The New Tax Law, Robots, and the Future of Labor

With more available cash, businesses are quickly ramping up their robotic and automated equipment investments.

One topic that's been on the minds of many business owners over the last several months is the Tax Cuts and Jobs Act of 2017, a $1.5 trillion tax cut that went into effect at the end of last year. With any new law, there are winners and losers, but it appears that many material handling companies could see significant tax cuts this year, and they are wasting little time taking action.

Previously, tax deductions from business asset purchases ranging from conveyors to automated sorting and picking equipment were depreciated over several years. With the new tax laws, however, businesses can deduct the entire cost of equipment purchases from their taxable income for the next five years. According to a recent article in the Wall Street Journal, the CEO of a Chicago-based gear manufacturing company says he plans to spend $1.5 million this year to add three more robots to a production line. “We probably would have put it off another year without the tax incentives,” he said. Toth Industries, a Toledo, Ohio based manufacturer is making a similar move — buying at least three computerized metal-fabrication machines this year for as much as $400,000 each. Without the new tax law incentives, the company would have purchased only one machine to handle the 10% to 15% boost in business projected this year, said the company’s CEO, Rick Toth.

New Repatriation Laws Contribute to Facility Upgrades

For public companies, the depreciation benefit is not as big of a motivator, as it does not affect reported taxes and earnings under the new plan's accounting rules. However, another provision of the new tax law — the removal of overseas tax shelters — also is predicted to stimulate capital purchases.

One of the loopholes many corporations have taken advantage of for years is opening facilities overseas and transferring profits (about $3 trillion in all) out of the U.S. (a process called deferral) to lower their corporate tax burden. The new tax bill will force those companies to bring deferral money home gradually, but it will be taxed at rates ranging from 8% to 15.5%, which is far lower than the previous 35% tax rate on corporate profits — and even lower than the new 21% corporate tax rate. Tech giant Apple said the new repatriation law contributed to its decision to commit $4 billion more to modernizing production facilities for its U.S. suppliers.

Industrial Cobots a Top Investment Choice, Research Shows

Among the asset categories which manufacturers and material handling companies are focused, industrial robots are a leading choice. According to data from Loup Ventures, the market for industrial robots will grow 175% between 2017 and 2026. Large robotic arms won’t be the primary driver of the trend; it will come from smaller, more collaborative robots, known as cobots. In 2016, cobots represented only 3% of industrial robots sold (source: Loup Ventures). By 2025, however, these smart machines will account for 34% of the industrial robot population, driving the market’s value to nearly $34 billion.

Another plus for cobots is that they don't require a pricey extensive network of conveyor belts. Collaborative robots can be especially useful for handling surges in sales that happen around the holidays when it can be challenging to find extra workers. "It's not meant to replace human labor, but you can get greater throughout with the same size workforce," said John Santagate, an analyst with IDC Manufacturing Insights.

Cobots can slash the number of steps workers take to fulfill an order.  The most utilized solutions are when goods stored in locations are retrieved by robots, which in turn bring those goods to the picker. The benefit of goods to person systems is the reduction of travel time and improved efficiency and accuracy. RK Logistics Group turned to these robots when they couldn't fit any more workers into their building and needed to increase productivity. Employees pick parts off shelves and place them on blue racks on top of the robots, which then glide over to workers at stations where orders are packed and shipped. The robots now handle nearly 50% of the items the facility ships, in about half the time it takes a human worker and without a significant capital investment.

Reminder: Don't Believe the Robot Doomsday Hype

It’s hard to talk about robots without addressing the elephant in the room – the impact on human workers’ jobs. A 2017 research paper published by the National Bureau of Economic Research claims that each robot reduces employment by 5.6 workers. However, the relationship between automation and employment isn’t as straightforward as some analysts would lead us to believe, especially when we’re talking about collaborative robots. This year, for example, sportswear manufacturing firm Adidas will begin producing running shoes in a German factory staffed by robots and 160 new workers. One thing that is for sure is that robots (and technology in general) will change the tasks that humans do today. The big question (read: concern) many economists and industry experts are asking is whether people will have the skills to perform the jobs robots can't do.

Our team of project managers, engineers, and analysts can assist and support you through your DC automation evaluation and implementation process from start to finish. Contact us today via phone (+1 856.727.1100) or online to learn more.

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