This tweet piqued my interest:
What this reminds me of is the fact that LA/LB, which this specialist talks about as being partially automated, has been awarded in efficiency reports the title of the least efficient port in the worldhttps://t.co/AVsUdN8zPl
— David Dayen (@ddayen) July 12, 2022
This is true according to the World Bank, although 2021 was sort of a special year. But even in other years the Los Angeles/Long Beach complex has ranked pretty low, and US ports in general have usually brought up the bottom of the pack.
But why? David links to a great interview with Rebecca Schlarb, an automation coordinator who works at the fully automated Long Beach Container Terminal at the Port of Long Beach. Just generally, her main criticism is that the automation is unreliable, and when it fails it slows things down more than a similar failure does at a traditional terminal. But the terminal is still fairly newish and it's probably going through the usual shakedowns. Presumably it will get more reliable with time.
The LBCT definitely runs with less labor than traditional terminals, but when you add in the failure rate is it more efficient on net? Schlarb had this to say:
Nothing moves better than actual hands-on interaction. The only positive argument for automation is it saves labor costs for shipping companies and terminal operators to rake in billions of dollars in profit that does not stay here in the United States.
Hold on. If automation allows the owners to make billions of dollars in extra profits, then it must be pretty damn efficient, right? And there's some other evidence on that front:
- The World Bank report examines overall port operations, which are only about 15% automated at LA/LB. If the ports are ranked poorly, it's almost certainly the non-automated part that's responsible.
- Much of the port's lack of efficiency is likely because it doesn't operate 24/7. This is due to the port's union contract, which mandates that anything beyond two shifts requires premium pay. That's why there's no third shift.
- The LA Times reports that truck drivers hate traditional terminals for two reasons. First, they're mostly Hispanic and they claim that ILWU workers are rude to them. Second, they have to wait a lot longer at traditional terminals. The two automated terminals at LA/LB have the shortest cargo turn times at the ports, less than half those of traditional terminals.
- The Pacific Maritime Association, which represents carriers and owners, issued a report claiming that automation improves throughput and, because this means more business, actually increases ILWU employment. They have figures to back this up, but who knows?
- On the other hand, a McKinsey report from a few years back was bearish on automated ports:
Our survey indicates that operating expenses at automated ports do indeed fall, but only by 15 to 35 percent. 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.
This isn't enough to justify the capital investment in automation. But there's always this:
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.
I couldn't resist including this. Don't you love the smell of consultants in the morning?
Still, if everything McKinsey says is true, why are other terminals already in the process of automating? There must be something to it.
An educated guess from someone who has never worked in that business: The automation of port operations is still in its (relative) early years. As software matures and the operators learn to take better advantage of it, the automation will widen the gap in efficiency relative to the old-fashioned hands-on methods.
Why do I, who have never worked in that business, say that? Because in my 50 year career in software, it's been the rule in every business I ever worked in. Start with a brand new idea--how to take advantage of computers. Write some software, put it into operation. Learn, enhance...rinse and repeat. At first the workers complain bitterly about how stupid the computers are. Ten years later, things are looking up. Another ten years, and nobody wants to go back.
Buzz-word bingo and breaking the union. Don't underestimate or undersell just how much American executives hate unions and the lengths they will go to in order to de-unionize a workplace.
At least here on the east coast in places like NYC, NJ, and Baltimore, the longshoreman unions were among the most mobbed-up, corrupt organizations anywhere. I met a guy once who owned a frozen seafood import business in NYC in the 70s or 80s and every couple of years he had to negotiate a contract with the longshoreman union that handled his cargo. He had to meet some guys in an Italian restaurant in Newark and sign the papers. OTOH, when anything wasn't going right, all you had to do was call your contact at the Italian restaurant and things got fixed. Immediately.
You gave yourself the answer. Costs are down 15%, efficiency is down 7%--so that's an 8% gain!!!
It gets better. Lack of effective competition means prices can spike as efficiency goes down. Cha-ching!
Why not run the third shift? It's not just that it would cost more, per contract, but that would also weaken pricing power.
Global shipping is getting cheaper, but still expensive: From the Slate article, shipping a container between China and US went from $2K to $20K and has now dropped back down to $8K. Money was being made.
https://slate.com/business/2022/07/inflation-shipping-goods-china.html
I, personally, welcome our new fully automated Industry 4.0, the last industry we'll ever have.
The paradigm to end all paradigms.
"Still, if everything McKinsey says is true,"
Here's a pro tip, Kevin: Nothing McKinsey says is true. Every word is bought and paid for.
Ugh. I agree with commenter Ken Rhodes: The software will likely get better.
My primary observation is that we have three words being tossed about here: efficiency, productivity, and throughput.
First of all, it's hard to know just what is being measured when we hear that something is improved. Because with efficiency and productivity are ratios, and there's a question of exactly what is being divided by what else.
Throughput, it turns out, is less subject to this. You could describe throughput in tonnage or in containers, or "units". Throughput is what we folks who want stuff in stores care about.
Efficiency and productivity are directly related to profitability. To measure, you might divide by the number of slips, or the number of cranes, or the number of truck loading docks, or the number of workers.
If you measure by cranes, it seems automation is struggling to keep up with long-time experienced workers. My first computing job was with a team doing automation in a sawmill. We were unlikely to do much better than the top, experienced operators. But, they were old, and soon to retire, with nobody else as good in the pipeline. Of course, they kind of resented the automation.
It's not uncommon for a gain in efficiency to be in reality a shift of an expense from one area, where it's accounted for, to another area, where it's not. This has been happening a lot in academia, for example, where universities are becoming more "efficient" by shifting administrative activities from administrative staff to faculty. The money that would have been spent paying a secretary or office assistant has been saved, but at the cost of requiring a professor to spend time copying handouts, sitting on hold with vendors to place orders, and even sorting mail.
The critics appear to be using efficiency to mean "operating efficiency," i.e., how much work is done in a given time period, whereas the supporters are using it to mean "economic efficiency," i.e., how much it costs per unit of work done. In many cases, highly hands-on operations get a lot done, but every worker costs money, so that often isn't the cheapest way.
It wouldn't be surprising if the union was fighting automation. That's basically what they did forever - it's a big part of why the big break-bulk ports didn't become the big container shipping ports, but other ports. I thought they accepted automation in exchange for high pay and job security, but maybe not.