Defining the Ports of the Future – Doing More with Less v3

9th April 2019

Dr Jonathan Beard, Partner, EY

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Defining the Ports of the Future – Doing More with LessConfidential – All Rights Reserved

Key drivers of change – old and newTechnology solutions should be driven by customer need….rather than a ‘solution’ looking for a problem

• Bigger vessels

• Bigger variety of vessel sizes, especially for major hub ports

• Larger and fewer customers – both M&A and Alliance structures

• More complex calls

• Downward pressure on tariffs

• Demands for higher port productivity

• Climate change, higher environmental standards, new fuel requirements

• Demand disruption / trade uncertainty

• Digital….and digital disruption – IoT, Machine Learning, AI, VR, AR, etc.

Ports and port ecosystems must address these in a sustainable fashion, but ‘future proofing’ is far from easy - Do the Same a Bit Better, or reach for a Paradigm Shift?

“We tend to overestimate the effect of a

technology in the short run and

underestimate the effect in the long run."

(Roy Amara, The Institute for the Future)

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Smart Port Ecosystems A range of stakeholders / competitors, need to come together… even more so in the digital age

Source: ICF 2003; also republished in Mark Millar, “Global Supply Chain Ecosystems - Strategies for Competitive Advantage in a Complex World”, 2014; EY 2019

OPERATIONS NEAR TERMINAL

OPERATIONS AT TERMINAL

‘FOCUS ON TERMINAL CUSTOMER’

OPERATIONS AWAY FROM PORT‘SECURING THE HINTERLAND’

Quay Yard

IT

LOCAL REGIONAL (INTER)NATIONAL

GOVERNMENT PARTNERSHIP & PUBLIC-PRIVATE PARTNERSHIP

‘SEAMLESS CARGO MOVEMENT’

Infrastructure• Logistics parks• River-road centre• Rail-road centre,

etc.• CAVs/EVs

Maritime• Navigation

channels• Piloting / towage• Ship repair, etc.

‘Soft’ Infrastructure & Support Services

• Digital infrastructure & services

• Customs, trade regulations

• Environment & planning• Bank, Insurance, Legal• Freight forwarders,

3PLs, etc.

• Road - CAVs• Rail• Inland shipping• Shortsea feeder• International

trans-shipment• Pipelines

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Defining the Ports of the Future – Doing More with LessConfidential – All Rights Reserved

Smart Port Ecosystems are only as good as the weakest linkThe basics still apply…even in the ‘digital age’

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Ports of the Future: Doing the Same a Bit Better, or Paradigm Shift?

• More of the same but a bit better (e.g. VICT, Melbourne; Maasvlakte 2, Rotterdam)…

• …or a step change in design & operations?

• Who wants to be first mover?

• What is the return on investment and how much are customers willing to pay for superior productivity?

• What will digital disruption ‘outside the gate’ (e.g. CAV, EVs, etc.) mean for operations inside the gate?

Source: APMT; GRID Logistics Inc; Uber; Conservation

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Full Automation but based on traditional design concept‘Safer option’ but still considerable risk: e.g. ‘traditional stakeholder’ resistance

VictoriaInternational

ContainerTerminal (VICT),

Melbourne

• State of the art automated terminal opened early 2017; at full development: x6 STS, x21 auto shuttles, x28 auto stacking cranes

• Only terminal in Melbourne able to adequately handle 8,000 TEU vessels

• But initial operations disrupted by industrial action – subject to legal challenge by operator

Source: Kalmar; ICTSI

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Out of the Box Thinking can lead to Expensive Mistakes E.g. Ceres Paragon terminal (ACT) @ Amsterdam

Amsterdam’s ‘White Elephant’ is put out of its misery

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What is the Return on Investment (ROI)? Relatively little data available so far

• FastNetconceptualized by APMT & Liftech to enable STS gantry cranes to work adjacent container bays (instead of alternate).

• Estimated to deliver 450 moves per hour quay-face productivity

• However, ROI is uncertain and APMT have yet to introduce the technology at its new terminals

Source: APMT; Liftech

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Improved Container Yard Productivity and Feed to Quay-face

E.g. Ocado - upgrade grocery picking technology application & warehousing system for containers

Targeting:

• >350 containers per hr over 8 cranes

• Up to 1,200 TEUs/acre (3,000 TEUs/hectare)

• Sorting and sequencing up to 500 containers/hr/hectare of yard space (200/acre)

• Railhead productivity >200 containers/hr & reducedland take at terminal (e.g. versus traditional on-dock rail yard)

• Can be phased - upgrade existing ports insmall increments

Source: Ocado

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GRID Logistics – SuperDockTM

High Density Operations and Enhanced Inland Connectivity

Source: GRID Logistics

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Defining the Ports of the Future – Doing More with LessConfidential – All Rights Reserved

New Ways of Connecting the HinterlandE.g. Hyperloop

• Moves cargo (or pax) speeds > 1,100 km/hr

• Fully enclosed tube: system isolated from weather and crossings

• Low pressure environment reduces resistance

• Electric propulsion enables emissions free transport (if generation is “green”)

• Levitated pod reduces friction, compressor reduces resistance

• Can move one container at a time – no need to ‘build a train’

• Reduced land take at terminal (e.g. versus on-dock rail yard)

• Requires ‘truck move at other end’ (for now)

• Does maritime cargo need >1,100 km/hr for landside moves?

• Operational details and costs to be determined

• Best suited to certain gateway terminals & hinterlands, but not others?

“DP World Invests in Hyperloop”

“Hyperloop One…have announced a further US$50

million in funding, provided by DP World, taking the total seed

money raised to $160 million….”

- [Port Technology Oct 14, 2016]

“Source: Hyperloop One; Press

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New Ways of Connecting the Hinterland - Connected Autonomous Vehicles (CAVs)?Paradigm shift outside gate…..but also within terminals & marine side?

Source: Zurich; Arcadis

Autonomous -operational functions of a traditional car without a human operator

Connected -technology enabling it to connect to devices within the car, as well as external networks such as the internet

Self-driving truck

Longer & more reliable operating hours

Increased efficiency with platooning

Fatal accidents can be avoided or reduced

Improved interface with container terminal

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How Soon?Research suggests Highly Automated Vehicles (HAV)* deliver benefits sooner rather than later

Notes: *Level 3, 4 or 5Source: “The Enemy of Good: Estimating the Cost of Waiting for Nearly Perfect Automated Vehicles,” http://transportationtech.com/rand-study-examines-safety-of-autonomous-vehicles/

• RAND corporation studied safety costs and benefits of different levels of HAV

• Modelled 3 cases:

• 10% better than humans

• 75% better

• 90% better

• Determined that even just the 10% can save 100,000+ lives over a decade

• Therefore HAVs do not have to be even near perfect to realize the significant safety benefits

• But what about public acceptance?

Level Driver Example

L0 Driver Only -

L1 Assisted Park Assist

L2 Partial Automation Traffic Jam Assist

L3Conditional Automation

Highway Patrol

L4 High Automation Urban Automated Driving

L5 Full Automation Full end-to-end Journey

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CAV Sophistication – Spillover and Disruption to Supply Chain Segments?

Source: NASA, IEEE, Wired, Boeing, Microsoft, Linux Foundation, Ohich

0 10 20 30 40 50 60 70 80 90 100

Space Shuttle

F-22 Raptor

Hubble Space Telescope

Mars Curiosity Rover

Linux Kernel 2.6.0

Google Chrome

Android

Boeing 787

Large Hadron Collider

Windows Vista

Facebook

Modern High-end car

Software size (million lines of code)

• CT heavy equipment manufacturers partner with CAV / software developers?

• New terminal designs and operating systems?

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Enhanced trade facilitation and data exchangeThe promise of Blockchain and other digital innovations

• Current supply chains are very complex and lack transparency; trade is largely facilitated / impeded by numerous paper based transactions

• Digital innovation offers considerable scope for streamlining, especially if regulations are updated accordingly. Great interest in how blockchains (distributed ledgers) might transform the supply chain and logistics industry – reduce paperwork, free up working capital, increase transparency, etc.

• A number of initiatives and platforms:

• E.g. Maersk and IBM’s “TradeLens” - distributed ledger technology platform for supply chains

• E.g. “Insurwave” – first marine insurance blockhain platform in commercial use: developed by EY and Guardtime, in collaboration with Maersk, Willis Towers Watson, MS Amlin and AXA XL Catlin (www.youtube.com/watch?v=w2HHhopoRTs)

– Links shippers, brokers through to insurers and reinsures via distributed ledger and enables sharing of trusted data and transactions

– Facilitates real time pricing and improved risk assessment

– Smart contracts automate or remove numerous activities that otherwise drive up costs

• Still in their infancy

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Defining the Ports of the Future – Doing More with LessConfidential – All Rights Reserved

Wrap: Ports of the Future

• Doing more with less has been a guiding principle of the best operators for many years: e.g. Hong Kong Port during 1980s (increased productivity and in-situ capacity increases); 2019 HK Seaport Alliance

• Digital innovations offer considerable scope for enhanced use of assets, better co-ordination, more efficient port ecosystems and supply chains

• CAVs will be widespread within 10 years – impact will not simply be ‘outside the gate’

• Ports remain lumpy investments – a critical issue in large, dynamic markets is to preserve options / flexibility where possible, ensure adequate capacity is available in a timely fashion, but to avoid expensive over-build.

• Especially true in major transhipment markets with economies of scale: future structure of Alliances is critical: i.e. do you need to build 4-5/9-10M TEU per yr as a minimum (accommodate ½ or a whole alliance hub), or will the market look very different by then?

• Should ports / terminal operators aim for paradigm shift in performance, or go for “more of the same but a bit better”, or “mixed” strategy? “More of the same” may seem less risky operationally and financially, but may lock in long-term obsolescence & irrelevance

• However, pressure on margins and demand uncertainty may play against major changes. Quay-face (and port) productivity is important to lines….but only to a certain point. Terminal operators will continue to focus on their productivity metrics – maximise asset utilisation whilst maintaining customer service levels

Thank You

Dr Jonathan BeardPartner | Infrastructure Advisory

Ernst & Young Transaction Ltd21/F, Citic Tower, 1 Tim Mei Road, Central, Hong Kong

Office: +852 2675 2991Mobile: +852 9661 6058 / +852 6095 8434

jonathan.beard@hk.ey.com ey.com