The Box: How the Shipping Container Made the World Smaller and the World Economy Bigger - Second Edition with a new chapter by the author

by Marc Levinson

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.”

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.

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.

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

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.12

unpleasant and often dangerous job, with an injury rate three times that of construction work and eight times that in manufacturing.2

“60 to 75 percent of the cost of transporting cargo by sea is accounted for by what takes place while the ship is at the dock and not by steaming time,” two analysts concluded in 1959.

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 concept was costed out on Ballantine Beer, which McLean Trucking hauled from Newark. Analysts for the Port of New York Authority calculated that sending the beer to Miami on board a traditional coastal ship, including a truck trip to the port, unloading, stacking in a transit shed, removal from the transit shed, wrapping in netting, hoisting aboard ship, and stowage, would cost four dollars a ton, with unloading at the Miami end costing as much again. The container alternative—loading the beer into a container at the brewery and lifting the container aboard a specially designed ship—was estimated to cost twenty-five cents a ton. Container shipping would be 94 percent cheaper than breakbulk shipping of the same product, even allowing for the cost of the container.23

For McLean, though, the real triumph came only when the costs were tallied. Loading loose cargo on a medium-size cargo ship cost $5.83 per ton in 1956. McLean’s experts pegged the cost of loading the Ideal-X at 15.8 cents per ton. With numbers like that, the container seemed to have a future.28

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

All of these new containers had a special steel casting built into each of their eight corners. The casting contained an oblong hole designed to accommodate the most critical invention of all, the twist lock. This device, with one conical section pointing down and another up, could be inserted into the corner castings of containers as they were stacked. When one was lowered upon the other, a longshoreman could quickly turn the handle and lock the two boxes tightly together. By pulling the handle the other way, a worker could release the two boxes in seconds when it was time to discharge the ship.3

On January 9, 1959, the world’s first purpose-built container crane went into operation, loading one 40,000-pound box every three minutes. At that rate, the Alameda terminal could handle 400 tons per hour, more than 40 times the average productivity of a longshore gang using shipboard winches. Similar cranes were installed in Los Angeles and Honolulu in 1960.20

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.30

When the container finally arrived in force, leading to unimagined productivity increases, it brought yet more surprises. 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.”31

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.49

One was scope: the width of a railroad track affected only railroads, whereas the design of containers affected not just ship lines, but also railroads, truck lines, and even shippers who owned their own equipment. The other difference was timing. Railroads had been around for several decades before incompatible track gauges came to be seen as a major problem. Container shipping was brand-new, and pushing standardization before the industry developed might lock everyone into designs that would later prove undesirable. From an economic perspective, then, there was every reason to doubt the desirability of the standardization process that began in 1958. If government agencies in those days had made it a routine practice to conduct cost-benefit studies, most likely the entire process of container standardization would never have begun.4

All three carriers reported stunning efficiencies. Three medium-size containerships could handle as much transatlantic freight as six breakbulk ships, with only half the capital cost and two-thirds of the operating cost, a consultant reported. United States Lines found that at Port Elizabeth, one longshore gang with one crane could load as much in a ten-hour container operation as ten gangs handling conventional breakbulk freight. Moore-McCormack pegged the cost of loading containerized cargo at Port Elizabeth as $2.00 to $2.50 per ton, versus $16.00 per ton for conventional freight.29

The economic advantages of this truck-train-ship combination seemed overwhelming. Trucks would do the short-haul work for which they were best suited. Trains would handle the long land haul, where their costs were lowest. Shippers’ costs for the domestic leg of their international shipment would fall by half. The Pennsylvania was intrigued by the plan, the New York Central and the Baltimore and Ohio opposed. But as the Pennsylvania and the New York Central announced plans to merge, McLean’s ambitions were scuttled. The railroads made the minimum counteroffer that the ICC would allow: they would carry Sea-Land’s container cars—mixed in with other cars on their regular slow freights.

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.23

Fewer than one-third of the containers imported through Southern California in 1998 contained consumer goods. Most of the rest were links in global supply chains, carrying what economists call “intermediate goods,” factory inputs that have been partially processed in one place and will be processed further someplace else.