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Automation’s productivity problem

A recent study by McKinsey & Company called The future of automated ports* concluded that port automation is not delivering on its full potential just yet, but it found that there is enough evidence to show that, with careful planning and management, automation could meet industry targets with regard to lowering operating costs and increased productivity.

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The study is based on information gathered at a forum McKinsey & Company hosted together with the Shanghai International Port Group in 2017, just before the Yangshan automated terminal opened. McKinsey collected survey responses from more than 40 participants spanning terminal operators, equipment suppliers, academics, port-asset management firms and shipping companies.


The survey showed widespread expectations that the number of terminals using automation will expand, with 50% of respondents believing that at least half of the top 50 ports will initiate plans to add or retrofit automated equipment over the next five years.


The industry is moving ahead with automation despite the fact that automation does not yet, according to McKinsey’s conclusions, deliver an acceptable return on investment. “We estimate that to justify these investments, the operating expenses of an automated greenfield terminal would have to be 25% lower than those of a conventional one, or productivity would have to rise by 30% while operating expenses fell by 10%,” the report stated. However the survey showed operating costs actually fell “only by 15-35%”, and productivity actually fell by 7-15%.


This is not in line with industry expectations, which according to McKinsey, are that automation will drive down operating expenses by 25-55% and increase productivity by 10-35% compared to non-automated facilities. In particular, McKinsey cited an unnamed executive of a global port operating company as saying that the average number of gross moves per hour for quay cranes at fully automated terminals is in the low 20s, compared to the high 30s at many non-automated terminals.


The study report does not go into detail, but the variance in productivity and operational cost improvements across “automated” terminals is significant. WorldCargo News has also reported terminal operators saying that the productivity (measured in moves per hour) of automated and remote-controlled quay cranes is in the low 20s. On the other hand, some terminals claim that the ASC stacks behind their quaysides can support quay crane rates of over 40 moves per hour, and regard automation as a real success.


Returning to the McKinsey study, it identified four major barriers that are preventing automation from achieving its potential (in descending order of importance): capabilities, data quality, siloed operations, and the handling of exceptions. Capabilities relates to the skill base and experience in the industry to implement automation, with one survey respondent noting that “even experienced engineers can take as long as five years to train”.


Data quality is an industry-wide problem identified several times previously. “Many interviews with managers of port operations indicate clearly that the quality of data and the data analytics isn’t sufficiently strong to run automated ports efficiently. Why? The first reason is that the lack of a structured, transparent data pool makes it hard to monitor and diagnose the operations and performance of equipment quickly. Second, the standards, formats, and structures of the data may be misaligned or even wholly absent, so ports can’t collect and exchange data efficiently,” the report explained.

 

With regard to how to tackle these issues, McKinsey noted that there is no one route to achieve successful automation, but sets out some “general principles” to consider:

  • Trying to automate existing processes in a manual terminal is a mistake. “Port operators should start with a blank slate as they think through every process from beginning to end, across functional silos.” The redesigned process will then suggest the organisational structure.
  • Automation projects need a strong project governance and communications plan, for both internal and external stakeholders. Not rushing is important: “Make sure to leave enough time for testing, dry runs of operations, and production trials. A normal project cycle could involve 3,000 to 5,000 incident logs that users of the terminal and the port must handle
    collectively, as well as months of stabilisation efforts.”
  • Creating a roadmap for realising value from automation, with incremental, measurable targets. “A step-by-step approach will probably work better than a ‘big bang’ push for a total transformation in one mighty blow.”
  • Build and continually refresh the technology ecosystem. McKinsey & Company added a note of caution that “technologies should reflect the business needs of the port and its customers, not the intellectual curiosity of the technical staff.”
  • Incorporate “external data” into the automation system, in particular data on the arrival of trucks, vessels and feeder ships.

McKinsey concluded with the observation that industry today is at a level it calls “Port 3.0”, with process-driven operations that can be managed by automated equipment and algorithms, “leaving humans to dispose of the exceptions”. To unlock the real value of automation, however, the industry needs to transition to “Port 4.0” where “artificial intelligence, optimisation through advanced analytics, and dynamic scheduling” control the flow of containers through the port”.


Properly implemented at a terminal handling 6-8M TEU, McKinsey estimated that Port 4.0 might generate more than US$1.5B in value for the port community, of which terminal operators might capture less than 20% directly.

 

*The future of automated ports, a McKinsey & Company study by Fox Chu, Sven Gailus, Lisa Liu, and Liumin Ni.

 

 

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