Return on Investment broch - Bromma · PDF file4 Figure 2(RTG Spreader Energy Cost Comparison)...

A Tradition Of Innovation

RETURN ON INVESTMENT IN SPREADERS

Bromma is part ofCargotec Corporation

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CONTENTS

Why Spreader Fleet Investment Should Be Based On Lifecycle ROI Analysis . . . . . . . . . . . . . . . . . . . 3

Spreader Weight & Energy Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Spreader Weight & Diesel Emissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Component Design & Energy Consumption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Spreader Maintenance Lifecycle Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

The Economics Of Spreader Downtime . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Spreader Fleet Size & The Amortization Of Spreader Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Quantifying Overall Return On Investment In Spreaders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

For Further Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

Index to Figures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

“Which spreader company, which spreader fleet – ‘X’ or ‘Y’ – willgive us the best overall chance to compete and win in our containerhandling marketplace?”

In approaching these strategic issues, terminal managers mustconsider several variables. These include:

• The impact of spreader weight on energy consumption• Spreader fleet maintenance and repair costs across the spread-

er lifetime• The impact of spreader component design on energy expense• Spreader durability and its impact on the spare spreader ratio• Spreader downtime and its impact on operational costs and

revenue production• The commercial impact of the selection of spreader “X” or

spreader “Y” on terminal marketing and profitability (speed ofship turns, utilization of berth capacity, and the overall mar-keting profile of the port)

SPREADER WEIGHT AND ENERGY COSTS

Spreader weight is an important lifecycle-cost issue, since weightdirectly impacts terminal energy consumption, an area of growingconcern to many terminal managers who are facing major spikesin energy costs. Some terminals do not fully analyze the issue ofspreader weight when drawing up spreader specifications, yetover the spreader lifetime the financial impact of heavier weightcan be considerable.

Figures 1-2 model the spreader weight-energy cost relationship.Figure 1 (RTG Spreader Fuel Consumption Formula) comparesthe annual energy consumption of two RTG spreaders – a lighter6 tonne RTG spreader, and a heavier 8 tonne RTG spreader. Thelighter spreader has diesel consumption of 12.5 l/hr, while theheavier spreader has energy consumption of 13.2 l/hr. Assumingoperating time of 4,400 hours over the course of a year, and a costof $0.70 USD per liter, this results in energy cost savings of morethan $2,000 USD per year for the lighter 6 tonne RTG spreader –more than $20,000 USD over the likely lifetime of the spreader.

Likewise, even a small weight difference can produce sizableannual energy savings. For example, an RTG spreader that is 1-tonne heavier ( a 7 tonne spreader versus a 6 tonne spreader)will add more than $1,100 USD to a terminal’s annual energy billper RTG spreader.

Such weight comparisons are not merely hypothetical. Yard cranespreader weight does vary, in some cases considerably, among theleading crane spreader suppliers. Weight disparities are particularlylarge when contrasting hydraulic RTG spreaders with all-electricRTG spreaders.

“It is a good thing to stand away from the canvas

from time to time,and take a full view of the picture.”

Winston S. Churchill

WHY SPREADER FLEET INVESTMENT SHOULD BEBASED ON LIFECYCLE ROI ANALYSIS

From an overall capital investment standpoint, the spreader fleetis of slight significance, yet its influence on container terminalprofitability is enormous. Assuming a ship-to-shore crane cost of$7 million USD, the typical ship-to-shore spreader represents afurther investment of just over 2%. Assuming an RTG crane costof $1.25 million USD, the spreader represents a further investmentof less than 6.5%. When total terminal investment (for dredging,wharf, yard infrastructure, labor, yard handling equipment, etc.) isadded, the spreader represents only a tiny part of the whole, yetspreader under-performance or out-performance can have an out-sized impact on terminal profitability. This is because the spreaderrepresents a leading cause of crane downtime. As such, spreaderfleet selection is an issue of strategic importance. Much of therisk associated with terminal operations (whether in direct financialpenalties payable to customers for delays in ship loading andunloading, or the larger marketing risk of losing a shipping linedue to underperformance) is directly affected by spreader per-formance. At the end of the day, a higher-productivity spreaderfleet can be a springboard for terminal growth. Likewise, a lessproductive spreader fleet will be an obstacle to terminal growthand profitability.

This is why spreader procurement should largely be shaped byreturn-on-investment thinking, rather than cost-to-purchase thinking.“How much will this brand of spreader cost?” is a question basedon today and today alone. “How will this brand of spreader helpus – or hinder us – as we strive to meet our growth and prof-itability objectives?” is a strategic question based on the future aswell as the present.

While cost-to-purchase is of course onefactor in total spreader investment, cost-to-operate, and the spreader’s likely impacton terminal productivity, is even morefinancially significant. This is why a moremeaningful “cost” question is: “What willit cost our terminal not just to purchase,but to purchase, service and operate an‘X’ spreader fleet versus a ‘Y’ spreaderfleet, over its likely lifetime?”

Likewise, terminals engaged in strategicspreader procurement must attempt tomodel not only lifecycle cost, but theimpact of a more productive spreader fleet onrevenues. Spreader downtime, for example,represents both a cost variable and anincome variable. A less reliable spreader costsmore to own – more man-hour expense forrepairs, more spare parts expense, and more capital investment foradditional spreader spares. Yet the greatest “cost” of a less reliablespreader is typically not its direct cost but its marketing-impactcost – the way in which a marginally less reliable spreader fleetleads to less efficient utilization of terminal vessel-berth capacity.

This is why spreader fleet planning is linked to a terminal’s overallgrowth and profitability ambitions. One of the most importantquestions in spreader fleet planning is the competitive question:

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Figure 1 RTG Spreader Fuel Consumption

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Figure 2 (RTG Spreader Energy Cost Comparison) compares thelifetime energy consumption of a 6 tonne, 7 tonne, and 8 tonneRTG spreader fleet. Assuming a 44,000 hour spreader lifetime,and a terminal fleet of 25 RTG spreaders, the figure shows thatlifetime fleet savings will be dramatic – from $275,000 USD fora 1 tonne weight difference, to $552,000 for a 2 tonne weight difference. Larger RTG spreader fleets will of course have evengreater energy savings.

Similar weight-related energy savings can also be achieved inship-to-shore operations. As Figure 3 (STS Spreader FuelConsumption Formula) illustrates, even a 1.5 tonne difference inship-to-shore spreader weight will produce significant energysavings – approximately $2,067 USD per year. In this case themodel is based on the following operating parameters: 4,400hours of twin-lift spreader operating time during the year, 24moves per hour, and 105,600 containers handled.

Figure 4 (STS Spreader Energy Cost Comparison) illustrates howsuch savings can accelerate when multiplied across a ship-to-shore spreader fleet. As the figure 4 scenario relates, a terminalwith 15 ship-to-shore spreaders should realize more than$310,000 USD in energy savings over a 10-year spreader lifecy-cle.

As figures 1-4 demonstrate, spreader weight is an extremelyimportant factor in spreader fleet lifecycle costs.

SPREADER WEIGHT AND DIESEL EMISSIONS

Excess spreader weight has a negative impact on environmentalpollution, as well as terminal profitability. Diesel engines are amajor cause of air pollution today, particularly nitrogen oxide(NOx), particulate matter (PM), and sulfur oxide (SOx). Dieselengine exhaust, in particular, is believed by scientists to be car-cinogenic. In response, many terminals around the world havebegun to exercise leadership by seeking to actively reduce dieselfuel emissions, both those released by container handling equip-ment and those released by container ships. In certain places,cold-ironing (the use of shore-side power instead of ship engineswhile the ship is docked) is being adopted. Some USA ports haveset ambitious targets of cold-ironing 70% or more of container-ship berths during the next few years. Other terminals are invest-ing heavily to retrofit diesel container handling equipment toreduce emissions. In this area of crane fuel emissions, spreaderweight is an “invisible” environmental cost … an invisible pro-ducer of excess diesel air pollution. Through the act of reducingthe weight of a spreader fleet, a terminal can achieve significantsavings in the area of lifetime environmental pollution.

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Figure 2 RTG Spreader Energy Cost Consumption

Figure 3 STS Spreader Fuel Consumption Formula

Figure 4 STS Spreader Energy Cost Comparison

On an annual basis, Bromma After-Sales estimates that the servicetime differential between a hydraulic and all-electric yard cranespreader is approximately 10%. As Figure 5 (RTG SpreaderService & Spare Parts Costs) illustrates below, such labor savingsshould translate into maintenance cost savings of approximately$410 USD per year, or $4,000 USD over the spreader lifecycle.This is largely based on an estimated 7 hour reduction (per year)in the time that must be spent on spreader preventive maintenance.

Some terminals are reporting quite dramatic overall labor andmaterials cost savings due to their yard crane spreader specificationdecisions. One leading U.K. terminal, which has more than 50yard crane spreaders (and 3 different spreader suppliers) in theiryard crane spreader fleet, has reported that in 2005 Bromma all-electric spreaders in their fleet cost 29.5% less to service andmaintain than the competitor all-electric spreaders in their fleet.Further, in 2005 their Bromma all-electric yard spreaders cost66.4% less to service (labor + materials) and maintain thanthe competitor hydraulic yard crane spreaders in their fleet.

Service time savings can also often be achieved in the ship-to-shore spreader area. Some spreader service technicians that haveexperience with various spreader designs believe “rectangular-frame” spreaders can be serviced faster than “mono-beam”spreaders, since rectangular-frame spreaders offer superior accessfor service and maintenance. Speed of fault diagnosis can alsovary quite widely between spreader manufacturers, as onlyBromma spreaders feature SCS2 advanced spreader control anddiagnostics technology.

As Figure 6 (STS Spreader Service & Spare Parts Costs) indicates,Bromma After-Sales estimates that a 16% annual reduction inservice costs – an estimated $2,150 USD – can be achieved dueto such spreader design advantages. As the figure illustrates, thisprojection is largely based on an estimated 16 fewer hours per yearon corrective maintenance, and an estimated 9 fewer hours per yearon preventive maintenance. This $2,150 USD in annual savingsrepresents should multiply into total service and maintenance relatedsavings of $20,000+ USD over the spreader lifecycle.

As with fuel and energy costs, routine service and maintenanceexpenses can be highly significant when calculating lifetimespreader value.

COMPONENT DESIGN AND ENERGY CONSUMPTION

Energy costs are of course affected by considerations other thanspreader weight. For example, the simple elimination of an idlinghydraulic pump on a yard crane spreader can produce significantenergy savings.

Bromma Research & Development estimates that the idlingaction of a hydraulic pump results in energy consumption ofapproximately 3 kWh. Assuming a yard crane spreader lifetime of50,000 hours, an idling hydraulic pump on a spreader will thususe an added 150,000 kW over its lifetime. If the cost of thisenergy consumption is estimated at 0.09 kWh, the Bromma all-electric yard crane spreader will save approximately $13,500USD in lifetime energy costs. (Actual cost savings will almostcertainly trend higher due to expected inflation in energy costs.)

While $13,500 USD is a significant cost saving for eliminating anidling motor, when this cost reduction is viewed in the context of asizable spreader fleet, savings become dramatic. In fact, a terminalthat eliminates the hydraulic pump on 7 RTG spreaders will gaincumulative energy savings from this single specification decision($13,500 in lifetime savings x 7 spreaders = $94,500 USD) morethan equivalent to the cost of purchasing an additional RTGspreader. A larger terminal with 100 RTG spreaders in their fleetwill realize energy savings of some $1.35 million USD ($13,500USD x 100 spreaders) over the fleet lifetime.

When yard crane spreader “X” is compared with yard cranespreader “Y,” any sizable gap in initial purchase price oftenbecomes a focus of attention. Yet, as the foregoing discussion ofspreader weight and component design illustrates, the “gap” inlifetime spreader costs is often a more compelling focus for attention.This is why an evaluation of cost-to-own, not just cost-to-purchase,is crucial in the spreader procurement process.

SPREADER MAINTENANCE LIFECYCLE COST

As with fuel and energy consumption, the cost of crane spreaderfleet maintenance (man-hours + materials) can vary considerablyover the lifecycle. This is perhaps best illustrated on the yardcrane spreader side, where all-electric spreaders require lessmaintenance, since there is no oil to drain, no oil filter to change,no hydraulic leaks to inspect, no hoses to check and/or replace,and no joints to tighten.

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THE ECONOMICS OF SPREADER DOWNTIME

One of the most important strategic issues in spreader procurementis spreader downtime. Low downtime is “wind at the back” – ameans for achieving more reliable and productive operations.Likewise, underperformance in the area of spreader reliabilitypresents a marketing and profitability challenge. Downtime is sofinancially significant that one Bromma customer has said that a1% improvement in overall spreader availability means a further$1 million USD in terminal operating profit.

Higher spreader availability is achieved in various ways:

• Through longer service intervals and/or faster routine spreadermaintenance (taking the spreader out of service less often,and/or putting the spreader back into service morequickly)

• Through fewer unplanned spreader downtime events(minimizing breakdowns)

• Through quicker resolution of problems when they occur –thereby reducing the need for spreader change-outs andspeeding the return to normal operations

In this paper we have already discussed ways in which spreaderdesign can influence faster routine maintenance. What strategicissues are involved when considering the issue of correctivemaintenance – the faster resolution of downtime events whenthey occur?

In evaluating downtime frequency and duration around the globe, itis clear that downtime varies considerably from terminal to terminal.Some Bromma customers at United Kingdom terminals reportextremely low spreader downtime – as low as 0.26% – therebyproducing a spreader availability rate of 99.74%. While suchavailability is atypical, it reflects both the underlying soundnessof the spreader and the attentiveness of service personnel at theseports to factory-recommended preventive maintenance schedules.

DOWNTIME REDUCTION STRATEGIES

On a global basis, Bromma After-Sales estimates that annualship-to-shore spreader downtime averages some 60 hours peryear. Overall, approximately 60% of crane downtime is directly

spreader-related. (Downtime is tracked somewhat differently atterminals around the world. Some terminals identify “operatorerror” as a separate category, for example. Other terminals eliminate this category and simply assign problems to “crane” or “spreader” categories.) Of spreader-related downtime, some63% of the total is due to electrical/wiring issues, 16% tomechanical issues, and 13% to hydraulic issues. As such, electricaltrouble-shooting is a key tactic in the elimination of spreaderdowntime events.

In this area one of the more important technical developments inrecent years has been the incorporation of Bromma SCS2 technologyinto more than 1,000 Bromma spreaders currently in service atterminals around the globe. Bromma SCS2 utilizes multiplemicrocontrollers to optimize diagnostics, and moves the Input-Output points to where the actuators and sensors are located. One of the key benefits of Bromma SCS2 is that moving theInput-Output points can reduce spreader wiring from as many as19 wires per box to 2 wires per box. Since wire breakage is a primary cause of spreader downtime, the advantage of suchdesign improvement is obvious: less wiring = less breakage = less downtime.

Bromma After-Sales estimates that SCS2 design advances canproduce a 10% annual reduction in downtime events.

SHORTENING DOWNTIME DURATION

Much of the focus of Bromma Research and Development inrecent years has been directed to the question of how to reduceMMTR – mean time to repair – the duration of downtime events.Minimizing the length of spreader downtime is extremely important,especially on the ship-to-shore spreader side, since the containerhandling chain is disrupted when a ship-to-shore spreader stopsworking. The means to achieving shorter downtime duration liesin more specific diagnosis of fault causes when spreader down-time occurs.

Due to its extreme specificity, Bromma SCS2 spreader diagnosticstechnology reduces fault-finding time dramatically – often to justa few minutes. The SCS2 event log is also important due to itsprescriptive as well as diagnostic functionality. The event log servesto eliminate the investigation of equipment-related non-events, suchas when driver error is the cause of spreader non-performance,rather than mechanical malfunction. The very specific SCS2 event

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Figure 6 STS Spreader Service & Spare Parts Costs

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USD in annual profit. This added annual profit from higherspreader productivity is more than the entire capital cost of thespreader. Should profit be just half this amount ($31.50 USDper move), the boost to profitability from another 1/2 moveper hour is still nearly $100,000 USD per year.

This is why productivity is the single most important factor indetermining payback on spreader investment.

Further, in addition to the above considerations, lower spreaderdowntime can create capital allocation benefits, as greaterspreader reliability reduces the need for excessive spreader“spares.” A malfunctioning spreader can usually be “switchedout” relatively quickly, but frequent downtime or change-outsincreases the number of spreader spares that must be kept ininventory. Reducing the capital that must be tied up in spreaderspares frees up this capital for re-allocation to investment ingrowth-producing initiatives.

Taking into account the significant financial ramifications associ-ated with spreader downtime, it is clear why is important for ter-minals to carefully evaluate which spreader supplier has the high-est likelihood of minimizing downtime over the lifecycle.

Marketing language, such as “design simplicity, quality control,manufacturing integrity, or leading technology” is often viewedas just this and nothing more – slogans companies use to packagethemselves.

Yet, the underlying ideas behind these words are actually of piv-otal importance when it comes to reducing spreader downtime,and fully maximizing terminal revenue. Design simplicity, qualitycontrol, manufacturing integrity, and leading technology, such asBromma SCS2, do have a material impact on this all-importantgoal of minimizing spreader downtime across the lifecycle.

DOWNTIME REDUCTION & TERMINAL MARKETINGEFFECTIVENESS

There is also a further intangible return on investment issue whenit comes to spreader downtime, and this is in the area of market-ing effectiveness. Perhaps the greatest “hidden” cost of excessivedowntime is the damage it can do to a terminal’s relationshipswith its customers. With the hourly operating cost of a Panamaxship estimated to be $1,200 USD, the cost to a customer whoseship departure is delayed due to spreader downtime can be verysignificant indeed.

log also serves as a barrier to an old and expensive downtimeproblem – re-fitting a defective spreader back onto a crane again,due to an incorrect diagnosis of the spreader problem. BrommaAfter-Sales believes that the more specific fault-finding madepossible by SCS2 can reduce downtime duration by an average of20% or more.

Spreader downtime is expensive. Calculating the economic impactof downtime can be approached in various ways – by calculating“lost” wages through idled workers, or by calculating the “opportunity cost” of downtime – the potential revenue a terminalfails to realize due to fewer moves per hour, slower ship turns,and reduced berth utilization.

DOWNTIME IMPACT AS A TERMINAL “COST”

In terms of “lost” wages, one United States west coast port hasestimated cumulative downtime cost at $1,260 USD per hour,with each 20-minute duration of spreader downtime generating adirect cost to the port of $420 USD. Based on such an estimate, 60hours of annual ship-to-shore spreader downtime would producean annual idled worker + equipment “cost” to the terminal ofsome $75,600 USD for a single spreader. In such a scenario, if aterminal could reduce downtime by just 10% through simplifiedspreader electrics, this would create $7,560 in annual downtime“savings.” Over the 10-year lifespan of the typical Brommaspreader, $75,600 would be saved ($7,560 x 10 years.) This isfully half the cost of a new ship-to-shore spreader.

DOWNTIME REDUCTION AS A TERMINAL PROFITGROWTH STRATEGY

However, since labor costs are generally “fixed” costs, many terminals find it somewhat more helpful to attempt to quantifydowntime from an opportunity cost standpoint. In this regard, asFigure 7 (Ship-to-Shore Spreader Revenue Production Model)indicates, even a slight difference in spreader downtime can producesignificantly higher terminal profits. In figure 7, a 2 hour differentialin annual downtime is estimated and moves per hour areincreased by only the slimmest of margins – from 24.00 movesper hour to 24.01 moves per hour. Still, even with this tinyimprovement in productivity, this scenario produces an annualincrease in revenue of more than $5,000 USD.

Profitability is highly leveraged to productivity. If a terminal canachieve a boost in productivity from 25.5 moves per hour to 26.0moves per hour, the gain in profitability can be extraordinary.Based on 6,160 hours of annual service, an added 1/2 move perhour, at $63 USD in profit per move, yields an added $194,000

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Figure 7 Ship-To-Shore Spreader Revenue Production Model

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Container terminals which are highly reliable and efficient, andwhich “turn” ships more quickly than other terminals, will gain amarketing advantage over peers, which will likely translate intohigher market share and greater pricing power.

Conversely, container terminals with frequent work stoppages dueto spreader downtime, or terminals that have container ships linedup waiting to dock due to the late departure of other ships fromthe dock, operate at a considerable marketing disadvantage.

This is another lost revenue issue that is important, yet difficult to quantify – the lost revenue and impaired pricing power thatinevitably results when a terminal has a less efficient, under-per-forming container handling operation.

SPREADER FLEET SIZE AND THE AMORTIZATIONOF SPREADER INVESTMENT

As we have said above, spreader reliability and durability areimportant factors impacting the size of overall spreader fleetinvestment. Spreaders with higher availability reduce a terminal’s“spare” spreader requirements. A common crane-spreader ratio atmany terminals is 1.6 spreaders for every ship-to-shore crane –that is, 16 ship-to-shore spreaders for a 10-crane fleet. However,a spreader with higher reliability and availability can lower thisratio – to perhaps 13 spreaders for every 10 container cranes. Byeliminating the need for three spreaders a terminal can reduce itsoverall capital investment in the spreader fleet by $400,000 –$500,000 USD, depending on spreader type.

For larger terminals, of course, the savings will be even greater.For example, for a terminal of 20 ship-to-shore cranes, reducingthe crane-to-spreader ratio from 1.6 spreaders per crane to 1.3spreaders per crane will eliminate the need for 6 spreaders –thereby reducing capital investment by some $800,000 to$1,000,000 USD.

In this sense, a more reliable spreader not only pays for itselfacross the lifecycle, but can also pay for itself at the beginning ofthe lifecycle.

Likewise, a more durable spreader lengthens the spreader replace-ment cycle. Bromma spreaders tend to have long lives – normallynot filtering out of terminal operations until after some 10-15years of service. Every year of additional reliable service delaysthe need for spreader replacement, thereby conserving capital.

QUANTIFYING OVERALL RETURN ON INVESTMENT IN SPREADERS

“‘Nothing avails like perfection’ may be spelled shorter:‘Paralysis.’

Do not let the better be the enemy of the good.”

Winston S. Churchill

Many ports around the world are increasingly approachingspreader fleet procurement as a strategic decision – one thatshould be based on an overall valuation model that factors in themany considerations involved in identifying “value” in total lifetimespreader investment.

Any model will inevitably be based on some “maybes” – assumptionsregarding how two spreader brands might perform in relation toone another – what the numbers of spreader “X” would likelylook like in the areas of downtime, revenue production, and allthe associated service, maintenance, repair, and energy cost topicswe have addressed in the course of this paper.

In this process it can sometimes be easy to bog down with “whatwe don’t know” or “aren’t sure what to guess.” In this regard,Churchill’s maxim: “Do not let the better be the enemy of the good”may be instructive. Building a workable model that seeks to capturea good deal of the “bigger picture” is preferable to waiting for theperfect model – something that will likely never arrive.

Quantifiable variables for the construction of a spreader return oninvestment model include:

1. Spreader operation values (moves per year and hours per year)2. Initial spreader purchase price3. Spreader lifetime (years of useful, reliable service) 4. The spreader-to-crane ratio (spares) 5. Spreader revenue and profit production per move6. Productivity factor7. Spreader downtime (availability)8. Annual cost for consumables9. Service and spare parts cost10.Crane energy cost

One of the “tools” that can be utilized to evaluate return oninvestment in spreaders is a lifecycle cost calculator customized tothe assumptions of your terminal. Following are a few examplesof return on investment calculators that include a range of performance indicators which help define where true “value”exists in the marketplace. Price, cost, and return on investmentare all different ideas. The key task in identifying spreaderreturn on investment is to give proper weight to all the differentfactors that impact spreader return on investment.

In Figure 10 (Return on Investment Calculator #3: STS Spreaders)price and performance is aligned much more closely than in calculators #1 and #2. In the scenario outlined in Figure 10, Spreader“A” has a limited 5% initial price advantage versus Spreader ”B.”Parity is assumed between Spreader “A” and Spreader “B” in theareas of spreader lifetime and the spreader spare ratio. Spreader “B”is given a slight 5% advantage in the area of spreader downtime, anda productivity advantage of 0.05%. The result of the scenario is thatSpreader “B” achieves slight out-performance from a return oninvestment perspective. Spreader “B” has ROI of 43%, versus 40%for Spreader “A.” Payback is 86 days faster, and net present value is$60,000 USD greater.

Finally, in Figure 11 (Return on Investment Calculator #4: STSSpreaders) an extreme scenario is envisioned. Spreader “A” is soldto the terminal for only $1,000 USD, while Spreader “B” commandsa full $150,000 USD purchase price. However, Spreader “B” isassigned significant advantages in the areas of spreader reliability(15% less downtime) and productivity (a 0.50% productivityadvantage.) As a consequence, over its lifetime, Spreader “B” isable to turn higher productivity into even greater net present valuethan that achieved by Spreader “A.” Of course, given a $1,000USD purchase price, Spreader “A” is able to achieve a higher ROIand faster capital payback than Spreader “B.”

In Figure 12 (Return on Investment Calculator #5: RTGSpreaders) a scenario is analyzed in the area of RTG spreaderreturn on investment. In Figure 12 Spreader “B” is again put at asignificant 14.8% price disadvantage to “Spreader A.” However,Spreader “B” is given advantages in other areas: energy cost(+5.4%), service and maintenance costs (+9.8%), spreader spareratio (30% versus 50%), durability (11 years versus 10 years),

Figure 8 (Return on Investment Calculator #1: Ship-to-ShoreSpreaders) factors in different assumptions for spreader investment,durability, reliability (expressed via revenue production), energycost, and downtime cost, and balances the various “contributions”provided by stronger or weaker performance in one category oranother. What is most instructive about ROI Calculator #1 is that itdemonstrates how initial spreader purchase price may be misleadingas a tool for identifying spreader value. In Figure 8 “Spreader A”is offered at a tender price of $130,000 USD, while Spreader “B”is offered at a 15% higher tender price of $150,000 USD. In thescenario, each spreader performs more than 100,000 moves peryear. Spreader “B” is given a 10% advantage in terms of spreaderdowntime and an overall productivity advantage of 0.05%.Spreader “B” is also given an advantage in the areas of energyconsumption and service and maintenance. In ROI calculator #1,Spreader “B,” despite starting at a 15% price disadvantage, deliversgreater lifetime value, as it generates higher return on investment,higher net present value, and a faster payback on capital invested.

In Figure 9 (Return on Investment Calculator #2: Ship-to-ShoreSpreaders), the scenario is altered somewhat, as this scenarioenvisions a less active terminal. Spreader moves are reduced to73,000 per year. Spreader “B” is again put at a 15% initial pricedisadvantage, but is given advantages in other areas, such as thespreader spare ratio (total capital investment), spreader durability(spreader lifetime), maintenance costs, and energy expense.Again, Spreader “B,” despite a higher initial purchase price, isable to deliver greater lifetime value. ROI is 30%, versus 22% forSpreader “A.” Net present value is nearly $100,000 higher forSpreader “B,” and payback time is more than a year faster (410 days.)

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Figure 8 Return on Investment Calculator #1: Ship-to-Shore Spreaders




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is how the adoption of a particular spreader “partner” will influencethe overall competitive fitness of a terminal. How may current andfuture technical innovation (or lack of technical sophistication)put a terminal at a competitive advantage or disadvantage?

Due to the “X” factor, any ROI model will invariably be somewhatincomplete. Yet, as Churchill suggested, the quest for perfectionshould not be allowed to delay our pursuit of the better. Taking astrategic approach to spreader investment planning, including acareful assessment of lifecycle cost and revenue production variables,is an extremely important step toward achieving terminal prof-itability ambitions.

and downtime (+10%). As a consequence, even though Spreader“B” has a 15% higher initial cost, it represents the superior valuein this scenario, with Spreader “B” delivering higher ROI and netpresent value, as well as faster capital payback.

What is clear from these five examples is that initial purchaseprice, on its own, is an inadequate guide to determining life-time spreader value.

In addition to quantifiable income and cost variables, a furtherimportant calculation – but difficult to quantify – lies in the areaof marketing advantage. The “X” factor in spreader fleet selection




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Figure 12 Return on Investment Calculator #5: RTG Spreaders

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FOR FURTHER INFORMATION

The Bromma management team is a resource that can help youbetter define the optimum spreader fleet configuration for yourterminal, as well as help you project likely lifecycle costs andspreader return on investment.

Bromma staff members are available to meet with you to developspreader return-on-investment models tailored to your terminal’sspecific operating environment and future growth scenarios.

In addition, Bromma headquarters staff members are available toanswer any questions you may have in specific areas, such asspreader design or technology, spreader maintenance, and thespecific performance capabilities of various spreaders in theBromma product portfolio.

For further information on regional Bromma staff working inyour area, visit the website: www.bromma.com or telephone:+468.620.0900.

CONCLUSIONS

In closing, perhaps four conclusions may be derived from thisreview of some of the issues impacting spreader fleet selectionand spreader return on investment.

First, selecting the strongest overall spreader supplier is a strategicdecision with broad financial implications. The strength of aterminal’s spreader partner is a major factor in whether a terminalwill achieve its growth ambitions.

Second, comparable spreader value cannot be measured simplyby looking at initial purchase price. In fact, spreader purchaseprice is a poor and inadequate proxy for gauging true spreadervalue. Identifying spreader value must be based on lifetime con-siderations – lifetime energy and fuel costs, lifetime service andmaintenance costs, lifetime downtime performance, and lifetimedurability. Basing spreader purchasing decisions largely on tenderprice offer is an incomplete methodology for identifying value. A deeper and more thoughtful methodology will incorporate “lifetime thinking” into an evaluation of where true value residesin the marketplace. True spreader “cost” can only be projected bylooking at the spreader lifecycle.

Third, spreader productivity is the single most importantfinancial factor impacting any spreader return on investmentmodel. Productivity is what determines speed of capital payback.

Fourth, ultimately a terminal’s success will be defined by growthparameters – speed of ship turns, berth utilization, moves per hour,and customer satisfaction. As such, the selection of the terminal’sspreader partner – a key link in the productivity chain – is a decisionwith broad marketing-related implications.

In the big picture, terminal profitability will not be determined bysmall differences in initial spreader tender offers. In the big picture,success will follow higher efficiency, reliability, and productivityin terminal operations. Spreader fleet performance will havemuch to do with which terminals compete and win, and whichterminals plateau or decline, in the container terminal market-place of the future.

INDEX TO FIGURES

Figure 1 – RTG Spreader Fuel Consumption Formula . . . . . p3Figure 2 – RTG Spreader Energy Cost Comparison . . . . . . . p4Figure 3 – STS Spreader Fuel Consumption Formula . . . . . . p4Figure 4 – STS Spreader Energy Cost Comparison . . . . . . . . p4Figure 5 – RTG Spreader Service & Spare Parts Costs . . . . . p5Figure 6 – STS Spreader Service & Spare Parts Costs . . . . . p6Figure 7 – STS Spreader Revenue Production Model . . . . . . p7Figure 8 – STS ROI Calculator #1 . . . . . . . . . . . . . . . . . . . . . p9Figure 9 – STS ROI Calculator #2 . . . . . . . . . . . . . . . . . . . . . p9Figure 10 – STS ROI Calculator #3 . . . . . . . . . . . . . . . . . . . p10Figure 11 – STS ROI Calculator #4 . . . . . . . . . . . . . . . . . . . p10Figure 12 – RTG ROI Calculator #5 . . . . . . . . . . . . . . . . . . p10

©2012 The contents of this white paper may not be reproduced (except for internal use) without the express written permission of Bromma Group.

Cost-saving and revenue-production figures contained in this white paper are estimates. Actual cost or revenue implications that result from spreader fleet selection decisions will vary from terminal to terminal and are subject to change.

Printed in January 2012

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