May 26, 2021
Research company Interact Analysis is predicting that soaring growth in the warehouse automation equipment market will cause parallel growth in the market for service contracts – worth $4.3 billion in 2020 and projected to grow to $8.7 billion by 2025.
The global market for the servicing of installed automation equipment will see year-on-year double-digit growth up to 2025, the research firm predicts. This market will be stable and lucrative for OEMs and integrators, giving them higher profit margins than equipment sales. Currently, a significant number of end-users carry out service and maintenance in-house or through a third party. The firm said customers also consider it cost-effective to leave their machinery unserviced. The growing complexity of equipment and rising pressure to avoid machinery downtime will spur significant growth for OEMs and integrators to grow their share of the services market.
Interact Analysis said the potential revenue generated from offering a lifetime service contract to an automation project is roughly the equivalent of the original cost of the project. In its broadest terms, a whole-life service contract could double the original revenue from the sale of the machinery. The company’s research also showed peaks and troughs in the service cycle, with peaks in the 5-, 10- and 15-year marks, corresponding to times when parts are likely to require replacement, and computers and control equipment needs upgrading.
About 40% of service revenues in 2020 came from on-site service in various scenarios, including site visits to identify and repair problems, preventive maintenance visits, and the deployment by OEMs of technicians to sites on a full- or part-time basis. Upgrade services, which involve modernization or alteration of existing systems (not replacement), accounted for 22% of the market, and 19% were remote services, with customers having access to telephone hotline access. The research firm said on-site services will become more prevalent as automation solutions become more sophisticated.
“In 2020, 80% of the revenues from automation machinery service contracts were generated in the Americas and in the EMEA (Europe, the Middle East, and Africa) region,” said Jason dePreaux, principal analyst at Interact Analysis. “Historically, there has always been a much higher adoption rate of service arrangements in those two regions than there has been in the Asia Pacific (APAC) region – due to lower labor costs in Asia, expectations for maintenance to be included in the project sale, and robust in-house service capabilities by large e-commerce companies. But this situation is set to change. As worker expectations rise and wages level up in APAC, and other factors come into play, such as recent experiences with social distancing and the pandemic, we expect the region to be setting the pace where warehouse automation installations are concerned. Indeed, we forecast that by 2024, the rate of growth in the APAC service market will be faster than in the Americas or EMEA.”
Interact’s report is based on the results from three estimation techniques – bottom-up estimates, a top-down demand model, and an installed base model. For more details on the report, visit the Interact Analysis website.