The future of automated ports

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Executive summary

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. 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 percent and productivity could rise 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. 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.

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 (see sidebar, “What is port automation?”). 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.1 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. 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 (Exhibit 1), 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 percent. In the warehousing business, the improvements have been estimated at 10 to 30 percent.

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 our 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 8 percent.

What the research shows

To determine the current status and future outlook of container-terminal automation in the port sector, McKinsey hosted a forum together with the Shanghai International Port Group and conducted a survey in 2017, just before the Port of Shanghai rolled out a fully automated terminal. We collected the responses of more than 40 participants from leading practitioners in the top ports of 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 shipping companies. More than three-quarters of the participants were senior executives or high-level managers.

The survey clearly showed that automation has become a trend. Eighty percent of the respondents expect that in the next five years, at least half of all greenfield port projects will be semi- or fully automated. Thirty-five percent believe that the proportion of automated ports will 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 percent of the top 50 ports to initiate retrofitting plans or to add automated equipment during the next five years.

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 percent lower than those of a conventional one or productivity would have to rise by 30 percent while operating expenses fell by 10 percent.

The respondents to McKinsey’s survey expect automation to cut operating expenses by 25 to 55 percent and to raise productivity by 10 to 35 percent, in line with our estimates of what might be possible. But today these expectations generally aren’t realized, especially in fully automated projects. Our survey indicates that operating expenses at automated ports do indeed fall, but only by 15 to 35 percent (Exhibit 2). Worse, productivity actually falls, by 7 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.

Barriers and solutions

Responses to our survey suggest that the major barriers (in descending order of importance) are capabilities, data quality, siloed operations and the handling of exceptions.

A shortage of capabilities

Respondents who had previous experience with automation say that the top problem is filling the specialized technical positions it requires (Exhibit 3); 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

Like organizations in other sectors, ports find that data silos and a lack of data standards are basic problems in automation. Many interviews with managers of port operations indicate clearly that the quality of data and the data analytics isn’t sufficiently strong to run automated ports efficiently.

Why? The first reason is that the lack of a structured, transparent data pool makes it hard to monitor and diagnose the operations and performance of equipment quickly. Second, the standards, formats, and structures of the data may be misaligned or even wholly absent, so ports can’t collect and exchange data efficiently.

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