Beware of following the herd when it comes to investing in automation, writes Martin Rushmere

Automation is inevitable - ports and terminal operators know that, but they baulk at the expense and want to keep their equipment and process systems as simple as possible. Expense, labour saving and safety circle the wagons of automation.

Ports and terminal operators readily acknowledge that they have to move up the ladder, but need to find the easiest way. The fear of a cost explosion worries everyone, with the TraPac terminal expansion at Los Angeles crowding out all other worries. This saw costs more than doubling to $510m from when the project was announced in 2009.

The original estimated cost of $245m rose to $312m by February 2011. Then came the decision to use automated cranes, putting the costs at $344.5m. The port authority officially became involved in 2012 when it approved a budget of $365m. The biggest factors have been civil engineering works (primarily concrete works) and electrical installations to cope with the power demands of the cranes.

Some say that the 40% increase in costs, some of which the port will have to bear, was one of the main reasons leading to the sudden departure of chief executive Geraldine Knatz.

By 2025, it is expected that the capacity will be 2.4m teu, up from 1.6m today. A rough calculation puts the cost at $650 per extra teu. By comparison, Asciano in Australia is spending $350m at its automated terminal in Port Botany on increasing capacity by 500,000 teu to 1.6m teu - $700 per extra teu.

Cost check



Many variables come into these figures and can distort them, the biggest being environmental and regulatory. The cost of making sure that all materials, installations and processes conform to government regulations cannot be separated as it becomes part of the overall contract.

Can the costs be underestimated? Tom Szwajkos, consultant at TR Pallen & Associates, thinks so. “The operators see that they are saving on labour costs – but then find that they need more people in other departments such as mechanics to service the gantries and suchlike. The IT budget goes through the roof, which some operators don’t plan for.

“You have to go into automation knowing what it costs and you have to make sure you have the resources.”

There is also a tendency to expect a quick roll out, he says. “Changing RTGs to rail can take one to two years – putting in the utility bunkers, for example. But some planners assume it can be done in three months.”

Clear benefits



For those ports that are automating, the benefits are clear and direct. Safety at Asciano at Brisbane showed a huge improvement, with a 75% drop in lost time injuries in the first year and 90% overall. The operator is confident that injuries can be reduced to zero.

Trade unions take a cynical approach to this. They note that at Port Botany automation will eliminate 270 jobs, almost half the workforce, and question whether the decrease in accidents is because of greater safety or fewer people overall.

To allay operator anxiety about equipment changeover, manufacturers are stressing flexibility in system implementation. Kalmar says manual and automatic straddles can be used in the same terminal, and the company has no difficulty in converting manual to automatic.

Consultant Cardno Tec in the US faced a challenge with a client at Barbours Cut, Port of Houston. While acknowledging that the future lay in automation, the operator was still hesitant. “They were not opposed to the principle of automation but they were saying ‘This is what we are used to’ and we needed to come up with a masterplan to allow them to keep their RTGs and move to automation,” says James Hunt, a principal at Cardno Tec.

He advises operators to consider the long-term lifecycle of bringing in new systems and equipment and not pass on costs immediately. “They have to make sure they are being cost effective. That’s the driver.”

Lemming like



Analysts caution against operators becoming too starry eyed over automation. “There are some crazy notions out there”, says one, “such as using conveyors to haul cargo up and down, backwards and forwards and all over the place. The cost is just not worth it.”

A US analyst agrees. “Ports can be like lemmings. They all rush in the same direction when they hear that someone else has moved to automation. All they hear is the good news because operators don’t want to admit that a system, particularly the IT, does not work well.” He says that box positioning and location technology can prove particularly troublesome.

Drewry’s Neil Davidson says that the basic rationale is to replace high cost labour with machinery, in other words replacing labour costs with capital costs. "I don't think it's a foregone conclusion that automation leads to lower operating costs - not when you include the capital costs."

To date, most of the automation has been seen in high labour cost locations. But automation also improves safety (no humans wandering around the yard) and can result in less downtime, for example through the ability to operate in higher winds compared with a yard with people in it, and of course no labour disputes or strikes, at least not for the automated bit of the terminal.

What is interesting is that the technology of yard automation has moved on very rapidly and now, a large proportion of new terminals choose an automated or semi-automated yard, regardless of whether they are in a high wage cost or low wage cost environment.

Traffic surety



"However, with automation, you have to be very sure about the nature of your traffic over a long period forwards," says Mr Davidson. "The equipment is expensive and the layout of the yard is hard to change if circumstances change. In this respect the flexibility of manual straddle carriers can't be beaten - but then strads don't offer high density stacking, so there's the trade off."

Paul Bingham of CDM Smith says the crucial aspect of costs is spreading operating cost savings between management, labour and port terminal customers. "In the short run that is always fixed in contracts between all parties. Long-term it is open to negotiation based on the relative power positions and objectives of the parties.

“Eventually anything can be negotiated if the parties are patient enough and retain power to force the other parties to yield something,” says Mr Bingham. “Examples of re-opening of existing, not-yet-expired port authority and terminal operator contracts are at the Southern California ports who used requests for modifications/changes to existing terminal leases to force terminal operators to negotiate terms on environmental issues.”

On the potentially disruptive issue of labour, he says: “Labour contracts don’t seem to be as open to mid-contract renegotiation, but the length of the contracts negotiated in the future may be an indicator of the relative desire of participants in those contracts to potentially obtain future changes more rapidly.”