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

by Marc Levinson

  The process of standardization was proceeding nicely. The economic benefit of standardization, however, was still not clear. Containers of 10, 20, 30, and 40 feet had become American and international standards, but the neat arithmetic relationship among the “standard” sizes did not translate into demand from shippers or ship lines. Not a single ship line was using 30-foot containers. Only a handful of 10-foot containers had been purchased, and the main carrier using them soon concluded that it would not buy more. As for 20-foot containers, land carriers hated them. Ship lines “have designed, especially in their 20-foot equipment, a highly efficient port to port container without due consideration of how the box would move efficiently from port to customers,” an executive of the New York Central Railroad complained. So far as truck lines were concerned, the bigger the container, the more freight could be transported per hour of driver labor. Trucking companies’ preference was revealed by the truck trailers they chose to buy, almost none of which had 20-foot bodies. Hall’s notion of coupling two 20- foot containers together on a single trailer proved to be impractical, because if each container was filled to its weight limit, the combined weight would violate highway regulations in every state. Towing two 20-foot containers in tandem was impractical as well, because the same truck could move more weight by pulling two 24-footers or, in many states, two 27-footers.28

  The most powerful evidence against the international standards came from the marketplace. Despite the U.S. government’s pressure on carriers to use “standard” sizes, nonstandard containers continued to dominate. Sea-Land’s 35-foot containers and Matson’s 24-footers, all a nonstandard 8 feet 6 inches high, accounted for two-thirds of all containers owned by U.S. ship lines in 1965. Only 16 percent of the containers in service complied with the standards for length, and a good number of those were not of standard 8-foot height. 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. As Matson executive vice president Norman Scott explained, “In the economics of transportation, there is no magic in mathematical symmetry.”29

  Their business success notwithstanding, Sea-Land and Matson had reason to worry about the drive for standard-size containers. Both companies had raised tens of millions of dollars of private capital to buy equipment and convert their ships to carry containers, and so far neither had sought federal construction subsidies. That situation was now changing. By 1965, both Sea-Land and Matson were preparing to expand internationally, and they might want subsidies to build new ships. In addition, Marad dispensed other types of aid. It gave operating subsidies to U.S. ship lines sailing international routes, to compensate for the requirement that they employ only high-wage American seamen, and it enforced regulations giving U.S.-flag vessels “preference” to carry government cargo overseas. If Marad were to limit those subsidies only to companies adhering to the “voluntary” MH-5 standards, Sea-Land and Matson would be at a serious competitive disadvantage. Executives from the two companies met in Washington and decided to join forces to fight the U.S. government.30

  They started back at the American Standards Association. The association’s MH-5 committee had been quiescent, but in the fall of 1965, with the ISO beginning to adopt international standards for containers, the MH-5 committee named a new subcommittee to look at “demountable containers”—the sort that could be moved among ships, trains, and trucks. The chairman was Matson chief engineer Harlander, and now, in contrast to 1961, Sea-Land officials were prominent participants. At the first meeting, at the Flying Carpet Motel in Pittsburgh, Harlander surrendered the chair and made an appeal for Matson’s 24-foot container size to be accepted as standard. He was followed by Sea-Land’s chief engineer, Ron Katims, who called for the subcommittee to recognize 35-foot containers as well. Sea-Land’s containers, the subcommittee was told, tended to hit weight limits long before they were filled to physical capacity, so 40-foot containers would not in practice hold more freight than 35- footers. With the longer size, however, Sea-Land would not be able to fit as many containers on each ship, forfeiting almost 1,800 tons of freight capacity per vessel. Harlander then called for the subcommittee to endorse 8½-foot-high containers as well. Marad’s representative asked that all three questions be tabled.31

  When discussions resumed in early 1966, the subcommittee agreed to increase the “standard” height for containers to 8½ feet, but it split on whether to recommend a change in policy to make 24-foot and 35-foot containers “standard.” It bounced the entire issue up to the full MH-5 committee. The MH-5 committee itself then split. The dogged Hall, still pushing the standardization process along despite failing health, remained convinced that all approved sizes should be mathematically related. The various maritime associations on the committee, most of whose members had by then adopted 20-foot or 40-foot containers, had little incentive to cast a vote that might force them to share government subsidies with Sea-Land and Matson. Five trucking associations, whose members picked up and delivered containers for Sea-Land and Matson, submitted votes by telegraph in favor of the two additional sizes, but their votes were disallowed. Almost all of the government representatives in attendance abstained. With 15 no votes, 5 yes votes, and 54 voters abstaining or absent, the MH-5 committee had no consensus for anything. A revote the following year found the split persisting, with 24 participating organizations favoring 24-foot containers and 28 against them.32

  Faced with the prospect of competing against subsidized competitors while being excluded from subsidies themselves, Sea-Land and Matson turned to Congress. Their lobbyists drafted legislation in 1967 to prohibit the government from using the sizes of containers or shipboard container cells as a basis for awarding subsidies or freight. Representatives and senators were soon delving into the obscure details of containerization. Other ship lines urged that the government push adoption of standard containers so that any company could handle others’ containers. “The key to automation is the existence of a standardized product,” British steamship executive G. E. Prior-Palmer testified. Sea-Land and Matson, competitors charged, were disrupting the effort to make containers compatible around the world. Of 107 container-carrying ships under construction in September 1967, all but six, commissioned by Sea-Land and Matson, were designed around standard sizes. Marad concurred, arguing that Sea-Land and Matson should accept the standards adopted by everyone else. Sea-Land could add five feet to each of its 25,000 containers and 9,000 chassis and alter all of its ships and cranes for about $35 million, acting Marad chief J. W. Gulick testified, and Matson, a much smaller company, could switch from 24- foot containers to 20-foot containers at a cost of only $9 million.33

  Sea-Land and Matson, which had invested a combined $300 million in containerization, were less concerned about the cost of conversion than about the inefficiency of doing business with equipment ill-suited to their needs. Matson president Stanley Powell testified that using 20-foot containers instead of 24-footers would raise his company’s operating costs by $500,000 per ship per year in service to the Far East, and would increase costs for trucks picking up and delivering containers as well. Malcom McLean followed, armed with a consultant’s study showing that switching from 35- to 40-foot containers in Sea-Land’s Puerto Rico service would reduce revenues by 7 percent and costs hardly at all. “I don’t care what size container is adopted as a standard,” he affirmed. “If the marketplace can find one that moves cheaper, that is the way the marketplace will dictate it and we want to be flexible enough to follow the marketplace.”34

  The Senate passed their legislation, but Matson sensed that a compromise would be needed to get the bill through the House. On the spur of the moment, Powell told a House committee that Matson wanted Marad to subsidize two ships with a radically new feature, adjustable steel cells for container stowage. The ships would initially carry only 24-foot containers, but if market req
uirements changed, the frames could be adjusted so 20-foot containers could be carried in the same space. This new feature, Powell said, would add only $65,000 to the $13 million cost. No such design existed; the entire scheme, cost estimate and all, had been drawn up on the floor of a hotel room the previous night. No matter: Congress ordered Marad not to discriminate against companies using nonstandard containers, Matson was granted its construction subsidy—and, when the company decided years later to switch from 24-foot containers to 40-foot containers, the adjustable cells conceived to satisfy a congressional committee made the shift cheap and easy.35

  Two controversies remained. The MH-5 committee undertook a futile effort to make containers compatible with airplanes as well as with ships, trucks, and trains. The requirements were not easy to reconcile: air containers needed to be stronger than maritime containers, and they required smooth bottoms to travel on conveyor belts rather than corner fittings for lifting by cranes. After months of studies, it dawned on the engineers that shippers paying a premium for the speed of air freight would be unlikely to want their cargo carried in ships, and a separate standard was developed for air containers. Railroads raised a more serious problem, contending that containers needed heavier end walls. End walls bore no great loads when the containers were on ships, but the braking of a train could cause the end of a container to bump up against the end of the flatcar. Railroads in North America demanded end walls twice as strong as those needed by ship lines, to reduce the potential for damage claims. European railroads were even more concerned, because differences in couplings caused more forceful contact between railcars in Europe. Maritime interests resisted stronger end walls, which meant more weight and higher manufacturing costs. With the TC104 committee on their side, the railroads won the day, but not without cost; by one estimate, the requirement for stronger end walls added one hundred dollars to the cost of manufacturing a standard container.36

  By 1970, as the International Standards Organization prepared to publish the first full draft of its painstakingly negotiated standards, the bitter battles among competing economic interests were finally winding down. In hindsight, the process can be faulted in almost every particular. It led to corner fittings that were too weak and needed redesign. Several newly approved container sizes were uneconomic and were soon abandoned. The standards for end walls may have been excessive, and the standards for lashing containers together on deck never quite added up. No one would declare that all of the subcommittees and task forces came up with an optimal result.

  Yet after 1966, as truckers, ship lines, railroads, container manufacturers, and governments reached compromises on issue after issue, a fundamental change could be seen in the shipping world. The plethora of container shapes and sizes that had blocked the development of containerization in 1965 gave way to the standard sizes approved internationally. 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. Aside from Sea-Land, which still used mainly 35-foot containers, and Matson, which was gradually reducing its fleet of 24-foot containers, almost all of the world’s major ship lines were using compatible containers. Finally, it was becoming possible to fill a container with freight in Kansas City with a high degree of confidence that almost any trucks, trains, ports, and ships would be able to move it smoothly all the way to Kuala Lumpur. International container shipping could now become a reality.37

  Chapter 8

  Takeoff

  The Ideal-X and the Hawaiian Merchant were small-scale demonstrations of the container’s potential. The Gateway City, in 1957, and the Hawaiian Citizen, in 1960, offered powerful examples of the efficiency that container shipping could achieve once specialized ships and equipment were brought to bear. Yet in 1962, six years after it arrived on the scene, container shipping remained a very fragile business. In the East, it accounted for 8 percent of the general freight passing through the Port of New York but hardly any elsewhere, save Sea-Land’s bases in Jacksonville, Houston, and Puerto Rico. On the West Coast, a trifling 2 percent of general-cargo tonnage moved in containers. Most goods were still moved as they had been for decades, as loose freight in trucks, boxcars, or the holds of breakbulk ships. The container’s economic impact was almost nil.1

  The leaders of the nation’s maritime industry were by no means unanimous that the container was the future. 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. On domestic routes, government policy discouraged competition among ship lines. On international routes, rates for every commodity were fixed by conferences, a polite term for cartels, and the most important cargo, military freight, was handed out among U.S.-flag carriers without the nuisance of competitive bidding. Decisions about buying, building, or selling ships, about leasing terminals, and about sailing new routes all depended upon government directives. For men who had prospered in this environment, who loved the smells of the ocean and fondly referred to their ships as “she,” Malcom McLean’s wholly unromantic interest in moving freight in boxes had little appeal. It was all well and good for visionaries to proclaim that containers were a “must,” but the collective wisdom of the shipping industry held that they would never carry more than a tenth of the nation’s foreign trade.2

  New union agreements and progress toward standardization encouraged shipping executives to look more seriously at containerization. When they did, though, they saw a waterfront littered with costly mistakes. Malcom McLean himself had made them; the novel shipboard cranes he had installed proved to be a nightmare, breaking down frequently, with each breakdown delaying a ship. Matson, more cautious in its investments, nonetheless built two vessels to carry both bulk sugar and containers, losing the efficiency and quick turnaround of pure containerships. Luckenbach Steamship Company had embarked on a $50 million scheme to operate five containerships between the East and West coasts, only to have to abandon the plan when government aid was not forthcoming. The Erie and St. Lawrence Corporation’s container service between Port Newark and Florida, inaugurated amid great fanfare in 1960, ended six months later when paper manufacturers and food processors failed to provide enough freight.3

  What both transportation companies and shippers were slowly coming to grasp was that simply carrying ocean freight in big metal boxes was not a viable business. Yes, it produced some savings: cranes, boxes, chassis, and containerships eliminated much of the cost of loading and unloading vessels at the dock. Shippers, though, cared not about loading costs, but about the total cost of delivering their products from factory to customer. By this standard, the advantages of containerization were less apparent. If a wholesaler was sending, say, three tons of water pumps from Cleveland to Puerto Rico, the pumps would have to be trucked to Sea-Land’s warehouse in Newark, removed from the truck, and consolidated into a container along with twenty or twenty-five tons of goods from other shippers. Upon arrival in Puerto Rico the contents would have to be removed from the container, sorted, and loaded into trucks for final delivery. There was only a limited amount of traffic, involving fully loaded containers going from one shipper to one recipient over water, for which containerization indisputably made economic sense.4

  Most big shippers had no pressing need to use coastal shipping services, whether containerized or not. They used ocean freight for exporting or importing—but only a handful of containers were being carried on international ships. Most freight shipments were domestic, going cross-country by truck or train. Not until container technology affected land-based transportation costs would the container revolution take firm hold.5

  Up through the end of World War II,
trains had been the way that most companies moved their goods. Railways’ freight revenues were nine times those of intercity truck lines in 1945, when more than 400,000 carloads of manufactured goods as well as most of the nation’s coal and grain were shipped by rail. The 1950s, though, were the decade of the truck. Better roads, including widespread construction of expressways, permitted larger trucks carrying heavier loads at higher speeds. The use of 40-foot trailers on superhighways instead of 28-foot trailers on congested two-lane roads led to large productivity gains that helped truckers take business from railroads. Trucking companies’ intercity revenues doubled during the 1950s, and growth would have been even higher if trucks owned by or operating under contract to manufacturers and retailers were included in the count. Meanwhile, railroad freight revenues were flat. By 1963, most manufactured goods, except automobiles, moved by truck.6