Ports are failing at automation, McKinsey study concludes
Mike King | Thursday, 10 January 2019
Container terminals are accelerating their investments, but many are not able to generate the expected cost or performance benefits, survey reveals
Ports are failing to fully reap the productivity and financial gains that automation can generate, according to a new study by McKinsey, with many automation projects actually leading to falls in container-handling productivity.
The consultant found that despite appearing to be ideal environments for automation, the port sector has automated more slowly than comparable industries, including warehousing. And, although the pace of automation is now starting to accelerate, many operators are not generating the improvements they should expect.
Indeed, after conducting a major global survey of port stakeholders, McKinsey concluded that the shortfall between expectations from automation and actual gains by operators remains stark.
McKinsey survey respondents expected automation to cut operating expenses by 25-55% and to raise productivity by 10-35% − expectations in line with McKinsey estimates of what should be possible, especially in fully automated projects. “Our survey indicates that operating expenses at automated ports do indeed fall, but only by 15 to 35%,” said the consultant. “Worse, productivity actually falls, by 7 to 15%.
“An executive of a global port operator told us, for example, that at fully automated terminals, the average number of gross moves per hour for quay cranes − a key indicator of productivity − is in the low 20s. At many conventional terminals, it is in the high 30s.
“With numbers like these, automation can’t overcome the burden of the up-front capital expenditures.”
McKinsey’s survey found that the barriers to successful port automation were, led by a lack of experienced, well-trained technical staff.
“Respondents who had previous experience with automation say that the top problem is filling the specialized technical positions it requires,” said the report. “They add that even experienced engineers can take as long as five years to train.
“Many ports have apparently underestimated the challenge of acquiring the needed capabilities, especially in planning and implementation.
“Port and terminal operators must therefore step up their efforts to acquire talent and build these capabilities.”
Poor data quality, siloed operations and the failure of ports to simplify processes before automating them were also factors at ports where automation has not yielded the expected benefits.
However, this is not slowing the pace of automation in the ports sector. 80% of survey respondents told McKinsey they expected that in the next five years, at least half of all greenfield port projects would be semi- or fully automated. 35% expected the proportion of automated ports would rise above seven in ten.
“Brownfield projects—the total or partial conversion of existing conventional ports—will probably gain momentum soon: more than half of the participants expect at least 50% of the top 50 ports to initiate retrofitting plans or to add automated equipment during the next five years,” said McKinsey.
“But the survey also clearly showed that the return on investment from port automation demands attention from port operators and investors alike. Up-front capital outlays are high.
“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%.”
McKinsey argues that ports able to overcome the implementation challenges of automation successfully will reap a healthy dividend from their investment.
“In the long run, these investments will lead the way toward a new paradigm—call it Port 4.0—the shift from asset operator to service orchestrator, part of a larger transition to Industry 4.0, or digitally enabled efficiency gains throughout the world economy,” said the report.
However, it added, while Port 4.0 will generate more value for port operators, suppliers, and customers alike, that value will not generally be proportionally distributed across ports and their ecosystems.
“Innovative business models and forms of collaboration will be required to realize this vision,” concluded the report.