HOW HAVE CONTAINERS REVOLUTIONIZED SEA TRADE?

Trade via the seas has been shaping the world in monumental ways ever since the rise of ancient civilizations of Mesopotamia, Rome, China and the Indus Valley. Historically, some of the most prosperous cities and nations have been those with bustling ports and when the odds turned against the ports, they degenerated, the cities following suit. This trend continues long after the invention of airfreight services and development of faster land transport.

It is not without reason that the sea shipping industry contributes to 90% of the world trade. Perhaps the most potent and ironically unrecognized contributors are the homely container boxes that one sees stacked one on top of the other, all aboard a massive ship.

What makes container ships so valuable is their practical economic efficiency, which caused them to spearhead much of the 20th Century’s globalization. The story, like many other inventions, spurs from lassitude. During the Great Depression, an American truck driver Malcom McLean’s assignment to transport cotton to Hoboken, New Jersey bored him out of his mind. He got frustrated spending endless hours watching the dockworkers remove the cargo from his truck and assemble it onto the ship. It’s in this boredom that the revolutionary idea took birth. “Wouldn’t it be easier,” he thought, “if I could drive my truck on the ship and then drive off at the destination?”

What Malcom had wished for was similar to the modern Ro-Ro (roll on, roll off) system in Europe and America, and this was to be the beginning of a new era for the shipping industry.

In the 1950s, after building a successful truck business, Malcom decided to test his idea. He designed the first container boxes with an engineer, Keith Tantlinger, and on 26th April 1956, the ‘SS Ideal X’ sailed with fifty-eight containers from Newark in New Jersey to Houston in Texas. To hand-load a ship would cost you $5.86 a ton at that time, it cost Malcom 16 cents using containers. The Lo-Lo (lift on, lift off) technology he used, saved more than 36 times the cost besides greatly reducing the time. The truck entrepreneur had discerned that a ship only makes money when she is at sea, a key principle of the industry.

But like every other game-changing technology, social obstacles propped up. His invention faced resistance by major players in the sector: the US regulators, shipping companies, truck companies and but of course, the dockworkers’ unions.

However, Malcom had grasped the power of his creation and wittily maneuvered his way through the red tape and narrow-minded pressure groups. In the late 1960s, he found a Herculean ally, the US Military. Remember, this was the Cold War era and the US needed to ship equipment to Vietnam. McLean’s container ships eased the logistical nightmare by carrying twenty times as much cargo than other ships in that time and unload that amount in hours instead of days.

 

GAME CHANGER

To some extent one can say it was logical that container boxes would serve as a more efficient and economical procedure; they reduced wastage of space on the ships. One no longer needed to track individual assignments at the port warehouses. It made inland distribution by trucks and lorries easier, and solved the tedious task of physically loading the ships, which was not only strenuous (sugar bags heavier than men were lifted with muscle power) but also dangerous. It is estimated that in a large port, someone would be killed every few weeks. Additionally, items being shipped were safer and the owners needn’t spend a small fortune on insuring their goods.

 

LIMITATIONS

Economic theory postulates, ‘What is good for the society as a whole may not be good for individuals’. This remains consistent because increased productivity meant dockworkers needed to be laid off and port facilities like Liverpool, which couldn’t support containerizationcontainerization, declined. Moreover, along with these containers there was requirement of large stretches of coastline and land, trucks, huge investments into building or buying ships, long automated cranes to carry the boxes onto the ships and the much larger containers themselves that would replace a labour intensive industry. Developing countries like India were faced with the challenge of accumulating this better infrastructure to catch onto the bandwagon.

Eventually, containerization became the norm as globalization took over. Containerization brought in economies of scale, which expanded international trade. The trade links established boosted the developing nations like China by permitting them to join existing supply chains instead of having to build an industry from scratch. Today Chinese domination is evident as 97% of all containers are made in China and 26% of container traffic originates in there. Moreover, out of the top 10 busiest ports in the world, six are in China.

Taking data from 22 industrialised nations, a research paper by Daniel Bernhofen, Zouheir El-Sahli and Richard Kneller, Lund University observed that containerization lead to increase in bilateral trade by 320% in the first five years and 790% twenty years hence. On the other hand, a bilateral free-trade agreement would only boost trade by 45% in twenty years.

This system is thus well-suited for an interconnected global economy due to the higher speed as well as the reliability of shipping, which allows firms to respond to the markets, known as ‘just-in-time’ production.

In the current decade, when the shipping industry is facing excess capacity, the end of the boom period of its business cycle and not being able to fully recover from the global financial crisis and consequent recessions around the world, Malcom’s containers put forth a strong proposition for innovating and advancing technology.

The metal container boxes are a simple and sweet example of an unassuming technology diffusing into and ultimately reorienting an entire sector, cities, towns, our economies and our lives. The International Maritime Hall of Fame named Malcom McLean as the ‘man of the century’ for his invention. He was honoured at his funeral by container ships all around the world blowing their whistles.

Due to his invention many companies and countries were able to export more and expand their profitability. Hence, ironically, an idea that was thought to be a cause of unemployment turned out to provide more and more jobs to people as production increased and so did the need for other services. This has opened up international commerce and a world economy, unlike anything ever imagined. All it took was some thinking inside the box.

 

-Ananaya Agrawal

 

Links for further reading:

https://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/the-hidden-opportunity-in-container-shipping

https://www.bcg.com/publications/2016/globalization-corporate-strategy-sailing-in-strong-winds.aspx

http://www.bbc.com/news/business-38305512

https://www.marineinsight.com/infographics-2/expect-shipping-industry-2017-infographic/

https://www.economist.com/blogs/economist-explains/2013/05/economist-explains-14


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