The anticipation is that the sipping cycle with moderate phases of export and import volume development are as likely as steep developments up and down, hence unpredictable volume development. This means that not just the port handling volumes are likely to be affected by the global downturns, but also the viability of its terminals own clients; the shipping lines as well as shippers, receivers and logistics service providers are likely to be equally affected, leading to a higher risk of payment defaults for the terminals.
Against this background, terminals around the globe are preparing for especially for reduced volumes and revenues. Development projects are often re-evaluated or even stopped. Most of our terminal operator clients are reporting that they are either already in the process or planning to set up cost-cutting and rightsizing programs.
The global port industry is already heavily affected by the Covid-19 pandemic. As reported by our customers, there have been numerous blank sailings to and from ports around the world. Terminals are facing significantly reduced export volumes, while import containers are not picked up by the consignee resulting in longer dwell time, congesting the yard capacities.
The anticipation is that the pandemic will continue for some time. Exactly how long is uncertain and equally no one knowns when and how fast the global economy will recover. This means that not just the port handling volumes are likely to be affected by the global downturns, but also the viability of its terminals own clients; the shipping lines as well as shippers, receivers and logistics service providers are likely to be equally affected, leading to a higher risk of payment defaults for the terminals.
Against this background, terminals around the globe are preparing for reduced volumes and revenues. Development projects are re-evaluated or even stopped. Most of our terminal operator clients are reporting that they are either already in the process or planning to set up cost-cutting and rightsizing programs.
The Cost Saving Potential of Equipment Rightsizing
As recently pointed out by simulation specialist Maxim Neiser, taking quay cranes temporarily out of operation might be one of the most effective immediate cost-cutting measures, reacting to revised vessel schedules with reduced vessel calls and/or moves per call. It leads to direct savings of operating costs for labour, energy and maintenance. Depending on the cost and wage levels, between USD 250 and 350 can be saved per operating hour, with labor costs accounting for 80% of the running costs in high-labor-cost countries.
This cost saving potential does, however, not only apply for quay cranes, but also for other container handling equipment. For example, also a rubber-tyred gantry (RTG) operating hour may account for more than USD 100, and even a terminal tractor has operating costs of about USD 70 per operating hour. Hence, over multiple shifts, weeks and months there is a huge saving potential for any container terminal. For example, removing one quay crane, two RTGs and five terminal tractors from operations, will save about USD 7,000 per shift and more than USD 300,000 over a month.
Despite this huge cost saving potential, some terminals are reluctant to take these simple cost cutting measures as to not impair their operational performance and the resulting service levels for the shipping lines. In fact, this is not an easy decision as terminals are complex systems with several dynamic interdependencies between quay, yard and transport operations, making it difficult to accurately predict the effects of equipment reductions by simple rule of three calculations.
For example, taking an RTG out of operation would at first glance have no effects for the performance of the remaining cranes. However, in practice this could also lead to higher productivities as a result of reduced interferences among cranes or reduced productivities as a result of longer gantry travel distances, depending on terminal-specific framework conditions. Hence, an equipment reduction that seems feasible at first glance may turn out to cause unexpectedly high performance reductions. As a result it could lead to default of agreed performance levels with shipping lines, or the other way around, the performance implications are smaller than expected allowing for even higher equipment reductions than initially planned.
How to Cover Operational Risks
Responding to these operational risks, I fully agree with Maxim Neiser that simulation is the one and only tool to provide detailed and highly accurate insights into the effects of equipment reductions on terminal performance and service levels. At a fraction of the monthly saving potential, a proper quay simulation tool can precisely determine how many quay cranes are needed in which situation, and how many can be taken out of operation while still complying with service level agreements.
In addition, although not being a crystal ball that can predict future container volumes, a simulation lays the foundation for the flexibility that terminal operators are looking for under currently volatile volume expectations. It helps to prepare for alternative future volume and vessel traffic scenarios (i.e., alternative vessel schedules) before becoming reality. Based on the simulation results, an operator can decide for a stable equipment setup that requires no modifications under different future volume scenarios, or determine at which volume trigger points the equipment can be stepwise reduced in order to save as much operating costs as reasonably possible. In this way, simulation helped my team for a project in South-East Asia to determine optimal trigger points for adapting the quay crane numbers for a most efficient development in line with container throughput and vessel schedule.
In summary, simulation facilitates optimal cost saving decisions and flexibility, providing terminals with required insights into vessel service levels in response to equipment fleet size under volatile volume expectations und vessel schedules. Hence, simulation lays the foundation for reducing deployed container handling equipment over shifts, weeks and month to a required minimum while still fulfilling contractually agreed service levels with shipping lines. Starting at USD 25,000, a quay simulation will already pay back with identified saving potential for equipment operating costs after a few days.
What is your cost saving potential? Feel free to reach out.
About the Author
Nils Kemme is Partner and Managing Director at HPC Hamburg Port Consulting GmbH. He has 20 years of experience and extensive knowledge in the field of planning, realising and optimising ports and logistics systems. Combining first-hand operations experience from Hamburg’s container terminals and in-depth simulation know-how, where he also earned his PhD degree, Nils is now heading HPC’s simulation team. As of now, he has over the last decade planned and optimised port design and operations in more than 35 simulation projects on six continents, including multiple traffic optimisation studies.