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

by Marc Levinson

  5. McKinsey & Co., “Containerization: A 5-Year Balance Sheet” (1972), p. 1–1. McKinsey’s estimate of the outlays was £4 billion, which was $9.6 billion at the 1970 exchange rate; I have inflated this to current value using the U.S. producer price index for capital equipment. For British carriers’ earnings, see Fairplay, January 12, 1967, p. 92, and January 11, 1968, p. 92A.

  6. ICC, Transport Statistics, 1965–67; John J. Abele, “Smooth Sailing or Rough Seas?” NYT, January 19, 1969; John J. Abele, “Investors in Conglomerates Are Seeing the Other Side of the Coin,” NYT, April 13, 1969.

  7. Toomey interview; John Boylston interview, COHP; Frank V. Tursi, Susan E. White, and Steve McQuilkin, Lost Empire: The Fall of R. J. Reynolds Tobacco Company (Winston-Salem, 2000), p. 174; John J. Abele, “Stock Exchange Ends Day Mixed,” NYT, January 4, 1969.

  8. Immer, Container Services of the Atlantic, pp. 194 and 198–200; Peter Stanford, “The SL-7: Sea-Land’s Clipper Ship,” Sea History, Fall 1978; Sea-Land advertisement, “SL-7,” n.d.

  9. Lloyd’s Shipping Economist, August 1982, p. 36; “Sea-Land Line Orders 5 New Containerships,” NYT, August 14, 1969; Tursi, White, and McQuilkin, Lost Empire, p. 176.

  10. United Nations Economic and Social Commission for Asia and the Pacific, Statistical Yearbook 1915 (Bangkok, 1977), pp. 205–208; Marad, Foreign Oceanborne Trade of the United States, 1970.

  11. Fairplay, June 15, 1972.

  12. United Nations, Statistical Yearbook 1915, p. 208.

  13. Reuters, August 9, 1969; Marad, “Maritime Subsidies” (Washington, DC, 1971), p. 85.

  14. Broeze, The Globalisation of the Oceans, p. 50; Fairplay, October 7, 1971, p. 41.

  15. United Nations, Statistical Yearbook 1915, pp. 41–43, 127–129, 230–232, and 390; International Monetary Fund, Direction of Trade Annual 1969–15 (Washington, DC, 1977), pp. 2–3; Matson Research Corp., The Impact of Containerization, 1:114–122; “Matson, Sea-Land to Expand Containership Services,” JOC, March 18, 1970; Fairplay, February 16, 1967 and July 15, 1971, p. 11; OECD, OECD Economic Surveys: Australia, esp. 1979.

  16. McKinsey & Co., “Containerization: A 5-Year Balance Sheet,” p. 1–4.

  17. Marad, “United States Flag Containerships,” April 25, 1969; Pearson and Fossey, World Deep-Sea Container Shipping, p. 220.

  18. Marad, “A Statistical Analysis of the World’s Merchant Fleet,” 1968 and 1974.

  19. Pearson and Fossey, World Deep-Sea Container Shipping, p. 30; Fair-play, February 10, 1972, p. 40.

  20. Matson Research Corp., The Impact of Containerization, 1:24.

  21. P. Backx and C. Earle, “Handling Problems Reviewed,” Fairplay, February 9, 1967, p. 36; McKinsey & Co., “Containerization: The Key to Low-Cost Transport,” p. 57; Fairplay, November 24, 1966; Matson Research Corp., The Impact of Containerization, 2:4; Litton Systems Inc., “Oceanborne Shipping: Demand and Technology Forecast,” June 1968, p. 6–2.

  22. Fairplay, April 20, 1967, p. 42.

  23. There is a long-standing debate on the extent to which conferences have succeeded in restricting competition and raising prices. For recent summaries, see Alan W. Cafruny, Ruling the Waves (Berkeley, 1987), and William Sjostrom, “Ocean Shipping Cartels: A Survey,” Review of Network Economics 3, no. 2 (2004).

  24. Fairplay, August 24, 1967, p. 8; J. McNaughton Sidey, “Trans-Atlantic Container Services,” Fairplay, October 5, 1967.

  25. Fairplay, February 9, 1967, p. 41; “U.S. Panel Weight a Boxship Accord,” NYT, August 28, 1969.

  26. Hans Stueck, “2 Big German Shipping Lines Plan Merger, NYT, July 4, 1969; George Horne, “U.S. Lines Plans 16-Ship Charter,” NYT, October 4, 1969; Werner Bamberger, “Line Sets Its Course on Time Charters,” NYT, January 11, 1970.

  27. George Horne, “Grace Line Is Tentatively Sold,” NYT, February 7, 1969; Broeze, The Globalisation of the Oceans, p. 48; Farnsworth Fowle, “4 Freighters Sold for $38.4 Million,” NYT, August 6, 1970; “Cooling the Rate War on the North Atlantic,” Business Week, April 29, 1972; “U.S. to Challenge R. J. Reynolds Bid,” NYT, December 15, 1970; Fairplay, July 15, 1971, p. 62, and December 9, 1971, p. 45; ICC, Transport Statistics, Part 5, Table 4, 1970 and 1971.

  28. Broeze, The Globalisation of the Oceans, pp. 42 and 57–59; UNCTAD, Review of Maritime Transport 1912–73, p. 97; Gilbert Massac, “Le transport maritime par conteneurs: concentrations et globalisation,” Techniques avancées, no. 43 (April 1998); Gunnar K. Sletmo and Ernest W. Williams Jr., Liner Conferences in the Container Age: U.S. Policy at Sea (New York, 1981), p. 308; “Cooling the Rate War.”

  29. Pearson and Fossey, World Deep-Sea Container Shipping, p. 25; Wallin„ “The Development, Economics, and Impact,” p. 883.

  30. U.S. Council of Economic Advisers, Economic Report of the President (Washington, DC, 1982), p. 356; UNCTAD, Review of Maritime Transport 1974, p. 40.

  31. UNCTAD, Review of Maritime Transport 1972–73, p. 96; Pearson and Fossey, World Deep-Sea Container Shipping, pp. 25, 220; Clare M. Reckert, “R. J. Reynolds Profit Up 3% in Quarter,” NYT, February 13, 1975; “Their Ship’s Finally Come In,” NYT, September 8, 1974.

  32. UNCTAD, Handbook of International Trade and Development Statistics 1981 Supplement (New York, 1982), p. 45; UNCTAD, Review of Maritime Transport 1975, p. 36, and 1976, p. 32; Robert Lindsey “Pacific Shipping Rate War Flares, Mostly on Soviet Vessel Build-Up,” NYT, July 4, 1975.

  33. On costs, see Sletmo and Williams, Liner Conferences, pp. 147 and 156. Peninsula & Oriental, a major British ship line, announced in 1968 that its planning was based on the assumption that the Suez Canal was closed permanently, and other carriers appear to have made the same choice; see Fairplay, July 4, 1968, p. 79, and Pearson and Fossey, World Deep-Sea Container Shipping, p. 248.

  34. Relative fuel costs appear in Sletmo and Williams, Liner Conferences, p. 162. Opposition by Sea-Land’s board to the SL-7 purchase is discussed in John Boylston interview, COHP.

  35. On relations between Sea-Land and R. J. Reynolds, see Tursi, White, and McQuilkin, Lost Empire, chaps. 15–16 and 23; R. J. Reynolds Industries, Annual Reports from 1975 through 1980; transcript of R. J. Reynolds Industries Analyst Meeting, September 19–21, 1976; and comment from R. J. Reynolds Industries’ chief financial officer Gwain H. Gillespie at analyst presentation, November 1, 1984, p. 78. These and other relevant R. J. Reynolds documents are available on a Web site created in conjunction with antitobacco litigation, tobaccodocuments.org.

  36. Colin Jones, “Heading for a Period of Consolidation,” Financial Times, January 15, 1976.

  Chapter 12

  The Bigness Complex

  1. Author’s telephone interview with Earl Hall, May 21, 1993; “Malcom McLean’s $750 Million Gamble,” Business Week, April 16, 1979.

  2. “Pinehurst Club Is Sold for $9-Million,” NYT January 1, 1971; author’s telephone interview with Dena Van Dyk, May 2, 1994; William Rob-bins, “Vast Plantation Is Carved Out of North Carolina Wilderness,” NYT, May 8, 1974; Business Week, April 1, 1979.

  3. Sletmo and Williams, Liner Conferences, p. 39.

  4. Lloyd’s Shipping Economist, September 1982, p. 9; Pearson and Fossey, World Deep-Sea Container Shipping, p. 220; UNCTAD, Review of Maritime Transport, various issues.

  5. Michael Kuby and Neil Reid, “Technological Change and the Concentration of the U.S. General Cargo Port System: 1970–88,” Economic Geography 68, no. 3 (1993): 279.

  6. American Association of Port Authorities; Marad, “Containerized Cargo Statistics,” various years; Pearson and Fossey, World Deep-Sea Container Shipping, p. 29; Containerisation International Yearbook, various years. The figures for this period must be interpreted cautiously, because the statistical definition of “container” had not yet been standardized in terms of 20-foot units, and individual ports’ statistics did not always distinguish between loaded and empty containers.

  7. Hugh Turner, Robert Windle, and Martin Dresner, “North American Containerport Productivity: 1984–1997,” Transportation R
esearch Part E (2003): 354.

  8. Yehuda Hayut, “Containerization and the Load Center Concept,” Economic Geography 57, no. 2 (1981): 170.

  9. Brian Slack, “Pawns in the Game: Ports in a Global Transportation System,” Growth and Change 24, no. 4 (1993): 579–588; Kuby and Reid, “Technological Change,” p. 280; Containerisation International Yearbook, 1988.

  10. Port of Seattle, Marine Planning and Development Department, “Container Terminal Development Plan,” October 1991; Eileen Rhea Rabach, “By Sea: The Port Nexus in the Global Commodity Network (The Case of the West Coast Ports)” (Ph.D. diss., University of Southern California, 2002), p. 86. Rabach’s assertion that port competition is a zero-sum game is not correct; as this study argues, declining costs throughout the transportation system have stimulated the flow of international trade.

  11. UNCTAD, Review of Maritime Transport 1979, p. 29; Marad, “United States Port Development Expenditure Report,” 1991; Herman L. Boschken, Strategic Design and Organizational Change: Pacific Rim Seaports in Transition (Tuscaloosa, 1988), pp. 61–65. On the Oakland dredging saga, see Christopher B. Busch, David L. Kirp, and Daniel F. Schoenholz, “Taming Adversarial Legalism: The Port of Oakland’s Dredging Saga Revisited,” Legislation and Public Policy 2, no. 2 (1999): 179–216; Ronald E. Magden, The Working Longshoreman (Tacoma, 1996), p. 190.

  12. Fairplay, July 3, 1975, p. 37; Slack, “Pawns in the Game,” p. 582; Turner, Windle, and Dresner, “North American Containerport Productivity,” p. 351; author’s interview with Mike Beritzhoff, Oakland, CA, January 25, 2005.

  13. Boschken, Strategic Design, p. 200.

  14. Hans J. Peters, “Private Sector Involvement in East and Southeast Asian Ports: An Overview of Contractual Arrangements,” Infrastructure Notes, World Bank, March 1995.

  15. Pearson and Fossey, World Deep-Sea Container Shipping.

  16. Lloyd’s Shipping Economist, January 1983, p. 10.

  17. Ibid., p. 12 and March 1985, p. 4.

  18. Daniel Machalaba, “McLean Bets that Jumbo Freighter Fleet Can Revive Industry,” Wall Street Journal, September 26, 1986; Ron Katims interview, COHP.

  19. Broeze, The Globalisation of the Oceans, p. 95.

  20. Ibid., p. 84; Lloyd’s Shipping Economist, April 1984, p. 7, and March 1986, p. 3; UNCTAD, Review of Maritime Transport 1989, p. 25; JOC, October 15, 1986.

  21. Bruce Barnard, “Evergreen Set to Drop Felixstowe,” JOC, October 22, 1986; Machalaba, “McLean Bets”; Kuby and Reid, “Technological Change,” p. 279.

  22. Lloyd’s Shipping Economist, January 1987; Gibson and Donovan, The Abandoned Ocean, p. 218; Susan F. Rasky, “Bankruptcy Step Taken by McLean,” NYT, November 25, 1986.

  23. The bankruptcy filing, in re McLean Industries, Inc., was in the Southern District of New York, case numbers 86–12238 through 86–12241. This paragraph draws on docket nos. 106, 107, 111, 133, and 163. On the vessel sale, see Daniel Machalaba, “Sea-Land Will Buy 12 Superfreighters Idled by U.S. Lines Inc. for $160 Million,” Wall Street Journal, February 9, 1988.

  24. Author’s interview with Gerald Toomey, May 5, 1993; Daniel Machalaba, “Container Shipping’s Inventor Plans to Start Florida-Puerto Rico Service,” Wall Street Journal, January 31, 1992. For the views of a former U.S. Lines employee, see “McLean Doesn’t Deserve Award,” letter to the editor, JOC, September 16, 1992.

  25. R. M. Katims, “Keynote Address: Terminal of the Future,” in National Research Council, Transportation Research Board, Facing the Challenge: The Intermodal Terminal of the Future (Washington, DC, 1986), pp. 1–3.

  Chapter 13

  The Shippers’ Revenge

  1. Comment of Karl Heinz Sager cited in Broeze, The Globalisation of the Oceans, p. 41.

  2. UNCTAD, Review of Maritime Transport 1975, p. 43.

  3. Fairplay, July 15, 1971, pp. 47 and 53. UNCTAD’s estimated shipping costs were:

  Average Cost of Handling One Cubic Meter of Freight, 1970

  4. Matson Research Corp., The Impact of Containerization, pp. 40–41; Fairplay, February 1, 1968, p. 8.

  5. OECD, “Ocean Freight Rates as Part of Total Transport Costs” (Paris, 1968), p. 24.

  6. Antwerp data taken from Bremer Ausschuß für Wirtschaftsforschung, Container Facilities. Dart Container Line spent nearly $300,000 in 1973 on a computer to keep track of its 20,000 containers. Fairplay, April 5, 1973, p. 40. By 1974, U.S. Lines was spending $1.7 million a year to operate its computers; see Fairplay, April 4, 1974, p. 76.

  7. Broeze, The Globalisation of the Oceans, pp. 55–56. Worldwide, the containerships entering the fleet in 1973 traveled at an average speed of 25 knots, compared with 20 knots or less for almost all breakbulk and containerships built before 1968. Wallin, “The Development, Economics, and Impact,” p. 642. The 85 percent breakeven point is cited in U.S. Congress, Office of Technology Assessment, An Assessment of Maritime Technology and Trade (Washington, DC, 1983), p. 71. Three ship lines surveyed by J. E. Davies in 1980 reported that their fixed costs were between 53 and 65 percent of total costs, implying much lower breakeven points; “An Analysis of Cost and Supply Conditions in the Liner Shipping Industry,” Journal of Industrial Economics 31, no. 4 (1983): 420.

  8. Fairplay, February 4, 1971.

  9. Sletmo and Williams, Liner Conferences, chap. 5; Benjamin Bridgman, “Energy Prices and the Expansion of World Trade,” Working Paper, Louisiana State University, November 2003. Fuel cost as a share of operating costs are given in Office of Technology Assessment, An Assessment of Maritime Technology and Trade, p. 71. The International Monetary Fund cites the increase in market concentration in shipping following the introduction of containers as another reason for the failure of shipping rates to fall. However, it is not at all clear that pooling agreements and other anticompetitive practices succeeded in holding shipping rates above competitive levels for extended periods. International Monetary Fund, World Economic Outlook, September 2002, p. 116; Sjostrom, “Ocean Shipping Cartels,” pp. 107–134.

  10. Fairplay, July 15, 1974, p. 50. In principle, it should be possible to quantify transport-cost saving over time by comparing a country’s imports under two different definitions, free on board (f.o.b.), which represents the value of merchandise at the point of export, and cost of insurance and freight (c.i.f.), which is the value at the point of import, including transport costs. In practice, however, the difference between c.i.f. and f.o.b. imports provides little guidance concerning freight-cost trends. The accuracy of the underlying data is questionable; if IMF figures are to be believed, insurance and freight accounted for a mere 1 percent of Switzerland’s imports as long ago as 1960. Data for countries with large-scale trade in bulk products, such as coal and oil, may not reflect changes affecting manufactured goods. More problematic, the use of aggregate c.i.f. and f.o.b. data assumes that the composition and origin of imports have not changed over time. Scott L. Baier and Jeffrey H. Bergstrand, “The Growth of World Trade: Tariffs, Transport Costs, and Income Similarity,” Journal of International Economics 53, no. 1 (2001): 1–27, show that for 16 wealthy nations, transport fell from 8.2 percent to 4.3 percent of import value between 1958–60 and 1986–88, but the various factors cited above make this conclusion unpersuasive.

  11. Indexes of “tramp” charter rates were compiled during the 1960s and 1970s by several sources, including the Norwegian Shipping News and the British Chamber of Shipping. The price for a single-voyage charter, adjusted for the capacity of the vessel, yields a vessel cost per ton shipped. Japanese shippers were the tramps’ main customers. The tramp market was somnolent in the early 1970s, and it appears that most tramp charters involved bulk freight rather than breakbulk freight of the sort that would have been competitive with container shipping. Fairplay, July 1, 1971, p. 73.

  12. The German Liner Index did not purport to measure rates on freight in other parts of the world. As UNCTAD pointed out, it did not fully reflect changes in rates or surcharges and was “rather narrowly based and greatly influenced by declining
currency exchange ratios of the Deutschmark versus the United States dollar.” See UNCTAD, Review of Maritime Transport 1972–73, p. 81, and 1984, p. 42. It also appears that the index as published in the 1960s and 1970s did not clearly distinguish liner freight rates overall from container shipping rates. The index as published in the 1990s did make this distinction, revealing very different trends. The index for all liner rates, for example, fell from 101 in January 1994 to 96 in June 1997, whereas the subindex for container rates fell much more steeply, from 101 to 90, during the same period. See UNCTAD, Review of Maritime Transport 1997, p. 50. For more discussion of both indexes and an attempt to adjust them for inflation, see Hummels, “Have International Transportation Costs Declined?”

  13. For the Hansen index, see Fairplay, January 15, 1981, p. 15.

  14. Tursi, White, and McQuilkin, Lost Empire, p. 185.

  15. UNCTAD’s annual Review of Maritime Transport provides data on container shipping in developing countries; see also Pearson and Fossey, World Deep-Sea Container Shipping, p. 27. The containerized share of U.S. imports appears in the Review for 1974, p. 51.

  16. Sletmo and Williams, Liner Conferences, p. 80.

  17. According to Pacific Maritime Association data, base wages for longshoremen on the U.S. Pacific Coast nearly doubled, from $3.88 per hour in July 1966 to $7.52 in July 1976. Data available at www.pmanet.org. At U.S. North Atlantic ports, longshoremen who were entitled to four weeks’ vacation and eleven paid holidays in 1966 were eligible for six weeks’ vacation and thirteen paid holidays by the early 1970s. Longshore News, November 1969, p. 4A.

  18. OECD, “Ocean Freight Rates as Part of Total Transport Costs,” p. 31.

  19. Hummels, “Have International Transportation Costs Declined?”; Fairplay, May 16, 1968, p. 49.

  20. On New Zealand, see Fairplay, February 19, 1976, p. 3.