From minimum wage to maximum automation

IT IS ironic that political decisions which are made with the intention of protecting or supporting workers often have the exact opposite effect. Right across Europe (and most other parts of the world) the past few decades have seen greater levels of HR regulation, minimum wage increases, longer statutory holidays, compulsory employer contributions to pensions and more workers’ rights. These have inevitably had a major impact on the logistics industry which employs millions of workers across the road transport, warehousing, shipping, air cargo and rail freight sectors. Not only this, the Covid-19 pandemic has reinforced the feeling in many parts of the industry that workers, instead of being a major asset, could be a significant liability – although, of course, no business manager would admit to this.

Up until recently, logistics providers had no other option than to absorb these costs or pass them on to consumers. That is no longer the case – something which administrators must be mindful of. The development of automation, robotics and AI have meant that a type of ‘elasticity’ has been introduced into the market. Rather than ‘suck up’ ever rising employment costs, managers can make investment decisions which maintain or increase productivity whilst reducing labour forces.

Wages

The rising wage bill and the risks of employing large workforces has rebalanced business decisions in favour of technological investment rather than relying on cheap labour. This has been the case in high cost markets for some time – particularly Germany – where manufacturers have been at the forefront of investment in automation, partly as a response to the cost of employing workers. Even in China, rising wages have prompted manufacturers to invest in technology such as 3D printing in order to retain their competitive advantage. However, the proliferation and falling costs of innovations such as robots has meant that other market laggards (such as the UK) now have the opportunity to catch up. Relying on a flexible, low cost labour market to mask lack of investment in advanced manufacturing and logistics processes is no longer an option. Whether or not they take these opportunities is a different matter.

Large corporates

What’s more, these policies will not only result in expediting the adoption of new, labour destroying technologies but they will favour large corporates with the necessary deep pockets and expertise to make large scale investments in automation. SMEs will find themselves once again disadvantaged. Whereas in the past the costs of employment bureaucracy have fallen disproportionately on their shoulders, they will now find themselves on the wrong side of the digital divide. That is, until the costs of automation have become so low that the tech becomes democratised, at which point (if they still exist) they will be able to compete effectively once again with the market leaders.

The one big outstanding issue, however, is whether the adoption of these new technologies will result in additional jobs. The usual response from many in the industry is that there will be a demand for higher value adding functions to build and maintain robots. However, there is a major probability that the manufacture of automated materials handling equipment will be undertaken in remote, lower cost markets such as China. And on top of this, the numbers of engineers required to repair the robots will be relatively few. If, for example, in the next decade we see automated road freight vehicles on the roads (starting with light commercial vehicles), the value created by lower costs won’t trigger the need for more vehicles with drivers, just more automated vehicles. The argument could be made that the unemployed drivers go on to become mechanics, but this would require training. On top of this, vehicles are becoming less complex (especially EVs) and fewer moving parts will need less fixing, especially given that IoT is already resulting in predictive maintenance.

Analytics roles

The impact of the adoption of new technologies will not just be felt in the manual functions (such as warehousing). AI is already replacing jobs in data heavy analytics roles in freight forwarding, for example. This will close off an entry into the industry for many school leavers.

Perhaps the industry market leaders should be grateful for those government policies which, by making it more difficult to employ people, are forcing businesses to transition to new low labour intensity models. It will mean that not only will the major players be able to leverage their technology expertise but also their access to (cheap) capital, a further competitive advantage. It will increase their productivity and reduce the risk of employing large labour forces, both in terms of pandemics or industrial action.

However, at the same time, the impact on jobs and small businesses will be profound and governments around the world will need a smarter approach to employment law and taxes as the market effectively out-manoeuvres punitive and ill-thought through labour policies.

Professor John Manners-Bell, founder of Ti Insight