Automation is Working Double Time in Prologis' Warehouses

Prologis is noticing a distinct increase in automation adoption in its warehouses amid the pandemic. 

Multiple factors are converging to drive this increase in automation, it says in a recent report. The pandemic is causing greater absenteeism, which is further stressing labor availability. As this is happening, technology is improving, which is expanding capabilities and reducing costs. Finally, labor-intensive operations, including e-commerce, are growing quickly. E-commerce users benefit from this technology and are leading adopters.

“This dramatic transformation cannot be overstated: What was expected to take years to gain traction is occurring in mere months,” according to Prologis.

However, there are still some roadblocks to the adoption of automation, including high costs, low flexibility and a slow return on investment. For fully automated facilities, move-in costs are four to five times higher than no-to-low automation move-in costs. Difficulties in planning and the need for operational flexibility, combined with downtime and integration during implementation, are other roadblocks to automation.

If companies can overcome those hurdles, there are clear benefits to automation. For example, e-commerce, which has grown dramatically through the pandemic, is three times more labor intensive than a traditional logistics operation. 

“What we’ve seen through the pandemic has just accelerated growth,” Steven Hussain, director of Community Workforce at Prologis said on CBRE’s The Weekly Take podcast. “And, in many of our customers the need for talent has grown. And despite high unemployment numbers, the availability of that labor just hasn’t changed much.” 

E-commerce has twice the volatility in sales versus brick-and-mortar retail and is fast growing, which makes it a desirable target for investments that can improve labor productivity and smooth out peaks. 

“E-commerce orders are fulfilled differently than wholesale or traditional store replenishment. Rather than being palletized, orders are shipped as ‘eaches,’ which are received, stowed, picked and shipped individually. This process requires a greater number of associates than comparable legacy warehouses,” writes Cushman & Wakefield’s Benjamin Conwell in a recent research note.  

In Prologis warehouses, the majority e-commerce customers, which represented about 15% of logistics space in mid-2020, are adopting automation. Traditional fulfillment centers, where automation adoption is low, employ one employee per 1,000 square feet on average. Automation adoption by these users is very low. Overall, between 20% to 25% across logistics real estate facilities have one or more types of automation. 

Often automation reduces congestion in these facilities. But, more importantly, it decreases the need for companies to locate near labor. That frees them up to open newer and productive locations close to end consumers, according to Prologis.

But automation doesn’t eliminate the need for labor. In fact the need to operate these machines creates demand for higher-paid workers.

“Automation spurs opportunities for expansions into markets with limited labor pools,” according to Prologis. “On the surface, the disconnect between logistics operations and labor needs may seem like a case for remotely located facilities. However, reducing transportation costs and shortening the distance to consumers is mission-critical to most logistics users. Consequently, they are showing more interest in how automation can help unlock infill and urban locations where labor costs and availability have traditionally been hurdles.”