Port Automation Series: cost calculation for workforce, productivity and capacity

One of the more intriguing questions that the ILA-USMX standoff over automation is whether that technology produces the sort of economic savings that its supporters – and its greatest opponents – claim.

“The fact is simply that if you are a supporter of a port automation project, you have already lost the political argument,” a leading terminal consultant told The Loadstar on the sidelines of a recent industry conference in Hamburg.

“It doesn’t matter what the actual details are, what the actual costs are, in the public’s mind automation means robots, and it means job losses, and the reason behind these job losses is purely economic. That’s just the way it is – ports will never win the public argument; the public will always believe that dockers are being replaced by machines to boost profits.”

The general rule of thumb in the port industry is that the cost of building and operating a container terminal over a 30-year period – known as the total cost of ownership – for a manually operated terminal vs a fully automated facility is broadly similar. The manual operation requires less initial capital investment (capex) but will incur higher operating costs (opex) over its lifetime; while an automated terminal requires greater capex and lower opex – the equipment is more expensive to buy but cheaper to run.

What is less routinely acknowledged, however, is that while container terminals are an inherently modular business, no two ports are ever the same, although one constant in automation is guaranteed – building a greenfield automated port in preference to a manual operation is one thing, retrofitting an existing manual operation as an automated terminal is quite another.

The cost comparison of the two systems revolves around three main issues – labour, productivity and terminal capacity.

The conversion of HHLA’s Burchardkai facility in Hamburg illustrates this, as it has taken far longer and cost much more than originally forecast. It has so far taken 12 years to install 19 ASC-operated blocks, with 24 in total due, and The Loadstar understands the undisclosed project cost amounts to billions of euros and is a core reason why MSC’s purchase of a 49% stake in the operator came with a €450m cash bonus.

“The costs of automation technology are dropping today, but it’s at a slow and steady rate. It’s not like two years ago if you wanted an electric car you had to pay Tesla $60,000, and now you can get a better designed BYD for less than half that amount, but the coast are dropping nonetheless,” a senior European terminal executive with several automaton projects under his belt told The Loadstar, speaking on condition of anonymity.

“Of course it depends on the equipment and how easy it is to replace a person with a machine: you need to be highly skilled to drive a ship-to-shore crane, less so to drive an RTG, and then there’s the horizontal transport, the terminal tractors, from quay to stack or stack to gate, which is a really shitty job and is much easier to automate – it’s now far more predictable and cheaper.

“The costs of AGVs [automatically guided vehicles] are much more attractive, but also the overall cost of the system is less – five or six years ago every AGV had to have GPS and RFID sensors installed and connected to wi-fi via 3G or 4G, which would often have connectivity problems. With 5G, most of those issues have disappeared – it’s a no-brainer, and a game-changer.”

Another game-changer was Covid, and the way it highlighted critical labour issues, particularly the supply of the workforce and the sudden escalation in the cost of workers to businesses.

“Labour costs have accelerated rapidly – we saw significant increases in salaries during Covid, and after it was finished it was impossible to reduce these costs,” the terminal executive continued, adding that the difficulty in sourcing workers at certain points during the pandemic also highlighted a productivity gap.

“There is a cost motivation to automation, but its basic proposition is that it makes the operations more predictable and, if you are looking at the promises that you have made to carriers about performance levels, you have to deliver the productivity they are paying for” he added.

He explained that the port congestion crises that came in several waves following the first lockdowns, carrier-terminal negotiations had increasingly focused on terminal performance levels.

“What we find very difficult with manually operated terminals is to make their performance predictable; they always vary. Automation allows us to tune the operation. Maybe initially the productivity levels are lower, but eventually automated terminals will win, because it is a mathematical certainty that we can make them more predictable over a period of time.

“Ironically, the one thing that is preventing our automated terminals from hitting the higher productivity is the carriers themselves – none of this achievable if the ships don’t arrive on time,” he said. “There are more ships than ever today, and they call with such a frequency that we are forever pushing one out and pulling another in – only not in the right order, and that’s what causes havoc.”

Even in locations with lower labour costs, port automation can still pay dividends, he added. “Look, if this really is just about reducing wages, why would so many Chinese ports introduce it? It’s still a comparatively low labour cost environment – it was introduced and has been very successful because of the performance it provides. With those ports at the beginning of service strings there are none of the issues around schedule reliability that we have to deal with in Europe.

“But I think it points to another risk that terminal operators are hedging against – the availability of labour, whatever its price. Labour is still cheap in China but it is not infinite, especially for qualified staff, and I’m wondering whether we are reaching some kind of inflection point on this.”

The port consultant, who is currently working on a number of terminal automation projects, was similarly candid in a private conversation with The Loadstar: “Very little has changed in terms of the investment payback compared with 10 years ago. The costs of the tech have come down a little, but not in a meaningful way that makes any financial difference to the automated vs manual terminal, so the decision to go for automation is not about cost, whatever the unions argue. And anyway, automation projects always take longer and cost more than budgeted.

“No, the real reason for terminals opting for automation is about the future supply of labour – terminal managers don’t think there’s going to be enough labour supply to operate a manual terminal 20 years from now. But with the long-term investment nature of the industry, they need to act on it now,” he said.

And even if automation reduces the labour requirements of a port, the maintenance of the equipment brings its own challenges.

“It used to be the case that if you had an equipment breakdown, you would send out an engineer and they would pretty quickly determine the problem, mostly through a visual inspection. With automated equipment, you need an engineer who both understands port equipment and is also a data analysis specialist – and that is a big skills jump, which is why I think an agreement between PSA and the Maritime and Port Authority of Singapore to upskill 1,500 engineers was so far-sighted.

“Simply outsourcing the maintenance to the equipment manufacturers doesn’t solve this, because they are recruiting from the same pool as terminal operators. They need to try and provide that service at a lower cost than the operators would bear, and I just don’t see how they can square that circle,” he said.

Meanwhile, the number of automated projects coming onstream globally continues to grow. Just this week, Hutchison’s BEST terminal in Barcelona commissioned the first of seven new automated blocks. Due to be operational in early 2025, the terminal’s yard capacity will increase by 25%.

“This increase in operational capacity will reinforce our current high standards of service for all our customers, both on the sea side and in reception and delivery,’ said BEST CEO Guillermo Belcastro.

“The automated blocks at the terminal are designed to offer high speed, accuracy, reliability and capacity in container handling, resulting in greater efficiency for both transport companies or carriers and shipping lines. Automation allows a more agile and safer cargo management, reducing waiting times and optimising the flow of goods,” the company said.