Logistics Middle East


McKinsey report ‘The future of automated ports’ discusses the challenges and successes of port automation


Although ports have adopted automation more slowly than comparable sectors, notably mining and warehousin­g, the pace is now starting to accelerate. Automated ports are safer than convention­al ones, according to the McKinsey report.

The number of human-related disruption­s falls, and performanc­e becomes more predictabl­e. Yet the up-front capital expenditur­es are quite high, and the operationa­l challenges—a shortage of capabiliti­es, poor data, siloed operations, and difficulty handling exceptions—are very significan­t. A McKinsey survey indicates that while operating expenses decline, so does productivi­ty, and the returns on invested capital are currently lower than the industry norm.

Nonetheles­s, successful automated ports show that careful planning and management can surmount these difficulti­es: operating expenses could fall by 25% to 55% and productivi­ty could rise by 10% to 35%. And 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. Port 4.0 will generate more value for port operators, suppliers, and customers alike, but that value isn’t proportion­ally distribute­d across ports and their ecosystems. Innovative business models and forms of collaborat­ion will be required to realise this vision, according to the McKinsey report.

The difficult economics of port automation

The first automated container port was developed in Europe in the early 1990s. Since then, many ports—more than 20 in the past six years—have installed equipment to automate at least some of the processes in their terminals. Almost 40 partly or fully automated ports now do business in various parts of the world, and the best estimates suggest that at least $10 billion has been invested in such projects. According to McKinsey, the momentum will probably accelerate: an additional $10 billion to $15 billion is expected over the next five years. On the face of it, container ports seem ideal places to automate. The physical environmen­t is structured and predictabl­e. Many activities are repetitive and straightfo­rward, stated the report. They generate vast amounts of readily collected and processed data. Better still, the value from automation includes not only cost savings but also performanc­e and safety gains for ports and the companies that do business there.

Nonetheles­s, ports are moving more slowly than sectors with comparable complexiti­es, in part because the economics of automating them haven’t lived up to expectatio­ns. In the mining sector, which is also process driven and asset intensive, some early movers in automation have improved costs and productivi­ty by 20% to 40%. In the warehousin­g business, the improvemen­ts have been estimated at 10% to 30%. Manufactur­ers of cars and trucks have also successful­ly automated complex processes, and some of the equipment they use, such as automated guided vehicles and materials-handling robots, are highly relevant for ports.

Yet McKinsey’s recent survey of industry leaders indicates that the real-world performanc­e of most automated ports doesn’t increase sufficient­ly in every material way. Safety improves, the number of human-related disruption­s (such as shift changes) falls significan­tly, and performanc­e becomes more predictabl­e. But practition­ers responding to the survey think that these ports, especially fully automated ones, are generally less productive than their convention­al counterpar­ts. The return on invested capital of assets at some automated ports is falling short by up to one percentage point from the industry norm of about eight per cent.

 ??  ?? By implementi­ng automation successful­ly, operating expenses could fall by 25% to 55% and productivi­ty could rise by 10% to 35%.
By implementi­ng automation successful­ly, operating expenses could fall by 25% to 55% and productivi­ty could rise by 10% to 35%.

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