Book Summary: “The Box” by Marc Levinson

Title: The Box: How the Shipping Container Made the World Smaller and the World Economy Bigger
Author: Marc Levinson
Scope: 3 stars
Readability: 4 stars
My personal rating: 5 stars
See more on my book rating system.

Topic of Book

Levinson traces the history of the invention and diffusion of inter-modal container shipping and its effect on the world economy.

Key Take-aways

  • Inter-modal container shipping, trucking and railroading is one of the most important technologies of the 20th Centuries. Without it our modern economy could not function. In particular, the economies of Japan, South Korea and China could not have grown anywhere near as fast.
  • Previously shipping costs greatly reduced the size of the market that each business could reach. This was a far greater restriction on trade than tariffs.
  • The extra cost was largely because of the extremely labor-intensive packing and unpacking of ships, trucks and railroads. This process often took weeks.
  • Containers transformed cities by eliminating the need for docks within cities. This caused factories to move out of the downtown and opened up the waterfront for development.
  • Because of inter-modal container shipping enabled the growth of world-wide supply chains and lowered the costs for almost all goods.

Important Quotes from Book

 “Before the container, transporting goods was expensive—so expensive that it did not pay to ship many things halfway across the country, much less halfway around the world.”

“The container is at the core of a highly automated system for moving goods from anywhere, to anywhere, with a minimum of cost and complication on the way.

The container made shipping cheap, and by doing so changed the shape of the world economy. The armies of ill-paid, ill-treated workers who once made their livings loading and unloading ships in every port are no more, their tight-knit waterfront communities now just memories. Cities that had been centers of maritime commerce for centuries, such as New York and Liverpool, saw their waterfronts decline with startling speed, unsuited to the container trade or simply unneeded, and the manufacturers that endured high costs and antiquated urban plants in order to be near their suppliers and their customers have long since moved away. Venerable ship lines with century-old pedigrees were crushed by the enormous cost of adapting to container shipping.

“This new economic geography allowed firms whose ambitions had been purely domestic to become international companies, exporting their products almost as effortlessly as selling them nearby. If they did, though, they soon discovered that cheaper shipping benefited manufacturers in Thailand or Italy just as much. Those who had no wish to go international, who sought only to serve their local clientele, learned that they had no choice: like it or not, they were competing globally because the global market was coming to them. Shipping costs no longer offered shelter to high-cost producers whose great advantage was physical proximity to their customers”

“In 1956, the world was full of small manufacturers selling locally; by the end of the twentieth century, purely local markets for goods of any sort were few and far between.”

“Many titans of the transportation industry sought to stifle the container. Powerful labor leaders pulled out all the stops to block its ascent, triggering strikes in dozens of harbors. Some ports spent heavily to promote it, while others spent huge sums for traditional piers and warehouses in the vain hope that the container would prove a passing fad. Governments reacted with confusion… Even seemingly simple matters, such as the design of the steel fitting that allows almost any crane in any port to lift almost any container, were settled only after years of contention. In the end, it took a major war, the United States’ painful campaign in Vietnam, to prove the merit of this revolutionary approach to moving freight.”

“It seems clear that the container brought sweeping reductions in the cost of moving freight… An enormous containership can be loaded with a minute fraction of the labor and time required to handle a small conventional ship half a century ago.”

“Transportation has become so efficient that for many purposes, freight costs do not much effect economic decisions. As economists Edward L. Glaeser and Janet E. Kohlhase suggest, “It is better to assume that moving goods is essentially costless than to assume that moving goods is an important component of the production process.” Before the container, such a statement was unimaginable.6

In 1961, before the container was in international use, ocean freight costs alone accounted for 12 percent of the value of U.S. exports and 10 percent of the value of U.S. imports. “These costs are more significant in many cases than governmental trade barriers,” the staff of the Joint Economic Committee of Congress advised, noting that the average U.S. import tariff was 7 percent. And ocean freight, dear as it was, represented only a fraction of the total cost of moving goods from one country to another. A pharmaceutical company would have paid approximately $2,400 to ship a truck-load of medicines from the U.S. Midwest to an interior city in Europe in 1960. This might have included payments to a dozen different vendors: a local trucker in Chicago, the railroad that carried the truck trailer on a a flatcar to New York or Baltimore, a local trucker in the port city, a port warehouse, a steamship company, a warehouse and a trucking company in Europe, an insurer, a European customs service, and the freight forwarder who put all the pieces of this complicated journey together. Half the total outlay went for port costs.”

“No wonder that, relative to the size of the economy, U.S. international trade was smaller in 1960 than it had been in 1950, or even in the Depression year of 1930. The cost of conducting trade had gotten so high that in many cases trading made no sense.”

“By far the biggest expense in this process was shifting the cargo from land transport to ship at the port of departure and moving it back to truck or train at the other end of the ocean voyage. As one expert explained, “a four thousand mile voyage for a shipment might consume 50 percent of its costs in covering just the two ten-mile movements through two ports.”

“Transport efficiencies, though, hardly begin to capture the economic impact of containerization. The container not only lowered freight bills, it saved time. Quicker handling and less time in storage translated to faster transit from manufacturer to customer, reducing the cost of financing inventories sitting unproductively on railway sidings or in pierside warehouses awaiting a ship. The container, combined with the computer, made it practical for companies like Toyota and Honda to develop just-in-time manufacturing, ”

“These savings in freight costs, in inventory costs, and in time to market have encouraged ever longer supply chains, allowing buyers in one country to purchase from sellers halfway around the globe with little fear that the gaskets will not arrive when needed or that the dolls will not be on the toy store shelf before Christmas. The more reliable these supply chains become, the further retailers, wholesalers, and manufacturers are willing to reach in search of lower production costs”

“This book contends that, just as decades elapsed between the taming of electricity in the 1870s and the widespread use of electrical power, so too did the embrace of containerization take time. Big savings in the cost of handling cargo on the docks did not translate immediately into big savings in the total cost of transportation.”

“Not until firms learned to take advantage of the opportunities the container created did it change the world. Once the world began to change, it changed very rapidly: the more organizations that adopted the container, the more costs fell, and the cheaper and more ubiquitous container transportation became.”

“In the early 1950s, before container shipping was even a concept, most of the world’s great centers of commerce had docks at their heart. Freight transportation was an urban industry, employing millions of people who drove, dragged, or pushed cargo through city streets to or from the piers. On the waterfront itself, swarms of workers clambered up gangplanks with loads on their backs or toiled deep in the holds of ships, stowing boxes and barrels in every available corner. Warehouses stood at the heads of many of the wharves, and where there were no warehouses, there were factories. As they had for centuries, manufacturers still clustered near the docks for easier delivery of raw materials and faster shipment of finished goods.”

“Automation had arrived during World War II, but in a very limited way. Forklifts, used in industry since the 1920s, were widely used by the 1950s to move pallets from the warehouse to the side of the ship, and some ports installed conveyors to unload bags of coffee and potatoes. Even with machinery at hand, though, muscle was often the ultimate solution.”

“Moving an incoming shipload of mixed cargo from ship to transit shed and then taking on an outbound load could keep a vessel tied up at the dock for a week or more.

These waterfront realities meant that shipping was a highly labor intensive industry in the postwar era.”

“Yet while the larger American ship lines were not particularly profitable, they were relatively sheltered. Foreign lines were barred from coastal service and routes to island territories, and a new American-owned competitor could not enter a domestic route without proving to the ICC that its entry would not harm other ship lines. Competition was also limited on international routes, where almost all ship lines belonged to cartels, known as conferences, that set uniform rates for each commodity. The U.S.-flag international lines received government subsidies… the maritime industry thus felt little immediate pressure for change. Reshaping the business of shipping was left to an outsider with no maritime experience whatsoever, a self-made trucking magnate named Malcom Purcell McLean.”

“The Interstate Commerce Commission controlled almost every aspect of the business of common carriers—truckers whose services were on offer to the public. A common “carrier could haul only commodities the ICC allowed it to haul, over ICC-approved routes, at ICC-approved rates. If a new firm wanted to begin service, or if an existing one wanted to serve a new route or carry a new commodity, it had to hire lawyers to plead its case at the commission. Any major change required hearings at which other truck lines and railroads had the opportunity to object. Regulation made trucking hugely inefficient.. The ICC’s concern was not efficiency but order. Regulation protected the interests of established truck lines by limiting competition, and it protected the railroads by forcing truck lines to charge much more than railroad companies. More than anything else, the ICC wanted to keep the transportation industry stable.”

“Malcom McLean was by no means the “inventor” of the shipping container.”

“Yet the historians’ debate about precedence misses the transformational nature of McLean’s accomplishment. While many companies had tried putting freight into containers, those early containers did not fundamentally alter the economics of shipping and had no wider consequences.

Malcom McLean’s fundamental insight, commonplace today but quite radical in the 1950s, was that the shipping industry’s business was moving cargo, not sailing ships. That insight led him to a concept of containerization quite different from anything that had come before. McLean understood that reducing the cost of shipping goods required not just a metal box but an entire new way of handling freight. Every part of the system—ports, ships, cranes, storage facilities, trucks, trains, and the operations of the shippers themselves—would have to change. In that understanding, he was years ahead of almost everyone else in the transportation industry.”

“Every aspect of the operation needed to be redesigned for faster handling. Tantlinger invented a new trailer chassis… A new locking system. The containers themselves were redesigned with heavy steel corner posts to support the weight of more containers above them, and a new refrigerated version had the cooling unit set within the profile of the container, so that it could be stacked along with nonrefrigerated boxes. New doors were designed with the hinges recessed within the rear corner posts rather than protruding from the sides.

“All of these new containers had a special steel casting built into each of their eight corners. The casting contained an oblong hole designed to accommodate the most critical invention of all, the twist lock. ”

“Not until the cells and containers had been designed could Pan-Atlantic focus on the other critical component of its new operation, the cranes.”

 “Within ninety days, Skagit Steel produced an enormous crane, which rode on a huge gantry that bridged an entire ship.”

“In the early 1950s, before container shipping was even a concept, New York handled about one-third of America’s seaborne trade in manufactured goods. New York’s role was even larger when measured in dollars, because the port had increasingly come to specialize in high-value freight.”

 “The new Sea-Land terminal at Port Elizabeth, opened in 1962, operated on a scale that was inconceivable in New York City. McLean won government permission to sail from Newark to the West Coast through the Panama Canal, and Sea-Land’s traffic soared: the Port of New York handled more domestic general cargo in 1962 than in any year since 1941. Almost all of this cargo moved across the Sea-Land pier in New Jersey. Almost “none of it moved through New York City. The leisurely port calls of the early 1950s were becoming a memory. A mixed load of containers and breakbulk freight—the kind of load New York City’s new piers were built to handle—was an economic drain, because the cost of extra port time to handle noncontainerized cargo ate up the savings from containerization. With no room to store thousands of containers and chassis and no way to handle the hundreds of trucks and railcars coming to meet every ship, New York City’s docks were in no position to compete.”

“By the middle of the 1970s, the New York docks were mostly a memory.”

“A New York City location had long offered trans port-cost advantages for factories serving foreign or distant domes tic markets, as local plants could get their goods loaded on ships with much less handling than could factories inland. The container turned the economics of location on its head. Now, a company could replace its crowded multistory plant in Brooklyn or Manhattan with a modern, single-story factory in New Jersey or Pennsylvania, could enjoy lower taxes and electricity costs at its new home, and could send a container of goods to Port Elizabeth for a fraction of the cost of a plant in Manhattan or Brooklyn. This is exactly what occurred: while industry fled the city, 83 percent of the manufacturing jobs that left New York between 1961 and 1976 ended up no further away than Pennsylvania, upstate New York, or Connecticut.”

“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. ”

“ International container shipping could now become a reality.”

 “By the late 1950s, the lesson for public officials already was clear. As container shipping expanded, maritime traffic would be drawn to a small number of very large ports. Many established centers of maritime commerce would no longer be needed, and ports would have to compete to be among the survivors. Most important, the scope of the investment that would be required—filling the sea to provide hundreds of acres of solid waterfront land, building enormous cranes and marshaling yards, creating off-dock infrastructure such as roads and bridges—was far beyond the ability of ship lines to finance. If they hoped to capture the jobs and tax revenues that would come with being a major transportation center, government agencies would have to be far more closely involved in financing, building, and running ports than ever before”

“Scale was the holy grail of the maritime industry by the late 1970s. Bigger ships lowered the cost of carrying each container. Bigger ports with bigger cranes lowered the cost of handling each ship. Bigger containers—the 20-foot box, shippers’ favorite in the early 1970s, was yielding to the 40-footer—cut down on crane movements and reduced the time needed to turn a vessel around in port, making more efficient use of capital. A virtuous circle had developed: lower costs per container permitted lower rates, which drew more freight, which supported yet more investments in order to lower unit costs even more. If ever there was a business in which economies of scale mattered, container shipping was it.”

“Deregulation changed everything. In two separate laws passed in 1980, Congress freed interstate truckers to carry almost anything almost anywhere at whatever rates they could negotiate. The ICC lost its role approving rail rates, except for a few commodities such as coal and chemicals. Trucks and railcars that had often been forced to return empty were able to get cargo for backhauls. Another definitive break from the past proved critical to driving down the cost of international shipping. For the first time, railroads and their customers could negotiate long-term contracts setting rates and terms of service. The long-standing principle that all customers should pay the same price to transport the same product gave way to a system that yielded huge discounts for the biggest customers… Costs fell so steeply that by 1988, U.S. shippers—and, ultimately, U.S. consumers—saved nearly one-sixth of their total land freight bill.”

“On average, it cost four cents to ship one ton of containerized freight one mile by rail in 1982. Adjusted for inflation, that cost dropped 40 percent over the next six years. Rail rates fell so steeply that by 1987, more than one-third of the containers headed from Asia to the U.S. East Coast crossed the United States by rail rather than making the voyage entirely by sea. A major obstacle to international trade had given way.”

“With U.S. trucks and trains deregulated, shipper interests turned their attention to the maritime industry. Once more, they won a sweeping victory. The Shipping Act of 1984 rewrote the rules governing international shipping through U.S. ports. Shippers could now sign long-term contracts with ship lines. ”

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