December is always the busiest time of year for shipping carriers, and this holiday shopping season is expected to be even busier than most. The National Retail Federation is predicting that consumers will spend about 4.1 percent more than they did during last year’s holidays.
Deloitte predicts that online sales will grow a whopping 17 percent to 22 percent year over year.
That translates into a lot more orders and packages moving through warehouses and trucks.
Carriers have always staffed up for the holidays to handle the increased workload. Even shipping deadlines, transit times and estimated arrival times are extended for what is considered an “on-time delivery.” This year is no exception: UPS is hiring 100,000 seasonal workers to move an estimated 800 million packages during peak season. That’s about 100 million more orders than last year.
Even though the labor market is strong this year, there aren’t as many workers available as there were last year—at least not at the wages that the world’s largest carriers want to pay.
“It’s like ‘Game of Thrones’ out there” trying to hire workers, said XPO Logistics Inc. COO for Supply Chain in the Americas and Asia Pacific, Erik Caldwell at a recent industry conference, according to the Wall Street Journal.
That means robots are going to do a lot of the work, too.
Warehouses Are Turning to Robots in E-Commerce Marketplaces
There are more packages than ever moving through fulfillment centers, and labor isn’t getting any cheaper. Unless they want to dramatically increase the cost of shipping charges, warehouses need other solutions.
It seems the solution that’s best for retailers’ bottom line is artificial intelligence. Especially for the world’s largest retailers.
According to a recent report in the Wall Street Journal, Walmart is experimenting with robots that “roam store aisles to check inventory and tell workers where to find goods.” At Disney, “logistics providers are sending mobile step-stools mounted with shelves through fulfillment centers to help pull online orders for toys.”
XPO Logistics is sending 5,000 Roomba-like robots to help fulfill orders in its warehouses. XPO says they can process orders twice as fast as human workers.
Finally, at Gap, robotic arms scan barcodes and sort clothing orders. If the AI isn’t able to pick up an item, it calls human workers for remote help at a moment’s notice.
The biggest savings? Gap used to multiply its workforce by six during the holiday season. Now, it only doubles or triples. That means the company is hiring as few as a third as many workers as it used to during peak season.
Why do Logistics Providers Prefer Robots to Human Workers?
Put simply, AI is cheaper than human intelligence. Robots are a one-time capital expense. They do not need wages or benefits. They do not have to take breaks. And while they make mistakes, they often make fewer than humans do.
During the Great Recession, labor was cheap. Unemployment was high and workers were willing to accept low wages. But as the U.S. economy gets stronger, employers have to compete for a smaller labor pool. Workers have more power to negotiate for higher wages. Labor is getting more expensive every year.
AI is improving, too. And while it requires some up-front spending on research and development, carriers and fulfillment providers are banking on those investments paying off in the long run.
FedEx recently announced its plans to standardize six-day delivery in response to the peak season and growth of e-commerce. The company said what makes that possible is its technological advancements. The company has 130 automated facilities nationwide, including technologies such as truck-unloading robots, geo-fencing that tracks truck movements, and yard management and optimization systems.
“You’ll hardly see our employees at all,” said President and Chief Operating Officer, Dave Bronczek on an earnings call describing the facilities.
UPS also recently updated investors about its investments in AI. The company recently began building a “super hub” in Atlanta—where the company is headquartered—which will be able to sort 100,000 packages per hour.
Chief Information and Engineering Officer, Juan Perez said, “UPS is in the process of opening 22 automated facilities globally that are as much as 35 percent more efficient than traditional fulfillment centers.” Perez estimates that “70 percent of its ground volume will be processed at automated facilities by the end of 2018.”
How Will This Impact E-Commerce Retailers and The Rest of The Shipping Industry?
Greater investments in AI will increase efficiency, meaning logistics providers will be able to do far more work with the same amount of money. Automation will be embraced across the industry faster in the coming years, especially as AI and other technologies become cheaper and easier to adapt to existing systems and help with expedited shipping.
For shippers, that could mean great advances in what they’re able to offer their customers.
But carriers are poised to save a lot of money by implementing autonomous systems for each shipping method. Shippers—especially small to medium-sized businesses—will need to push their carriers if they want to see any of these savings this season, or be able to pass those savings on to their customers in turn like offering free shipping. Otherwise carriers will just be padding their margins, especially during the peak season.