Not long ago, Qingdao, and eastern Chinese city of 10 million on the eastern side of the Yellow Sea, invited journalists and information officers the world over to check out its automated port facilities.
Clearly proud of itself, and its important role in Chinese world trade, being a pivot port for the railway landbridge to Europe, which has had such a promising run in recent years, Qingdao has taken the plunge into full automation of its port.
Thus, today's Qingdao port’s two berth station employs nine monitoring staff, instead of the usual 60 personnel employed by most of the conventional international ports around the world. This leaves Shanghai as the only other port in the world that rivals Qingdao's level of automation.
Yet information continues to trickle in that port automation - despite proud boasts - is not all that it is cracked up to be. Of course in America, and indeed Europe, dockers raise crippling objections. Fearing labour disruption, there are those in management, BCO shippers among them, who make a virtue of necessity and uphold the need to maintain social peace on the waterfronts of the world as their No 1 priority.
But a fully automated marine terminal can reduce headcount 45 per cent or more. Despite these advantages, US east coast terminal operators such as the Virginia Ports Authority and GCT New Jersey have developed semi-automated terminals to avoid total war with the powerful International Longshoremen’s Association (ILA).
Indeed, the ILA and east coast employers broke off talks on a contract extension, with automation being a key reason the union walked away from the bargaining table.
But upon examination, the problem runs deeper than that. A McKinsey report on the problem noted: “More than 60 per cent of the operators in our survey agree that when ports have large numbers of exceptions, the likely culprit is a mistaken approach to automating manual processes.
Typically, ”such ports skip an important step: simplifying processes before automating them. These processes therefore remain cumbersome even after they are configured by automated systems.”
Dockers unions also say, and rightfully so, that a manually operated terminal will achieve higher per unit productivity than an automated facilities.
For example, a manual operation can process 30 containers per crane per hour, but an automated operation may only do 26 moves per hour. But the fact remains that on a 24-hour basis, automated terminals are more efficient by far, processing those 26 moves per hour around the clock, with virtually no need for labour overnight.
In a report called The Future of Automated Ports, McKinsey estimated that the operating expenses of an automated greenfield terminal would have to be 25 per cent lower than those of a conventional terminal, or productivity would have to rise 30 per cent while operating expenses fell by 10 per cent, to make it work.
Another industry survey found a big gap between the expectations and reality. Most expected automation to cut operating expenses by 25 to 55 per cent and to raise productivity by 10 to 35 per cent. But the McKinsey report found that while operating expenses fell, they only fell 15 to 35 per cent, and productivity fell seven to 15 per cent.
“An executive of a global port operator told us 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,” McKinsey said. “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.”
Then there is the question of the problems posed by the enormous size of containerships on landside dock facilities long accustomed to coping with far fewer boxes per ship.
Dean Davison, technical maritime director for the WSP engineering, told a JOC Port Performance North America Conference in Newark, that a global issue afflicting terminals was dealing with these large volumes.
“Productivity gains are not keeping pace with increased vessel and consignment sizes,” he said. “The relative position has actually gone backwards. The question is, with more bigger ships coming next year, are we going to go further backwards? All container ports and terminals have to keep improving, and they’re under pressure to do so.”
Global container moves per hour, the measure of port call productivity, fell four per cent, effectively meaning ships spent an extra 70,000 hours in port in the first half of 2018 compared with the first half of 2017, according to an analysis of JOC Port Productivity data.
After an extended period of high growth, average call sizes, or the number of containers exchanged per call, did not increase in the first half of 2018, compared with the same period in 2017.
It is said automated container terminals can help European ports handle mega ships and the exchanges of up to 10,000 TEU that can accompany each port call, but those efficiencies are often lost as inland-bound cargo move from the quay to intermodal connections.
The Northern Range ports of Rotterdam, Antwerp, Le Havre, and Hamburg have had little choice but to invest in upgrading infrastructure and deploying the biggest cranes to handle the giant vessels in one port call. Developments in technology have allowed terminals in these ports to automate many functions that create faster and more efficient handling solutions.
But that alone does not stop bottlenecks being created from the off-loading process from having such enormous exchanges of containers. The issue becomes acute at Rotterdam and Antwerp. The problem is as much moving containers out of the port as it is unloading or loading a vessel.
“Automation is not a panacea,” said Mr Davison. “There’s no point having an efficient automated terminal if the gate or the truck becomes the logistics bottleneck.”
While ports puzzle with the cost-benefit analysis of automation in addressing productivity issues, the McKinsey report on senior industry executives uncovered some of the barriers to investing in the technology. For example, there was perceived to be a shortage of capabilities in specialised technical positions that could take engineers five years to train for. Building this talent pool would be crucial in the future.
A lack of data - or data siloing - is another problem, or where the quality of data analysis is not sufficient to run an automated port. This lack of a structured, transparent data pool make it difficult to monitor and diagnose the operations and performance of equipment quickly. The standards, formats, and structures of the data may be misaligned or absent, so ports can’t collect and exchange data efficiently.
A solution to this, McKinsey said, was data-infrastructure applications that can help predict and forecast demand and the arrival and departure patterns of containerships. Different apps can schedule the maintenance of equipment for optimal availability, allocate equipment and frontline staff, and adjust the allocation in real time. They could also use AI to make plans more accurate.
Another two barriers were siloed operations at ports that had to be broken down and handling exceptions that many ports found were the greatest single challenge for raising productivity.
Said McKinsey: “More than 60 per cent of the operators in our survey agree that when ports have large numbers of exceptions, the likely culprit is a mistaken approach to automating manual processes. These processes therefore remain cumbersome after they are configured by automated systems.”
McKinsey recommends building automation-ready capabilities, setting up a strong project-governance and communication plan, having a road map to realise value from automation, building and continually refreshing the technology ecosystem, and incorporating external data into the automation system.
Over the years, ports have evolved through several basic models of operation, and McKinsey said they were now on the cusp of a Port 4.0 transition. In this model of the future, 4.0 will enlarge the port’s role by orchestrating physical and information flows inside and outside terminals to enhance the port ecosystem’s broader, systemwide efficiency.
Every terminal operator, trucker, railway, shipper and forwarder will one day be connected to optimise not just the port but also its entire ecosystem. McKinsey said the journey from Port 1.0 to Port 3.0 has been evolutionary, but Port 4.0 required a leap into the future and bold changes to the operating model.
“We estimate that for a six- to eight-million TEU port that handles both imports and exports, the value at stake from Port 4.0 might be more than $1.5 billion a year for the port community, including terminal operators, shipping companies, intermodal operators, freight forwarders, shippers, and consignees,” McKinsey concluded. “Terminal operators might capture less than 20 per cent of the value pool directly, and other parties in the ecosystem would claim the rest.”
Whether the Port of Qingdao is heeding McKinsey's advice is hard say. Perhaps even more interesting is whether Qingdao is confronting the very problems McKinsey talks about and whether it is coping effectively. Initially it appears that the human hand can more readily remedy emergencies that always arise from exceptional problems faster than any one-way machine, but if running 24/7, automation appears to trump all overall productivity.