Robotic Chain Saw Replaces Paul Bunyan

October 8, 2012 at 4:30 am Leave a comment

The world is rapidly changing and so is the profile of jobs. Technology is advancing at an accelerating pace, and this is having enormous impacts on the look, feel, and shape of global workforce dynamics. If lumberjack Paul Bunyan and his blue ox Babe were alive today, the giant would not be chopping down trees with a plain old steel axe, but more likely Mr. Bunyan would be using a 20 inch, 8 horse-power chain saw with side-mounted tensioner purchased from ChainSawsDirect.com.

But productivity in logging is not the only industry in which output has dramatically increased over the last generation. A recent New York Times article published by John Markoff explores how robots and automation are displacing humans across many different companies and industries around the world.

In China, manufacturers have exploited the value of cheap labor in the name of low-priced exports, but with millions of workers now moving to job-filled cities, workers are now demanding higher wages and better working conditions. Besides rising wages, higher transportation costs have eaten away labor expense advantages too. One way of getting around the issues of labor costs, labor relations, and transportations costs is to integrate robots into your workplace. A robot won’t ask for a raise; it always shows up on time; you don’t have to pay for its healthcare; it can work 24/7/365 days per year; it doesn’t belong to a union; dependable quality consistency is a given; it produces products near your customers; and it won’t sue you for discrimination or sexual harassment. The initial costs of a robot may be costlier than hiring a human being by a factor of five times an annual salary, but that hasn’t stopped companies everywhere from integrating robots into their operations.

The Orange Box on Wheels

One incredible example of robot usage (not covered by Markoff) is epitomized through Amazon.com Inc.’s (AMZN) $750 million acquisition of Kiva Systems Inc. last year. In some cases, Kiva uses hundreds of autonomous mobile robots in a warehouse to create a freeway-like effect of ecommerce fulfillment that can increase worker productivity four-fold. Amazon is a true believer of the technology as evidenced by the use of Kiva robots in two of its major websites, shoe-retailer Zappos.com and baby-products site Diapers.com, but Kiva’s robots have also been used by other major retailers including Crate & Barrel, Staples Inc (SPLS), and Gap Inc (GPS). The orange square robots on wheels, which can cost in the range of $2 – $20 million per system, travel around a warehouse tracking the desired items and bring them back to a warehouse worker, ready to then be packed and shipped to a customer. Larger warehouses can use up to 1,000 of the Kiva robots. To see how this organized chaos works, check out the video below to see the swarm of orange machines dancing around the warehouse floor.

 

The Next Chapter

The auto and electronics industry have historically been the heaviest users of robots and automation, but those dynamics are changing. Healthcare, food, aviation, and other general industries are jumping on the bandwagon. And these trends are not just happening in developed markets, but rather emerging markets are leading the charge – even if penetration rates are lower there than in the richer countries. The robotic usage growth is rapid in emerging markets, but the penetration of robotic density per 10,000 workers in China, Brazil and India is less than 10% of that in Japan and Germany (< 20% penetration of the U.S.), according to IFR World Robotics. As a matter of fact, IFR is forecasting that China will be the top robot market by 2014.

What does this mean for jobs? Not great news if you are a low-skilled worker. Take Foxconn, the company that manufactures and assembles those nifty Apple iPhones  (AAPL) that are selling by the millions and generating billions in profits. The harsh working conditions in these so-called massive sweatshops have resulted in suicides and high profile worker backlashes. Related to these issues, Foxconn dealt with at least 17 suicides over a five year period. What is Foxconn’s response? Well, besides attempting to respond to worker grievances, Foxconn chairman Terry Gou announced plans to produce 1 million robots in three years , which will replace about 500,000 jobs….ouch!

As the New York Times points out, the “Rise of Machines” is not about to result in Terminator-like robots taking over the world anytime soon:

“Even though blue-collar jobs will be lost, more efficient manufacturing will create skilled jobs in designing, operating and servicing the assembly lines, as well as significant numbers of other kinds of jobs in the communities where factories are.”

 

Many companies see this trend accelerating and are investing aggressively to profit from the robotic automation and productivity benefits.  In today’s day and age, Paul Bunyan would have surely taken advantage of these trends, just as I plan to through Sidoxia Capital Management’s opportunistic investments in the robotic sector.

Wade W. Slome, CFA, CFP®

Plan. Invest. Prosper.

www.Sidoxia.com

DISCLOSURE: Sidoxia Capital Management (SCM) and some of its clients hold positions in certain exchange traded funds (ETFs), AMZN, and AAPL, but at the time of publishing SCM had no direct positions in  Foxconn/Hon Hai, Crate & Barrel, SPLS, GPS, or any other security referenced in this article. No information accessed through the Investing Caffeine (IC) website constitutes investment, financial, legal, tax or other advice nor is to be relied on in making an investment or other decision. Please read disclosure language on IC Contact page.

Entry filed under: Themes - Trends. Tags: , , , , , , , .

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