PORTS OF THE FUTURE
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.