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Why I Don't Care About Shipping Containers


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April 10, 2006

Why I Don't Care About Shipping Containers

Michael Mandel

Marc Levinson, whom I like, has written a new book called "The Box: How the Shipping Container Made the World Smaller and the World Economy Bigger."

I must admit, however, to a bias against shipping containers. For one thing, there are huge and ugly piles of containers next to the New Jersey Turnpike and the commuter rail line that I take to work.

More important, I have bad associations of shipping containers from the mid-1990s, when Paul Krugman used them as an example of "good" technology compared to the "evil" technology of the Internet. In his 1997 Harvard Business Review article attacking the New Economy, Krugman wrote:

Techno-skeptics like to point out that although digital technology is flashy and glamorous, it arguably does less for the actual productivity of workers than many less photogenic innovations of the past. (My own favorite example of an utterly unglamorous technology that had a profound effect on the economy was freight containerization, which was introduced in the 1960s and eliminated the need for literally hundreds of thousands of longshoremen and other freight handlers).*

Krugman then went on to make some underlying ridiculous statements in that same article. For example:

The popularity of the new paradigm poses something of a puzzle. The two key arguments of that paradigm are that high productivity growth justifies higher growth targets, and that global competition prevents inflation. As we have seen, however, both arguments collapse - indeed, look quite silly - when given even a cursory critical examination.

Right.

In any case, in his book Levinson dances around the question of how much the shipping container really added to global growth:

How much the container matters to the world economy is impossible to quantify. In the ideal world, we would like to know how much it cost to send one thousand men's shirts from Bangkok to Geneva in 1955, and track how that cost changed as containerization came into use. Such data do not exist, but it seems clear that the container brought sweeping reductions in the cost of moving freight

Such data do not exist....

Anybody want to speak up in favor of shipping containers as major force for global growth? I can't see it.

01:32 PM

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The claims are not unfounded for anyone with some experience in the shipping industry. I have worked for some 6 years in shipping (4 of them for Maersk, presently the worlds largest carrier) and fo rthe past 5 years i have been working for an IT company. Indeed the Internet, as well all IT related efficiency improvments, are hard to underestimate, but the conteinerisation (actual term) of the worlds shipping has brought about a sea-change in terms of efficiencies, security (dramatic reduction in pilferage), standartisation, etc. All associated costs (including those for inland waterways, rail and road haulage) have been reduced by a factor of several orders of magnitude. In many ways, the unglamorus container is the posterchild of international trade, liberisation, open borders, etc. It is indeed a little appreciated, but highly efficient agent of efficiency improvment and change. There must be statistical data around, they are simpy not clamorous enough...

Posted by: Sfougaris Babis at April 10, 2006 03:25 PM

I have to admit that I would be surprised if it could be shown that the standardized shipping container added more to global growth than, say, the worldwide reduction of tariffs and other trade barriers in the post-war era. That said, I would hesitate to write it off as insignificant. In fact, focusing too much on the container's contribution to global economic growth (as measured by GDP) misses the point.

Like many innovations, the container took some time to gain wide acceptance. Ports needed to be overhauled, or new ports needed to be built to accommodate the cranes and other apparatus. The growth of world trade helped to create the environment that made the container sensible. It was, to use Clayton Christensen's term, a disruptive innovation. Like other disruptive innovations, the container opened the door to a new market segment. By allowing goods to be quickly and cheaply moved from ship to rail, it made it more efficient to move the imported goods to the interior of the country. As an inhabitant of "fly-over" country, I am grateful to see trains carrying hundreds of containers unloading their cargo here. I have access to the same imports as a coastal resident for nearly the same price. The container's contribution to the creation of consumer surplus is perhaps as important as its contribution to global growth rates. By becoming an integral part of the network of trade, the container has facilitated the spread of trade and increased economic value.

Posted by: William Polley at April 10, 2006 04:04 PM

What absolute silliness!

How can you say you understand globalization if you don't understand containerships? As the Economist points out, the cost of shipping went from $5.83 a ton to less than $0.16 a ton. (see the poiting on my blog – The Intangible Economy - http://www.athenaalliance.org/weblog/archives/2006/04/growing_manufac.html). No impact on global growth?

And was Krugman calling containerships a "good" tech and the Internet "bad" -- or is that your interpretation? From the quote you used, Krugman was making the point that many of us have made - that boring technologies are often the most profound (go back and read Lyn White's classic book Medieval Technology and Social Change, (or the article "Technology Assessment from the Stance of a Medieval Historian" - http://www.historians.org/info/AHA_History/lwhite.htm)

And, how in the world - after propounding the "dark matter" thesis and complaining about how our data is so bad on intangibles - can you try to dismiss someone else’s argument because "the data does not exist"!!!!

Such silliness - even for a blog.

Posted by: Ken Jarboe at April 10, 2006 04:56 PM

Are shipping containers a disruptive innovation? I don't think so. They strike me as an incremental process improvement, which reduces costs while still fundamentally leaving the same economic structure in place.

The one thing that I'm willing to grant is the reduction of pilferage and corruption.

Posted by: Mike Mandel at April 10, 2006 05:00 PM

Can one put 'dark matter' into a shipping container? Nope.

I'm certainly not denying that containerization have lowered the cost of the movement of goods. But in today's knowledge-based economy, what's really important are the intangible global flows--communications, business know-how, coordination--the so-called dark matter. Without these, the lower shipping costs are just a blip on the profit and loss statements.

To put it more bluntly, China did not become an explosive global economic power because of shipping containers, or the falling cost of transportation. If that was the reason, then every developing country would have benefited equally.

Incidentally, Ken, you mistate the quote from the Economist (and Marc's book). What Marc wrote was that the cost of *loading* the shipment fell, not the whole cost of shipping. A big difference.

Posted by: Mike Mandel at April 10, 2006 05:42 PM

Don't take it out on containers just because Krugman is a politically-biased nutcase. He's a biased nutcase who, in his sane moments, has possessed some good knowledge of economics and who -- back in the mid 90's before he contracted Bush Derangement Syndrome and abandoned economics in favor of political punditry -- often made good sense.

I don't know any stats, but just thinking about the merchant shipping industry and how goods were handled before containerization, it seems likely enough to me that containers have made the industry far more productive. I assume 100 men, a big ship, and a dockful of equipment could as a result move a lot more stuff over a given period of time and a givem amount of fuel: that's an example of productivity growth.

Just because something is material instead of digital doesn't necessarily mean it is not a force for productivity growth. Consider railways, steam and internal combustion engines, and the interstate highway system (which, I suspect, made possible Wal-Mart and McDonalds as we know them).

Posted by: Kevin at April 10, 2006 05:59 PM

Consider the response of a pre-containerized port to Malcolm McLean's now famous innovation. Why should they adopt the container technology? It would require capital improvements and modifications. Cranes would replace longshoremen. Rail terminals and container storage would replace warehouses. The port would have to be deepened to permit larger ships. Perhaps most importantly, their existing customers would gain little value. This is especially true if the marginal cost savings are small, as you argue. It's no surprise that the innovation languished for a decade.

Then, suppose an new member of the global trading club (Japan) decides to adopt the innovation. Now there's a threat to the old system. A new port built to handle containers could erode the profits of the traditional ports. How should the traditional ports respond?

They should respond by looking for new customers they can reach with the container--domestic and foreign. The ports, and the shipping firms themselves, must become truly intermodal. (It goes without saying that the regulatory environment must be condusive to this, a point which Virginia Postrel makes quite well. http://www.dynamist.com/weblog/archives/002097.html)

The domestic benefits of intermodel containers could have been realized in 1956, but it took the Japanese adoption of the technology to get the American ports to react. They were not seeing the value that the new innovation could provide to a customer base other than the one they were serving. The shipping companies of 1956 probably would have scoffed at the idea of a World Trade Center in Denver or Kansas City. (Today, both exist.) Their existence isn't entirely attributable to the container, of course. And of course the container didn't cause the economic boom in China. (More plausibly, the boom in China secured the importance of the container in trade.)

I think that an innovation that makes it possible for you to be an importer/exporter in the interior of the country does fundamentally change the economic structure of trade. From where I sit, it certainly creates economic value.

Posted by: William Polley at April 10, 2006 08:13 PM

1)The real power is in the *combination* of containerization and information technoogy. I'm doubtful that Krugman really understands how these factors work together.

2)"China did not become an explosive global economic power because of shipping containers, or the falling cost of transportation"...while transportation improvements were not the *sole* reason for China's success as an exporter, they were an important enabler. If shipping was still dependent on longshoremen to unload the vessel one item at a time, then I doubt if offshore manufacturing would be anywhere near as pervasive as it is. Obviously, there are other factors; if a government is so corrupt and inefficient that it takes 2 weeks to get a container through customs, then the benefits of the technology will be largely lost.

And again, it's the *combination* of containerization and IT that has proved disruptive. If international communications were still limited to airmail and Telex, then we would see a lot less container traffic than we are seeing.

Posted by: David Foster at April 10, 2006 08:23 PM

I don't think it would be possible to ship everything we import today without containers. What would you do treat the whole ship as one big container and unload it one box at a time? That would take for ever, even with a conveyer and an RFID/robotic automation system. Also I think container ships are bigger than it would make sense to build a non-container ship. The container is one of many things that allows countries like china to prosper on the scale that they are. I can’t imagine them being able to do what they are today without them.

Kevin

The only benefit we got from the interstate highway system is that we got away from railway monopolies. I think it would be more efficient to not have the interstate highway system and go back to trains. The highway system created urban sprawl and the traffic jams that came with them. Trains are much more aerodynamic than trucks and they don’t get stuck in traffic. Because of limited competition in rail systems we have not seen that system perform at its best.

To illustrate just how inefficient the interstate highway system has made our landscape try this example. I’ve calculated that it would be possible to fit the entire population of Metro Detroit inside one of it’s townships (all complete townships are 36 square miles) turned suburb. If it were 5:00 P.M. I could walk from one side of this 6x6 mile city in the same time I can drive across the sprawling metro area we have today, using the interstate highway system. If I had a bicycle I could I could beat my car’s time and if I had a train I could crush it. Also trains can move faster than the posted 55mph that trucks can move outside of cities.

Posted by: Joe at April 10, 2006 10:06 PM

*** But in today's knowledge-based economy, what's really important are the intangible global flows--communications, business know-how, coordination--the so-called dark matter. ***

I'd encourage you not to dis' ANY source of productivity growth. If a better way to dig ditches were to enhance productivity growth by 10%, and the use of more lamdas in an optical fiber enhances productivity growth by 10%, those two things are equally good, even if one of them is low tech and dirty.

Within an economic system, it's all related.

Efficient use of floor space by Wal Mart ends up stimulating advances in high tech ... and vice versa. Containerization frees up labor and resources, increases flow of material goods, increases the flow of capital to where it can most productively be employed (think of the money flows that result from that container...)

...with the result that some genius in Silicon Valley has a better opportunity to ponder semiconductor or software design. Those containers DO contain dark matter.

Posted by: Kevin at April 11, 2006 01:33 AM

Actually I think containerization was disruptive because it laid the basis for the intermodal transport we have today. Being able to transfer between ship, rail, and truck, not only reduced costs but increased speed greatly, similar to how trains disrupted land travel.

Posted by: Lord at April 11, 2006 02:33 PM

A bit about Malcom McLean, the creator of the container shipping industry, here.

http://photonplaza.blogspot.com/2004_12_26_photonplaza_archive.html#110409836956862219

Posted by: David Foster at April 11, 2006 05:16 PM

"Trains ... don't get stuck in traffic."

Of course trains do get stuck in traffic as anyone who commutes by rail can attest. Rail traffic is just as real as road traffic. And god forbid it's raining. Then all the switching systems seem to be out and you're moving at 10 mph. There is less traffic on rails than on roads, simply because they are utilized less. But I can't take a train to the grocery store.

Posted by: Dan at April 11, 2006 10:41 PM

Dan, Saying that trains don't get stuck in traffic was a bit of an overstatement. I did say that we have not seen the best of what trains have to offer. What I was getting at was simple math. You can fit 50 times more people in a train car than you put in a road car. Then, instead of following at a safe distance, you attach it to the car in front of it. This saves a lot of space. If we got rid of all the cars and trucks on the road and just used trains we would still have far less train traffic than we do car traffic today.

In your statements you help make my point. In my example I used Metro Detroit. It takes me about an hour to two hours depending on the rout and time of day to cross this metro area and I live right on top of the freeway. Your train, traveling at 10 miles per hour would cross the 6 mile wide city I talked about in 36 minutes. Add a ten minute walk and you are still ahead. Obviously if a city focussed on trains and put down more tracks, that acutely worked, that speed could be more than doubled. The reason you can't take a train to the store is because cars require large sprawling cities to work and trains require small tightly packed cities to work. Ultimately the small city is more efficient.

The train and tightly packed city are examples of an old and boring technology that, if applied, could greatly improve a nations productivity. Ironically dense cities would also bring more access to rule land to the average person. After all the most they can be is 3 miles away in my example.

Posted by: Joe at April 12, 2006 12:11 PM

Manhattan is an example of the sort of dense city that you are talking about. But it's only sustainable as part of a much larger area with lower density.

Posted by: Mike Mandel at April 14, 2006 09:06 AM

major force i do not know, that takes some calculation.

but standardization of container is a significant 'force'. this is like stadardizing internet protocol and hence the internet.

but there are also a lot more factors to the internet,

e.g. there is no tariff to send a webpage. there may be protectionism (eg china's great fire wall), but smuggling is really easy.

Posted by: sun bin at April 19, 2006 02:59 AM

Mike, sorry to take so long to reply - too much going on. Concerning my "misqoute", yes the numbers are specifically for the loading/unloading. But as Marc points out "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." These were the costs that the container affected first, as the elimination of piece-by-piece freight handling brought lower expenses for longshore labor, insurance, pier rental, and the like." (http://www.pupress.princeton.edu/chapters/s8131.html)

And the specific wording of the Economist is "Consider the economics. Loading loose cargo, a back-breaking, laborious business, onto a medium-sized ship cost $5.83 a ton in 1956. McLean calculated that loading the Ideal-X cost less than $0.16 a ton. All of a sudden, the cost of shipping products to another destination was no longer prohibitively expensive.

This opened up all sorts of possibilities. Instead of manufacturing goods locally, a company could afford to replace its overcrowded multi-storey factory in Brooklyn with one in Pennsylvania, where taxes, electricity and other costs were lower, and then ship its goods to New York in a container. Later the factory might move to Mexico; it is now probably in China."

Point is still the same - containerization dramatically reduced the cost of shipping.

As far as "dark matter" and China's growth is concerned, yes it is because of goods. Many other "developing countries" did benefit from containerization - i.e. Japan, and all the Asian Tigers. China is not yet a major export of intangibles -- although it will be.

I do agree with you that the impact of the container ship was mainly in the past. But we should learn the lesson of how transaction technologies have the potential to reshape the economic landscape. The most recent being IT!

Posted by: Ken Jarboe at April 19, 2006 11:54 AM

Other posters have commented on the reduced costs of containerization and seem to have some good figures to back that up, so I will simply comment that all one has to do is to break the old non-container process down and compare it to the containerized version to see the underlying basis of why it has led to such explosive growth in globalization.

While I do not profess to be an expert on shipping matters, this is what I came up with.

OLD:

Factory-- (box up shirts)

--load boxes into truck.

Truck-- (drives to port)

--unload boxes,

--palletize or stack

--load into ship

Ship-- (sails to another port)

--unload pallets or boxes

--de-palletize if needed,

--load into truck.

Truck-- (drive to warehouse)

--unload and warehouse distributes.

NEW:

Factory--

--Load container

Truck--(drives to port)

--load container on ship

Ship--(sails to next port)

--unloads containers to truck

Truck--(drives to warehouse)

--drops off container, warehouse unloads and distributes.

I watched a bit on the History Channel the other day about the automated system in a larger European port that can unload 100,000+ tons of cargo from large ships in less than a day.

I hav no doubt that the costs of shipping given above that list the costs as having gone down by a factor of ten are due to the speed and efficiency of the operation.

Time and energy are money, and containerization uses less of both. It has no less an impact on the world than canning and food packaging technology has had.

I haven't even touched on what information technology can do and has done to make the process even more efficient, but it all adds up.

Posted by: James Summers at April 21, 2006 11:21 AM

How long, on average, does it take for a crane to physically unload one container from an ocean vessel. From the time the crane operator "hooks-on" to the time the crance operator "hooks-off" and the container is on the dock or trailer ?

Could someone venture a guess ?

Posted by: CDC at April 25, 2006 07:52 PM

Basically any open (not monopolized) standartization means more efficiency. Containers and the Internet Protocol played exactly the same role in this respect.

Posted by: sredni vashtar at May 3, 2006 09:34 PM

it is possible that containers reduced the incidence of theft and pilferage giving rise to criminal gangs at ports and port cities

Posted by: rex alexander at August 21, 2006 10:43 AM

Containers have been the technology that facilitated truly global trade. The efficiencies in handling have enabled goods, and components of goods, to be sourced and distributed throughout the world from the most competitive source. Almost anything you care to mention, will have travelled in a container in some point in the supply chain. The strategic importance of containers in trade is further evidenced by the explosive investment in ports and container shipping lines.

In answer to the question on crane lift rates, they vary, but are typically around 20 to 30 an hour - say 2 minutes for each container.

Posted by: Matt at January 15, 2007 12:57 AM


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