The Container That Changed the World

The New York Times, "Economic Scene" , March 23, 2006

The political showdown over a Dubai company's plan to operate terminals at six American ports briefly focused public attention on one of the most significant, yet least noticed, economic developments of the last few decades: the transformation of international shipping.

Just as the computer revolutionized the flow of information, the shipping container revolutionized the flow of goods. As generic as the 1's and 0's of computer code, a container can hold just about anything, from coffee beans to cellphone components. By sharply cutting costs and enhancing reliability, container-based shipping enormously increased the volume of international trade and made complex supply chains possible.

''Low transport costs help make it economically sensible for a factory in China to produce Barbie dolls with Japanese hair, Taiwanese plastics and American colorants, and ship them off to eager girls all over the world,'' writes Marc Levinson in the new book The Box: How the Shipping Container Made the World Smaller and the World Economy Bigger (Princeton University Press).

For consumers, this results in lower prices and more variety. ''People now just take it for granted that they have access to an enormous selection of goods from all over the world,'' Mr. Levinson said in an interview. That selection, he said, ''was made possible by this technological change.''

When the first container ship set sail 50 years ago, businesses and regulators treated distribution not as a single process but as a series of distinct modes: ships, trucks and trains. Every time the transportation mode changed, somebody had to transfer physically every box or barrel.

''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,'' writes Mr. Levinson, a Wall Street economist and former economic journalist. This ''breaking bulk'' could easily consume half of the total cost of shipping.

Goods often had to wait in warehouses for the next stage. Those transfers and delays made shipping slow and schedules uncertain. They also created opportunities for damage, mistakes and more than a little theft. (Whiskey was one of the first products shipped by container because it was so subject to pilferage.) Different companies in different industries facing different price regulations for different goods handled each step.

Today, by contrast, ''you can call one of the big international ship lines, tell them to pick up your container in Bangkok, which is not a port, and tell them to deliver it in Dallas, which is not a port, and they will make the arrangements to get it to a port and get it on a ship and get it off at another port and get it onto a train or truck and get it where it needs to be,'' Mr. Levinson said.

For that, shippers can thank a visionary North Carolina trucking entrepreneur. Malcom McLean, founder of the company that became Sea-Land Service, thought not like a seaman but like a salesman.

''His big insight was that the customer doesn't care how you're shipping the goods,'' Mr. Levinson said. ''The customer wants to get it from here to there cheap and on time. The customer doesn't care if it goes by air or land or sea.''

The idea of containerization was simple: to move trailer-size loads of goods seamlessly among trucks, trains and ships, without breaking bulk. But turning that idea into real-life business practice required many additional innovations.

New equipment, from dockside cranes to the containers themselves, had to be developed. Carriers and shippers had to settle on standard container sizes. Ports had to strengthen their wharves, create connections to rail lines and highways, build places to store containers and strike new deals with their unions.

Along the way, even the most foresighted people made mistakes and lost millions. Malcom McLean himself bought fast fuel-guzzling ships right before the 1973 oil crisis and slow, economical ships just as fuel prices turned down. ''Almost everybody who was concerned with containerization in any way at some point got the story wrong,'' Mr. Levinson said.

It is a classic tale of trial and error, and of creative destruction.

Traditional dockworkers and maritime managers found their skills obsolete or inadequate. Some smaller ports, like Mobile, Ala., lost business while others, like Seattle, boomed. As London and Liverpool declined, the tiny town of Felixstowe gained 40 percent of Britain's container traffic.

Mr. Levinson's story helps explain why port operators like the Dubai-owned company DP World have become so important. In the container age, any city with good port facilities, including feeder rail and truck lines, can compete with any place in the same large region. Seattle can take business from Oakland, and Hampton Roads can attract shippers from New York. That heightens competition among ports.

At the same time, container lines keep building larger and larger ships to drive down their cost per unit. To accommodate larger vessels or just keep up with the competition, ports must constantly invest large sums of capital. Yet local governments cannot be sure that shippers will not move to the next city that offers them a better deal.

Private operators, who lease terminals and pay for port equipment, often have better access to capital markets. And they have the right incentives. They will not overinvest in hopes of spurring local business development. They can spread their risks over many different locations and give customers whatever level of service they are willing to pay for.

With privatization, ''the public agency that actually owns the port is guaranteed rent, and there's a higher level of security for everybody in the chain,'' Mr. Levinson said. ''This was a response to the riskiness of what is a very, very capital-intensive business.''