Terminal 2 plan generating automated angst

Union leadership rings alarm bells over rising tide of tech disruption in port operations

Image from the cover of the Vancouver Fraser Port Authority’s overview of its proposed Terminal 2 project | Vancouver Fraser Port Authority

Automation has joined environment centre stage at the Canadian Environmental Assessment Agency (CEAA) review panel public hearings over the proposed Terminal 2 project.

It’s also central to contract negotiations that temporarily ran off the rails last week between International Longshore and Warehouse Union Canada (ILWU) and the BC Maritime Employers Association.

The Vancouver Fraser Port Authority’s (VFPA) proposal to sink $2.8 billion into a new container cargo facility at Roberts Bank in Delta is also raising concerns over who would operate the terminal if the project is approved and what that would mean for the future of high-paying longshore jobs and the economies of the 16 Metro Vancouver municipalities that border on Port of Vancouver land and operations.

In his May 16 presentation to the CEAA panel Tom Doran, president of the 3,000-member ILWU Local 502, said Terminal 2’s net economic impact had not been adequately assessed “particularly as it relates to the impact of automation on our industry and our communities.”

He claimed that fully automated and digitized marine terminal operations elsewhere in the world have reduced port workforces by as much as 70% to 80%.

Doran added that the container cargo sector generates roughly 70% of longshore worker hours in B.C.

“I would like to underscore that automation is a choice, and it’s not a foregone conclusion in economic development or decisions around productivity, sustainability or the environment.”

The percentage of Terminal 2 operations that will be automated depends on its final design and who the VFPA chooses as the terminal’s operator.

But Cliff Stewart, the VFPA’s vice-president of infrastructure, told the review panel that the terminal’s main yard would likely be semi-automated because, as he noted, there are some port and cargo movement jobs that robots and automation do better and some that humans do better.

However, Terminal 2, if approved, would not be operating for at least nine years. Container cargo technology will likely have changed radically by then.

The VFPA currently estimates that Terminal 2 would create 1,000 new container terminal jobs.

Doran is not alone in questioning the port automation equation.

As noted in “Tech’s Next Wave: Automated Cargo Movement” (Business in Vancouver issue 1540; May 7-13), McKinsey & Co.’s The Future of Automated Ports report found that, while operating expenses at automated ports decline, so does port productivity.

That lowers return on investment in a sector where upgrading or overhauling infrastructure is extremely expensive.

The port business is also under stress. U.K.-based shipping consultancy Drewry noted in a December 2018 webinar that the share price performance of the 11 global port companies included in its coverage had suffered one of the worst periods ever during the year’s third quarter.

Ongoing trade wars and rising global protectionism will not help that.

Lars Jensen, the CEO of Copenhagen-based SeaIntelligence Consulting, also pointed out to Business in Vancouver that there are very few fully automated container terminals in the world. That is unlikely to change significantly any time soon.

High costs and relatively low overall productivity and efficiency weigh against radical overhaul of terminals.

After observing a fully automated terminal in action, Jensen was lukewarm on its overall performance. 

“At least where I saw it automated last year,” he said, “there was not a strong case to be made that a fully automated terminal was necessarily more efficient than a manual terminal in terms of how many containers you can handle per hour, per square foot or however you want to measure it.”

Again, that comes down to robots being no more efficient than experienced humans when operating machinery like the huge gantry cranes that load and unload containers from ships.

But Jensen added that a combination of automation and manual labour strategically instituted in a port or container terminal will deliver cost-efficiency gains.

That mirrors findings in the McKinsey report. It concluded that, if planned and executed well, automated ports can cut operating expenses by between 25% and 55% and increase productivity by 10% to 35%.

Terminal 2 would add about 2.4 million 20-foot-equivalent units (TEUs) to the Port of Vancouver’s annual container handling capacity. The port handled 3.4 million TEUs in 2018.

The VFPA has said that without Terminal 2’s additional container handling capacity and more-
efficient infrastructure, transpacific container shipping lines will increasingly look to competitors on North America’s West Coast like Seattle-Tacoma and Los Angeles-Long Beach.

More business could also be lost to ports along the Gulf of Mexico and Eastern Seaboard as larger ships move with greater frequency through the expanded Panama Canal.

Mexican ports are also taking a bigger share of transpacific container cargo.

Consolidation and alliances in the global shipping sector combined with major carriers investing in larger container ships will reduce frequency of port calls and choice of shipping lines.

That is not good for container terminals unwilling or unable to invest in technology and infrastructure upgrades.

Doran also raised Terminal 2 management concerns.

The VFPA does not want either of the two companies that now operate Port of Vancouver’s container terminals to manage Terminal 2.

Instead it wants to add a third operator to the port’s container terminal management pool.

So GCT Global Container Terminals Inc., which manages GCT Deltaport and Vanterm, and DP World, which runs Centerm in Vancouver and Fairview in Prince Rupert, need not apply.

GCT has proposed an expansion of its Deltaport terminal, which could delay the need for Terminal 2. But because the VFPA has refused to process the company’s preliminary project inquiry to expand GCT Deltaport, GCT filed a Federal Court application March 28 seeking a judicial review of that refusal.

Earlier this year, DP World, which operates 78 container terminals, bought Fraser Surrey Docks.

Progress on securing a Terminal 2 operator is unknown.

The Port of Vancouver released a short list of five in November 2015, but the VFPA has made no announcement on its choice of the company that would manage Terminal 2. However, it has assured BIV that the selection process for the terminal operator remains active and that “a preferred proponent has been identified and commercially confident negotiations are ongoing.”

Doran told the hearing that port workers and British Columbians “have a right to know who will run this terminal.”

“Large corporations controlled offshore who are only accountable to their shareholders should not dictate how a development that Canadians pay for should operate, especially if their decision comes with a negative economic impact on our communities,” he said. “We also have the right to know what the mode of operation will be, and if it will be a job killer or not.”