Australia’s productivity slide is concentrated in the industries that make, move and sell physical goods, and supply chain automation company Dematic says the national debate has been looking in the wrong building.
The Productivity Commission’s June 2026 quarterly bulletin found labour productivity fell by 0.6 per cent in the March quarter and grew by just 0.3 per cent over the year. The result was worse in the market sector, which covers manufacturing, wholesale, retail, transport and warehousing, where productivity fell by 0.7 per cent in the quarter while hours worked rose 2.2 per cent.
Dematic Australia marketing director, Phlilip Makowski, said productivity is discussed as if it happens at a desk.
“In reality, close to a quarter of every hour worked in Australia is worked in an industry that makes, stores, moves or sells physical product, and almost all of that product passes through a warehouse at some point.
“AI, skills and regulation all matter. But the debate has skipped over the warehouses and distribution centres that handle almost everything Australians buy, build and export.”
According to Makowski, the scale is easy to underestimate. Manufacturing, wholesale trade, retail trade, and transport, postal and warehousing together generated around $493 billion in industry value added in the 2024/25 financial year, employ about one in four working Australians, and account for 1.44 billion of the 6.10 billion hours worked in the March quarter. Supermarkets and grocery stores alone employ 321,100 people.
“The most telling detail in the latest data is where the weakness sits. It is not evenly spread. It is concentrated in the sectors that handle the physical movement and distribution of goods,” Makowski said.
Meanwhile, the work itself is getting harder. Australia Post’s eCommerce Report 2026 found Australians spent a record $82.6 billion online in 2025, up 14 per cent year on year, now about 24 per cent of all retail spend. At the same time the average basket has fallen to a record low of $90, around $10 below its 2020 level.
Every dollar of sales now requires more picks, more packs and more despatches than it did five years ago. The other three in four retail dollars are still spent in store, and those goods move through a distribution network too.
“That shift is invisible on a profit and loss statement until it is too late,” Makowski explained. “A business can be growing revenue while its cost to serve quietly climbs, because the number of individual transactions it has to physically handle is rising faster than the money coming in.”
In a typical manual warehouse, up to 65 per cent of labour goes into order picking, particularly item or eaches picking.
“Most of a picker’s shift is spent walking, not picking. In most warehouses that is the largest single pool of recoverable time in the building, and it is almost never the thing that gets discussed,” Makowski said. “Australian businesses are not short on effort. They are short on capacity.”
“When a facility is at its physical limit, the options are to build more space, hire more people or work the same team harder. Automation gives operators a fourth option, which is getting more out of the footprint and the workforce they already have.”
Leasing another warehouse has become harder. CBRE put the national industrial vacancy rate at 3.2 per cent in the first half of 2026, below the level the sector treats as balanced, and noted a structural shortage of serviced and appropriately zoned industrial land.
“Space is scarce and slow to deliver. Labour is expensive and hard to find. Neither of those constraints is going to loosen quickly, so the productivity gain has to come from the operation itself,” Makowski added.
“Every argument in this debate lands in the same place, which is more output for each hour worked. In a warehouse you can actually point at that. You can count the orders, count the hours and watch the number move. There are not many parts of the economy where the gain is that visible or that measurable.”
