Moody's: Port Automation May Not Always Deliver Results

Investment rating firm Moody's published a report questioning the value of container port automation in all applications, warning that the high capital investment, uncertain productivity gains, the potential disruption to ongoing operations and the concerns of labor unions all pose risks to automation projects. 

Labor-saving is a key feature for automated terminals, which may have between 40 and 70 percent lower labor requirements than traditional facilities. As an example, with ILWU longshore base wages set to rise to more than $45 per hour by 2022 - plus skill differentials, overtime pay, health care and pension packages - this is a significant consideration for U.S. West Coast ports. According to the port employers' association PMA, the average pay for a West Coast longshoreman is in the range of $175,000 per year - an income greater than that received by about 90 percent of all Americans - before accounting for non-wage benefits, which cost another $110,000 per active worker. This gives operators a strong incentive to reduce head count. However, Moody's warns, a reduction in on-terminal jobs or hours means the potential for conflict with unions (as illustrated in the dispute at the Port of Los Angeles' Pier 400). On the U.S. East Coast and Gulf Coast, the International Longshoremen's Association (ILA) has recently negotiated a prohibition on automated container terminals altogether. 

This political risk also extends to port authorities, which are seen as job creators for their communities. "Even if not explicitly stated, there is likely a limit to the willingness of many port authorities and their parent governments to support automation initiatives that result in meaningful job losses," Moody's warned. "Managing the employment impact resulting from automation, without concessions that compromise the economic potential of the technology, remains a key challenge."

In addition to labor savings, automation can increase terminal capacity on the same acreage by allowing the operator to expand vertically. As an example, the Virginia Port Authority has increased its capacity by nearly 50 percent on the same footprint by introducing semi-automated operations. Automated machines also bring predictability, consistency and uninterrupted operation - which can allow the addition of a third shift for 24/7 container handling, as is seen at Maersk's Maasvlakte II terminal in Rotterdam. That off-peak shift can be used to conduct re-stacking in the terminal's container storage stacks (known as "unproductive moves") to optimize the order of the boxes for the next day's loading operations. At the New Qianwan Container Terminal in Qingdao, China, management reports that the port saw operating efficiency improve by nearly a third with a switch to 24-hour automated operation and unmanned truck gates. 

The cost, however, is significantly high - and the assessment is still out on whether the benefits are big enough to pay it back, Moody's warns. "Many analyses that compare productivity metrics between automated and conventional terminals indicate inconsistent and, in a number of cases, negative productivity gains from automation. A recent McKinsey & Company analysis of port automation found that realized productivity gains and operating cost savings did not match expectations," Moody's wrote. In addition, automated systems are set up to work with a specific terminal configuration - and changing the port's operations to adapt to changing commercial circumstances (different cargo mixes, different shoreside transport modes, etc.) may be more challenging.