- E-commerce grew rapidly during the pandemic and continues to be a significant factor influencing growing interest in warehouse technology and automation.
- E-commerce warehouses require more workers than traditional warehouses, which increases labor demand and puts upward pressure on wage rates across the industry. Warehouses now spend more on labor than ever.
- Many warehouses are operating at or near capacity, and vacancy rates are low.
- Supply chain and labor market disruptions caused by COVID-19 increased interest in the adoption of new technologies in warehouses; the pandemic accelerated preexisting dynamics driving technology adoption in warehousing.
- Despite interest in new technologies, warehouse operators focused on immediate operational challenges and largely relied on labor strategies to deal with pandemic-related uncertainty rather than making major investments in technology.
- During the pandemic, warehouse operators examined and optimized technologies already in use—especially software systems—and made modest investments in scalable technologies.
- Just as the COVID-19 pandemic led to increased order volumes, third-party logistics firms (3PLs) providing warehousing services also experienced expanded business opportunities. However, 3PLs continue to face disincentives to technology investment that are unique to the outsourcing relationship: namely, short-term contracts and low profit margins.
In “The Future of Warehouse Work: Technological Change in the U.S. Logistics Industry” (Gutelius & Theodore 2019), we examined trends in the adoption of warehouse technologies and their potential impacts on both the content and organization of work. The report identified leading industry-wide factors that spur warehouse operators to invest in new technologies: (a) the rise of e-commerce and the market dominance of Amazon, both of which have made hiring and retaining a workforce especially challenging; (b) increasing throughput requirements, which have pushed warehouse operators to seek greater speed and efficiencies; and (c) rising real estate costs, which have heightened cost pressures in an already margin-sensitive sector. Together, these factors have prompted many warehouse operators to investigate whether technological advances can help ease labor shortages, manage demands for greater throughput, and mitigate rising operational costs.
Our earlier report was published in the fall of 2019. During the first month of the new year, the World Health Organization declared the COVID-19 virus a global health emergency, and by March of 2020 the world was plunged into a full-blown pandemic. Warehouses, previously seen as unremarkable components of the system of goods movement, were thrust into the spotlight by changes in consumer shopping patterns brought on by widespread stay-at-home orders, supply interruptions, and shipping delays. As e-commerce sales skyrocketed—increasing as much in the early weeks of the pandemic as in the entire previous decade (Kohli et al. 2020)—warehouses emerged as vital infrastructure for the economy.
Even before the pandemic, mounting market pressures had convinced most warehouse managers that their future profitability lies in keeping pace with technological change. At the same time, however, our research has suggested that the very structure of the warehousing industry imposes impediments to investments in new technologies which in turn has led to an overall sluggish rate of technology adoption. In this research brief, we reconsider the operating environment for warehouses in the context of the COVID-19 pandemic. We argue that while the industry encountered a common set of factors during the pandemic, third-party logistics firms (3PLs) that provide outsourced warehousing operations to shippers faced unique challenges due to their positioning along supply chains. As a result of this positioning and the constraints it imposes, 3PLs have been especially challenged when it comes to making significant investments in cutting-edge technologies.
The pandemic’s myriad effects on the U.S. economy will be the subject of research and attention for many years to come. In this report, we delve into some of the pandemic’s impacts by focusing on one question: How did the COVID-19 pandemic affect technology adoption in U.S. warehouses? We update our earlier analysis of industry change, and present new findings about technology uptake among 3PLs. Data are drawn from a program of interviews undertaken between 2020 and 2022 as well as attendance at industry conferences. Semi-structured interviews were conducted via Zoom with 45 warehouse operators and industry experts. The conference proceedings are drawn from four events comprising 84 individuals in 35 sessions. Other key sources include government data, industry reports, and trade publications.
In Section 2, we re-examine the factors we identified in 2019 to be central to understanding change in warehouse technology adoption. Section 3 explores three emerging themes in technological change across the industry, including dynamics that are unique to the 3PL segment of warehousing, while emerging technology trends are covered in Section 4. Section 5 considers the impacts of technology adoption on frontline workers. We conclude in Section 6 with thoughts about the trajectory of technological change in the wake of the COVID-19 pandemic.