Photo credit: Sam Butler

October 19, 2015

The Rio Tinto mining company announced Monday that two of its iron ore mines in Western Australia are starting operations with completely driverless trucks hauling iron ore at the mines. It is the first such operation for Rio Tinto, or any other company for that matter, and is another step in Australia’s effort to remain the lowest-cost producer of iron ore exports. More important, it is a telling step in an inevitable process: progress toward automation in economies of the developed world.

As the developed world undergoes demographic decline and labor costs continue to rise, offsetting these two trends remains paramount to reinforcing economic health. Automation and remote-controlled operations have several applications in agriculture, mining, manufacturing and industry — particularly in the developed world, where the physical and digital infrastructure to support it is the most well developed. And they are important along every step of the supply chain, from Rio Tinto’s mining of raw materials in remote Australia to delivering a final product to a consumer in urban Manhattan.

In the case of Rio Tinto’s plan, operators 1,200 kilometers (750 miles) away in Perth remotely control trucks at the mine. This is one step in Rio Tinto’s “Mine of the Future” concept, which aims to increase productivity by better integrating computer technology with machinery and labor. In doing so, Rio Tinto has already begun deploying autonomous trains and autonomous drilling systems and is envisioning operations where the entire production train from the mine’s pit to the port is fully automated or remotely operated.

The benefits are obvious. In Western Australia, Rio Tinto has to contend with a heavily regulated and unionized worker force, high labor costs and the development of mines in remote parts of the country. This is complicated by labor skills acquisitions, energy supply, health and safety, complex geography, and other requirements that without leveraging the full use of technology would be impossible to overcome in an economical way.

Of course, Western Australia and Rio Tinto are not alone. Automation is increasingly growing throughout the supply chain, such as remotely controlled cranes at ports. Mechanization is also one way to increase the amount of material passing through supply chains to alleviate gridlock other than expanding infrastructure in massive projects.

However, it is important to understand that mechanization and automation can take several forms. One such distinction is in automated vehicles: autonomous vehicles versus drone vehicles. Rio Tinto’s driverless trucks are not “autonomous” in the sense that they can operate by themselves without being controlled. They are essentially unmanned trucks that are operated remotely. Thus far automation in the supply chain has been done more frequently in closed systems — that is, one where the movements and tasks are routine, precise and predictable with minimal overlap with objects or people — than where the trucks or machinery need to perform more reactive or perceptive actions. Rio Tinto’s trucks, for example, do not have to contend with being cut off by another vehicle.

Expanding the use of true automated vehicles that can respond to unpredictable obstacles is the next step. Google, Tesla and automakers around the world have been perfecting self-driving passenger cars, and while from a consumer perspective there is a lot of potential from such technologies, the greater geopolitical implications are for logistics. Autonomous vehicle algorithms for passenger vehicles are directly transferrable to that of commercial trucks and military convoys. German automotive company Daimler has already demonstrated a prototype truck on a German autobahn.

At the same time, similar technology can help alleviate the constraints and high costs in the movement of goods from a distribution to their final destination, the so-called last mile problem. Today’s world is evolving toward one with more electronic commerce, faster transportation of goods and urban delivery. As one would expect this only amplifies the stress on supply chains, especially at the end of them: Everyone wants two-day Amazon shipping, so Amazon is throwing resources at unmanned delivery systems.

Not only can adopting automated systems improve supply chains logistics and alleviate bottlenecking to enable supply chains to be more flexible to changing demands, it can also alleviate other problems. The American Trucking Associations estimates that the United States has a shortage of between 35,000 and 40,000 truckers that is expected only to grow. The only way for the trucking industry to fill those gaps is raise wages to attract workers from going into other sectors. In Europe, an estimated 45 percent of the cost of road transport is because of the driver.

This is essentially the same problem that Rio Tinto has in Australia at the beginning of the supply chain: workers are too expensive. It has been an issue that developed countries have dealt with for decades. Rising labor costs have often been detrimental to profitable business operations. In the past, manufacturing jobs were able to move in search of cheap labor. However, labor costs in logistics and supply chains cannot be moved as easily. Until now you could not operate an automated big rig in New York from New Delhi and even today that still does not make a lot of sense. Instead it’s far more practical to employ autonomous trucks that can react more quickly and efficiently than remote control vehicles, which have to adhere to data transmission realities.

Technology has always been the way to offset high labor costs in the developed world. Moving toward driverless trucks is the next big step in that direction for supply chains. More broadly, however, the developed world is advancing to where technology can prevent the export of jobs in manufacturing to other countries where people still do them. Instead, mechanizing manufacturing and using autonomous operations may return manufacturing to the developed world where algorithms take the jobs instead.

For supply chains and logistics, the middle step in the process — that is the export of the industry to the developing world — as of yet is impossible. Still, the overarching progress toward automation is inevitable.

Automated Supply Chains Take an Inevitable First Step is republished with permission of Stratfor.