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May 15, 2016 - September 10, 2017
In the business world, this way of looking at the world through a spreadsheet is treated as modern management thinking. It’s the bread and butter of some of the world’s most famous, and expensive, consulting firms.
Decades later, when enormous trailer trucks rule the highways and trains hauling nothing but stacks of boxes rumble through the night, it is hard to fathom just how much the container has changed the world. In 1956, China was not the world’s workshop. It was not routine for shoppers to find Brazilian shoes and Mexican vacuum cleaners in stores in the middle of Kansas. Japanese families did not eat beef from cattle raised in Wyoming, and French clothing designers did not have their exclusive apparel cut and sewn in Turkey or Vietnam. Before the container, transporting goods was expensive—so
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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.
Merchant mariners, who had shipped out to see the world, had their traditional days-long shore leave in exotic harbors replaced by a few hours ashore at a remote parking lot for containers, their vessel ready to weigh anchor the instant the high-speed cranes finish putting huge metal boxes off and on the ship.
Shipping costs no longer offered shelter to high-cost producers whose great advantage was physical proximity to their customers; even with customs duties and time delays, factories in Malaysia could deliver blouses to Macy’s in Herald Square more cheaply than could blouse manufacturers in the nearby lofts of New York’s garment district.
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.
Transportation has become so efficient that for many purposes, freight costs do not much effect economic decisions.
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
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Transportation companies were generally ill-equipped to exploit the container’s advantages, and their customers had designed their operations around different assumptions about costs.
The third intellectual stream feeding into this book is the connection between transportation costs and economic geography, the question of who makes what where.
At the end of World War I, almost as soon as motorized trucks came into wide civilian use, the Cincinnati Motor Terminals Company hit upon the idea of interchangeable truck bodies that were lifted onto and off of wheels with a crane.
The Warrior was loaded with 5,015 long tons of cargo, mainly food, merchandise for sale in post exchanges, household goods, mail, and parts for machines and vehicles. It also carried 53 vehicles. The cargo comprised an astonishing 194,582 individual items of every size and description. These goods arrived in Brooklyn in 1,156 separate shipments from 151 different U.S. cities, with the first shipment arriving at the dock more than a month before the vessel sailed. Each item was placed on a pallet prior to storage in the transit shed. Longshoremen loaded the ship by lowering the pallets into the
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The U.S. economy boomed in the years just after World War II. The maritime industry did not. The entire merchant fleet had been commandeered by the government when the United States entered the war, and many ships did not revert to private control until July 1947, almost two years after the war ended.
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.
Should a big Hawaii-bound ship call at Hilo and Lanai, or should it transfer its cargo to a feeder ship at Honolulu? What time of day should a vessel depart Honolulu so as to minimize total costs of delivering a load of pineapples to Oakland? Such simulations were new in the 1950s and had never been used in the shipping industry.
In 1951, as operations were returning to normal after the war, more than 100,000 New Yorkers were employed in water transportation, trucking, and warehousing, not counting railroad employees and workers in the municipal ferry system.
“The Port Authority, a bistate body, must view New York harbor as an entity and locate its facilities on the basis of geography and economics, not politics,” intoned the New York Times.33
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
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The container turned the economics of location on its head. Now, a company could replace its crowded multistory plant in Brooklyn or Manhattan with a modern, single-story factory in New Jersey or Pennsylvania, could enjoy lower taxes and electricity costs at its new home, and could send a container of goods to Port Elizabeth for a fraction of the cost of a plant in Manhattan or Brooklyn.
At the most important talks, covering New York Harbor, the ILA demanded that ship lines “spread the fruits of automation.” It offered to eliminate one or two longshoremen from each gang. In return, it sought a six-hour workday and a requirement that every container, whatever its origin, be “stripped and stuffed”—that is, emptied and then reloaded—by ILA members on the pier. Stripping and stuffing, of course, were entirely make-work, and would have eliminated any cost savings from containerization.
As containers became more common, each ship line would need its own dock and cranes in every port, no matter how small its business or infrequent its ships’ visits, because other companies’ equipment would not be able to handle its boxes. So long as containers came in dozens of shapes and sizes, they would do little to reduce the total cost of moving freight.
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.
Only one roadblock remained. ISO rules required that the documents supporting proposed standards had to be distributed four months in advance of a meeting. The MH-5 committee had made its recommendation only a few days earlier, and no technical documents were ready. The ISO committee voted unanimously to waive the four-month rule. Three high-ranking corporate executives—Tantlinger, Harlander, and Eugene Hinden of Strick Trailers—then retreated to a railcar factory in nearby Utrecht, where they worked with Dutch draftsmen for forty-eight hours nonstop to produce the requisite drawings. On
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The cart, however, had gotten ahead of the horse: the ISO container committee had agreed on what the corner fitting should look like without defining all of the loads and stresses it should be able to withstand.
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.
“The key to automation is the existence of a standardized product,” British steamship executive G. E. Prior-Palmer testified.
Leasing companies began to feel confident investing large sums in containers and moved into the field in a big way, soon owning more boxes than the ship lines themselves.
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.
Not until container technology affected land-based transportation costs would the container revolution take firm hold.
In early 1965, when McLean Industries’ shares were trading for $13 apiece, the company issued one million shares of stock to American-Hawaiian for $8.50 per share, and Ludwig joined the company’s board of directors. It was the first act of what would prove to be a long-running collaboration between Ludwig and Malcom McLean.
The port’s container tonnage, 1.95 million long tons in 1965, soared to 2.6 million tons in 1966, even though hardly any containers were carried during the first 10 weeks of the year. Faced with this heavy flow of cargo, more U.S. companies, two groups of British carriers, and a consortium of Continental ship lines all raced to enter the container trade. “In 1966, commitments by ship operators and ports to containers passed the point of no return,” a consultant judged.
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.34
In 1966, as Sea-Land’s transatlantic service was getting under way, McLean Industries offered an audacious proposal to build railroad yards in Chicago and St. Louis, at its own expense. Freight forwarders owned by McLean Industries would collect freight from shippers, consolidate it into McLean-owned containers, and load the containers aboard McLean-owned railcars, specially designed by the Pullman Company to carry containers stacked two high. The Pennsylvania Railroad would pull McLean’s all-container train straight to a rail yard Sea-Land would build by the docks at Elizabeth, arriving in
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Leading shipping executives were invited to Washington, where they were shown film clips of sailors lowering cargo nets by rope and asked for advice. When Malcom McLean saw the film, a colleague recalled, “he got obsessed with the idea of putting containerships into Vietnam. He was back and forth to Washington, talking to people, and they told him there isn’t anything you can do in Vietnam.”
Such adjustments notwithstanding, in 1968, the first full year of container operations, one-fifth of all military cargo in the Pacific was shipped in containers.
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.
“Containerization cannot be considered just another means of transportation,” Besson told Congress in 1970. “The full benefits of containerization can only be derived from logistic systems designed with full use of containers in mind.” It was a conclusion that shippers in the private sector were only beginning to reach.
In December 1955 came the Port of New York Authority’s decision to turn 450 acres of New Jersey salt marsh into a futuristic port for containerships, a scheme utterly beyond the capability of any other port in the world.
If they hoped to capture the jobs and tax revenues that would come with being a major transportation center, government agencies would have to be far more closely involved in financing, building, and running ports than ever before.
America’s international trade was overwhelmingly oriented toward Europe; excluding petroleum and other tanker cargoes, barely 11 percent of imports and exports passed through Pacific ports in 1955. Counting petroleum and chemicals, all the West Coast ports together handled less cargo in a year than New York City alone.4
Above all, the Pacific ports were victims of geography. Although the port cities themselves were large and growing quickly, their hinterlands were very thinly populated. All of California beyond Los Angeles and San Francisco Bay had barely six million inhabitants in 1960, and the eight Rocky Mountain states, stretching a thousand miles to the east, had a combined population smaller than New York City
Two traditional maritime centers stood aside from the frenzy. Portland, which handled nearly as much cargo as Seattle during the 1950s, could not muster the money or resources to build a containerport. The consequences were severe. Seattle’s foreign trade more than doubled between 1963 and 1972, but Portland’s barely grew.
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,
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.
Interunion disputes were a problem as well. In Boston, the Massachusetts Port Authority spent $1.1 million to build a container crane in 1966 so that Sea-Land ships could call on their way between New York and Europe, but the terminal was kept closed first by a dispute between the ILA and port employers and then by a dispute between the ILA and the Teamsters union. Sea-Land and its competitors soon learned that they could operate more profitably by trucking Europe-bound containers to New York and having their ships bypass Boston, and port traffic never recovered.
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.
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.
The first decade of container shipping was an American affair. Ports, railroads, governments, and trade unions around the world spent those years studying the ways that containerization had shaken freight transportation in the United States.
In 1966, while the British government was trying to convince container ship lines to call at Tilbury, Felixstowe’s owners had had the foresight to strike a private deal with Sea-Land Service. They spent £3.5 million pounds, less than one-eighth of the government’s outlay at Tilbury, to reinforce a wharf and install a container crane.
