Have you tried The Box? – Part 3

While it’s possible to start a business today with little capital, the container business was always one of big investments. This was especially true for ports that had to spend on infrastructure to get their share of container traffic.

That’s because containerization meant only shipping through the few ports that were the best connected and equipped. If you wanted to be one of those lucky ports, you had to have more train connections, the best cranes and even better logistics, none of which came cheap.

Some fell while others excelled. Take the United Kingdom, where Liverpool and London had been the maritime hubs. Unions at these ports launched anti-container campaigns, fearing that the new automated system would eliminate jobs and a government container port in Tilbury, outside of London, was shut down for months due to striking workers. At the same time, Sea-Land invested in transforming the small private port of Felixstowe into the major UK container handler that it remains to this day, leaving London in the dust.

But ports weren’t the only place that investment was necessary. For ship lines to gain market share, they had to put up the money for container ships. In fact, at the end of the ’60s, the demand for container ships had spiked and, while the first ones had been cheap, old World War II vessels, the new ones were big investments.

However, the benefits of container transport were innumerable: lower packaging costs, decreased insurance rates and an easier option for shipping things like electronics.

While at first the new transports brought more competition with only marginal increases in the amount of freight shipped, the overcapacity of the industry started to produce serious price cuts in 1967. That’s because many of the container-shipping companies were struggling to stay afloat, even shipping half-full loads just to be able to afford costly repairs and rent for terminals.

As a result, the cartels fell apart and new consolidations formed between carriers like the joint venture in Germany between Hapag and Lloyd.

While bigger isn’t always better, it definitely is when it comes to container shipping. So while the first container boom created an overcapacity for most shipbuilders and made container ships cheaper, container shippers, including McLean and his new company United State Lines, also began opting for bigger vessels.

That’s because bigger ships could operate with the same-sized crew and comparable fuel requirements as those half their size. The industry seized on what then became a lucrative cycle: lower operational costs per container also allowed shippers to cut their prices and receive more orders in return. Naturally, with more freight came more income, thereby enabling greater investments.

For instance, in 1978 a single ship could hold more containers than had come through every port in America combined during an average week in 1968 – that’s 3,500 20-foot containers!

But larger ships necessitated larger ports, because the bigger the port, the bigger the vessels it could serve and the faster it could get them unloaded, packed and back to sea. Bigger ports also often had deeper berths, a greater number of faster-moving cranes, superior shipment-tracking technology and better road and rail connections. As a result, port investments went through the roof, but rapid developments likewise made it possible for a harbor to lose its ship lines to a newer, bigger harbor from one year to the next.

However, as the ships grew so did the debts. At the dawn of the 1980s, many ship lines were struggling to stay afloat. The global economy was also in trouble. Overcapacity was affecting prices and, despite all predictions, the price of oil was falling.

For McLean, the slow but fuel-efficient ships he had invested in were no longer competitive and failed to bring in the profits necessary to pay his debts. In 1986, McLean declared bankruptcy – the biggest bankruptcy case in US history. But container shipping itself was here to stay and the industry overall was destined for steady growth.

The emergence of the container immediately affected the maritime world, but the impact containerization had on the global economy took some time to develop. In fact, it wasn’t until around 1977 that containers truly affected industries outside of shipping, like manufacturing and wholesaling.

Containers didn’t require warehouses and were harder to rob, yielding lower insurance rates and fewer damages. But the largest impact containers had on the global economy came when prices started to drop dramatically.

Here’s what happened:

In the early 1970s, Australian shippers and manufacturers pooled their power in an attempt to depress prices. The two facets of industry went with independent carriers instead of shipping conferences, i.e., the monopolistic method employed by the cartels. As the conferences were forced to accept price reductions, they eventually fell apart.

This made space for independent carriers, who were gaining market share and growing quickly. Take Maersk from Denmark: in 1973, it built its first container ship. But by 1981, it was the third-largest container shipper in the world! The company’s size let it offer service that was both flexible and reliable at unprecedented prices.

Another major change was deregulation. When US President Ford took away much of the ICC’s authority over trucks in 1975, it resulted in the eventual deregulation of railroads in 1980. The changes enabled price deals for major customers and investments in new rail cars that transported containers on long-term contracts, while providing for seamless transitions between the different forms of transport: now containers could move easily from trains to trucks to ships.

The result was an overall decline in transportation costs that enabled the transportation of manufacturing parts and on-the-dot production without wholesalers or warehouses. In fact, prior to the 1980s, logistics was only a military term. By 1985, logistics management was a routine function of business.

Transportation only rose in significance as prices dropped, and it was all thanks to the container. Today, for example, it’s cheaper to buy parts from one continent and assemble the final product in another!

The container made shipping cheaper and more efficient, and its impact on the global economy created a more interconnected world.

The rise of container shipping has been a fundamental force in driving globalization. That’s because the transportation revolution that containerization brought on enabled the interconnected economy of the modern world. However, containerization was no quick success story, overcoming countless obstacles to make the impact that it has today.

Check out my related post: Do you have The Charge? – Part 1

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