By 2020 China’s e-commerce sector will be larger than those of the U.S., Britain, Japan, German and France combined.” -KPMG

Gold rush for logistics robots

In China, consumption of capex commodities is slumping against rapid growth in opex commodity consumption. For example, demand has declined by 5 percent for cement, yet demand for gasoline is up 19 percent.

The moving force behind this consumption shift, according to Goldman Sach’s Joshua Lu, are the 150 million urban Chinese who average $10K in annual income. With only 4 percent of these consumers owning a car, dashing off to a mall or to do food shopping just isn’t a possibility.

The result: millions of these car-less consumers have leapfrogged directly into e-commerce, where warehouses are already hard-pressed to quickly pick, pack, ship and deliver orders to intended customers. Warehouses are daily faced with an ever-widening escalation in consumer online purchasing.

Last November’s Singles Day 2015 is a portent of things to come: consumer orders amounted to over 680 million packages. It was a stupendous day for Alibaba-owned T-mall, for instance, which “sold $150 million in merchandise in just over a minute and ended the day with more than $13 billion in total sales.”

It was not a good day for warehouses and distribution centers trying to keep up with the onslaught. With those 150 million prime consumers getting ready to double their numbers over the next ten years, e-commerce isn’t going to get any easier.

Alibaba, feeling that this is just the beginning of more great sales coming from China’s massive 1.3 billion people, “has slated $16 billion for future logistics investments, both to increase its market reach and to improve the reliability and speed of delivery.”

Perking curiosity further was this headline that popped up in a McKinsey Quarterly Report: China’s e-commerce soft spot: Logistics. The McKinsey report opens with the alluring: “Consumers are buying massive amounts online, but subpar operating discipline in distribution is keeping costs high.”

Reading McKinsey’s report prompted me to make a quick call to China. A good friend of mine, who has operated a consulting business in Shanghai for the last five years, laughed when I asked him about the state of logistics in China.

“Very inefficient,” he quickly replied. “Just beginning to address logistics is more like it. The share of logistics costs on China’s GDP is much too high. There are a few groups building out modern distribution centers and warehouses-with the help of foreign integrators-but not many.”

“Over the next 15 to 20 years, the real cost of building warehouses is going to be staggering,” said Jeff Schwarz, co-founder of Global Logistic Properties Ltd, the biggest foreign builder of logistics facilities in China.

Warehousing then is overwhelmingly manual in China today; e-commerce isn’t by a long shot.

Something has to give, and it’s not going to be the likes of Alibaba turning away millions of sales and billions of dollars of revenue because of bad follow-through from logistics. Especially with “China’s e-commerce boom… growing at 30 percent a year,” reports McKinsey.

The rest of the world is growing out its logistics capabilities, albeit not as fast as needed, but far and away better than China.

IBIS World is forecasting Revenue for Storage and Warehousing 2016 at an expected global total of $25.3 billion in 2016, up 5.9 percent from 2015.

China’s “ageing warehouses,” says Reuters, “are already creaking under the strain, lacking the automation and state-of-the-art technology that has fueled the rise in the United States and Europe.”

Simultaneous and coincidental to the exacerbating logistics situation in China, there are a half dozen or more young companies and startups in the U.S. (one in India and a few in the EU as well) with machines that would fit nicely into Chinese warehouses and distribution centers. Most are perfect contenders for e-commerce success.

Interestingly, I have been writing a lot lately about these young Turks and their sudden appearance on the tech scene, mostly fresh out of stealth mode. See: Industrial Automation and the “New” Productivity.

Here are a few of the most promising youngsters:

• Ascend Robotics
• CANVAS Technology
• Fetch Robotics
• GreyOrange Robotics (India)
• IAM Robotics
• Locus Robotics
• Scallog Systems (France)
• MIR (Denmark)
• And let’s not forget Sachin Chitta’s very new Kinema Systems

Then too, there are older companies that have recently remade themselves into new-look logistics providers:

• Adept (acquired by OMRON)
• Aethon
• Clearpath Robotics
• Seegrid
• Segway Robotics (yes, that Segway)
• Vecna

Coming shakeout?

Timing is everything, someone once said; and all of these logistics robots are ready right now. However, as good as these machines are, and as good as their IP and technology seem to be, many of these warehouse tyros are teeny companies without strong manufacturing infrastructures capable of meeting large production demands.

When Amazon needs 10,000 new Kiva-style robots, it simply orders them. None of the companies in the above list could ever hope to match Kiva’s prolific output.

Plus, aren’t there just too many companies on the list? Such a crowded tech scene seems ripe for some interesting collaborations or partnerships; almost certainly M&A targeting is going on right now as well. Especially from the Chinese themselves, who are actively seeking out technology acquisitions worldwide.

Taiwan’s Foxconn is rumored to have a permanent team of acquisition hunters based in the U.S. One thing for sure is that there is a genuine robot gold rush waiting to happen for the logistics robot that can go East most effectively. Another sure thing is that this is going to be lots of fun to watch.