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Automation battle highlights costs of innovation for family businesses

By Nicholas Moody

A dispute between Danish shipping giant Maersk and Los Angeles (LA) dockers over plans to automate port vehicles has highlighted the challenges legacy businesses face balancing innovation with the social cost wreaked by disruption.

The family-controlled business is facing a backlash from the International Longshore & Warehouse Union over plans to use unmanned electric vehicles instead of diesel trucks to shuttle shipping containers around LA Port—the largest in the US. 

The move would cut the company’s costs by reducing the need for truck drivers and help it comply with California’s tough air pollution standards.

In 2017, LA and Long Beach port (pictured right) adopted a clean air plan that requires terminal operators to deploy “the cleanest equipment available” in cargo handling with a goal of zero emissions by 2030. Maersk’s APM Terminals division said that automating cargo handling could reduce diesel truck travel on its site by 65%.

Separately, the world’s largest container shipping company has set a target to have a carbon neutral fleet by 2050.

However, port workers are fighting the automation plan, arguing that installing clean technology need not come at the expense of jobs. The Port of Los Angeles’ Harbor Commission has twice delayed the final decision citing complex considerations.

Mitali Banerjee, an assistant professor of strategy and business policy at HEC Paris, acknowledged the dilemma family businesses face balancing the competing forces of innovation and the social costs of a changing workforce.

"Automation, such as the ones deployed in docks or factory floor for moving large containers, is inevitable given its lower costs and higher efficiency. Large companies can invest relatively easily in the upfront fixed costs and realize the benefits through their larger scale,” he said.

It comes after British Steel, the renamed Anglo-French division of Tata Steel UK bought by family office Greybull Capital, confirmed in September 2018 it was cutting 10% of its 5,000-strong UK workforce to “streamline” its operations.

Banerjee said that many family businesses tend to operate on a smaller scale, as such they should carefully consider whether they will necessarily realize the cost advantages of automation.

“Business need to think about whether the quality improvements from automation are justified by the costs,” he added.

“If a business' operations are embedded in a local community, they will have to confront the discontent created in the local community by laying off employees, some of whom have been long-term employees. The social costs come with short and long-term economic costs,” he said.

Banerjee said automation presents an opportunity for businesses to retrain their existing employees to do complex tasks often involving the very machines that took over jobs. Such employees might have valuable skills and tacit know-how that can be harnessed with training.

“It is unclear, however, whether this will create more jobs than destroy,” he cautioned. 

“The response has to be a collective one which involves business, communities (including education institutions) and governments working together to effectively address income inequality and create meaningful work."