The robots are coming: Reshaping the industrial sector

Amazon, automation and autonomous vehicles are disrupting the industrial and logistics landscape. And the property sector is poised to reap the rewards, say Frasers Property Australia’s Reini Otter and JLL’s Michael Fenton.

Otter, Frasers Property’s executive general manager of commercial and industrial, has spent the last year visiting industrial facilities as far flung as Germany and Thailand to examine how macro trends are manifesting themselves in markets around the world.

Some of his findings were surprising.

“Logistics has been quite boring over the last 10 years, with not that much in the way of disruption. But this is changing – and even the large players are looking to disrupt themselves before it happens to them,” Otter explains.

The flow of goods from the manufacturer to the consumer is a “massive driver for change”, Otter explains.

“Traditional warehousing was once an afterthought. It was about moving out on arterial routes to find the cheapest facility”.

But e-commerce has transformed traditional ‘push’ supply chains – where manufacturers anticipate consumer demand – to ‘pull’ supply chains, where products enter the supply chain when the customer demands it.

“Amazon’s great promise is a one-to-two-hour delivery time. Consumer expectations are evolving as people realise what is possible.”

Michael Fenton (pictured, right), JLL’s Australian head of industrial, agrees. “Retailers will need to become more efficient in how they distribute goods from the warehouse to the customer,” Fenton says.

Automation is a “huge growth driver and cost saver” for global giants like Alibaba. It’s all about “getting products to the customer in the shortest possible time”.

“Retailers with inefficient supply chain networks and those that can’t compete with the global giants on volume or margin will be the ones that suffer,” Fenton says, adding that companies are investing in technology and automation to combat this.

“The supply chains of the future – in say three to five years – will be much more complex than they are today,” Otter adds.

“But they will also be more efficient and cheaper as companies look to strip out costs.”

As customers demand fast service, warehouses out on a city’s fringes may no longer be a cost saving, Otter explains.

“There will be a flight to prime locations, as companies have no choice but to seek out high quality facilities in the best locations.” Otter points to US data which finds a quarter of customers will pay for faster delivery. “This reinforces the flight to prime.”

“If real estate is typically five per cent of an operator’s cost, and it’s no longer about the cheapest storage but how fast we can serve our customers, then we will see solid rental growth, particularly in core markets like Sydney and Melbourne.”

Fenton doesn’t expect to see radical changes to the external design of warehouses, “but what they look like inside will be completely different”. Think fewer people on the floor, fewer fork lifts and more robots picking products.

Otter also thinks robotics and automation will be the primary strategy for companies to meet the needs of rapid order fulfilment. But this is not “unskilled” labour and how companies increase the efficiency of the picking process will be a great challenge.

“Robots cannot pick as reliably as people in an unstructured environment, so we are more likely to see robots bring the goods to people and then for people to do the packing.”

If companies can get it right, the size of their facilities will increase accordingly. Otter draws a parallel with the early 2000s, when the size of warehouses increased dramatically as computerisation drove productivity improvements.

Otter also has the “uberisation of trucking” on his radar, as Tesla releases a semi-trailer with a standard auto pilot function.

“The largest cost for logistics operators is transport. As intelligent algorithms find the most efficient distribution routes, this will influence operating costs.”

But the common link between all these trends is energy.

“All of these technologies consume more power. If you combine that with the energy security issues we are currently experiencing in Australia, it’s clear we will see more embedded networks, and more onsite power generation and storage,” Otter says.

Fenton says sustainability has struggled for traction in the industrial sector, but this is changing.

“Building owners and occupiers have looked to Green Star ratings for offices and fitouts for some time. Investors and occupiers of industrial facilities are now more interested in incorporating sustainability measures into their buildings.

Industrial facilities have a huge opportunity to harvest sunlight and rainwater from their vast roofs, Fenton says.

“This is about being a good corporate citizen – but more than that, it’s about saving money as energy prices rise”.

The bottom line?

Change is coming, Otter says.

“And if you aren’t ready for that change, you run the risk of being left behind.”