Ready for the Golden Age of Industrial Automation?

After markets go through traumatic changes – such as a brutal correction in technology shares after the U.S. Federal Reserve hiked rates by 4% in a year – leadership and trends change. As the enthusiasm for big-cap technology fades, we could be entering a new era: industrial automation.

In the era of industrial automation, we are seeing cutting-edge technology that may be applied to long-established industrial areas. Examples include include automated navigation technology for vehicles and machinery, edge-data analytics, factory automation, and retail logistics. In short -- there are going to be more robots.

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This injection of automation can have many benefits for the industry and its customers. The businesses become more profitable and efficient, while the customers get a better product.

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There is wide precedent for this. After all, technology progress is pervasive and can improve industries. For example, the railroad industry has been almost completely remade by automation and technology – to the chagrin of labor unions. A recent New York Times article pointed out that the major railways based in the United States and Canada — which include CSX — had combined net income of $27 billion, up from $15 billion a decade earlier. Most of this comes from automation and technological improvements.

I think this is about to happen across pretty much every industry. Look at the gains in the retail industry forced by the COVID pandemic -- we have seen an acceleration in technology-propelled ordering, delivering, and logistics, including the use of drones for delivery.

Of course, sometimes automation has a cost. Railroad labor unions aren’t happy about this. But technology efficiency is inevitable, and it's incumbent upon our society to find ways to create new jobs, which we usually do. Humans are creative.

CES Showcases Industrial Automation

I wasn’t able to attend the recent CES show in Las Vegas, but I read up on the news, and industrial automation was a major theme. Agricultural and industrial machinery giants John Deere and Caterpillar took center stage.

The John Deere booth featured a gigantic Deere 412R sprayer vehicle with a 120-foot boom. The machine has 36 cameras and See & Spray Ultimate technology based on Deere’s massive database of weeds, powered by NVIDIA GPUs. Deere already produces fully automated tractors chock full of satellite navigation, data analytics, and automated driving technology.

Caterpillar has its own array of high-tech mega dumptrucks, some with remote piloting capabilities. It has been rolling out programs to introduce automation and efficiency in mining.

Wall Street has gotten a whiff of this activity, as Caterpillar (CAT) shares recently hit an all-time high and John Deere (DE) is close to all-time highs. I'm calling it the Rust Belt Bull Market.

These are just examples. As cloud-powered artificial intelligence (AI), edge data analytics, and pervasive connectivity infiltrate many different industries, we are going to see surging technology efficiencies across many industries. According to a recent McKinsey study, automated systems will account for 25% of capital spending over the next five years. The industries affected include logistics, retail, life sciences and healthcare, automative, and food and beverage.

What will the labor unions think? My grandfather and great uncle worked in a steel mill in Pittsburgh, so I’m sympathetic. But I’m not sure there is way to stop technological process. The best hope is for retraining on new systems or for new industries as the labor force is reshaped. The good news? We seem to have started a long-term trend of low unemployment and rising wages as the workforce shrinks.

(Disclosure: At the time of this writing, the author owned shares of John Deere and Caterpillar stock in long-term retirement portfolios.)