The Box: How the Shipping Container Made the World Smaller and the World Economy Bigger
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TABLE 1
Cost of Shipping One Truckload of Medicine from
Chicago to Nancy, France (estimate ca. 1960)
This process was so expensive that in many cases selling internationally was not worthwhile. “For some commodities, the freight may be as much as 25 per cent of the cost of the product,” two engineers concluded after a careful study of data from 1959. Shipping steel pipe from New York to Brazil cost an average of $57 per ton in 1962, or 13 percent of the average cost of the pipe being exported—a figure that did not include the cost of getting the pipe from the steel mill to the dock. Shipping refrigerators from London to Capetown cost the equivalent of 68 U.S. cents per cubic foot, adding $20 to the wholesale price of a midsize unit. No wonder that, relative to the size of the economy, U.S. international trade was smaller in 1960 than it had been in 1950, or even in the Depression year of 1930. The cost of conducting trade had gotten so high that in many cases trading made no sense.8
By far the biggest expense in this process was shifting the cargo from land transport to ship at the port of departure and moving it back to truck or train at the other end of the ocean voyage. As one expert explained, “a four thousand mile voyage for a shipment might consume 50 percent of its costs in covering just the two ten-mile movements through two ports.” These were the costs that the container affected first, as the elimination of piece-by-piece freight handling brought lower expenses for longshore labor, insurance, pier rental, and the like. Containers were quickly adopted for land transportation, and the reduction in loading time and transshipment cost lowered rates for goods that moved entirely by land. As ship lines built huge vessels specially designed to handle containers, ocean freight rates plummeted. And as container shipping became intermodal, with a seamless shifting of containers among ships and trucks and trains, goods could move in a never-ending stream from Asian factories directly to the stockrooms of retail stores in North America or Europe, making the overall cost of transporting goods little more than a footnote in a company’s cost analysis.9
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-in-time 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.
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.
Some scholars have argued that reductions in transport costs are at best marginal improvements that have had negligible effects on trade flows. This book disputes that view. In the decade after the container first came into international use, in 1966, the volume of international trade in manufactured goods grew more than twice as fast as the volume of global manufacturing production, and two and a half times as fast as global economic output. Something was accelerating the growth of trade even though the economic expansion that normally stimulates trade was weak. Something was driving a vast increase in international commerce in manufactured goods even though oil shocks were making the world economy sluggish. While attributing the vast changes in the world economy to a single cause would be foolhardy, we should not dismiss out of hand the possibility that the extremely sharp drop in freight costs played a major role in increasing the integration of the global economy.10
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’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 railcar, 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
The importance of innovation is at the center of a second, and rapidly growing, body of research. 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. This line of research makes clear that new technology, by itself, has little economic benefit. As economist Nathan Rosenberg observed, “innovations in their early stages are usually exceedingly ill-adapted to the wide range of more specialised uses to which they are eventually put.” Resistance to new methods can impede their adoption. Potential users may avoid commitments until the future is more certain; as early buyers of Betamax video players can attest, it is risky to bet on a technology that turns out to be a dead end. Even after a new technology is proven, its spread must often wait until prior investments have been recouped; although Thomas Edison invented the incandescent lightbulb 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.12
This book contends that, just as decades elapsed between the taming of electricity in the 1870s and the widespread use of electrical power, so too did the embrace of containerization take time. Big savings in the cost of handling cargo on the docks did not translate immediately into big savings in the total cost of transportation. Transportation companies were generally ill-equipped to exploit the container’s advantages, and their customers had designed their operations around different assumptions about costs. Only with time, as container shipping developed into an entirely new system of moving goods by land and sea, did it begin to affect trade patterns and industrial location. Not until firms learned to take advantage of the opportunities the container created did it change t
he world. Once the world began to change, it changed very rapidly: the more organizations that adopted the container, the more costs fell, and the cheaper and more ubiquitous container transportation became.13
The third intellectual stream feeding into this book is the connection between transportation costs and economic geography, the question of who makes what where. This connection might seem self-evident, but it is not. When David Ricardo showed in 1817 that both Portugal and England could gain by specializing in making products in which they had a comparative advantage, he assumed that only production costs mattered; the costs of shipping Portuguese wine to England and English cloth to Portugal did not enter his analysis. Ricardo’s assumption that transportation costs were zero has been incorporated into economists’ models ever since, despite ample real-world evidence that transportation costs matter a great deal.14
Economists have devoted serious effort to studying the geographic implications of transport costs only since the early 1990s. This new stream of work shows formally what common sense suggests. When transport costs are high, manufacturers’ main concern is to locate near their customers, even if this requires undesirably small plants or high operating costs. As transportation costs decline relative to other costs, manufacturers can relocate first domestically, and then internationally, to reduce other costs, which come to loom larger. Globalization, the diffusion of economic activity without regard for national boundaries, is the logical end point of this process. As transport costs fall to extremely low levels, producers move from high-wage to low-wage countries, eventually causing wage levels in all countries to converge. These geographic shifts can occur quickly and suddenly, leaving long-standing industrial infrastructure underutilized or abandoned as economic activity moves on.15
Have declines in the cost of shipping really caused such significant economic shifts? Some scholars doubt that ocean freight costs have fallen very much since the middle of the twentieth century. Others, pointing to the undeniable fact that countries trade much more with neighbors than with distant lands, argue that transportation costs still matter a great deal. The present work intentionally takes a nonquantitative approach in addressing these questions. The data on freight costs from the mid-1950s through the 1970s are so severely deficient that they will never provide conclusive proof, but the un-disputed fact that the transportation world raced to embrace containerization is very strong evidence that this new shipping technology significantly reduced costs. Nor does this book employ economic models to prove the container’s impact. Given the vast changes in the world economy over a span that saw the breakdown of the exchange-rate system, repeated oil crises, the end of colonialism, the invention of jet travel, the spread of computers, the construction of hundreds of thousands of miles of expressways, and many other developments, no model is likely to be conclusive in distinguishing the impact of containerization from that of the many other forces. Nonetheless, dramatic shifts in trade patterns and in the location of economic activity over the past half century suggest that the connection between containerization and changes in economic geography is extremely strong.16
Mysteriously, the container has escaped all three of these very lively fields of research. It has no engine, no wheels, no sails: it does not fascinate those captivated by ships and trains and planes, or by sailors and pilots. It lacks the flash to draw attention from those who study technological innovation. And so many forces have combined to alter economic geography since the middle of the twentieth century that the container is easily overlooked. There is, half a century after its arrival, no general history of the container.17
In telling the remarkable story of containerization, this book represents an attempt to fill that historical void. It treats containerization not as shipping news, but as a development that has sweeping consequences for workers and consumers all around the globe. Without it, the world would be a very different place.
Chapter 2
Gridlock on the Docks
In the early 1950s, before container shipping was even a concept, most of the world’s great centers of commerce had docks at their heart. Freight transportation was an urban industry, employing millions of people who drove, dragged, or pushed cargo through city streets to or from the piers. On the waterfront itself, swarms of workers clambered up gangplanks with loads on their backs or toiled deep in the holds of ships, stowing boxes and barrels in every available corner. Warehouses stood at the heads of many of the wharves, and where there were no warehouses, there were factories. As they had for centuries, manufacturers still clustered near the docks for easier delivery of raw materials and faster shipment of finished goods. Whether in San Francisco or Montreal, Hamburg or London, Rio or Buenos Aires, the surrounding neighborhoods were filled with households that made their livings from the port, bound together by the special nature of waterfront work and the unique culture that developed from it.
Though ships had been plying the seas for thousands of years, using them to move goods was still a hugely complicated project in the 1950s. At the shipper’s factory or warehouse, the freight would be loaded piece by piece on a truck or railcar. The truck or train would deliver hundreds or thousands of such items to the water-front. Each had to be unloaded separately, recorded on a tally sheet, and carried to storage in a transit shed, a warehouse stretching alongside the dock. When a ship was ready to load, each item was removed from the transit shed, counted once more, and hauled or dragged to shipside. The dock would be covered with a jumble of paperboard cartons and wooden crates and casks. There might be steel drums of cleaning compound and beef tallow alongside 440-pound bales of cotton and animal skins. Borax in sacks so heavy it took two men to lift them, loose pieces of lumber, baskets of freshly picked oranges, barrels of olives, and coils of steel wire might all be part of the same load of “mixed cargo,” waiting on the dock amid a tangle of ropes and cables, as lift trucks and handcarts darted back and forth.
Getting all of this loaded was the job of the longshoremen. On the dock or in the pierside warehouse, a gang of longshore workers would assemble various boxes and barrels into a “draft” of cargo atop a wooden pallet, the sling board. Some sling loads were wrapped in rope or netting, but pallets often held stacks of loose cartons or bags. When the draft was ready, the longshoremen on the dock would slip cables beneath the sling board and tie the ends together. On the ship’s deck, the winch driver, or “deck man,” waited for his signal. When it came, he positioned the hook of the shipboard crane over the sling. The dockside men placed the cables on the hook, and the winch hoisted the draft from the dock, maneuvered it over an open hatch, and lowered it into the hold. The hook was released quickly and lifted out to grab another load, lest the foreman complain that “the hook is hanging.” Meanwhile, in the dimness of the ship’s interior, another gang of longshoremen removed each item from the sling board and found a secure place to stow it, maneuvering it into position with a four-wheeled cart, a forklift, or brute force. Every longshoreman carried a steel hook with a wooden handle, designed to grab a recalcitrant piece of cargo and jerk it into place under power of nothing but human muscle.
Unloading could be just as difficult. An arriving ship might be carrying 100-kilo bags of sugar or 20-pound cheeses nestled next to 2-ton steel coils. Simply moving one without damaging the other was hard enough. A winch could lift the coiled steel out of the hold, but the sugar and cheese needed men to lift them. Unloading bananas required the longshoremen to walk down a gangplank carrying 80-pound stems of hard fruit on their shoulders. Moving coffee meant carrying fifteen 60-kilo bags to a wooden pallet placed in the hold, letting a winch lift the pallet to the dock, and then removing each bag from the pallet and stacking it atop a massive pile. The work could be brutally physical. In Edinburgh, unloading a hold full of bagged cement meant digging through a thirty-foot-high pile of dusty bags, tightly packed together, and lifting them into a sling, one by one. Copper came from Peru to New York in the form of bars too big for a man to handle. Longshoremen had to mo
ve these enormous hunks of metal across the dock, from the incoming ship to a lighter, or barge, which would transport them to a plant in New Jersey. “Because they had to bend over to do that, you’d see these fellows going home at the end of the day kind of like orangutans,” a former pier superintendent remembered. “I mean, they were just kind of all bent, and they’d eventually straighten up for the next day.”1
Automation had arrived during World War II, but in a very limited way. Forklifts, used in industry since the 1920s, were widely used by the 1950s to move pallets from the warehouse to the side of the ship, and some ports installed conveyors to unload bags of coffee and potatoes. Even with machinery at hand, though, muscle was often the ultimate solution. Longshoremen had to be prepared to handle small cartons of delicate tropical fruits one day, tons of filthy carbon black the next. They labored sometimes in daylight, sometimes at night, in all weather conditions. Sweltering holds, icy docks, and rain-slicked gangways were part of the job. The risk of tripping over a load of pipe or being knocked down by a draft on the hook was ever present. In Marseilles, forty-seven dockworkers were killed on the job between 1947 and 1957, while in Manchester, where dockers serviced oceangoing vessels that ascended a canal from the Irish Sea, one out of two longshoremen suffered an injury in 1950, and one out of six landed in the hospital. New York, with a lesser injury rate, reported 2,208 serious accidents in 1950. Government safety rules and inspections were almost nonexistent. 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.2