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

by Marc Levinson

  The economics of containerization have shaped these global supply chains in peculiar ways. Distance matters, but not hugely so. A doubling of the distance cargo is shipped—from Hong Kong to Los Angeles, for example, rather than Tokyo to Los Angles—raises the shipping cost only 18 percent. Places far from the end market can still be part of an international supply chain, so long as they have well-run ports and a lot of volume.8

  Container shipping thrives on volume: the more containers moving through a port or traveling on a ship or train, the lower the cost per box. Places with lower demand or poorer infrastructure will face higher transport costs and will be far less attractive manufacturing sites for the global market. In the 1970s and 1980s, when many U.S. industrial centers were dying, Los Angeles thrived as a factory location because it was home to the nation’s busiest containerport, and Los Angeles thrived as a port because it was well located to handle import volume from Asia, not just for California, but for the entire United States. The Pacific Rim became the world’s workshop for consumer goods, in good part, because large ports for containers gave it some of the world’s lowest shipping costs. Antwerp spent a stunning $4 billion on port expansion between 1987 and 1997, including expropriation of 4,500 acres (2,000 hectares) of land, just to keep itself in the game. Conversely, African countries with inefficient ports and little containership service are at such a transport-cost disadvantage that even rock-bottom labor costs will not attract investment in manufacturing.9

  Shippers in places with busy ports and good land-transport infrastructure not only enjoy lower freight rates, but they also benefit from the shortest shipping times. Before the container, when breakbulk vessels like the Warrior carried most of the world’s trade, cargo typically left the factory weeks before the ship departed, sailed at a glacial 16 knots, and spent an unproductive week in the hold each time the vessel called at an additional port. In the container age, a machine manufactured on Monday can be dropped at Port Newark on Tuesday and delivered in Stuttgart, Germany, in less time than it once would have taken to be loaded aboard a ship such as the Warrior. Yet time still matters. By one estimate, each day seaborne goods spend under way raises the exporter’s costs by 0.8 percent, which means that a typical 13-day voyage from China to the United States has the same effect as a 10 percent tariff. The time savings represent a huge competitive advantage to shippers located near a major port. Those served by smaller ports may have to endure longer wait times between ships or shuttle links to a larger port, adding time, and hence costs, to every shipment. Air freight all but eliminates the costs of time, but it is too expensive for most goods that are made in poor countries precisely because little value is added in their production.10

  “Any change in technology,” the economist Joel Mokyr observed, “leads almost inevitably to an improvement in the welfare of some and to a deterioration in that of others.” That was as true of the container as of other technologies, but on an international scale. Containerization did not create geographical disadvantage, but it has arguably made it a more serious problem.11

  Before the container, shipping was expensive for everyone. The most expensive part of international freight transportation, loading cargo aboard ship, affected all shippers equally. Containerization has reduced international transport costs for some much more than for others. Landlocked countries, inland places in countries with poor infrastructure, and countries without enough economic activity to generate high demand for container shipping may have a tougher competitive situation now than they did in breakbulk days. Being landlocked, one study calculated, raises a country’s average shipping costs by half. Another study found that it cost $2,500 to ship a container from Baltimore, on the U.S. Atlantic coast, to Durban, in South Africa—and $7,500 more to haul it by road the 215 miles from Durban to Maseru, in Lesotho. Within China, the World Bank reported in 2002, transporting a container from a central city to a port cost three times as much as shipping it from the port to America.12

  And if high shipping costs, high port costs, and long waiting times do not leave a country at an economic disadvantage, a cargo imbalance might. Relatively few routes, it turns out, have an evenly balanced flow of maritime exports and imports. When the flow is out of balance, shippers in the more heavily trafficked direction have to pick up the cost of sending empty containers back in the other direction. In 1998, nearly three-quarters of the containers sent northbound from Caribbean islands to the United States were empty, resulting in much higher shipping costs for the southbound imports of food and consumer goods on which these island-states depend.13

  The revolutionary days of container shipping were over by the early 1980s. Yet the aftereffects of the container revolution continued to reverberate. Over the next two decades, as container shipping began to drive international freight costs down, the volume of sea freight shipped in containers rose four times over. Hamburg, Germany’s largest port, handled 11 million tons of general cargo in 1960; in 1996, more than 40 million tons of general cargo crossed the Hamburg docks, 88 percent of it in containers, and more than half of it from Asia. The prices of electronics, clothing, and other consumer goods tumbled as imports displaced domestic products from store shelves in Europe, Japan, and North America. Low-cost products that would not be viable to trade without container shipping diffused quickly around the world. Declining goods prices in the late 1990s, thanks largely to imports, helped bring three decades of inflation to an end.14

  Container shipping, it is clear, has helped some cities and countries become part of the new global supply chains, while leaving others to the side. It has assisted the rapid economic growth of Korea while offering precious little to Paraguay. Yet the trade patterns that containerization has helped to create are not immutable. In the 1980s, ship lines’ commitments assured the success of several late entrants to containerization, such as Busan, in Korea; Charleston, South Carolina; and Le Havre, in France. In the 1990s, they repeated the trick on a much larger scale in Asia.

  By the end of the twentieth century, the container shipping industry was dominated by a handful of alliances of global scope. These companies’ megaships may have sailed between two ports, but the cargo they carried was increasingly unlikely to have been produced in or to be destined for the end points of the voyage. By deciding where to employ their vessels, the big ship lines had the power to determine which ports succeeded and which struggled. In some cases, that choice was made for unavoidable reasons; not all ports had the depths required to handle the biggest ships. In other cases, though, ship lines joined with government officials and private port operators to change comparative advantage. The list of the world’s largest containerports around the turn of the century is instructive. Of the twenty ports handling the greatest number of containers in 2003, seven had seen little or no container traffic in 1990, and three of those seven had not even existed before.

  These new ports, by and large, were privately managed, and in some cases privately financed. Their creation was a deliberate response to the economics of container shipping, in which keeping the ship moving is what matters most. Only the biggest ports are worth a time-consuming stop. The ports that can load the most containers per hour consume less of a vessel’s precious time. Efficient ports, with access to large flows of cargo, will receive large ships and frequent service, with direct sailings to every corner of the world. The massive ports constructed in China, Malaysia, and Thailand during the 1990s were investments in globalization. Factories whose goods use those ports will have the lowest rates and the lowest costs in lost time, saving money on imported inputs and gaining a cost advantage in export markets. Manufacturers in poorer countries, where ports are less busy or less well managed, will find that their high logistics costs make competing in foreign markets a difficult proposition.15

  That disadvantage goes far beyond the occasional lost export sale. A country cursed with outmoded or badly run ports is a country that faces great obstacles to finding a larger role in the world economy. If Peru were as effe
ctive at port management as Australia, the World Bank estimated, that alone would increase its foreign trade by one-quarter. If it cannot be, it will receive the maritime equivalent of branchline service on a single-track railway. The big containerships that link national economies in the global supply chain, carrying nothing but stacks of metal boxes, will pass it by.16

  Global supply chains were not in anyone’s mind in the spring of 1956. Over the next half century, freight transportation developed in ways that could not have been imagined by the dignitaries watching the Ideal-X take on those first containers at Port Newark. Perhaps the most remarkable fact about the remarkable history of the box is that time and again, even the most knowledgeable experts misjudged the course of events. The container proved to be such a dynamic force that almost nothing it touched was left unchanged, and those changes often were not as predicted.

  TABLE 6

  The World’s Largest Containerports: Containers Handled (Million 20-Foot Equivalents)

  Malcom McLean’s genius was acknowledged unanimously: almost everyone save the dockworkers’ unions thought that putting freight into containers was a brilliant concept. The idea that the container would cause a revolution in shipping, though, seemed more than a little far-fetched. At best, the container was expected to help ships recover a tiny share of the domestic freight business and to benefit Hawaii and Puerto Rico. Truckers ignored it. Railroads shunned it. Even as ship lines talked it up, most of them treated the container as an adjunct to the business they knew, just another one of the many shapes and sizes of cargo that they were accustomed to storing in their holds. Labor was no better informed. When West Coast longshore union leader Harry Bridges negotiated the 1960 contract that allowed unlimited automation of the docks, he drastically underestimated the speed with which containers would alter work on the waterfront, and demanded far too little for his members as a result. When New York longshore leader Teddy Gleason warned in 1959 that the container would eliminate 30 percent of his union’s jobs in New York, he was simply wrong: between 1963 and 1976, longshore hours worked in New York City fell by three-quarters.

  The economics of container shipping were equally treacherous for ship operators themselves. Many ship lines sacrificed the potential advantages of containerization by ordering vessels that carried containers along with other types of cargo or even passengers. Others guessed wrong about how big their ships or their containers should be. McLean himself went badly astray several times: he ordered fuel-guzzling SL-7s just ahead of the 1973 oil shock, built the sluggish but fuel-efficient Econships just as fuel prices plummeted, and sailed the Econships on a round-the-world route that left some legs heavily booked but others operating well below capacity. The “experts” who deemed container shipping uncompetitive on long routes, such as those across the Pacific, were proven to be wildly off course, and Asia’s containerports, filled with boxes destined for North America and Europe, soon became the largest in the world.

  Haste, contrary to what many in the shipping industry had assumed, was not a prerequisite for survival in the container era. Matson, previously active only in U.S. domestic trades, raced to become the first line to carry containers across the Pacific in the belief that an early start would assure it loyal customers; as it learned when other companies rudely barged into the business, customer loyalty counted for little. Moore-McCormack may have been the first line to carry containers across the Atlantic, but it could not turn that head start into a viable business. Nor did Grace Line’s role as the first container carrier to South America make it a survivor.

  The companies that emerged as the world’s largest containership operators in the early twenty-first century were relative latecomers to the game. A. P. Møller’s Maersk Line built its first containership only in 1973, seventeen years after the Ideal-X and seven years after container shipping came to the North Atlantic. Mediterranean Shipping Company, based in Switzerland, did not even exist until 1970, and Evergreen Marine was founded only in 1968. These companies arrived with financial and managerial skills foreign to many of the carriers they replaced, skills appropriate to an industry in which raising capital and managing information systems were far more important than maritime knowledge. They operated without the legacy of government subsidies and directives that had crippled many of their predecessors by forcing them to buy ships built in their home countries or to sail routes determined by regulators. In an industry that almost everywhere wrapped itself in nationalist pride, the long-term survivors were profoundly international. Maersk’s headquarters were in Denmark, but by 2005 it had gained control of more than five hundred containerships and one-sixth of the world market by absorbing companies as diverse as Britain’s Overseas Containers Ltd., South African Marine, the Dutch shipping giant Nedlloyd, and Malcom McLean’s old company, Sea-Land Service.

  If the market repeatedly misjudged the container, so did the state. Governments in New York City and San Francisco ignored the consequences of containerization as they wasted hundreds of millions of dollars reconstructing ports that were outmoded before the concrete was dry. The British government’s planning efforts led to the costly creation of new ports; officials never dreamed that a privately owned dock in an out-of-the-way town would turn itself into the country’s largest container terminal overnight. Transportation regulators did little better. Japan’s Ministry of Transport thought that it could avert overcapacity and keep Japanese ship lines profitable by forcing them to work together, only to be surprised as ship rates in the Pacific tumbled. Regulators and politicians in America, desperate to preserve a system that sought to protect shipbuilders, ship operators, truckers, and railroads, delayed reforms that could have allowed the container to reduce international shipping costs much earlier. By holding on to policies that supposedly strengthened U.S. shipping with a panoply of subsidies and restrictions meant to favor one interest group or another, they ultimately destroyed the competitiveness of the U.S.-flag fleet.17

  The huge increase in long-distance trade that came in the container’s wake was foreseen by no one. When he studied the role of freight in the New York region in the late 1950s, Harvard economist Benjamin Chinitz predicted that containerization would favor metropolitan New York’s industrial base by letting the region’s factories ship to the South more cheaply than could plants in New England or the Midwest. Apparel, the region’s biggest manufacturing sector, would not be affected by changes in transport costs, because it was not “transport-sensitive.” The possibility that falling transport costs could decimate much of the U.S. manufacturing base by making it practical to ship almost everything long distances simply did not occur to him. Chinitz was hardly alone in failing to recognize the extent to which lower shipping costs would stimulate trade. Through the 1960s, study after study projected the growth of containerization by assuming that existing import and export trends would continue, with the cargo gradually being shifted into containers. The prospect that the container would permit a worldwide economic restructuring that would vastly increase the flow of trade was not taken seriously.18

  “The market” got many things wrong when it came to the container, and so did “the state.” Both private-sector and public-sector misjudgments slowed the growth of containerization and delayed the economic benefits it would bring. Yet in the end, the logic of shipping freight in containers was so compelling, the cost savings so enormous, that the container took the world by storm. Half a century after the Ideal-X, the equivalent of 300 million 20-foot containers were making their way across the world’s oceans each year, with 26 percent of them originating in China alone. Countless more were being shipped cross-border by truck or train.19

  Containers had become ubiquitous—and in addition to cheap goods, they were bringing a new set of social problems. Stacks of abandoned containers, too beaten up to use, too expensive to repair, or simply unneeded, littered landscapes around the world. The exhaust of containerships and the trucks and trains serving them had become a massive environmental problem, and the e
ndless growth of traffic in and out of expanding ports was subjecting nearby communities to congestion, noise, and high rates of cancer attributed to diesel emissions; the price tag for a cleanup in Los Angeles and Long Beach alone was estimated to be $11 billion. The flood of containers had become a major headache for security officials concerned that a single box, loaded with a radioactive “dirty” bomb timed to explode upon arrival in a major port, could contaminate an entire city and throw international commerce into chaos; radiation detectors went up at the gates to many terminals in an effort to keep terrorist containers from being loaded aboard ships. The use of containers outfitted with mattresses and toilets to smuggle immigrants had become routine, with immigration inspectors unable to detect more than a tiny share of containers with human cargo among the hundreds of thousands of boxes filled with legitimate goods.20

  None of these problems, serious as they were, posed the most remote threat to the growth of container shipping. Containers themselves kept getting larger, with 48-foot and even 53-foot boxes allowing trucks to haul more freight on each trip. The world’s fleet expanded steadily, with the capacity of pure containerships rising 10 percent per year from 2001 through 2005. And ships themselves reached unprecedented size. Dozens of vessels able to carry 4,000 40-foot containers had joined the world’s fleet by 2006, and even larger ones were on order.

  Where vessel size had once been limited by the locks in the Panama Canal, containerships had grown so large that twenty-first-century naval architects were constrained by the Straits of Malacca, the busy shipping lane between Malaysia and Indonesia. If a containership ever reaches Malacca-Max, the maximum size for a vessel able to pass through the straits, it will be a quarter mile long and 190 feet wide, with its bottom some 65 feet below the waterline. If it should sink, it will take nearly $1 billion of cargo with it. Its capacity will be 18,000 TEUs, or 9,000 standard 40-foot containers, enough to fill a 68-mile line of trucks each time it arrives in port. Where it will call is a serious question, because few ports anywhere are deep enough to accommodate it. The answer may well be brand-new ports built in deep water offshore, with Malacca-Max ships linking offshore platforms and smaller vessels shuttling containers to land. If they ever come about, these enormously costly ships and ports will create yet more economies of scale, making it still cheaper and easier to move goods around the globe.21