The port sector has been much slower to adopt automation programs than comparable industries, according to a new report from McKinsey & Co.
The global port sector has been much slower to automate than other comparable industries, but that may be changing, according to a new report from research and consulting firm McKinsey & Co.
In its report, McKinsey noted several potential benefits of process automation for container ports, including safer working conditions, fewer human-related disruptions and more predictable performance.
The firm cited high up-front costs and “significant” operational challenges such as poor data quality, a lack of communication across silos and difficulties with exception management as the top factors hindering port automation efforts.
“On the face of it, container ports seem ideal places to automate,” the report said. “The physical environment is structured and predictable. Many activities are repetitive and straightforward. 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.”
McKinsey pointed to the mining, warehousing and automotive manufacturing sectors as examples of industries that have reduced costs and improved productivity as a result of automation. The firm estimates early adopters of automation in the mining industry have shaved as much as 20 percent off their operating expenses and increased their outputs by as much as 40 percent, while warehouse operators have seen a 10 percent decline in costs and a 30 percent rise in productivity.
According to the report, there are nearly 40 cargo ports around the world using some form of process automation at a total investment cost of at least $10 billion. McKinsey projects this spending will accelerate in the near term, with ports and terminal operators expected to spend another $10 billion to $15 billion in the next five years.
The firm cautioned that it takes careful planning and management, but said those ports that are successful in their automation efforts can decrease operating expenses 25 percent to 55 percent and increased productivity by 10 to 35 percent.
“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,” it added. “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 realize this vision.”
A McKinsey survey found that 80 percent of senior executives from the the top ports in China, Europe, the Middle East, Singapore and the United States, global suppliers of automation equipment and software, and experts from academia, port asset management firms and transportation providers expect at least half of all greenfield port projects in the next five years to be semi- or fully automated, while 35 percent said the number of automated ports will rise to above seven in ten.
And yet, those same executives indicated that automated ports — especially fully automated ones — are generally less productive than their conventional counterparts.
McKinsey estimates that in order to justify the high cost of an automated greenfield port terminal, expenses would have to be 25 percent lower than with a conventional facility or productivity would have to increase 30 percent along with a 10 percent decline in costs. But according to the report, survey respondents said the reality of terminal automation tends to fall short of expectations, with operating expenses generally falling only 15 percent to 35 percent and productivity actually declining 7 percent to 15 percent.
“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.”
Given that the survey also indicated personnel capabilities, data quality, siloed operations and exception handling were the biggest impediments to realizing the promised cost and productivity benefits of automation, McKinsey recommended ports “start with a blank slate” to build automation-ready capabilities, create a collaborative environment by coordinating and communicating automation efforts across various departments and stakeholders, test any new systems extensively before putting them into operation, incorporate external data into automation systems and clearly define implementation, productivity and cost targets ahead of time.
“Realizing [the full value of port automation] will require innovative business models and new collaboration frameworks,” the firm said. “They won’t come easily. Yet this is surely a future worth striving for.”
Cost, operational challenges hinder port automation
