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Qingdao is proud of its fully automated cargo handling, but how well will it iron out bugs others experience?

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.