• (00:32) Some 86% of Fidelity analysts expect Chinese corporates to increase wages. this year
• (00:45) The need for automation in Chinese distributors.
• (03:01) BEST Inc's chief strategy officer on how he is responding to wage pressures.

Full transcript

Neil Gough: [00:00:07] E-commerce is booming in China. Hundreds of millions of parcels are getting shipped every day. But the supply of low cost workers who package, sort and deliver these shipments is dwindling. At the same time, rising affluence and shifting demographics are combining to push up wages.

A full 86 percent of Fidelity's analysts who cover businesses in China expect them to increase wages this year: the highest level for any country or region in the survey. In response, fast growing businesses like supply chain management firms or express couriers are turning to automation.

I'm here today on the outskirts of Shanghai at an order fulfilment centre operated by BEST Inc. That's a New York listed company that counts Alibaba, the Chinese e-commerce giant, as its biggest shareholder. The building behind me is one of 300 such warehouses around China that process hundreds of thousands of transactions every day.

Express shipments in China rose to 42 billion parcels in 2017. Twice as many as 2015. In each case, goods need to be picked from warehouse shelves packaged, scanned, sorted and shipped.

More and more, that work is being automated with humans working alongside robots and getting help from big data.

This facility processes as many as 500,000 orders a month for companies like Li-Ning, the Chinese sportswear brand, or Unilever, the multinational consumer products group.

As orders come in for a bottle of shampoo or tube of toothpaste, a robot makes a run down the long aisles of warehouse shelves here in search of the target merchandise. These items are grouped together by a human picker then packaged, trucked to a sorting facility and finally sent on to the customer.

I asked Xia Wei, a senior warehouse supervisor at the Shanghai fulfilment centre, to explain the advantages of automation.

Wei Xia: [00:02:26] Our usual operating model is for people to go locate the goods on their storage shelves. Now with the robots we are using, the goods come to us. The robots bring the storage shelves to our individual workstations. An ordinary worker manually pulling stock can usually fill around 60 orders an hour. But by using the robots to pull stock, total orders can be doubled and quite easily too.

Neil Gough: [00:02:43] The increasing automation is partly a response to rising wage pressures - a challenge at the confluence of demographics and China's rapid economic development. In the past five years average monthly incomes for migrant workers have risen by over 50 percent. I asked George Chow, BEST Inc’s Chief Strategy and Investment Officer, how his company is responding to the challenges in China's labour market.

George Chow: [00:03:06] There have been a lot of studies done on the reduction of labour forces in China and it's been said that the working labour force is decreasing by 5 million every year from now until 2050. So we're looking at about 20 to 25 percent reduction between now and 2050. Right, so obviously that's going add tremendous pressure [to] the supply of labour. You know the younger generation is becoming more and more educated so less and less younger people want to work in the warehouses; you know, they didn't want to be express deliverymen. So hence technology and automation will have to play a bigger and bigger role.

Neil Gough: [00:03:51] Fidelity analyst Sui Chuan Yeo covers China's supply chain management industry. He says most firms have already realised the easy gains from automation.

Sui Chuan Yeo: [00:04:00] As you move up the curve, which is where we are moving to these days. Then we're talking about the more unstructured environments, such as fulfilment, pick and pack. Of course there would be express delivery where the drivers themselves are hard to automate. I mean you talk about autonomous cars and trucks these days, but to do it on a large scale is still some time away.

Neil Gough: [00:04:24] At the same time the rapid growth of e-commerce in China has created its own problems for automation to address. Problems like how express sorting centres should deal with the overwhelming increase in business that they get from November 11th or "Shuang Shiyi". Also known as singles day, this is the world's biggest retail holiday, when millions of Chinese head online to shop for bargains. Last year merchandise volumes hit a record 25 billion dollars for the 24-hour period.

Tony Zheng, operations director of BEST's express division in Shanghai, said this sorting hub handles around 1 million parcels on a normal day.

Tony Zheng: [00:05:03] During our peak season, for example, 11.11 Singles Day, the output volume from this facility can reach 1.5 million parcels, with over 2 million parcels entering and leaving the facility on a single day

Neil Gough: [00:05:22] BEST plans to continue increasing automation and that means the need for less manual labor going forward. Like this.

Instead, some of the heaviest lifting in this country's ongoing economic transformation will be carried out by robots. Those machines will keep getting smarter, one box at a time.