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Singapore’s strategy was to use containers to become the commercial hub of Southeast Asia.
1966, “I do not think the time for the all-container ship is now nor in the next decade.
The impact on trade flows was immediate.
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.
The U.S. merchant fleet changed almost overnight.
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;
Demand, robust through it was, could not possibly keep up with this explosion of supply. The result was a new and painful experience for the shipping industry: a rate war.
The economics of container shipping were fundamentally different. The huge sums borrowed to buy ships, containers, and chassis required regular payments of interest and principal. State-of-the-art
As the artificially high rate structure collapsed, ship lines faced profit squeeze.
In desperation, the leading carriers on important routes tried an old-fashioned solution: reducing competition. Five
The next collapse was not long in coming. The years 1972 and 1973, as it turned out,
The sharp rise in oil prices that began in 1973 proved initially to be an unexpected blessing
The oil crisis, though, ended up devastating the shipping industry. The
High fuel consumption—the inevitable result of high speed—did not much matter, because oil was cheap. The world of the mid-1970s was totally different. The price of fuel quadrupled.
McLean hatched an audacious plan. U.S. Lines would build a series of enormous containerships, half again as large as anything else on the sea, and send them around the world.
A round-the-world route, McLean thought, would solve one of the industry’s inherent problems, the imbalanced flow of freight that left some ships sailing full in one direction and half-empty in the other. The new vessels would have the lowest construction cost per container slot of any vessel in the world and the lowest operating costs per container as well. U.S. Lines would achieve what it took to succeed in container shipping: scale.
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.
Naval architects were no longer forced to design streamlined shapes to help achieve high speeds, and could concentrate instead on increasing payloads. Without getting much longer, vessels got much larger. The ships entering service by 1978 could hold up to 3,500 20-foot containers
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.
More and more, the biggest ports traded largely with one another: in 1976, nearly one-quarter of all U.S. containerized foreign trade went through Kobe, Japan, or Rotterdam,
The ceaseless expansion of port capacity was driven by the same force as the ceaseless increase in ship capacity, the demand for lower cost per box. New
The more boxes a port was equipped to handle, the lower its cost per box was likely to be. As one study concluded bluntly, “Size matters.”7
Size mattered, but a port’s location mattered less and less.
Competition involved investment on a dizzying scale. The World Bank and the Asian Development Bank poured $1.3 billion into port projects in developing countries during the 1970s. American ports spent $2.3 billion for container-handling facilities between 1973 and 1989. Ship lines used their
McLean dubbed his new vessels Econships, because their fuel economy, along with the scale economies created by their enormous size, would produce the lowest cost per container of any ships anywhere. The ships alone cost $570 million.
by carriers in search of market share.”20 Nor was the service quite as expected. Each port call required not just a stop at the dock but a costly, time-wasting diversion from the round-the-world route. Unless stops were severely curtailed,
Carriers staggered under the enormous costs of the transition to container shipping, and some did not survive it. Ports literally had to rebuild themselves to handle containers in quantity, taking on entirely new roles developing and financing terminals of previously unimagined scale. Longshoremen almost everywhere lost their jobs in large numbers, although in many cases their unions resisted strongly enough to win compensation for acceding to the changes that would quickly reshape work on the docks.
The true importance of the revolution in freight transportation would be found not in its effect on ship lines and dockworkers, but later, as the impact of containerization resonated among the hundreds of thousands of factories and wholesalers and commodity traders and government agencies with goods to ship. For most shippers, except perhaps government agencies, the cost of transporting goods was decisive in determining what products they would make, where they would manufacture and sell them, and whether importing or exporting was worthwhile. The container would reshape the world economy only
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The result was that the early rates for containers were based not on the cost of container shipping,
From the containership operators’ point of view, offering lower rates for full containers than for mixed containers made perfect sense.
Shipping machinery from southern Germany to New York cost one-third less by containership than by breakbulk freight, a bank study found in 1971.
The new containerships were hit especially hard. Their high speeds meant that they consumed two or three times as much fuel for a given amount of freight as the breakbulk ships they replaced.
What happened to make shipping cheaper? And why did it start to happen around 1977 rather than with the onset of international container shipping a decade earlier? The answers have to do with a group that has received little attention in these pages: shippers. Containerization
The second important result of shippers’ new power in the 1970s, along with their willingness to defy the shipping cartels, was their embrace of an idea that had been a heresy: the deregulation of transportation.
On the other side, many companies that handled full truckloads of freight were bitterly opposed to changes that would encourage partial truckloads, and
The basic concept of the container was that cargo could move seamlessly among trains, trucks, and ships. Two decades after Malcom McLean’s first containership, though, container shipping was anything but seamless.
Deregulation changed everything. In two separate laws passed in 1980, Congress freed interstate truckers to carry almost
The long-standing principle that all customers should pay the same price to transport the same product gave way to a system that yielded huge discounts for the biggest customers.
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
The rates, set by negotiation rather than regulation, were far lower than before and were designed to fall further as volumes rose. On
The Shipping Act of 1984 rewrote the rules governing international shipping through U.S. ports. Shippers could now sign long-term contracts with ship lines. In return for guaranteeing a minimum amount of cargo, a shipper could negotiate a low rate and specific terms of service, such as the frequency of ships. These “service contracts” had to be made public, so other shippers with similar freight could demand the same deal.
Shippers’ newfound power put enormous downward pressure on freight rates.
When American President Lines studied the matter a few years later, it concluded that freight rates from Asia to North America had fallen 40 to 60 percent because of the container.
Workers in China produced her statuesque figure, using molds from the United States and other machines from Japan and Europe. Her nylon hair was Japanese, the plastic in her body from Taiwan, the pigments American, the cotton clothing from China. Barbie, simple girl though she is, had developed her very own global supply chain.1 Supply chains like Barbie’s are a direct result of the changes wrought by the rise of container shipping.
manufacturers discovered that they no longer needed to do everything themselves. They could contract with other companies for raw materials and components, locking in supplies, and then sign transportation contracts to assure that their inputs would arrive when needed. Integrated production yielded to disintegrated production. Each supplier, specializing in a narrow range of products,
Overwhelmingly, these companies found that just-in-time required them to deal with transportation in a very different way.
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.
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
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International trade is no longer dominated by essential raw materials or finished products. 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. The majority of the metal boxes moving around the world hold not televisions and dresses, but industrial products such as synthetic resins, engine parts, wastepaper, screws, and, yes,
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In computing.
International trade is no longer dominated by essential raw materials or finished products. 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. The majority of the metal boxes moving around the world hold not televisions and dresses, but industrial products such as synthetic resins, engine parts, wastepaper, screws, and, yes,
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Parallel with services
