At a tipping point: intralogistics automation

It is unlikely that intralogistics automation will divert from the typical pattern of adoption, which can be described as a slow start followed by exponential growth that surprises many. The art of investing is to recognize the shift before the growth accelerates and before the window for building a competitive edge closes and automation equipment manufacturers are getting an expensive asset to invest in.

The latest Gartner hype cycle for mobile robots and drones reveals a rising adoption and fast-growing market for advanced mobile robots for supply chains. Gartner predicts several mobile robotics technologies for supply chains will mature within the next two to five years, creating an accelerating market for increasingly capable mobile robots and drones.  The intralogistics automation market is nearing the tipping point of exponential growth.

Why do we regularly overlook inflection points?

We have cognitive biases that prevent us from grasping exponential growth patterns, especially in their early stage when growth is still slow.

This stems from our preference to think linearly and other biases that inform our views of the future, like our tendency to underestimate the speed and impact of exponential growth. Market dynamics and standard practices also play a role. An overreliance on pilot programs results in slow visibility of progress during the early stages of technology adoption. Simultaneously, market fragmentation and proliferation create uncertainty about which solutions will eventually win, which makes it challenging to anticipate the phase of fast adoption. But we can learn from patterns of transformative technologies and innovations that revolutionized our lives in the past.

Adopting personal computers was slow initially, and many industry leaders failed to foresee the mass appeal. Ken Olsen, the founder of Digital Equipment Corporation, famously said in 1977: “There is no reason anyone would want a computer in their home.” In 1981, there were approximately 200,000 personal computers in the U.S. By 1999, that number surged to 200 million. When Tim Berners-Lee invented the World Wide Web in 1989, few predicted its profound societal impact. In 1995, Newsweek published an article titled “The Internet? Bah!” dismissing it as a fad. By the early 2000s, the internet had become indispensable; global internet users grew from 16 million in 1995 to over 1 billion by 2005, showcasing rapid adoption. In 1981, McKinsey & Co. predicted that there would be fewer than 1 million mobile phone users in the U.S. by 2000. One hundred nine million mobile subscribers in the U.S. alone enjoyed the technology by 2000, and the smartphone revolution has written history for the last 15 years.

These fascinating success stories of breakthrough technologies can also help us better understand the current state of markets and grasp future developments and tipping points.

Intralogistics automation: adoption ahead

Many signs indicate that the tipping point in the industrial and intralogistics automation market, which includes AMRs, could be very close.

In many developed nations, an aging population reduces the logistics and manufacturing workforce. According to the European Logistics Association, the logistics sector could face a shortage of over 400,000 workers across Europe by 2025. Automation, which can ease that pain, is becoming more capable, and prices for components like semiconductors, internet-of-things devices, and control systems are falling rapidly. For example, lithium-ion battery prices dropped from about US$ 1,200 per kWh in 2010 to under US$ 150 per kWh in 2020. Over recent years, the widespread testing and piloting of intralogistics automation solutions has laid the groundwork for broader adoption in logistics and manufacturing.

Gartner confirms that industrial automation solutions, including intralogistics technologies, have reached their sweet spot. Now, the reality of the technology capabilities matches expectations. This decreased cost and increased capability make intralogistics automation solutions, like AMRs and drones for stocktaking, more accessible and economically viable for a broader range of businesses, with an ever-clearer return on investment.

An opportunity for long-term investors

The time seems right to invest in companies that produce intralogistics automation equipment. The logistics market is marked by a shortage of capital and low valuations. Startup investments fell over 90% from $25.6bn in 2021 to $2.9bn in 2023. One reason for this is the slower-than-expected adoption of technology.

The intralogistics automation equipment maker industry remains fragmented, with no dominant market leader. It is a market ripe for consolidation. In Europe, very few solution providers have achieved over 500 deployments. Investors with a long-term view can capitalize on this favorable situation.

Conclusion – a moment to grasp

During the intralogistics automation solutions market’s slower growth period, pioneers laid the foundations for rapid expansion. We can see the ripples in the water as market conditions become conducive to exponential growth.

Shortly, many more companies will benefit from faster material movements, increased storage density, higher order fulfillment rates, lower operational costs, and fewer errors, accidents, and vacancies; the latter will relieve workers of work overload and many repetitive, sometimes dangerous tasks. Astute investors looking beyond actual market sentiments stand to benefit from the impending wave of adoption of intralogistics automation solutions, with market consolidation opportunities on the horizon.