This is a quick, introductory note on the thematic idea behind warehouse automation and logistics. Follow up emails will detail companies and investment ideas.
Note Overview:
Industry Overview
Types of robotic automation
Industry growth estimates vary widely- But consensus appears to be warehouse automation adoption will continue at a pace around 13-17% CAGR into early 2030. Varied estimates could be result of what they define as “automation” and the level of “automation” currently in use.
According to Lisa Chai, partner and senior research analyst at ROBO Global, 80% of warehouses today have no automation at all. Another 15% have some automation, while a small 5% have implemented more advanced technologies. (Warehouse Automation: What to Expect in 2023
Drivers of adoption
Software advances reducing costs while improvements in robotics increasing use cases resulting in more affordable and targeted solutions.
Labor Shortages, increasing safety, increasing productivity, increasing efficiency, reducing operational costs, optimization of warehouse space.
How to Invest
Symbotic (SYM)
Industry Overview
In our latest spotlight note on emerging investment opportunities, we want to look at the dynamic world of warehouse automation. This field leverages cutting-edge technology to streamline traditional manual tasks in warehouse operations, including inventory management, picking, and shipping. Key automation elements encompass robotic systems, automated storage, and advanced software solutions.
AGV Network has a great article with video clips outlining 16 or so use cases for robotics in distribution centers and warehouses. The article can be found HERE. Below is an list of the types of automation they discuss.
Automated Guided Vehicles (AGVs)
Autonomous Mobile Robots (AMRs)
Palletizers
Depalletizing Robots
Conveyor Systems
Automated Storage and Retrieval Systems (AS/RS)
Sorting Robots
Packing Robots
Pick and Place Robots
Inventory Robots
Cleaning Robots
Security Robots
Drones
Automated Labeling Robots
Case Erectors
Automated Stretch Wrappers
Once you understand the basics of automation, how they increase efficiency and achieve mundane tasks with high levels of accuracy, it becomes easy to see the widespread use case.
Growth of warehouse automation
I think the variation in numbers regarding current adoption and growth rates is partly due to defining what “automation” is and what level of technology constitutes “automation” .
Warehouses and distribution centers vary widely on their use of automation and technology. And at what point we consider the warehouse “automated” or at what level of technology we say they are using “automation” is anyone’s guess. Because of the subjective nature of the different levels of adoption and technology, I think it is important not to get hung up on minor differences and focus on the large, undeniable thematic trend and its growth drivers.
These varying statistics indicate that while there's a significant push towards automation in the warehousing industry, the actual adoption rate can vary widely. The discrepancy in figures could be due to differences in the definition of "automation," which can range from basic mechanized equipment to advanced robotics and AI-integrated systems
Grandview Research predicts around a 17% Compounded Average Growth Rate for the warehouse robotics market into 2030. They highlight 4 main categories:
Pick and Place
Palletizing and De-Pelletizing
Transportation
Packing
I will make no assumption on the accuracy of their growth prediction, but if they are correct, that will provide a MAJOR tailwind for investors in this space.
Acumen Research has their growth rate lower, clocking in just under 15%. Still very impressive.
Allied Market Research predicts the global warehouse automation systems market to grow at 15.7% into 2031 with a TAM of 93 Billion dollars in 2031 from 21.7 Billion in 2021.
As you can see, the numbers vary. Even from categorizing the size of the market in 2021. AMR stated it as a 21.7 Billion dollar market while Acumen stated it as a 18.9 Billion dollar market.
Current Adoption
Propelling the growth in the space could be low present adoption rates. According to Lisa Chai, partner and senior research analyst at ROBO Global, 80% of warehouses today have no automation at all. Another 15% have some automation, while a small 5% have implemented more advanced technologies. (Warehouse Automation: What to Expect in 2023
Below is a graph from Interact Analysis
It shows their current adoption and penetration rate along with their growth forecast. These varying statistics indicate that while there's a significant push towards automation in the warehousing industry, the actual adoption rate can vary widely. The discrepancy in figures could be due to differences in the definition of "automation," which can range from basic mechanized equipment to advanced robotics and AI-integrated systems.
However, a common theme is the underutilization of automation in warehouses and the increasing drivers of growth.
Drivers of Adoption
Two main drivers accelerating this trend is the reduction of software prices (AI, etc) and increased efficiency and effectiveness of robotics. Consultants can now start to roll out AI specific solutions to smaller warehouses and pair that with specific robotic needs of the location.
Warehouse inventory, predictive logistics, and other efficacy measure are becoming more widespread and cost effective. And if you competitor is doing it, you need to be doing it also.
Another driver is the labor market.
It’s no secret working on mundane and routine tasks isn’t the first option for many employees. Less of a secret is the younger generations revolt against “factory” work. They rather be “remote” workers, nomads, travelers making a living off their phone and creativity then logging 8 hour shifts in a dimly lit warehouse sorting packages.
“Working in the warehouse is not the sexiest occupation, right? There are very few folks that go into that with long-term aspirations of being a warehouse picker, so there's super high turnover,” explains John Santagate, VP of robotics for Körber Supply Chain Software, adding that in addition to low availability of workers, competition for those workers is incredibly competitive.
I have to believe this trend is only going to get much more severe in the coming years. The need for low cost alternatives will be paramount.
In addition to the labor market becoming more difficult to navigate is the increased efficiency of robotics. A warehouse can employ a team of robots to work throughout the night. They can be sorting, picking, packaging, and getting everything ready for the day from the previous days shipment.
The workers can then come in and accomplish the higher level tasks. Making sure the loading trucks are properly loaded, shipping labels are correct, working on marketing and advertising or whatever.
Safety is another concern. As of now, robots do not have feelings. If a large pallet of dog food falls on a robot, they do not get “hurt”. Sure, they may break, but hospitals are not needed. They can do the heavy and dangerous lifting along with the mundane picking, sorting, and packaging. It is a win-win.
How to Invest
What now?
Ok, you believe in the tailwinds of the adoption cycle. You can clearly see, at least the high level, growth drivers pushing this cycle forward. E-commerce is a theme you believe will be here to stay. And warehouses need to get more efficient.
There are two simple ways to play this thematic trend.
Large companies with diverse portfolios of products engaging in warehouse automation
Pure play companies with highly targeted operations towards warehouse automation.
I prefer the second option, but might also deep dive into a couple Japanese companies as it goes along with my Macro investments in the space. This link HERE does a good job outlining various companies.
For the sake of simplicity, I am going to quickly review one of each and then expand on more corporations in follow up notes.
The first is:
KION Group (https://www.kiongroup.com/en/)
One of leaders in the field. From their about us page:
“The rapid growth of e-commerce is one of the drivers of the world economy and our business. Global value chains and supply chains require considerable capital expenditure on warehousing and logistics. Automated supply chain solutions are becoming increasingly important since in many sectors efficient intralogistics are now a decisive factor in a company’s competitiveness. We currently have more than 41,000 employees. With an installed base of more than 1.7 million forklift trucks and warehouse equipment were in use by customers of various sizes and in numerous industries on six continents
Across more than 100 countries worldwide, our solutions improve the flow of material and information within factories, warehouses, and distribution centers. We are the largest manufacturer of forklift trucks and warehouse equipment in the EMEA region (in terms of units sold in 2021). In China, we are the leading foreign manufacturer (as measured by revenue in 2021) and number three overall. We are also one of the world’s leading providers of warehouse automation (as measured by revenue in 2021).”
KION Group is one of the worlds leaders in trucks and supply chain solutions. You can find their investor presentation HERE and their about us page HERE
The Second, more targeted idea is:
Symbotic Inc ($SYM)
Their vision is to reimagine the supply chain with artificial intelligence and robotics and transform the distribution network into a strategic asset.
On Nov 20th, 2023 they reported record revenue, improved margins and accelerated deployment.
From their news release:
“A leader in A.I.-enabled robotics technology for the supply chain, today announced financial results for its fourth quarter and fiscal year ended September 30, 2023.
Symbotic posted revenue of $392 million, a net loss of $45 million and adjusted EBITDA1 of $13 million for the fourth quarter of fiscal 2023. In the same quarter of fiscal 2022, Symbotic had revenue of $244 million, a net loss of $53 million and an adjusted EBITDA loss1 of $20 million. Cash, cash equivalents, restricted cash and marketable securities on hand increased by $35 million from the prior quarter of 2023, to $548 million at the end of the fourth quarter.
For the full fiscal year 2023, Symbotic reported revenue of $1,177 million, reflecting 98% growth year over year, a net loss of $208 million, and an adjusted EBITDA loss1 of $18 million.”
While I do not like their 208 million net loss, I do like their position in this market and a top line growth of almost 100%.
Things I will be breaking down in more detail in my subsequent note is
How strong is their competitive moat
Long Term Growth Strategy
3) Financial Performance
4) Green box venture
Conl:
All in all, I am excited to flush out this idea in more detail. I already have positions in several key warehouse automation leaders and looking for different and more creative methods to deploy capital in this growing space.
Happy investing everyone.
I hope this note has sparked some idea generation. Please be on the lookout for follow up notes on more investment names and changes in the thematic trend.
—Nick Smith