 to be followed by a rebound in 2021. During the process of developing my WMS market forecast, I made assumptions for each quarter of 2020. And indeed, I took into consideration the macroeconomic forecasts for an abysmal Q2 2020.
On July 20th, the US Bureau of Economic Analysis (BEA) released its advance estimate of Q2 GDP. Front and center of the release was a graph depicting an outsized contraction of 32.9% for Q2. In my view, this statistic is overly pessimistic for the purposes of evaluating Q2. The text of the press release explains that GDP decreased at an annual rate of 32.9%. If you look at the GDP dollar value estimates, you will notice that Q2 is about 10 percent less than Q1. That is still a substantial contraction, but not nearly a 32.9 percent downturn. So the annual rate is the total decline that would occur if the current rate of decline continued sequentially for a whole year. But I see Q2 2020 as an anomaly and I do not see this rate of decline continuing for a year. Therefore, I see little value in presenting the Q2 change in GDP at an annualized rate.
Furthermore, there are some positive macroeconomic statistics within the GDP reading that I believe are more indicative of the WMS and warehouse automation markets. For example, the BEA source data shows that total revenue of software publishers actually went up in Q2, while that of computer systems design went down only slightly, by about 2 percent.
Anecdotes of Warehouse Business Activity
Warehousing remains an essential function for many businesses. And fulfillment of certain goods is considered essential to communities. So much of warehousing and fulfillment services continued while other functions halted during the second quarter. Meanwhile, e-commerce and direct-to-consumer channels have flourished, as expected. As an example, Amazon’s Q2 North America segment sales increased 20 percent over that of Q1, and 43 percent over Q2 of 2019. Similarly, Target’s Q1 (ending May 2) sales increased 11 percent, with comparable digital sales growth of an impressive 141 percent.
Fulfillment technology providers have experienced some moderate setbacks due to an uncertain business climate, sales cycle delays, and implementation delays. However, there have also been indicators of strong demand. For example, Dematic (referred to as KION SCS in the financials) experienced a slight decline in revenue for Q2 due to temporary project delays resulting from restrictions to accessing customers’ sites. However, Q2 orders increased a notable 57 percent due in large part to big-ticket orders from e-commerce customers.
Adapting and Overcoming
I have been speaking with a number of WMS and warehouse automation executives. These executives explained to me the difficulties of proceeding with implementations during the Covid-19 pandemic and provided examples of some specific hurdles and creative methods for overcoming the adversity. For example, just yesterday Mike Kasperski, a managing partner of enVista, described some of the adverse conditions they experienced during the height of the pandemic. The enVista automation group’s implementation and consulting staff was at times quarantined on site, had to work off-hour shifts, and was even required to cordon of their work area with plastic – ceiling to floor. More commonly, onsite personnel were limited to small groups, requiring workers to break into alternating smaller subsets to complete project steps. And they also transitioned some of their consulting activities from onsite to remote locations. In fact, a number of technology vendors indicated that remote implementation activities increased during the pandemic and credited these actions to reduced downtime and delays. For example, 6 River Systems embraced remote deployment activities, as did Körber. And Knapp noted advancements in the use of digital twins for configuration, testing, and emulation.
I plan to learn more about the creative steps taken by warehouse technology suppliers to proceed with projects during the pandemic. And I also plan to communicate these stories in future blog posts. Stay well and stay tuned.