The Box: How the Shipping Container Made the World Smaller and the World Economy Bigger

Highlights

Page 153

Malcom McLean’s real contribution to the development of containerization, in my view, had to do not with a metal box or a ship, but with a managerial insight. McLean understood that transport companies’ true business was moving freight rather than operating ships or trains. That understanding helped his version of containerization succeed where so many others had failed. To my consternation, though, I quickly learned that many people quite fancy the tale of McLean’s dockside epiphany. The idea of a single moment of inspiration, of the apple landing on young Isaac Newton’s head, stirs the soul, even if it turns out to be apocryphal. In contrast, the idea that innovation occurs in fits and starts, with one person adapting a concept already in use and another figuring out how to make a profit from it, has little appeal. The world likes heroes, even if the worshipful story of one person’s heroic effort is rarely an accurate representation of the complex path of technological advance.

Note: This is so true it hurts

Page 181

no one involved with the container’s development imagined that metal boxes would come to be regarded as a major security threat. Improved security, ironically, was originally one of the container’s big selling points: cargo packed inside a locked container was far less susceptible to theft and damage than cargo handled loose. Ship lines and border-control officials were taken by surprise in the 1980s, when smugglers figured out that the relative secrecy, anonymity, and reliability of container shipping made it ideal for transporting drugs and undocumented migrants as well. In those days, enclosing container yards with fences and locked gates was thought adequate to solve the problem.

Page 260

What is it about the container that is so important? Surely not the thing itself. A soulless aluminum or steel box held together with welds and rivets, with a wooden floor and two enormous doors at one end: the standard container has all the romance of a tin can. The value of this utilitarian object lies not in what it is, but in how it is used. The container is at the core of a highly automated system for moving goods from anywhere, to anywhere, with a minimum of cost and complication on the way.

Page 288

In 1956, the world was full of small manufacturers selling locally; by the end of the twentieth century, purely local markets for goods of any sort were few and far between.

Page 289

For workers, of course, this has all been a mixed blessing. As consumers, they enjoy infinitely more choices thanks to the global trade the container has stimulated. By one careful study, the United States imported four times as many varieties of goods in 2002 as in 1972, generating a consumer benefit—not counted in official statistics—equal to nearly 3 percent of the entire economy. The competition that came with increased trade has diffused new products with remarkable speed and has held down prices so that average households can partake. The ready availability of inexpensive imported consumer goods has boosted living standards around the world.2 As wage earners, on the other hand, workers have every reason to be ambivalent. In the decades after World War II, wartime devastation created vast demand while low levels of international trade kept competitive forces under control. In this exceptional environment, workers and trade unions in North America, Western Europe, and Japan were able to negotiate nearly continuous improvements in wages and benefits, while government programs provided ever stronger safety nets. The workweek grew shorter, disability pay was made more generous, and retirement at sixty or sixty-two became the norm. The container helped bring an end to that unprecedented advance. Low shipping costs helped make capital even more mobile, increasing the bargaining power of employers against their far less mobile workers. In this highly integrated world economy, the pay of workers in Shenzhen sets limits on wages in South Carolina, and when the French government ordered a shorter workweek with no cut in pay, it discovered that nearly frictionless, nearly costless shipping made it easy for manufacturers to avoid the higher cost by moving abroad.3

Note: Two sides of the trade coin

Page 308

A ship carrying 9,000 40-foot containers, filled with 200,000 tons of shoes and clothes and electronics, may make the three-week transit from Hong Kong through the Suez Canal to Germany with only twenty people on board.

Page 349

A 25-ton container of coffeemakers can leave a factory in Malaysia, be loaded aboard a ship, and cover the 9,000 miles to Los Angeles in 23 days. A day later, the container is on a unit train to Chicago, where it is transferred immediately to a truck headed for Cincinnati. The 11,000-mile trip from the factory gate to the Ohio warehouse can take as little as 28 days, a rate of 400 miles per day, at a cost lower than that of a single business-class airline ticket. More than likely, no one has touched the contents, or even opened the container, along the way.

Page 378

Transportation has become so efficient that for many purposes, freight costs do not much affect economic decisions. As economists Edward L. Glaeser and Janet E. Kohlhase suggest, “It is better to assume that moving goods is essentially costless than to assume that moving goods is an important component of the production process.” Before the container, such a statement was unimaginable.6 In 1961, before the container was in international use, ocean freight costs alone accounted for 12 percent of the value of U.S. exports and 10 percent of the value of U.S. imports. “These costs are more significant in many cases than governmental trade barriers,” the staff of the Joint Economic Committee of Congress advised, noting that the average U.S. import tariff was 7 percent. And ocean freight, dear as it was, represented only a fraction of the total cost of moving goods from one country to another.

Page 422

Transport efficiencies, though, hardly begin to capture the economic impact of containerization. The container not only lowered freight bills, it saved time. Quicker handling and less time in storage translated to faster transit from manufacturer to customer, reducing the cost of financing inventories sitting unproductively on railway sidings or in pierside warehouses awaiting a ship. The container, combined with the computer, made it practical for companies like Toyota and Honda to develop just-intime manufacturing, in which a supplier makes the goods its customer wants only as the customer needs them and then ships them, in containers, to arrive at a specified time. Such precision, unimaginable before the container, has led to massive reductions in manufacturers’ inventories and correspondingly huge cost savings. Retailers have applied those same lessons, using careful logistics management to squeeze out billions of dollars of costs.

Page 429

These savings in freight costs, in inventory costs, and in time to market have encouraged ever-longer supply chains, allowing buyers in one country to purchase from sellers halfway around the globe with little fear that the gaskets will not arrive when needed or that the dolls will not be on the toy store shelf before Christmas. The more reliable these supply chains become, the further retailers, wholesalers, and manufacturers are willing to reach in search of lower production costs—and the more likely it becomes that workers will feel the sting of dislocation as their employers find distant sources of supply.

Note: Thinking of freight cost as merely a tax of 10-12% underestimates the drag it was having. It was much worse than that because of the delays, hassle and cost of having goods tied up that made most commerce unviable.

Page 441

The subject of this book lies at the confluence of several major streams of research. One delves into the impact of changes in transportation technology, a venerable subject for both historians and economists. The steamship, invented in the 1780s and put to regular use by 1807, strengthened New York City’s prominence as a port, and the Erie Canal, an undertaking of unprecedented size, had an even greater impact. The radical decline in ocean freight rates during the nineteenth century, the result of technological change and improved navigation techniques, encouraged a huge increase in world trade and added to Europe’s eagerness to found colonies. The connection between railroad development and U.S. economic growth has been debated strenuously, but there is little dispute that lower rail freight rates increased agricultural productivity, knitted the North together before the Civil War, and eventually made Chicago the hub of a region stretching a thousand miles to the west. A transport innovation of the 1880s, the refrigerated rail car, made meat affordable for average households by allowing meat companies to ship carcasses rather than live animals across the country. The truck and the passenger car reshaped urban development starting in the 1920s, and more recently commercial aviation redrew the economic map by bringing formerly isolated communities within a few hours of major cities. This book will argue that container shipping has had a similarly large effect in stimulating trade and economic development—and that, as with steamships, railroads, and airplanes, government intervention both encouraged and deterred its growth.11

Note: Each of these innovations is simply taken for granted. For example, everyone expects to eat meat at every meal

Page 454

Capital, labor, and land, the basic factors of production, have lost much of their fascination for those looking to understand why economies grow and prosper. The key question asked today is no longer how much capital and labor an economy can amass, but how innovation helps employ those resources more effectively to produce more goods and services.

Page 460

Even after a new technology is proven, its spread must often wait until prior investments have been recouped; although Thomas Edison invented the incandescent light bulb by 1879, only 3 percent of U.S. homes had electric lighting twenty years later. The economic benefits arise not from innovation itself, but from the entrepreneurs who eventually discover ways to put innovations to practical use—and most critically, as economists Erik Brynjolfsson and Lorin M. Hitt have pointed out, from the organizational changes through which businesses reshape themselves to take advantage of the new technology.

Page 550

Outsiders may have found romance and working-class solidarity in dock labor, but for the men on the docks it was an unpleasant and often dangerous job, with an injury rate three times that of construction work and eight times that in manufacturing.

Note: Rose tinted glasses.

Page 630

Thanks to the new hiring halls, longshoremen no longer needed to endure the daily humiliation of literally fighting for a job. But their incomes remained most uncertain, because the demand for their services varied. In the most extreme case, Liverpool, stevedoring firms needed twice as many workers on busy days as on quiet ones. In London, where dockworkers did not win a pension scheme until 1960, men over the age of seventy commonly showed up in hopes of winning a light assignment. Even where government schemes provided payments to dockers who were unable to find work, the payments were far lower than regular wages, and many dockers were ineligible. Of the non-Communist world’s major ports, only in Rotterdam and in Hamburg, where semicasual workers were guaranteed income equal to five shifts per week in 1948, could most dockers look forward to earning steady incomes.12

Page 653

As often as not, dockworkers had fathers, sons, brothers, uncles, and cousins on the docks as well, and they frequently lived nearby. Strangers, including men of different ethnic groups, were unwelcome. In London and Liverpool, the Irish ruled the docks, and non-white immigrants from the West Indies or Africa had no chance of finding employment. In the American South, where about three-quarters of all longshoremen were black, white and black dockworkers belonged to separate union locals and often worked separate ships; the main exception, an unusual alliance in New Orleans that had an equal number of black and white longshoremen working every hatch of every ship, had collapsed under intense employer pressure in 1923. In Boston, the Irish-controlled Longshoremen’s Union made no effort to sign up blacks even after many were hired as strikebreakers in 1929. The International Longshoremen’s Association (ILA) in New York had locals that were identifiably Irish, Italian, and black in practice, if not by rule, and Baltimore had separate locals for black longshoremen and whites. Although the International Longshoremen’s and Warehousemen’s Union (ILWU) in the West barred discrimination on the basis of race, its locals in Portland and Los Angeles were almost lily-white into the early 1960s; the Portland local even called off its efforts to represent a group of grain handlers when it was discovered that some of them were black.

Note: Dens of racism - unions.

Page 664

Even where race and ethnicity were not major issues, longshore unions openly discriminated against outsiders in order to be able to offer jobs to members’ kin. The work was strenuous and uncomfortable, but it paid better than anything else readily available to a blue-collar worker who had not finished high school. In dockworker families, taking a sixteen-year-old son to shape-up and calling in a favor to get him hired on was a rite of passage. Among Portland longshoremen, the most common paternal occupation was longshoreman. In Antwerp, 58 percent of dockworkers were the sons of dockworkers. The ratio in Manchester was three-quarters, and many of the rest had entered the docks with the help of their in-laws after marrying dockworkers’ daughters. In Edinburgh in the mid-1950s, recalled longshoreman Eddie Trotter, “There wis nobody at all, other than a son, grandson, or a nephew or a brother o’ a docker got a job as a docker.” British prime minister Harold Macmillan, confronted with yet another strike threat, opined in 1962, “The dockers are such difficult people, just the fathers and the sons, the uncles and nephews. So like the House of Lords, hereditary and no intelligence required.”

Note: Dens of nepotism as well - unions

Page 702

This history of antagonistic labor-management relations gave rise to two problems that plagued the shipping industry around the world. One was theft. Theft had always been a problem on the waterfront, and the growth of trade in higher-value products after World War II caused it to reach epidemic proportions. Some longshoremen justified thievery as a response to deteriorating economic conditions, but it remained a problem even where union contracts or government intervention had led to better wages: a British joke from the 1960s concerned a docker who was caught stealing a bar of gold and punished by having its value deducted from his next pay. “It wis the pilferin’ that upset me,” recalled a Scottish longshoreman of the 1950s. “It was terrible, terrible, terrible.” Longshoremen prided themselves on such arcane skills as the ability to tap whiskey from a sealed cask supposedly stowed safely in a ship’s hold. In Portland, small objects such as transistor radios and bottled liquor were usually stolen for personal use by family and friends, but not for sale. No such limits were observed in New York, where crime was rampant. Grace Line discovered that even sixty-kilo burlap bags of coffee beans were not immune from theft; the company purchased a sealed scale, protected against tampering by checkers who were aiding theft rings, to confirm the number of bags aboard trucks leaving the pier.20 The second problem arising from dockworkers’ intense suspicion of employers was resistance to anything that might eliminate jobs. Wherever they secured a foothold, dock unions insisted on contract language to protect against a long history of employer abuses. The number of men needed to work a hatch, the placement of those men in the hold or on the dock, the maximum weight of a sling, the equipment they would use, and countless other details related to manning filled page after page in collective bargaining agreements. Shipping interests in Liverpool tried repeatedly to eliminate a practice known as the welt, under which half of each longshore gang left the docks, often for a nearby pub, while the other half worked; after an hour or two, the absentees would return and those who had been working would take a prolonged break. Ports the world over had seen strikes over employer efforts to alter work practices. In Los Angeles, labor productivity dropped 75 percent between 1928 and 1954 as union and management struggled over mechanization; West Coast ports handled 9 percent less cargo per work-hour in 1954 than in 1952. The Port of New York needed 1.9 man-hours to handle a ton of cargo in 1950, but 2.5 by 1956. In Britain, tonnage per man-year was nearly flat from 1948 to 1952, leaped by one-third thanks to a surge of cargo in 1953, and then sank again under the weight of stringent work rules.21

Note: How much of this “loss” of productivity was actually a result of better working conditions?

Page 742

Some railroads sought to take advantage of the container not simply by lowering rates, but also by changing the way they charged shippers. Since the onset of federal regulation in the 1880s, the Interstate Commerce Commission (ICC) had held firm to the principle that each commodity required its own rate, which of course was subject to ICC approval. With containers, though, the railroads were not handling commodities; the size and loaded weight of the container mattered far more than the contents. For the first time, they offered purely weight-based rates: the North Shore Line, running between Chicago and Milwaukee, charged 40 cents per 100 pounds to carry a 3-ton container, but only 20 cents per 100 pounds to carry a 10-ton container, with no adjustment at all for what might be inside. After four months of hearings in 1931, the commission ruled weight-based rates illegal. Although it found the container to be “a commendable piece of equipment,” the commission said that the railroads could not charge less to carry a container than to carry the equivalent weight of the most expensive commodity inside the container. With that ruling, containers no longer made economic sense on the rails.

Note: Great example of government regulation killing innovation

Page 846

The total cost of moving the goods carried by the Warrior came to $237,577, not counting the cost of the vessel’s return to New York or interest on the inventory while in transit. Of that amount, the sea voyage itself accounted for only 11.5 percent. Cargo handling at both ends of the voyage accounted for 36.8 percent of the outlay. This was less than the 50 percent or more often cited by shipping executives—but only because Germany’s “economic miracle” had yet to drive up longshore wages; the authors noted that port costs would have been much higher were it not for the fact that German longshoremen earned less than one-fifth the wages of U.S. longshoremen. Their conclusion was that reducing the costs of receiving, storing, and loading the outbound cargo in the U.S. port offered the best method of reducing the total cost of shipping. The authors went beyond the normal admonitions to improve longshoremen’s productivity and eliminate inefficient work rules, and urged a fundamental rethinking of the entire process. “Perhaps the remedy lies in discovering ways of packaging, moving and stowing cargo in such a manner that breakbulk is avoided,” they wrote.

Note: 1954. People knew the problem. But weren’t able to grasp the solution

Page 917

The economy of the late 1940s provided ample opportunity for a small trucking company to grow. As railway freight volumes languished, long-distance truck traffic more than doubled between 1946 and 1950. Getting a larger piece of the action, though, required the support of the Interstate Commerce Commission. The federal Motor Carrier Act of 1935 had brought interstate trucking under the authority of the ICC, which had regulated railroads since 1887. The ICC controlled almost every aspect of the business of common carriers—truckers whose services were on offer to the public. A common carrier could haul only commodities the ICC allowed it to haul, over ICC-approved routes, at ICC-approved rates. If a new firm wanted to begin service, or if an existing one wanted to serve a new route or carry a new commodity, it had to hire lawyers to plead its case at the commission. Any major change required hearings at which other truck lines and railroads had the opportunity to object. Regulation made trucking hugely inefficient; a trucker authorized to haul paper between Nashville and Philadelphia could not simply pick up a few tires or drums of chemicals to fill a half-empty truck, and might have to return home empty if authorized cargo were not available for the backhaul. The ICC’s concern was not efficiency but order. Regulation protected the interests of established truck lines by limiting competition, and it protected the railroads by forcing truck lines to charge much more than railroad companies. More than anything else, the ICC wanted to keep the transportation industry stable.

Page 080

Beware of the person who gives advice, telling you that a certain action on your part is “good for you” while it is also good for him, while the harm to you doesn’t directly affect him.

Note: Makes sense

Page 135

McLean wanted to start Pan-Atlantic’s new service in 1955. The government did not move quite so fast. Not until late 1955, after months of hearings, did the ICC overrule objections from the railroads and authorize Pan-Atlantic to carry containers between Newark and Houston. Delays in gaining Coast Guard approval pushed the start date back further.

Note: Regulation doesn’t look good in this book.

Page 151

Again, the railroad and trucking industries did their best to close down the show. They protested vehemently that McLean’s takeover of Waterman without ICC approval was a blatant violation of the Interstate Commerce Act. Although Waterman had renounced its domestic operating rights to escape ICC jurisdiction, that renunciation had not been accepted by the ICC—and Pan-Atlantic’s request for “temporary” authority to take over the Waterman rights, keeping them in the corporate family, made the entire deal look suspicious. In November 1956, an ICC examiner agreed. Although Malcom McLean was a “man of vision, determination and considerable executive talent,” the examiner said, his purchase of Waterman without commission approval broke the law. As punishment, he recommended that McLean Industries be forced to divest Waterman. The ICC rejected the examiner’s recommendation in 1957, leaving McLean in control of both Pan-Atlantic and Waterman, and, more important, of Waterman’s large fleet.

Note: I think a lot of contemporary criticism of regulation is rooted in historical missteps like this. But I wonder if more recent regulation like say, car emissions or carbon pricing or fuel subsidies also might look similarly misguided in future.

Page 159

Malcom McLean was by no means the “inventor” of the shipping container. Metal cargo boxes of various shapes and sizes had been in use for decades, and numerous reports and studies supported the idea of containerized freight before the Ideal-X set sail. An American steamship operator, Seatrain Lines, had operated specially built ships holding railway boxcars in metal cells as early as 1929, lifting the boxcars on and off with large dockside cranes. These ample precedents have led historians to downplay the nature of Malcom McLean’s achievements. His container was just a “new adaptation of a long-used transportation formula whose birth dates to the early years of the twentieth century,” French historian René Borruey asserts. American historian Donald Fitzgerald concurs: “Rather than a revolution, containerization of the 1950s was a chapter in the history of development of maritime cargo transportation.”31 In a narrow sense, of course, these critics are correct. The high cost of freight handling was widely recognized as a critical problem in the early 1950s, and containers were much discussed as a potential solution. Malcom McLean was not writing on a blank slate. Yet the historians’ debate about precedence misses the transformational nature of McLean’s accomplishment. While many companies had tried putting freight into containers, those early containers did not fundamentally alter the economics of shipping and had no wider consequences. Malcom McLean’s fundamental insight, commonplace today but quite radical in the 1950s, was that the shipping industry’s business was moving cargo, not sailing ships. That insight led him to a concept of containerization quite different from anything that had come before. McLean understood that reducing the cost of shipping goods required not just a metal box but an entire new way of handling freight. Every part of the system—ports, ships, cranes, storage facilities, trucks, trains, and the operations of the shippers themselves—would have to change. In that understanding, he was years ahead of almost everyone else in the transportation industry. His insights ushered in change so dramatic that even the experts at the International Container Bureau, people who had been pushing containers for decades, were astonished at what he had wrought. As one of that organization’s leaders confessed later, “We did not understand that at that time a revolution was taking place in the U.S.A.”32

Page 409

was easy enough to conclude that containers would change the business, but it was not obvious that they would revolutionize it. Containers, said Jerome L. Goldman, a leading naval architect, were “an expedient” that would do little to reduce costs. Many experts considered the container a niche technology, useful along the coast and on routes to U.S. island possessions, but impractical for international trade. The risk of placing multimillion-dollar bets on what might prove to be the wrong technology was high.

Page 684

And if land-transport costs, labor concerns, and crime were not enough to deter businesses from shipping through New York, there were the port’s decrepit facilities. The East River pier at Roosevelt Street dated to the 1870s, the Hudson pier at West Twenty-sixth Street to 1882. The city-owned pier at Christopher Street had been built in 1876. These piers, and dozens like them, were narrow fingers protruding into the harbor, designed for the days when ships would turn ninety degrees from the channel, point their bows toward the shore, and tie up to the dock for days on end. Some piers were not even wide enough for a large truck to turn around. For the privilege of leasing one of these obsolete facilities, ship lines paid between $0.96 and $2.00 per square foot per year, three to six times the going rate in other East Coast ports. The city had launched a program to renovate and fireproof its piers in 1947, but officials judged the cost of building new piers to be prohibitive. Many piers were literally collapsing into the water. Abandoned pilings and floating debris from fallen piers were obstacles to navigation as well as an eyesore. “By 1980, it will be hard to find space in a whaling museum for piers that met the requirements of 1870 and were condemned as obsolete as long ago as 1920,” Port Authority executive director Austin J. Tobin commented in 1954.12

Page 898

New York City dockers and politicians fought back by seeking to block the World Trade Center and picketing city hall. “If [the Port Authority] can put money into Elizabeth and Newark, why can’t they spend some in New York, to help create some permanent jobs to replace those lost by the moving of the Brooklyn Navy Yard?” asked Robert Price, deputy mayor under John V. Lindsay, in 1966. The problem, he said, was simple unfairness. “New York City handles two thirds of the deep-sea cargo and has gotten only one third of the Port Authority’s investment.” All the Port Authority could offer in response was the promise that the relatively modern Brooklyn docks would continue to handle breakbulk cargo, although, “with breakbulk operations diminishing, it is unlikely that new conventional piers will be built in the near or distant future.”

Note: Because New York can’t handle containers! It’s an island! And what’s more, the Port Authority offered this investment to New York first.

Page 966

The changes in transport costs induced by containerization hit manufacturing, too, eliminating not only factory-floor jobs but also related trucking and distribution work as plants moved out of New York. Factory employment in New York City had begun to fall in the mid-1950s, a decade before the container came into widespread use, yet the city retained a surprisingly robust factory sector into the 1960s. In 1964, New York’s five boroughs were home to just over 30,000 manufacturing establishments employing nearly 900,000 workers. Almost two-thirds of the city’s manufacturers were located in Manhattan, where the apparel and printing industries dominated. The factory sector held steady through 1967, then abruptly collapsed. Between 1967 and 1976, New York lost a fourth of its factories and one-third of its manufacturing jobs. The scope of this deindustrialization was shockingly widespread, with forty-five of forty-seven important manufacturing industries experiencing double-digit declines in employment.41 How much of the loss of industry can be blamed on the container? There can be no definitive answer, as containerization was only one of many forces affecting manufacturers during the late 1960s and the first half of the 1970s. This period saw the completion of expressways that opened up suburban acreage to industrial development. New York’s high electricity costs pushed out some factories. The general shift of population to the South and West accelerated, leaving New York factories poorly situated to serve expanding markets. The economic downturn of the early 1970s contributed to a fall in manufacturing employment nationwide, and New York’s outmoded factories, often housed in antiquated buildings with little land on which to expand or rebuild, bore the brunt of this shrinkage.

Note: The destruction part of creative destruction.

Page 279

Bizarrely, the parties now switched sides. The union demanded that the employers mechanize faster to eliminate these physical burdens. “We intend to push to make the addition of machines compulsory,” Harry Bridges told management negotiators in 1963. “The days of sweating on these jobs should be gone and that is our objective.” The ship lines were hesitant to spend the money. The ILWU responded by filing grievances against the lack of machinery on docks and in holds. After one of the strangest arbitration proceedings ever to occur in any industry, the employers were ordered in June 1965 to provide longshoremen with more forklifts and winches.

Page 290

The Port of Los Angeles, where longshoremen had been so certain that automation would destroy jobs, was to flourish beyond all expectations, while the Port of San Francisco, whose longshoremen had been the strongest proponents of the Mechanization and Modernization Agreement, would wither. As they negotiated over automation in 1960, though, neither management nor labor was able to foretell what the container would do. The law of unanticipated consequences prevailed. As Bridges confessed later, “Frankly speaking, the ILWU was caught off guard, as were many shipping companies.”

Page 441

Despite these discontents, the longshore unions’ tenacious resistance to automation appeared to establish the principle that long-term workers deserved to be treated humanely as businesses embraced innovations that would eliminate their jobs. That principle was ultimately accepted in very few parts of the American economy and was never codified in law. Years of bargaining by two very different union leaders made the longshore industry a rare exception, in which employers that profited from automation were forced to share the benefits with the individuals whose work was automated away.

Page 485

The railway precedent suggested that ship lines might eventually make their container systems compatible without a government dictate. Yet the analogy is misleading. The gauge that became “standard” on railways had no particular technical superiority, and standardization had almost no economic implications; the width of the track did not determine the design of freight cars, nor the capacity of a car, nor the time required to assemble a train. In the shipping world, on the other hand, individual companies had strong reasons to prefer one container system to another. The first carrier with fully containerized ships, Pan-Atlantic, used containers that were 35 feet long, because that was the maximum allowed on the highways leading to its home base in New Jersey. A 35-foot container would have been inefficient for carrying canned pineapple, Matson Navigation’s biggest single cargo, because a fully loaded container would have been too heavy for a crane to lift; Matson’s careful studies showed that a 24-foot box was best for its particular mix of traffic. Grace Line, which was planning service to Venezuela, worried about South America’s mountain roads and opted for shorter, 17-foot containers. Grace’s design included small slots at the bottom for forklifts, but Pan-Atlantic and Matson chose not to pay extra for slots because they did not use forklifts. Each company deemed the fittings it used to lift its containers the best for loading and discharging ships at top speed. Conforming to industry standards, each line felt, would mean using a system that was less than ideal for its own needs.

Page 588

Then Herbert Hall, the chair of the entire MH-5 process, intervened. Hall was a retired engineer at Aluminum Company of America, which made aluminum sheets used to manufacture containers. He had sparked the entire standardization process with a presentation to an engineering society in 1957. Hall knew little about the economics of using containers, but he was fascinated by the concept of an arithmetic relationship—preferred numbers, he called it—among sizes. He believed that making containers in 10-, 20-, 30-, and 40-foot lengths would create flexibility. A shipper could put freight for a single customer in the most suitable size rather than wasting space inside a full 40-foot container. A truck equipped to handle a 40-foot container could equally well pick up two 20-foot containers (their precise length was 19 feet 10.5 inches, to make it easy to fit two together in a 40-foot space), or one 20-foot container and two 10-footers. Trains and ships would be able to handle combinations of smaller boxes in the same way. Hall’s enthusiasm was not shared by railroads and ship lines, because loading a train or ship with four 10-foot containers would cost four times as much as loading a single 40-footer. Hall reminded the task force that a higher body, the ASA’s Standards Review Board, would have to approve any proposed standards, and he opined that it would not accept the 12-foot, 17-foot, 24-foot, and 35-foot containers that the MH-5 subcommittee had endorsed. The 10-, 20-, and 40-foot lengths Hall favored were promptly approved, while the other lengths were deleted from the list of “standard” sizes. Those recommendations, along with the proposed 27-foot standard for the West and several standards for container construction, were sent to member organizations for a vote late in 1959.

Page 648

The problem came with the lifting and locking devices that fit into the holes. Pan-Atlantic, the first out of the gate, had applied for a patent on its particular system, which used conical lugs that could slip through the oblong holes of its corner fittings and automatically lock into place; a double-headed device to hold two containers together could be secured with the twist of a handle. Pan-Atlantic threatened to bring suit against anyone infringing on its design, forcing other ship lines and trailer manufacturers to develop their own locks and corner fittings. This meant that, even if container sizes were standardized, Sea-Land’s cranes would not be able to lift Grace’s containers, and Sea-Land containers could never ride on Matson chassis. Railroads that carried the containers of various ship lines needed complicated systems of chains and locks to secure all of the different containers, because one simple locking system would not work for all. Agreeing on a standard corner fitting thus was crucial to making containers readily interchangeable. The obstacle was that every company had financial reasons to favor its own fitting. Adopting some other design would require it to install new fittings on every container, to buy new lifting and locking devices, and to pay a license fee to the patent holder.

Note: Patents slow the adoption of innovation

Page 751

The most powerful evidence against the international standards came from the marketplace. Despite the U.S. government’s pressure on carriers to use “standard” sizes, nonstandard containers continued to dominate. Sea-Land’s 35-foot containers and Matson’s 24-footers, all a nonstandard 8 feet 6 inches high, accounted for two-thirds of all containers owned by U.S. ship lines in 1965. Only 16 percent of the containers in service complied with the standards for length, and a good number of those were not of standard 8-foot height. Standard containers clearly were not taking the industry by storm. The large ones were too hard to fill—too few companies shipped enough freight between two locations to require an entire 40-foot container—and small ones required too much handling. As Matson executive vice president Norman Scott explained, “In the economics of transportation, there is no magic in mathematical symmetry.”

Page 844

The leaders of the U.S. maritime industry were by no means unanimous that the container was the future. The steamship business was as tradition-bound as any in the country. Many of its most prominent executives were men who reveled in the romance of sea and salt air. They worked within a few blocks of one another in lower Manhattan, and spent well-oiled luncheons comparing notes with their peers at haunts like India House and the Whitehall Club. For all of their earthy bluster, their businesses had survived thanks almost entirely to government coddling. On domestic routes, government policy discouraged competition among ship lines. On international routes, rates for every commodity were fixed by conferences, a polite term for cartels, and the most important cargo, military freight, was handed out among U.S.-flag carriers without the nuisance of competitive bidding. Decisions about buying, building, or selling ships, about leasing terminals, and about sailing new routes all depended on government directives. For men who had prospered in this environment, who loved the smells of the ocean and fondly referred to their ships as “she,” Malcom McLean’s wholly unromantic interest in moving freight in boxes had little appeal. It was all well and good for visionaries to proclaim that containers were a “must,” but the collective wisdom of the shipping industry held that they would never carry more than a tenth of the nation’s foreign trade.

Page 863

What both transportation companies and shippers were slowly coming to grasp was that simply carrying ocean freight in big metal boxes was not a viable business. Yes, it produced some savings: cranes, boxes, chassis, and containerships eliminated much of the cost of loading and unloading vessels at the dock. Shippers, however, cared not about loading costs but about the total cost of delivering their products from factory to customer. By this standard, the advantages of containerization were less apparent. If a wholesaler was sending, say, three tons of water pumps from Cleveland to Puerto Rico, the pumps would have to be trucked to Sea-Land’s warehouse in Newark, removed from the truck, and consolidated into a container along with twenty or twenty-five tons of goods from other shippers. Upon arrival in Puerto Rico the contents would have to be removed from the container, sorted, and loaded into trucks for final delivery. There was only a limited amount of traffic, involving fully loaded containers going from one shipper to one recipient over water, for which containerization indisputably made economic sense.4 Most big shippers had no pressing need to use coastal shipping services, whether containerized or not. They used ocean freight for exporting or importing—but only a handful of containers were being carried on international ships. Most freight shipments were domestic, going cross-country by truck or train. Not until container technology affected land-based transportation costs would the container revolution take firm hold.

Page 946

Approximately in the middle of 1937, a new directive came: From now on the prison administration will not in any respect be responsible for those dying on hunger strikes! The last vestige of personal responsibility on the part of the jailers had disappeared! (In these circumstances, the prosecutor of the province would not have come to visit Chebotaryev!) Furthermore, so that the interrogator shouldn’t get disturbed, it was also announced that days spent on hunger strike by a prisoner under interrogation should be crossed off the official interrogation period. In other words, it should not only be considered that the hunger strike had not taken place, but the prisoner should be regarded as not having been in prison at all during the period of the strike.

Note: i wonder why this change took so long

Page 960

As the ICC was trying to figure out how to help the railroads without hurting the ship lines, Congress intervened—with conflicting instructions. Congress wanted to “breathe into our whole system of transportation some new competition,” Florida senator George Smathers explained. But while it wanted the economy to benefit from lower rates and new services, Congress also wanted to protect transportation companies and their workers. The result was the Transportation Act of 1958. In a single remarkable sentence, the law ordered the ICC not to keep any carrier’s rates high to protect another mode of transportation, while also directing it to block unfair or destructive competition. The commission, it seemed, could no longer use high rail rates to protect ship lines or truckers—but at the same time it was to make sure that the ship lines and truckers were not driven out of business. In confusion, the ICC told the railroads that their piggyback rates should be about 6 percent higher than Pan-Atlantic’s ship-truck rates. The ICC was decisively reversed in the courts, which gave the railroads the freedom to lower piggyback rates so long as the rates covered all of their costs.

Note: Wtf Congress. Free market is so much simpler than this

Page 029

Viewed at the start of 1965, the balance on containerization’s first nine years was positive but unspectacular. In New York, container tonnage had hit a plateau, and the International Longshoremen’s Association remained vociferously opposed to its growth. On the West Coast, even after rapid growth, only about 8 percent of general cargo was moving in containers. Some railroads were using containers that in theory could be interchanged with ship lines, but in practice rail-ship container traffic was negligible. The trucking companies that used demountable containers did so mainly under contracts with Sea-Land and Matson; otherwise, truckers overwhelmingly preferred trailers that were permanently attached to their wheels and could not easily be loaded aboard ships. Container shipping looked to be a viable enough business, producing $94 million of revenue for Sea-Land in 1964, but it was a niche business. The way most manufacturers, wholesalers, and retailers moved their goods had hardly changed.22 Behind the scenes, though, the prerequisites for the container revolution were falling into place. Dock labor costs were poised to fall massively thanks to union agreements on both coasts. International agreements were in place on standards for container sizes and lifting methods, even if few containers yet met those standards. Wharves designed for container handling were on the way. Manufacturers had learned to organize their factories so that they could save money by shipping large loads in single units to take advantage of containerization. Railroads, truckers, and freight forwarders had grown familiar with switching trailers and containers from one conveyance to another to move what was now being called “intermodal” freight. Regulators were cautiously encouraging competition so that carriers could pass some of the cost savings from containerization on to their customers. Only one crucial ingredient was missing: ships.

Note: It’s like that book recommended by Ben Thompson. It takes time to see the fruits of the Revolution.

Page 115

The military role was even more crucial. As a U.S.-flag carrier, Sea-Land was entitled to carry a portion of the freight for the quarter million U.S. soldiers in West Germany, and the military, determined to push containerization, channeled cargo Sea-Land’s way. According to industry rumor, more than 90 percent of the cargo on Sea-Land’s first transatlantic voyage was military freight. Military demand all but assured that Sea-Land’s first voyages would be profitable, and gave it an advantage that foreign carriers could not match. When the navy finally overcame the objections of the breakbulk carriers and put European military shipping contracts out for competitive bids in the summer of 1966, Sea-Land underpriced every American competitor and won all the traffic it could handle.

Note: I wonder why those companies didn’t bribe congressmen to maintain the status quo

Page 141

So far as shippers were concerned, the only reason not to join the rush to container freight was the shortage of containers. Although U.S.-flag ship lines added 13,000 containers between September 1966 and December 1967, and European ship lines bought thousands more, empty boxes could be in short supply. Otherwise, the cost savings were compelling, even with the conferences controlling transatlantic rates. Chas. Bruning Co., a maker of office machines near Chicago, found that it could get its equipment delivered to inland points in Europe in an average of twelve days. In addition to cheaper ocean freight, Bruning saved money by eliminating special export packaging, damage, and theft, and got a 25 percent discount on its insurance. So much traffic shifted so quickly that three years after containerships first sailed to Europe, only two American companies were still operating breakbulk ships across the North Atlantic, making a combined total of three sailings per month.

Note: Containers dominated the North Atlantic trade before Vietnam

Page 172

The eastern railroads commissioned a study, which urged them to act quickly to attract container traffic. The railroads chose to do the opposite. They agreed on a new rate structure to discourage containers, providing that any container weighing more than five hundred pounds would be charged on the basis of the weight and the contents, rather than receiving the lowest full-carload rate. In addition, they insisted on charging ship lines for carrying empty containers from the port to customers inland—hardly a policy that encouraged shippers to use rail for the land portion of international shipments. If those measures were not enough to deter container business, some railroads simply drove it away. In the spring of 1967, when Whirlpool Corporation asked the New York Central to move containers of refrigerators from an Indiana factory to the New Jersey docks, the railroad advised Whirlpool to ship its refrigerators in boxcars and put them into containers at the port; Whirlpool shipped by truck instead. Matson’s plan to ship containers of Hawaiian pineapple cross-country by train met with similar hostility, because the rate for transporting the containers between Chicago and New Jersey was far below the standard per-ton rate for carrying canned goods. “It is extremely important that we defeat the proposal,” a New York Central executive wrote.

Note: Standard innovators dilemma

Page 209

Few places on earth were less suited to supporting a modern military force than South Vietnam in early 1965. The entire country, seven hundred miles long from north to south, had a single deepwater port, one railroad line that was largely inoperative, and a fragmentary highway system, mostly unpaved. The tasks of providing civilian aid and supplying the U.S. military “advisers” who had worked in Vietnam since the late 1950s—there were 23,300 of them at the start of 1965—were already overwhelming; by 1964, the small U.S. port detachment in Saigon was working twelve-hour shifts, seven days a week, to prevent a backlog of ships. The various American forces in the country had sixteen different logistical systems, a situation that led to endless competition for basic resources such as delivery trucks and warehouse space. There was no central system for keeping track of arriving cargo, and the navy’s Military Sea Transportation Service (MSTS), which was responsible for chartering merchant ships to haul supplies to Vietnam, did not even have an office in the country. So far as Washington was concerned, the entire operation in Vietnam was predicated on the assumption that all troops would be withdrawn in 1965. This political fig leaf meant that spending on docks, warehouses, and other permanent infrastructure was hard to justify.

Page 270

The dismal performance of the Vietnamese-run Saigon port preoccupied U.S. officials at the highest level, so much so that Ambassador Henry Cabot Lodge personally discussed port problems with South Vietnamese premier Nguyen Cao Ky in July 1965. These efforts made little headway: control over the port was too lucrative for top South Vietnamese generals, who resisted U.S. proposals that a new port authority should take over. The port at Cam Ranh Bay would ease those problems by being entirely a U.S.-run operation, free of Vietnamese corruption and inefficiency.

Note: The whole war was doomed from the start

Page 292

The Pentagon simplified the supply chain by overruling navy objections and making the U.S. Army responsible for supplying all allied forces in Vietnam, including the famously independent Marine Corps. And, on orders directly from the secretary of defense, the MSTS hired a private company, Alaska Barge and Transport Co., to take charge of coastal shipping. Alaska Barge earned its living delivering cargo to remote ports in Alaska, and its boss managed to persuade McNamara that the company could straighten out logistics in Vietnam. Alaska Barge quickly began building docks, and it replaced the erratic service of Vietnamese coastal ships with a barge shuttle service to move supplies up and down the coast. “We couldn’t have gotten along without it,” recalled the commander of the MSTS. Alaska Barge’s success left an impression on military officials used to doing things in war zones the military way: perhaps there were other jobs in Vietnam that private companies could do better than uniformed troops.

Note: Lmfao, is he talking about mercenaries?

Page 376

The Da Nang operation got under way on August 1, a few weeks late, as the first containership to serve Vietnam, the Bienville, arrived from Oakland and unloaded its 226 containers in fifteen hours. The containerport at Cam Ranh Bay, though, did not see its first ship until November 1967, three months behind schedule. When it finally arrived, the Oakland, 685 feet long, delivered 609 35-foot containers—as much cargo as could be carried on ten average breakbulk ships hauling military freight to Vietnam.19 Another huge containership brought 600 or so containers to Cam Ranh Bay every two weeks. One-fifth of them were typically refrigerated units filled with meat, produce, and even ice cream. The remainder held almost every type of military supply except ammunition, which was not approved for shipment by container. Sea-Land’s trucks carried about half the food to nearby bases, and the rest was transshipped to Saigon or other coastal ports on the rusty vessel Sea-Land used as a feeder ship. Sea-Land’s state-of-the-art computer system at Cam Ranh Bay used punch cards to keep track of every container from loading in the United States to arrival in Vietnam to its return to America. Supplies flowed in, and the cargo backlog dissipated. “The port congestion problem was solved,” the army’s history of 1967 declared triumphantly. The seven Sea-Land containerships, MSTS commander Lawson Ramage estimated, moved as much cargo as twenty conventional vessels, going far to alleviate the chronic shortage of merchant shipping.

Note: Impressive

Page 407

Indeed, evidence of lower costs and reduced damage was already mounting impressively. McLean estimated in 1967 that loading a containership, sailing it to Vietnam, and unloading it there cost about half as much per ton as carrying the same cargo in a Navy-owned merchant ship, not counting the reduction in loss and damage. Looking back from 1970, Besson calculated that the armed forces could have saved $882 million in shipping, inventory, port, and storage costs between 1965 and 1968 if they had adopted containerization when the buildup began.

Page 505

The first Japanese containership, owned by Matson partner N.Y.K. Line, completed its maiden voyage to America in September 1968. Six weeks later, having been duly admitted to the transpacific conference, Sea-Land began six sailings a month from Yokohama to the West Coast, its ships laden with televisions and stereos produced by Japanese factories. Other Japanese carriers entered as well. The Japan–West Coast route, which had no commercial container service at all before September 1967, was suddenly crowded with ships needing to be filled. Seven different companies were competing for less than seven thousand tons of eastbound freight each month by the end of 1968, and more were about to join. The lack of business proved to be only temporary. The cargo would soon come, in a flood that no one imagined.

Note: 7000 at the end of 1968.

Page 632

Behind this frenzied expansion of long-neglected ports was the emergence of an entirely new line of thought about economic growth. Manufacturing was almost universally regarded as the bedrock of a healthy local economy in the 1960s, and much of the value of a port, aside from jobs on the docks, was that transportation-conscious manufacturers would locate nearby. As early as 1966, though, public officials in Seattle were sensing that their remote city, with little industry, might be able to develop a new economy based on distribution rather than on factories. The lack of population close at hand would be no obstacle; Seattle could become not merely a local port for western Washington but the center of a distribution network stretching from Asia to the U.S. Midwest. “Commodity distribution has grown out of the dependent sector to link production and consumption,” port planner Ting-Li Cho wrote presciently. “It has become an independent sector that, in return, determines the economy of production and consumption.” Much the same message, with opposite implications for the local economy, was transmitted that same year to San Francisco officials by consulting firm Arthur D. Little. A great proportion of the city’s wholesaling, trucking, and warehousing business would soon relocate to be near the emerging port facilities on the eastern side of San Francisco Bay, Little warned, because it no longer needed to be close to the other business activities in San Francisco.

Note: This is the crux of how it changed the world. If it’s cheap to ship, then you can locate anywhere. Probably where your other costs, like, are lower.

Page 666

More important, the extraordinary enthusiasm for containerization shown by Pacific Coast ports was little in evidence on the Atlantic, except at Sea-Land’s home port in New Jersey. The West Coast ports that embraced containerization, save for Los Angeles, were withering in the late 1950s, and they saw salvation in the new technology. The ports on the Atlantic and the Gulf of Mexico had a steadier flow of cargo: as late as 1966, nine of the ten largest maritime routes for U.S. international trade passed through ports on the East Coast or the Gulf, and only one touched the West Coast. The eastern ports had less to gain from containerization, and, outside of New York, their eagerness to invest millions of dollars of public money was correspondingly less acute.

Page 699

The net result of these decisions was that a single port, the Port of New York Authority’s complex at Newark and Elizabeth, dominated container shipping in the East. In 1970, only one other harbor between Maine and Texas, the Hampton Roads of Virginia, could boast even one-ninth the container capacity of the wharves on New York harbor. The emerging economics of container shipping meant that the laggards faced potentially serious consequences. The newly built containerships coming on the scene in the late 1960s carried far more cargo than the vessels they supplanted; even if the total amount of cargo grew, fewer voyages would be required. Shipowners wanted to keep their ships under way to recover the high construction cost, so they preferred that each voyage involve only one or two stops on either side of the ocean rather than four or five. Secondary ports would not see transatlantic ships but would get only feeder services to bigger ports. Once a port had slipped from the first rank, it would have a hard time climbing back: a less active port would have to spread the cost of building a capital-intensive container terminal across fewer ships, and its higher costs per ship would in turn drive away business. Ports that came late to the container game either would have to take huge risks in hopes of attracting tenants or would need to find a large ship line willing to help bear the costs of establishing a major new port of call.

Note: Winner takes all

Page 792

Felixstowe’s fortune came directly at London’s expense. London’s port had been busy through the mid-1960s. The shift to container shipping boosted average tonnage per man-hour 66 percent in just four years. The abrupt fall in costs at other ports drove the London docks to collapse. As Tilbury opened, the famous East India Dock closed without warning in 1967. As Felixstowe burgeoned, the St. Katherine Docks, adjoining the Tower of London, were shut in 1968. The nearby London Docks followed immediately, and the Surrey Docks, across the river, closed in 1970. Of the 144 wharves that had operated in London at the start of 1967, 70 closed by the end of 1971, and almost all of the rest followed soon after. The number of dockworkers fell from 24,000 to 16,000 in less than five years. Factories and warehouses, with no further need to be near the Thames, began to flee, taking their import-and-export business elsewhere, and the waterfront communities tied to the port began to disintegrate.32 The Transport and General Workers Union finally lifted its ban on handling containers at Tilbury after twenty-seven months, in April 1970. No sooner did the port reopen than it shut again, as the union waged a three-week nationwide dock strike to protest the stevedores’ preference for employing permanent, skilled workers to run their expensive equipment rather than hiring day labor. Nationally, dockers won a 7 percent pay raise, but a special agreement in London allowed containerization in return for double pay. Tilbury was able to open for container shipping at long last. But the delay took a toll. By the time it reopened, greater London had lost its place as the maritime center of Europe.33 The new center was Rotterdam, in the Netherlands. A port since the 1400s, Rotterdam had been demolished by German bombing in 1940. Rotterdam had long specialized in transshipment, and in prewar days bulk cargoes, such as grains and ores, were often moved directly from oceangoing ships to river barges without ever touching land. General cargo, however, was usually unloaded on center-city quays that had been designed for sailing ships centuries before. The ruins provided Dutch planners a clean canvas on which to build a modern port starting in the 1950s along the river Maas, on deeper water stretching toward the sea. Road, rail, and barge connections to Germany helped Rotterdam prosper as the two countries joined in the European Common Market. By 1962, its vast imports pushed Rotterdam ahead of New York as the world’s largest port by tonnage. Rotterdam set aside land for containers early on, and Dutch longshoremen, unlike their British counterparts, posed no objections when containerships began calling in 1966. During two and a half years of union-induced delay in Britain, Rotterdam spent $60 million to build the European Container Terminus, with ten berths and room for more. Traffic that had once fed through London to other British ports was now transshipped at Rotterdam, which…

Note: Good job unions

Page 822

The container contributed to a fundamental shift in the geography of British ports. In the precontainer era, London and Liverpool had dominated Britain’s international trade, their docks and warehouses filled with goods headed to or from factories located nearby. The two ports each loaded one-quarter of Britain’s exports, with no other port handling more than 5 percent. The container stripped Liverpool of its competitive advantages. Its costs per ton of cargo were too high, and it was on the wrong side of an island that was reorienting its trade toward continental Europe. In 1970, only 8 percent of Britain’s rapidly growing container traffic moved through Liverpool, and the port’s share of all British maritime trade in manufactured goods was falling toward 10 percent. Within five years, the exodus of port-related manufacturing would leave the city’s economy devastated.

Page 838

The preparations for container shipping in the United States and Europe provided Asian governments a lesson. In the United States, ports responded to containerization with no overriding rhyme or reason; cities such as New York and San Francisco squandered tax money on wharves and cranes that had little chance of recouping the initial investment, even as cities that might have become important containerports, such as Philadelphia, failed to invest in time. In Britain, the government was so terrified of the waterfront unions that it took few steps to prepare for the container era until the first ships were already in port. In continental Europe, the ports that had the foresight to plan for container shipping, notably Rotterdam, Antwerp, and Bremen, were the first to capture the traffic. Along Asia’s Pacific Rim, it seemed apparent that containerization would require major change, and change had to be planned.

Note: Late mover as well as early mover advantage

Page 895

Singapore’s strategy was to use containers to become the commercial hub of Southeast Asia. With a $15 million World Bank loan covering nearly half the cost, the port authority began work on a terminal at which long-distance vessels from Japan, North America, and Europe could hand off containers to smaller ships serving regional ports. Construction started in 1967, the same year that the first containers—3,100 of them, mainly empties—were deposited on the island’s docks. When the British announced in 1968 that their bases and naval shipyards would close within three years, the government countered with even more ambitious plans to build ships, develop industry, and expand the port. “It may be necessary to embark on further construction depending on the build-up of shipping and container traffic,” the Port of Singapore Authority advised, even though its first container project was barely under way.43 When large-scale container shipping finally arrived in Pacific ports beyond Japan, in 1970, the question of whether it would be viable on long-distance routes quickly became laughable. The $36 million East Lagoon complex opened in June 1972, three months ahead of schedule, cementing Singapore’s reputation as an island of efficiency. As the only port in the region with docks long enough for 900-foot containerships, Singapore became a major transshipment point, with third-generation ships handing off containers to smaller vessels that shuttled them to Thailand, Malaysia, Indonesia, and the Philippines. With longshore gangs reduced to only fifteen men and with steep charges on boxes left in the new 120-acre container yard for more than three days, the port ran as smoothly as any in the world.44 Singapore’s containerport grew beyond all expectations. In 1971, before the new terminal opened, the Port of Singapore Authority forecast 190,000 containers after a decade in operation. Instead, it handled more than a million boxes in 1982 and was the world’s sixth-largest containerport. By 1986, Singapore had more container traffic than all the ports of France combined. In 1996, more containers passed through Singapore than through Japan. In 2005 Singapore became the world’s largest port for general cargo, pulling ahead of Hong Kong, and some 5,000 international companies were using the island-state as a warehousing and distribution hub. By 2014, the equivalent of 17 million truck-sized containers moved across Singapore’s docks and the government-owned port management company had itself become a multinational enterprise, operating container terminals around the world and turning Singapore’s logistical know-how into a major export—testimony to the power of transportation to reshape the flow of trade.

Note: Genius. They saw the opportunity and took it. But this also makes it difficult to replicate the miracle of Singapore. People think of you slash regulation or keep the streets clean you’ll become rich like Singapore. Indians and Britons both have that delusion.

But clean streets leading to development is cargo culting at its first.

And there’s no reason for Britain to become a regional hub for trading when Rotterdam exists and provides access to the EU.

“We’ll be like Singapore” is just a delusion.

Page 015

Electronics manufacturers had been among the first Japanese exporters to see the advantages of shipping their fragile, theft-prone products in containers. Electronics exports had been on the rise since the early 1960s, but the lower freight rates, inventory costs, and insurance losses from container shipping helped turn Japanese products into everyday items in the United States, and soon in Western Europe. Exports of televisions climbed from 3.5 million sets in 1968 to 6.2 million in 1971. Shipments of tape recorders went from 10.5 million to 20.2 million units over the same three years. Containerization even gave new life to Japanese clothing and textile plants. Rising wages had put an end to the growth of Japan’s apparel exports in 1967, but the drop in shipping costs briefly made it viable for Japanese clothing manufacturers to sell in America again.

Note: Access to markets is the key. U.S. domestic manufacturers take that for granted. Japanese and later Chinese manufacturers needed cheap shipping. Now China has it’s domestic market.

Page 022

In 1969, as United States Lines was preparing to add eight fast containerships to its U.S.–Japan service, the Japanese government put shipping at the center of its economic development strategy. Its new five-year plan called for a 50 percent expansion of Japan’s merchant fleet, including tankers and ore carriers as well as containerships. The government offered $440 million to help Japanese ship lines begin container service to New York, the Pacific Northwest, and Southeast Asia, using Japanese-built ships. The subsidies were an incredible bargain. A ship line needed to put up only 5 percent of the cost of building its new vessel. The government development bank provided most of the funds. No payments were due for three years, after which the ship line was to repay the loan over ten years at an interest rate of 5.5 percent—a lower rate than the Japanese government paid to borrow the money that its development bank lent out. The remainder of the construction cost came from commercial banks, with the government paying 2 percentage points of interest. With such giveaway terms, Japanese ship lines had no fewer than 158 vessels on order or under construction by the end of 1970, all in Japanese shipyards.

Page 036

Shipyards around the world were choked with new orders. East Asia’s ports, with years to prepare themselves, were ready and waiting as the new vessels came on line in 1971 and 1972. Trade soared, as a story similar to Japan’s was repeated along the Pacific Rim. Ocean-borne exports from South Korea, 2.9 million tons in 1969, reached 6 million tons in 1973. Korean exports to the United States trebled over those three years as lower shipping costs made its garments competitive in the U.S. market. Hong Kong followed much the same course. Before it filled ninety-five acres of harbor to build a containerport, the colony’s shipping had been so primitive that oceangoing ships anchored far out in the harbor, and small boats shuttled imports and exports back and forth to shore. With the new terminal allowing containerships to collect cargo straight from the dock, Hong Kong’s shipments of clothing, plastic goods, and small electronics rose from 3 million tons in 1970 to 3.8 million in 1972, and the value of its foreign trade rose 35 percent. Exports from Taiwan, $1.4 billion in 1970, were $4.3 billion by 1973, and imports more than doubled. The pattern in Singapore was much the same. In Australia, the opening of container traffic coincided with a surge in manufactured exports and a dramatic shift away from traditional exports such as meat, ore, and greasy wool. The volume of exports other than minerals or farm products rose 16 percent annually from 1966–67 to 1969–70. Prior to 1968, the value of Australia’s industrial exports typically came to less than half its exports of grain and meat. By 1970, most of Australia’s general-merchandise trade was already moving in containers, and factory exports nearly matched farm exports. In the process, Australia left behind its past as a resource-based economy and began to develop a much more balanced economic structure.

Note: Asia as a whole benefited

Page 066

The U.S. merchant fleet changed almost overnight. In 1968, there were still 615 general-cargo freighters flying the U.S. flag. Within the next six years, more than half of those vessels had left American-flag service, either cast off to the tenuous ship lines of poor countries or sold for scrap. Replacing them were fewer but much larger and faster ships. The American seamen’s unions were wont to cite the diminished fleet as a sign of maritime weakness, but the truth is that the few dozen new containerships could carry far more cargo than the hundreds of rust buckets they supplanted. Even as the U.S.-flag fleet shrank nearly by half, the number of vessels able to carry more than 15,000 tons of cargo rose from 49 in 1968 to 119 in 1974. New steam-turbine engines helped boost the average speed of large U.S.-flag freighters from just 17 knots in 1968 to 21 knots in 1974. The difference was enough to cut a full day off a transatlantic crossing.

Page 073

The launch of so many vessels resulted in a quantum jump in capacity. The basic economics of containerization dictated as much. Once a ship line had made the decision to introduce containerships on a particular route, other carriers in the trade normally followed swiftly lest they be left behind. The capital-intensive nature of container shipping put a premium on size; quite unlike breakbulk shipping, in which an owner of “tramp” ships could eke out a profit picking up freight wherever it could be found, a container line needed enough ships, containers, and chassis to run a high-frequency service between major ports on a regular schedule. When a ship line decided to enter a trade, it had to do so in a large way—which meant that on every major route, several competitors were entering with several vessels apiece. Capacity on the largest international routes increased fourteen times over between 1968 and 1974. Between the United States and northern Europe, where only a handful of small containers had moved prior to 1966, there were enough new ships to carry nearly a million boxes a year by 1974. The containership route between Japan and the U.S. Atlantic Coast, opened only in 1970, was served by thirty vessels in 1973.

Page 232

a two-page letter written in August 1939 by Albert Einstein and Leo Szilard to alert President Roosevelt to the alarming possibility of a powerful war weapon in the making. A “new and important source of energy” had been discovered, Einstein wrote, through which “vast amounts of power … might be generated.” “This new phenomenon would also lead to the construction of bombs, and it is conceivable … that extremely powerful bombs of a new type may thus be constructed. A single bomb of this type, carried by boat and exploded in a port, might very well destroy the whole port.” The Einstein-Szilard letter had generated an immediate response. Sensing the urgency, Roosevelt had appointed a scientific commission to investigate it. Within a few months, Roosevelt’s commission would become the Advisory Committee on Uranium. By 1942, it would morph further into the Manhattan Project and ultimately culminate in the creation of the atomic bomb.

Page 168

Economic growth around the world picked up in 1972, and with it the flow of trade. Container tonnage nearly doubled from 1971 to 1973, and as carriers finally found enough cargo to fill their ships, they earned profits once more. But the shipping industry that survived the carnage of containerization’s first rate cycle was quite different from the one that had existed in 1967. Far fewer independent companies were left, and they had no illusions about the future. Rate wars would obviously be a permanent feature of the container shipping industry, recurring every time the world economy turned down or ship lines expanded their fleets. Shippers would pay according to the distance their containers traveled, regardless of the weight or the nature of the contents, and in difficult times rates would dip so low that carriers would barely cover their operating costs. Ship lines would be under constant pressure to build bigger ships and faster cranes to reduce the cost of handling each container, because at some point overcapacity would return, and when rates collapsed the carrier with the lowest cost would have the best chance of survival.

Page 220

Quite so. For R. J. Reynolds, and for the other corporations that had chased fast growth by buying into container shipping in the late 1960s, their investments brought little but disappointment. Sea-Land and its competitors were not at all like Polaroid or Xerox, companies whose proprietary technology and constant stream of innovations provided inordinately high profits for decades. Ship lines’ end product was basically a commodity. Just like farmers and steelmakers, they would always be hostage to external forces, their prices and profit margins depending mainly on economic growth and on their competitors’ decisions to build new ships. The go-go years were over. By 1976, less than a decade after container shipping became an international business, the Financial Times could declare that “the revolutionary impact of containerization, the biggest advance in freight movement for generations, has largely worked itself out.”36 Except that the Financial Times got it wrong. The revolutionary impact of containerization, as it turned out, was yet to come.

Note: That’s a good way to describe it. It’s a commodity.

Page 265

Scale was the holy grail of the maritime industry by the late 1970s. Bigger ships lowered the cost of carrying each container. Bigger ports with bigger cranes lowered the cost of handling each ship. Bigger containers—the 20-foot box, shippers’ favorite in the early 1970s, was yielding to the 40-footer—cut down on crane movements and reduced the time needed to turn a vessel around in port, making more efficient use of capital. A virtuous circle had developed: lower costs per container permitted lower rates, which drew more freight, which supported yet more investments in order to lower unit costs even more. If ever there was a business in which economies of scale mattered, container shipping was it.

Note: Scaling containers. Sounds familiar

Page 271

Ship lines responded to the imperative of scale by extending their reach. The old breakbulk companies had often been content to serve a single route. In 1960, no fewer than twenty-eight carriers had sailed the North Atlantic, from the mighty Cunard Line to such one-ship minnows as American Independence Line and Irish Shipping Limited. In the container age, minnows could not survive, and the truly big fish, companies such as Sea-Land, United States Lines, and Hapag-Lloyd, wanted to be in every major trade, either with their own ships or with an arrangement that allowed them to book space on someone else’s. The more ships they had, the more ports they served, the more widely they could spread the fixed costs of their operations. The more far-flung their services, the easier it would be to find loads to fill their containers and containers to fill their ships. The broader their networks, the more effectively they could cultivate relationships with multinational manufacturers whose needs for freight transportation were worldwide.

Page 287

Shipowners decided to build slower vessels to save fuel: the average speed of newly delivered containerships dropped steadily from 25 knots in 1973 to 20 in 1984. Naval architects were no longer forced to design streamlined shapes to help achieve high speeds, and could concentrate instead on increasing pay-loads. Without getting much longer, vessels got much larger. The ships entering service by 1978 could hold up to 3,500 20-foot containers—more than had entered all U.S. ports combined during an average week in 1968. These Panamax vessels—the maximum size that could fit through the Panama Canal—could haul a container at much lower cost than could their predecessors. The construction cost itself was lower, relative to capacity: a vessel to carry 3,000 containers did not require twice as much steel or twice as large an engine as a vessel to carry 1,500. Given the extent of automation on board the new vessels, a larger ship did not require a larger crew, so crew wages per container were much lower. Fuel consumption did not increase proportionately with the vessel’s size. By the 1980s, new ships holding the equivalent of 4,200 20-foot containers could move a ton of cargo at 40 percent less than could a ship built for 3,000 containers and at one-third the cost of a vessel designed for 1,800.5 And still the vessels grew. The economies of scale were so clear, and so large, that in 1988 ship lines began buying vessels too wide to fit through the Panama Canal. These so-called Post-Panamax ships needed deeper water and longer piers than many ports could offer. They were uneconomic to run on most of the world’s shipping lanes. They offered no flexibility, but they could do one thing very well. On a busy route between two large, deep harbors, such as Hong Kong and Los Angeles or Singapore and Rotterdam, they could sail back and forth, with a brief stop at each end, moving freight more cheaply than any other vehicles ever built. By the start of the twenty-first century, ship lines were ordering vessels able to carry 10,000 20-foot containers, or 5,000 standard 40-footers, and even bigger ships were on the drawing boards.

Note: Size does matter 🤷‍♂️

Page 334

The Hampton Roads of Virginia displaced Baltimore as a major load center through no fault of Baltimore’s, but because a ship line serving Europe could make four more trips per year from Hampton Roads—and when a $60 million ship was involved, those four trips could spell the difference between profit and loss.

Note: Season 2 of the Wire fuelled by this

Page 360

The increasing riskiness of the port business did not pass unnoticed. Government investment in ports had been crucial to the development of container shipping in the 1960s and 1970s. With the exceptions of Felixstowe and Hong Kong, every major containerport in that era was developed at public risk and expense. At the time, there had been no alternative: the undercapitalized ship lines and stevedoring companies could not possibly have financed port development on their own. As investment needs grew larger, public officials began to lose their enthusiasm for running ports. “The incremental costs are now staggering,” the head of Seattle’s port said in 1981. The possibility that a ship line’s departure or demise could leave a public agency to pay for idle cranes and silent container yards was too great for many governments to chance.13 British prime minister Margaret Thatcher broke the ice by selling off twenty-one ports to a private company in 1981. Governments in other countries followed suit. Malaysia leased its container terminal at Port Klang to a private group in 1986, and ports from Mexico to Korea to New Zealand were soon in private hands. The investors included not only stevedoring and transport companies, but also leading ocean carriers. Containership lines were by now huge businesses, able to raise the large amounts of capital that ports required. As port users, they had an interest in having facilities that could handle their ships quickly. Unlike government agencies, the private port operators had no imperative to expand for the sake of local economic development; they could insist on long-term contracts, backed by banks or by collateral, to assure that they would recover whatever investments they made. Governments retreated to the role of landlords, renting out waterfront land to private companies. By the end of the twentieth century, nearly half the world’s trade in containers would be passing through privately controlled ports.

Note: It’s not fully clear that governments should build and then transfer on a sweetheart deal

Page 534

Profitability required that at least three-quarters of the container cells be filled; beyond that point, the fixed costs could be spread widely and the cost per container would be low. Profits thus depended not only on the number of vessels competing for cargo, but on the business cycle. A global recession would hit shipowners twice over: the lack of freight would cause their fixed cost per container to increase at the same time as it would weaken their ability to hold rates at profitable levels.

Note: 2008 was rough

Page 592

Trying to compute the extent to which containerization changed “average” maritime rates for shippers keeping their accounts in different currencies and moving a wide variety of goods under hundreds of conference rate structures is an exercise in futility. On balance, the evidence suggests strongly that the cost of shipping a ton of international freight began to decline as containerization became important around 1968 or 1969, and that it fell through 1972 or 1973. As fuel prices rose steeply, freight costs reversed direction, rising until 1976 or 1977. Rates on American-flag vessels other than tankers, overwhelmingly general-cargo ships, show a similar trend, with ship lines’ revenues falling relative to the value of their cargo until the oil crisis brought the rate cutting to a temporary end in 1975.16 And what if container shipping had not taken the transportation world by storm? Dockers’ pay soared during the 1970s. Productivity improvements in break-bulk shipping were minimal. The labor-intensive task of loading a breakbulk ship would have been far costlier in 1976 than it was a decade earlier. Even at the peak of oil prices in 1976, when fuel surcharges were pushing ocean freight rates sky-high, very few shippers seem to have entertained the thought of going back to breakbulk shipping.

Page 668

Shipper organizations had no legal status in the United States, and shippers were reluctant to negotiate jointly lest they be accused of violating antitrust law. The biggest shippers, however, began to exert influence on their own, even as they changed the way they worked in order to take advantage of the container.

Note: The irony of being arias of antitrust while negotiating with a cartel.

Page 724

Trucking was tightly regulated almost everywhere in the early 1970s, with the notable exception of Australia. Most railroads were state-owned, damping any competitive instincts. So long as political power rested with the transportation companies and their unions, rather than their customers, the regulatory structure stood strong. If its collapse can be dated to a single event, it was the bankruptcy of the Penn Central, the largest railroad in the United States, in June 1970. The Penn Central’s failure, followed in short order by a half dozen other rail bankruptcies, drew attention to the regulations that kept the railroads from adapting to truck competition. The costly and controversial government rescue program altered the political equation, and Republicans and Democrats alike began calling for reductions in regulation. In November 1975, President Gerald Ford proposed eliminating much of the Interstate Commerce Commission’s authority over interstate trucking. The following year, Congress took the first steps to ease regulation of railroads.

Page 771

Perhaps no part of the freight industry was altered more than container shipping. The ability to sign long-term contracts gave railroads an incentive to develop a business that had languished for two decades, with assurance that their investment would not go to waste. Equipment manufacturers went back to work on low-slung railcars designed for fast loading of containers stacked two-high, the sort of cars Malcom McLean had tried—and failed—to convince railroads to use back in 1967. Deregulation meant that those doublestack cars could be used to haul international containers in one direction and containers filled with domestic freight in the other—impractical before 1980—so the international shipment did not have to bear the cost of returning an empty container to the port.

Page 853

In the United States, inventories began falling in the mid-1980s, as the concepts of justin-time manufacturing took root. Manufacturers such as Dell and retailers such as Wal-Mart Stores have taken the concept to extremes, designing their entire business strategies around moving goods from factory floor to customer with minimal time in between. In 2014, inventories in the United States were perhaps $1.2 trillion lower than they would have been had they stayed at the level of the 1980s, relative to sales. Assume that the money needed to finance those inventories would have been borrowed at, say, 8 percent, and inventory reductions saved U.S. businesses roughly $100 billion per year.

Page 858

This precision performance would have been unattainable without containerization. So long as cargo was handled one item at a time, with long delays at the docks and complicated interchanges between trucks, trains, planes, and ships, freight transportation was too unpredictable for manufacturers to take the risk that supplies from faraway places would arrive right on time. They needed to hold large stocks of components to ensure that their production lines would keep moving. The container, combined with the computer, sharply reduced that risk, opening the way to globalization. Companies can make each component, and each retail product, at the cheapest location, taking wage rates, taxes, subsidies, energy costs, and import tariffs into account, along with considerations such as transit times and security. The cost of transportation is still a factor in the cost equation, but in many cases it is no longer a large one.

Page 878

In international production-sharing arrangements of this sort, the manufacturer or retailer at the top of the chain will find the most economical location for each part of the process. This used to be impossible: high transportation costs acted as a trade barrier, very similar in effect to high tariffs on imports, sheltering the jobs of production workers from foreign competition but imposing higher prices on consumers. As the container made international transportation cheaper and more dependable, it lowered that barrier, decimating manufacturing employment in North America, Western Europe, and Japan, by making it much easier for manufacturers to go overseas in search of low-cost inputs. The labor-intensive assembly will be done in a low-wage country—but there are many low-wage countries. The various components and raw materials will come from whichever location can supply them most cheaply—but costs in different locations often are quite similar. Even small changes in transport costs can be decisive in determining where each stage of the process will occur.

Page 886

The economics of containerization have shaped these global supply chains in peculiar ways. Distance matters, but not hugely so. A doubling of the distance cargo is shipped—from Hong Kong to Los Angeles, for example, rather than Tokyo to Los Angles—raises the shipping cost only 18 percent. Places far from the end market can still be part of an international supply chain, so long as they have well-run ports and a lot of volume.

Note: Interesting that distance doesn’t change shipping costs much. But I suppose that was the case even before containerisation.

Also is my geography so poor that I found it hard to believe that one distance here is 2x the other?

Page 900

Shippers in places with busy ports and good land-transport infrastructure not only enjoy lower freight rates, but they also benefit from the shortest shipping times. Before the container, when breakbulk vessels like the Warrior carried most of the world’s trade, cargo typically left the factory weeks before the ship departed, sailed at a glacial 16 knots, and spent an unproductive week in the hold each time the vessel called at an additional port. In the container age, a machine manufactured on Monday can be dropped at Port Newark on Tuesday and delivered in Stuttgart, Germany, in less time than it once would have taken to be loaded aboard a ship such as the Warrior. Yet time still matters. By one estimate, each day seaborne goods spend under way raises the exporter’s costs by 0.8 percent, which means that a typical 13-day voyage from China to the United States has the same effect as a 10 percent tariff. The time savings represent a huge competitive advantage to shippers located near a major port. Those served by smaller ports may have to endure longer wait times between ships or shuttle links to a larger port, adding time, and hence costs, to every shipment. Air freight all but eliminates the costs of time, but it is too expensive for most goods that are made in poor countries precisely because little value is added in their production.

Note: Impressive that China succeeded and continues to succeed despite this implicit tariff

Page 966

Factories whose goods use those ports will have the lowest rates and the lowest costs in lost time, saving money on imported inputs and gaining a cost advantage in export markets. Manufacturers in poorer countries, where ports are less busy or less well managed, will find that their high logistics costs make competing in foreign markets a difficult proposition.

Page 047

But for all their advantages, the new vessels brought serious disadvantages as well. Entering service after the financial crisis of 2008–10, when the growth of international trade was slower than at any time for half a century, they added vast amounts of capacity, rendering much of the container shipping industry unprofitable. The big ships came with large mortgages and limited flexibility, exposing their owners to great risk if sufficient cargo failed to materialize. These big ships gained many of their economies by steaming more slowly than their predecessors, lengthening transit times and thereby raising shippers’ costs. The giant vessels’ size required ocean terminals to load and discharge more boxes but made it harder for them to do so. Their added width—as many as 23 containers abreast—meant that a crane took longer to move the average box from ship to shore, while their lack of additional length left terminals no room to move more cranes alongside to handle the additional cargo. The net result was longer port calls, wiping out some of the saving gained from greater efficiency at sea.

Note: Would be a shame if they got stuck in a canal

Page 252

The huge increase in long-distance trade that came in the container’s wake was foreseen by no one. When he studied the role of freight in the New York region in the late 1950s, Harvard economist Benjamin Chinitz predicted that containerization would favor metropolitan New York’s industrial base by letting the region’s factories ship to the South more cheaply than could plants in New England or the Midwest. Apparel, the region’s biggest manufacturing sector, would not be affected by changes in transport costs, because it was not “transport-sensitive.” The possibility that falling transport costs could decimate much of the U.S. manufacturing base by making it practical to ship almost everything long distances simply did not occur to him. Chinitz was hardly alone in failing to recognize the extent to which lower shipping costs would stimulate trade. Through the 1960s, study after study projected the growth of containerization by assuming that existing import and export trends would continue, with the cargo gradually being shifted into containers. The prospect that the container would permit a worldwide economic restructuring that would vastly increase the flow of trade was not taken seriously.

Page 261

“The market” got many things wrong when it came to the container, and so did “the state.” Both private-sector and public-sector misjudgments slowed the growth of containerization and delayed the economic benefits it would bring. Yet in the end, the logic of shipping freight in containers was so compelling, the cost savings so enormous, that the container took the world by storm. Sixty years after the Ideal-X, the equivalent of more than 300 million 20-foot containers were making their way across the world’s oceans each year, with perhaps a fourth of them originating in China alone. Countless more were being shipped cross-border by truck or train.

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