The railroads’ greatest challenge came in the smallest but most lucrative part of their business, the handling of shipments too small to fill an entire boxcar from origin to destination. Less-than-carload shipments might vary in size from a few barrels of solvent to ten thousand pounds of nuts and bolts. In 1946, these small shipments made up less than 2 percent of railroads’ tonnage but brought in nearly 8 percent of their revenues. Handling these loads was inefficient, requiring railroad employees to move individual crates and cartons from one boxcar to another at connecting points at huge expense. Truckers went after the market with a vengeance, and nearly three-quarters of the railroads’ less-than-carload business shifted to the highways within a decade.7
The loss of traffic that had always been theirs forced railroad executives to do some serious thinking about what their companies could still do best. The obvious answer was to concentrate on their strength—the ability to carry heavy loads over long distances at relatively low cost. One potential type of load grabbed their attention: trucks. Driving a truck from California to New York could require one hundred man-hours behind the wheel in the days before coast-to-coast expressways, plus time for meals and rest. Sending the truck trailer by train for the long-distance part of its journey could cut these labor costs while preserving trucks’ greatest advantage, the ability to pick up and deliver at any location. Railroads had offered a service like this as early as 1885, when Long Island Railroad “farmers’ trains” transported produce wagons to ferry landings opposite New York City; four wagons rode on each specially designed freight car, while the farmers and their horses traveled in separate cars. An updated version appeared in the early 1950s, as railroads began to chain truck trailers to flatcars. They called it “piggyback.”8
Piggyback, like almost every innovation in transportation during that era, faced a very large obstacle: the Interstate Commerce Commission. The ICC regulated the rates and services of both trains and interstate trucks. It had quashed railroads’ attempts to carry truck trailers in 1931 under its mandate to avoid unfair and destructive competition. Putting trailers on trains confounded the ICC’s basic instincts, but in 1954 it finally outlined the conditions under which railroads could transport freight in trailers without submitting to regulation as motor carriers. Over time, the commission approved several “plans” that permitted piggyback without upsetting the structure of regulation. Plan I let truckers serving the general public—common carriers, in legal parlance—collect the cargo from shippers, put their trailers on a train, and split the revenue with the railroad, but only if the train was operating along a route that the truck line had authority to serve. Plan II allowed the railroad to own trailers and deal directly with shippers, but the shippers might have to use their own trucks to haul the trailers from a rail yard to the final destination. When it became clear that these conditions would not allow piggyback freight to prosper, the ICC approved other plans so that railroads could move trailers, or even flatcars, owned by freight forwarders or by shippers themselves. This was a huge relief to the railroads, whose financial woes were making it increasingly hard to come up with the money for new investments. Looser regulation opened the way for piggyback to grow.9
Piggyback solved a difficult operational problem for the railroads, the inefficient use of their enormous fleets of boxcars. U.S. railroads owned 723,962 boxcars in 1955 but got very little use from them. The typical boxcar spent as little as 8 percent of its life under way, earning revenue. The rest of the time it was a warehouse on wheels, waiting on sidings to be loaded, unloaded, or added to a train. The fact that piggyback flatcars could be put back to work as soon as the trailers had been removed freed the railroads from their role as unwilling providers of free storage. For shippers, on the other hand, piggyback, like containerization, initially offered few real cost advantages. Every railroad used different types of cars, so one railroad might be unable to unload a trailer from a flatcar originated on another line—a serious problem, given that no railroad spanned the entire country. Loading was cumbersome, often done “circus style”: empty flatcars were lined up end to end, with metal bridges between them, and a truck backed each trailer along the decks of the cars to the last empty position. Most flatcars carried just one trailer, so making up a train could require switching and coupling a very large number of cars. Volume was too small for the railroads to justify the investments needed to make piggyback a truly efficient service. In addition to these operational deficiencies, the Teamsters union, whose members drove most intercity trucks, opposed a system that reduced the need for its members’ labor, and it negotiated contracts that penalized truck lines for shipping trailers by train. Piggyback was a tiny business: although thirty-two railroads carried trailers on flatcars in 1955, total traffic amounted to only 0.4 percent of the railroads’ carloadings.10
In July 1954, the mighty Pennsylvania Railroad began service between New York and Chicago with 50-foot flatcars carrying a single trailer apiece. Within months, its daily TrucTrains to Chicago and St. Louis, equipped with new 75-foot flatcars, were carrying hundreds of trailers each way. The Pennsy signed up 150 motor carriers to pick up and deliver the trailers, and soon had a $100-million-a-year business. It created a research-and-development department—a highly unusual step for a railroad—and charged it with improving TrucTrain. The biggest hurdle, TrucTrain’s managers decided, was that the Pennsy could not transfer loaded cars to many connecting railroads. In November 1955, TrucTrain was incorporated as Trailer Train Company, and other railroads were invited to buy in. The idea was simple: instead of each railroad’s operating its own small trailer business, Trailer Train would handle truck trailers nationwide. It would own the flatcars, collect revenue from truck lines, and pay the railroads to haul its cars over their tracks. At the end of the year, any profit would be divided among the railroads that had become shareholders. Trailer Train started small, operating barely 500 flat-cars in 1956. Other railroads quickly joined the enterprise, allowing Trailer Train to gain economies of scale beyond the reach of individual railroads. By 1957, the company was buying a fleet of 85-foot flatcars, enabling it to boost efficiency by carrying two of the new 40-foot truck trailers on a single car.11
Three major railroads stood apart, unconvinced that the complications of loading trailers aboard flatcars were worth the trouble. In 1957, the New York Central, the Pennsylvania’s direct competitor, developed a service called Flexi-Van. Flexi-Van used containers—special truck trailers that could be separated from their undercarriages through the removal of four pins. It carried them on flatcars with turntables that swung 90 degrees. A truck would back up against the side of the flatcar, the driver would release the pins to detach the trailer, and the detached trailer, with no wheels, would slide from its undercarriage along rails built into the turntable. When half of the container was atop the turntable, the driver would engage an extra wheel beneath the truck tractor to move it sideways, into a position parallel to the freight car, moving the container and turntable along with it. The driver would then release the container from the truck and push the turntable the rest of the way into position. The procedure made Flexi-Van containers much easier to load than full trailers, and made it possible to load or remove a single container without disturbing any other part of the train. Flexi-Van moved at passenger-train speeds, delivering containers from Chicago to New York in seventeen hours.12
In the Midwest, the Missouri Pacific Railroad took an entirely different approach. The Missouri Pacific’s trucking operation used detachable truck bodies with hooks on the top. A driver would bring his truck alongside the train, beneath a wheeled crane wide enough to straddle both the train and the truck. The driver removed some pins to separate the trailer body from the undercarriage and then operated the crane himself to lift the container onto the railcar, with the entire operation taking less than ten minutes. The Southern Railway also chose containers rather than trailers as the best way to handle freight between the South and New England, where it had cus
tomers but no rail lines. By striking arrangements with truckers to haul the trailers between its terminus in Washington, D.C., and points further north, the Southern overcame its inability to send conventional trailers on flatcars through the low-ceilinged tunnels in Baltimore and New York. None of these three railroads, of course, could interchange containers with each other, much less with the railroads participating in Trailer Train. As with ship lines, so too with railroads: by the late 1950s, the drive to simplify freight handling had led to incompatible solutions.13
The railroads’ desire to expand piggyback left the ICC in a quandary. In the early days of piggyback, the railroads’ rates, like truck rates, had been based on the commodity being carried. Piggyback rates for any commodity were about the same as truck rates and a bit higher than rates for shipping in boxcars. That suited the regulators fine, because it let the railroads pick up a little traffic without shaking up the freight business. Pan-Atlantic’s combined water-road rates along the Atlantic coast were 5 to 7.5 percent below railroads’ boxcar rates, also in line with ICC precedents that let water carriers charge less for slower service. But then, late in 1957, the railroads tried to cut some piggyback rates to compete better against Pan-Atlantic and also Seatrain Lines, which carried loaded railcars aboard ships. Predictably, Pan-Atlantic and Seatrain objected that lower railroad rates would drive them out of business.14
As the ICC was trying to figure out how to help the railroads without hurting the ship lines, Congress intervened—with conflicting instructions. Congress wanted to “breathe into our whole system of transportation some new competition,” Florida Senator George Smathers explained. But while it wanted the economy to benefit from lower rates and new services, Congress also wanted to protect transportation companies and their workers. The result was the Transportation Act of 1958. In a single remarkable sentence, the law ordered the ICC not to keep any carrier’s rates high to protect another mode of transportation, while also directing it to block unfair or destructive competition. The commission, it seemed, could no longer use high rail rates to protect ship lines or truckers—but at the same time it was to make sure that the ship lines and truckers were not driven out of business. In confusion, the ICC told the railroads that their piggyback rates should be about 6 percent higher than Pan-Atlantic’s ship-truck rates. The ICC was decisively reversed in the courts, which gave the railroads the freedom to lower piggyback rates so long as the rates covered all of their costs.15
The court rulings permitting lower rates made the economics of piggyback freight compelling. Trucking companies’ costs were still lowest for short journeys, and the rates charged to shippers were correspondingly lower. Over longer distances, though, trucks’ total cost per mile declined only slightly, because drivers’ pay and fuel, the most important costs, increased along with distance. Railroads’ total costs per mile, on the other hand, declined sharply with distance; once the trailers or containers were loaded on board, running the train came cheap. For distances exceeding five hundred miles, piggyback freight clearly was cheaper to provide than traditional truck service. Even private truckers, who had contracts with particular shippers, could not match the cost of trailer-on-flatcar service over long distances.16
TABLE 4
Cost of Moving 20,000 Pounds of Freight, 1959
The railroads were in the happy situation of being able to pass their lower costs on to customers and still earn better profits than they did carrying freight the traditional way, in boxcars. Freight forwarders took advantage of the rate difference, arranging to consolidate smaller shipments into full carloads, for which they could demand lower rail rates. Manufacturers such as General Electric and Eastman Kodak quickly discovered that there was money to be saved by organizing their production so they could fill trailers or containers and ship them to a single recipient by train, rather than sending a few cases or crates by truck. By 1967, three-quarters of all manufactured goods (excluding coal and petroleum products) left the factory in shipments of at least thirty thousand pounds. Processed food, fresh meats, iron and steel products, soaps, and beer made the switch to piggyback first, but large quantities of everything from oranges to wallboard were soon riding on rails for the first time in two decades.17
To be sure, there were still some regulatory oddities. The ICC let railroads carry trailers at a flat rate per mile so long as the cargo was mixed, but if a trailer contained more than a certain percentage of any single commodity, the shipper would have to pay the specific rate for that commodity. Big shippers, though, were accustomed to such regulatory impediments. They saw not only that piggyback could save money, but that lower transport costs would let them sell their goods in cities that had always been too expensive to ship to. As the railroads increased train speeds, the time needed to deliver a truck trailer from Chicago to California fell from five days to three. Goods spent less time in transit, so inventory costs fell as well. The number of piggyback carloadings doubled between 1958 and 1960, then doubled again by 1965. Flexi-Van provided an astonishing 14 percent of all revenue earned by the New York Central in 1964. Trailer Train, which had less than $1 million in revenue in 1956, became a $50 million business in 1965 and owned 28,000 freight cars.18
International trade was not remotely a consideration when American railroads began their aggressive pursuit of trailer traffic in the mid-1950s. Yet the potential for linking piggyback freight and container shipping was apparent from the earliest days. Most piggyback loads were truck trailers, complete with wheels, that would never travel by ship. About 10 percent of piggyback shipments, however, involved trailers detached from wheels, an increasing number of which complied with the standards for container sizes and lifting methods that the American Standards Association had been developing since 1959. Standard containers were already flowing freely to and from Canada, where railroads had embraced piggyback even more eagerly than in the United States.19
It was the indefatigable Morris Forgash who finally got regular intercontinental container service under way. Starting in 1960, his United States Freight Company began moving containers from the United States to Japan, using U.S. railroads, Japanese truckers, and the mixed-cargo ships of States Marine Lines. A year later, the New York Central, equipped with 5,000 new Flexi-Van containers, began similar services to Japan and Europe. United States Lines, the largest U.S. line handling general cargo, carried Southern Railway containers on experimental voyages to Europe. The U.S. Army, supporting hundreds of thousands of troops in Europe, began trials sending 40-foot containers across the ocean.20
These first international efforts were small in scale. Malcom McLean wanted to sail to Europe in 1961, and his staff dissuaded him: the company was not ready for such a large venture. No ship line was sailing fully containerized ships to Asia or Europe, so the containers were lodged in a few cells built into one of the holds of a breakbulk ship or carried with a load of mixed cargo. Most of the cargo on these vessels was traditional freight that had to be handled one piece at a time, so loading and unloading took almost as long as for voyages without containers. Shippers saved no money by using containers internationally, because the conferences that set ocean freight rates gave them no preference: the rate for a single container holding 20 tons of auto parts was roughly the same as the rate for 20 tons of auto parts shipped in dozens of wooden crates. The containers were usually returned across the ocean empty, and that cost, too, had to be reflected in the rates. Aside from less theft, from the shipper’s viewpoint the only real attraction of these early international container services was reduced paperwork. Rather than arranging and paying for each stage of the journey separately, as they always had, shippers could ask a freight forwarder to quote a single rate for the entire land-sea-land shipment from America to Asia, and could pay for it with a single check.21
Viewed at the start of 1965, the balance on containerization’s first nine years was positive but unspectacular. In New York, container tonnage had hit a plateau, and the International Longshoremen’s Associatio
n remained vociferously opposed to its growth. On the West Coast, even after rapid growth, only about 8 percent of general cargo was moving in containers. Some railroads were using containers that in theory could be interchanged with ship lines, but in practice rail-ship container traffic was negligible. The trucking companies that used demountable containers did so mainly under contracts with Sea-Land and Matson; otherwise, truckers overwhelmingly preferred trailers that were permanently attached to their wheels and could not easily be loaded aboard ships. Container shipping looked to be a viable enough business, producing $94 million of revenue for Sea-Land in 1964, but it was a niche business. The way most manufacturers, wholesalers, and retailers moved their goods had hardly changed.22
Behind the scenes, though, the prerequisites for the container revolution were falling into place. Dock labor costs were poised to fall massively thanks to union agreements on both coasts. International agreements were in place on standards for container sizes and lifting methods, even if few containers yet met those standards. Wharves designed for container handling were on the way. Manufacturers had learned to organize their factories so that they could save money by shipping large loads in single units to take advantage of containerization. Railroads, truckers, and freight forwarders had grown familiar with switching trailers and containers from one conveyance to another to move what was now being called “intermodal” freight. Regulators were cautiously encouraging competition so that carriers could pass some of the cost savings from containerization on to their customers. Only one crucial ingredient was missing: ships.
The ships that had launched the container era all had been leftovers, dating to World War II. As of 1965, every containership in Sea-Land’s fleet was at least two decades old, and Matson’s youngest had been launched in 1946. These older vessels, obtained from the U.S. government’s fleet at bargain-basement prices, were slow and small, but they allowed the container pioneers to get under way without huge amounts of capital. As other companies tested containerization in the early 1960s, they generally used converted World War II freighters as well. The cost of building brand-new vessels was too great for many companies to handle, even with government subsidies, and the risks of guessing wrong about future trends in cargo handling were extremely high.23
The Box: How the Shipping Container Made the World Smaller and the World Economy Bigger Page 19
