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

by Marc Levinson

And certainly, no one in the early days of container shipping foresaw that this American-born industry would come to be dominated by European and Asian firms, as the U.S.-flag ship lines, burdened by a legacy of protected markets and heavy regulation, proved unable to compete in a fast-changing world.

Those who had no wish to go international, who sought only to serve their local clientele, learned that they had no choice: like it or not, they were competing globally because the global market was coming to them.

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

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.”

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.”

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.

Longshoremen had to move 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

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

Mistakes could be fatal. If a load shifted in an ocean swell, the ship could capsize.4

Moving an incoming shipload of mixed cargo from ship to transit shed and then taking on an outbound load could keep a vessel tied up at the dock for a week or more.5

Almost everywhere, longshoremen had been forced to compete for work each morning in an age-old ritual. In America, it was known as shape-up.

Australians called it the pick-up. The British had a more descriptive name: the scramble.

On the U.S. Pacific coast, employers lost control of the hiring process after a bitter strike in 1934; thereafter, the order of hiring was determined by the public drawing of longshoremen’s badge numbers each morning in the shelter of a union-controlled hiring hall.

In Boston, the Irish-controlled Longshoremen’s Union made no effort to sign up blacks even after many were hired as strike breakers in 1929.

longshoreman. In Antwerp, 58 percent of dockworkers were the sons of dock-workers.

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 a dockworker’s daughter.

Dockworkers proudly represented the leading edge of labor radicalism.18

The London, Midland, and Scottish Railway carried three thousand containers in 1927, and the French national railway promoted them as an efficient way for farmers to ship meat and cheese to the city. In 1933, it joined other railroads to form the International Container Bureau, an organization dedicated to making international container freight practical in Europe.

Contrary to what had been thought at first, the handling of containers led to hardly any cost savings,” an influential European maritime expert admitted. A 1955 census found 154,907 shipping containers in use in non-Communist Europe. The number is large, but the containers were not: fully 52 percent of them were smaller than 106 cubic feet, less than the volume of a box 5 feet on a side. Almost all European containers were made of wood, and many had no tops; the user piled the goods inside and covered the load with canvas—hardly an efficient system for moving freight. The containers promoted by the Belgian national railway were meant to be slid up a ramp to fit inside truck bodies, requiring an extra stage of handling. American containers were typically made of steel, providing better protection but at enormous cost; one-quarter or more of the weight of a loaded container was the container itself.27

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.

McLean Trucking

By the early 1950s, McLean Trucking was hiring young university graduates and putting them through one of the first formal management training programs in American business.

He was a highly leveraged fellow,” remembered Walter Wriston, who started lending to McLean on behalf of National City Bank in 1954 and later headed the company when, under the name Citibank, it became the largest bank in the world. “He understood cash flow. You’d go to a railroad in those days and talk about cash flow and they’d ask you what you meant.”11

senior driver got a bonus of one month’s pay if a man he had trained made it through his first year without an accident. The incentives were powerful: the veteran had a strong financial incentive to train the newcomer well, and the new driver understood that he had best drive very carefully if he wanted to stick around.12

In 1954, while still pursuing Loveland, he came upon the Waterman Steamship Corporation in the pages of a Moody’s financial manual. Waterman, based in Mobile, Alabama, was a large, well-established operator sailing to Europe and Asia. Its tiny subsidiary, Pan-Atlantic Steamship Corporation, operated four ships along the coast between Boston and Houston. McLean immediately spotted the companies’ attractions. Pan-Atlantic had been hurt badly by the 1954 longshore strike in New York, completing only 64 voyages the entire year, but it owned valuable operating rights to serve 16 ports. Its parent, Waterman Steamship, was debt-free, with assets including 37 ships and $20 million in cash. McLean made some preliminary soundings and found that Waterman could be bought for $42 million.

What followed was an unprecedented piece of financial and legal engineering. First, to circumvent rules requiring ICC approval for a truck line to own a ship line, McLean created an entirely new company, McLean Industries, in January 1955. Although McLean Industries had publicly traded stock, it was clearly a family-controlled business; Malcom McLean was president, his brother James McLean was vice president, and his sister Clara McLean was secretary and assistant treasurer. Malcom, James, and Clara then put control of the trucking company in a trust, of which they were the beneficiaries. Malcom McLean kept $5 million of stock, but the trustees were authorized to sell the rest. As soon as the trust documents were signed, the McLeans resigned as directors of McLean Trucking, and within an hour McLean Industries took control of Pan-Atlantic.

Balls

On May 6, Waterman’s board and McLean’s bankers and lawyers convened in a Mobile boardroom only to realize that the board lacked a quorum. One of the Wall Street lawyers quickly took the elevator downstairs, stopped a passerby, and asked whether he wanted to earn a quick fifty dollars. The man was promptly elected a Waterman director, making a quorum.

The concept was costed out on Ballentine 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.

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

Keith Tantlinger

The company’s tone, though, was set by his sister Clara. Her desk was in the middle of the floor, where she could keep an eye on everything and everyone. She knew who had come in late. She decorated the office; managers who were promoted into glass-fronted offices of their own found that she had selected their furnishings for them, right down to the art. “If you put a picture or a calendar on the wall, you got a note from Clara the next morning,” one recalled. She set the rules: coffee nowhere but the coffee room, no personal phone calls, desks cleared every night. She personally reviewed every single time card and approved every hire.8

Les Harlander designed a special lifting spreader to solve the swing problem, testing its feasibility by building a model with his son’s Erector Set over Christmas of 1957.16

When the results were in, Harlander’s team decided that the most economical size for Matson was feet high and 24 feet long, 11 feet shorter than Pan-Atlantic’s containers.

Renting time on an IBM 704 computer at several hundred dollars a minute, the researchers built a fully fledged simulation model of the business, incorporating data on volume and costs for more than three hundred commodities at every port the company served at every time of year. Then they added in data on port labor costs, the current utilization of docks and cranes, and the load aboard each ship, to provide real-time answers to practical questions: 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 pineapple to Oakland? Such simulations were new in the 1950s and had never been used in the shipping industry.

On January 9, 1959, the world’s first purpose-built container crane went into operation, loading one 40,000-pound box every three minutes.

Education did not matter; although Malcom McLean had a box at the Metropolitan Opera, intellectual airs were frowned upon, and new hires were advised to fracture their grammar to fit in with a crowd of truckers. “When we had nothing else to do, we would stand and pitch pennies,” remembered naval architect Charles Cushing, an MIT graduate who joined the company in 1960. “They don’t teach you to pitch pennies at the Wharton School.

headquarters produced an “aging report” listing containers that had not been seen for a week, and local supervisors frantically worked the phones to try to locate missing boxes before a manager called.

whose changes New York could not possibly accommodate. Despite their costly efforts, the local economy was left devastated as new technology made the nation’s largest port obsolete.

Delivering by truck meant engaging a “public loader,” a type of enterprise unique to New York. A public loader was a gang that claimed the sole right to load and unload trucks on a particular pier, backed by the muscle of the International Longshoremen’s Association, the dockworkers’ union.

Even after the newly established Waterfront Commission banned public loaders in December 1953, thugs continued to control access to the docks.3

Crime drove shippers away from New York as well. Cargo theft was rampant; most goods were packaged in small boxes or crates, so stealing wristwatches, liquor, or almost anything else was not particularly difficult.

It then announced construction of the biggest terminal yet on the New Jersey side, designed for the Waterman Steamship Company, which would be moving across the harbor from Brooklyn. The Waterman terminal would have a fifteen-hundred-foot wharf running parallel to the shore for faster docking and easier loading—a feature no New York City pier could match.

Although the Port Authority was proceeding with plans to turn twenty-seven outmoded piers in Brooklyn into twelve modern ones, the agency understood that it was in a race to recover its in vestment before container shipping made the reconstructed piers obsolete. “We already knew that we were building something [in Brooklyn] that would pay itself back, but it wasn’t the future,” re called Guy F. Tozzoli, then the Port Authority’s head of port planning.

As container traffic surged, so did Port Newark’s fortunes. New ark’s cargo tonnage doubled between 1956 and 1960 while tonnage on the New York side declined slightly, taking New Jersey’s share of total port traffic from 9 percent to 18 percent in just four years.

Port Elizabeth, by contrast, was designed from the start as a port for containers.

For the port as a whole, containerization still remained a sideshow in 1962. Containers accounted for only 8 percent of the Port of New York’s general cargo, entirely in domestic trades.

“Dear Austin,” he wrote Port Authority chief Tobin in language unthinkable a few years earlier, “After considering the alternatives available to us, I am convinced that the entity best able to construct and operate the terminal is the Port Authority.” The passenger terminal would eventually be built in Manhattan—but the agency, soon to be renamed the Port Authority of New York and New Jersey, had no further opposition from city government as it developed a vast new port well away from its geographic roots.37

In 1963–64, Manhattan employers used 1.4 million days of longshore labor. Hirings slid below a million in 1967–68, breached 350,000 in 1970–71, and dropped to 127,041 in 1975- 76—a 91 percent decline in longshore employment in twelve years.

By the middle of the 1970s, the New York docks were mostly a memory. Lighters carried a grand total of 129,000 tons of freight to waiting ships in 1974—less than one-tenth of the load moved in 1970, one-fiftieth as much as in 1960. Some shipping remained in Brooklyn, but Piers 6, 7, and 8, fully rebuilt in the late 1950s and known as “Little Japan” for their tenants, emptied out as five Japanese carriers moved to New Jersey.