The shipping industry was well aware of the advantages that containers offered. Just in the years when McLean and Matson began shipping the first containers, American shipping companies found themselves in constant labor disputes with striking dock workers. Several times, U.S. Presidents Kennedy and Johnson had to decree continued work and send mediators for arbitration.
Faster loading and less time spent by ships at the docks meant a great deal of money saved in port fees and additional revenue from more travel time and cargo. Containers reduced insurance costs by up to 94 percent because theft and breakage dropped dramatically.
In addition to the shipping companies, other industries also benefited. Freight forwarders no longer had to wait as long on the docks and could make more trips. Total transportation time decreased for shippers and consignees, and transportation costs fell. Up to 25 percent of the value of the goods could be the transportation cost before the introduction of containers and was not worth the trouble for most companies. This is also why many manufacturing companies were located within twenty to thirty kilometers of ports, because the cost of transportation by truck was so high. If, on top of that, shrinkage – as with Scotch whiskey, up to a quarter of which simply ‘evaporated’ – can be almost completely eliminated with the container, even old production companies like these became container fans.
Despite these advantages, which were obvious to everyone, the demand for container transport lagged behind expectations in the first few years. First of all, there was the lack of standards on how big a container should be, what materials it should be made of, and what the closing and stacking mechanisms should be. There was also the question of the purchase cost of empty containers, the construction of container cranes, the cost of the initial refitting of ships with container holders. The production companies themselves were not accustomed to planning their production batches in container quantities. Only rarely were containers completely filled with one commodity, and filling them up with other commodities resulted in mandatory unloading and weighing of each commodity to calculate the tariff.
Without standards, the containers and ships could not be optimally designed and integrated into the transport process throughout the industry. The empty spaces in the freighters that were still widely used, which the U.S. Navy had decommissioned after the end of the war and sold to commercial shipping companies for a tenth of the price, had a lot of empty space with containers. Port operators didn’t know what cranes and grappling mechanisms to invest in for the different types and sizes of containers. In addition, overland carriers such as trucking companies and railroads showed little interest in investing in flatbed trailers and container cars. Each state and country had different regulations regarding the length, height and weight of trucks on public roads. Railroad operators had different track widths, tunnel widths, and likewise weight restrictions. The railroads themselves had no interest at all in transporting containers. They were desperate to impose on their customers the freight cars they already had, into which manual reloading was required. And then, in times before computers, came the very time-consuming work of keeping track of the whereabouts of each container and tracking down lost ones.
In other words, at every industry conference, containers were the talk of the town, only no one dared to take the first step. Even after Matson and McLean started operations, the industry remained in a wait-and-see mode. The dock workers and their unions, as well as the port operators, were justified in this. The stagnation of container traffic allowed them to continue as before and feel safe.
That began to change with a crisis. More precisely, with a logistics crisis in Vietnam. The country had only one port in Saigon, and it could not accommodate ocean-going vessels. Which had not been a problem until now. Vietnam was a backward country with a lot of mountains and jungle, the roads were mostly nothing more than narrow and holey dirt tracks, and the railroad had long since fallen into disrepair on many sections. Industrial or agricultural goods of value did not exist either. These were the conditions when the U.S. began to drastically increase its activities in Vietnam in 1965 with originally just under 25,000 ‘military advisors’. It did not help that the port was controlled and operated by corrupt Vietnamese generals.
Since the U.S. military had rarely outsourced logistical tasks to private parties before, it took some convincing. After lobbying Congress, McLean was entrusted with trucking. And he, with the long-term goal of also taking over military cargo by ship, showed what he was capable of. In 1967, McLean was awarded the contract to take over the supply of container ships. The port at Cam Ranh Bay, which was not suitable for deep-sea shipping, was chosen for this purpose, and later a completely new port was to be built, which was also named Newport.
In August 1967, the first container ship, the Bienville, arrived in Cam Ranh Bay from Oakland with 609 containers. This was equivalent to the cargo content of 10 regular freighters. Traffic grew sharply with American military activity, as another 17,000 troops per month added to what eventually became an army of more than half a million. And with that, material supplies had to be secured. One-fifth were refrigerated containers in which meat, vegetables and even ice cream were brought. Between 1,230 and 1,320 containers per month were thus delivered in 1968. The U.S. Army calculated that the use of containers had already saved taxpayers $882 million between 1965 and 1968. The U.S. military had gone from being a reluctant doubter to a clear supporter of container logistics.
Since the transportation costs from the U.S. to Vietnam and the return of the empty containers were contractually covered in full by the U.S. military, any cargo McLean could pick up on the return trip was pure extra profit. And he didn’t have to look far. In Japan, he entered into contracts with manufacturers, and he brought electrical goods and vehicles, among other things, to the United States.
This broke the spell and the shipping companies ordered ever larger container ships. A ship that could carry 4,000 containers was a third cheaper to operate than a ship for 3,000 containers. Crew sizes remained the same. A race began to build larger and larger ships and ports that could accommodate them. The fabric of the world’s major ports changed dramatically. San Francisco, Liverpool, London, New York and Brooklyn sank into insignificance as port cities. And with it, more than 100,000 dock and shipyard workers, truck drivers, packaging specialists and other laborers lost their jobs in New York alone. The dockworkers and their unions, once so proud and ready to strike, were gone in less than two decades.
It took a decade for the container to go from being a partly noticed, partly ignored curiosity to unleashing its full disruptive power. In this decade, ships were rebuilt and expanded in many attempts, and new technologies were developed to make loading better, safer and faster. Port operators had to learn what infrastructure a container ship needed, from land-based cranes to rail connections. Trucks had to be retrofitted, and a sufficient number of containers had to be financed. Regulations were adjusted and tariffs were tinkered with. Producers first had to understand how to fill a container to capacity. Whereas before the container, global trade was quite limited due to transportation costs, these costs became an almost negligible part and trade began to boom. With this realization, containers began to fill and demand began to increase.
Anyone who now thinks that the disruption caused by container shipping has come to an end is wrong. It was only just beginning. The container was just one piece of the puzzle that contributed to an intermodal transport system. With lower transportation costs and simplified shipping, not only did trade increase, but entirely new value chains became possible. Production no longer had to take place a few kilometers from a port, but could be scattered across countries. As a result, production jobs migrated from the USA to Asia. Entire industries were turned upside down. Textile production, which before the container was local to Europe and the U.S., is now found almost exclusively in Asia. So are electronics and steel. The Just-in-Tme production system introduced by Toyota, in which components are delivered exactly when they are needed in the production process, could only be made possible by the container.
Unexpected and undesirable consequences also came with the container. For example, containers equipped with mattresses and toilets are used by smugglers to smuggle immigrants. The fears of security agencies, in turn, revolve around containers loaded with a dirty bomb, that is, a bomb with conventional explosives, among which radioactive material is mixed.
If the job losses of port workers were predictable (and even desired by some participants), just-in-time and globally distributed value chains were a completely unpredictable outcome of the introduction of containers. These so-called ‘third order changes‘ are often the most surprising outcome of an innovation. Expected or hoped for ‘first order changes’ occur with an innovation, subsequent 2nd order changes are already less predictable. And sometimes such a change needs a trigger. Although shipping lines and carriers all recognized the immediate benefits of containers, they were slow to act. Port workers had only a limited recognition of the threat and attached little importance to it. Producers themselves saw transportation only as an annoying evil and thought little of global trade. The Vietnam War and the logistical needs of the military came at the very moment that container transportation had already gone through several cycles of innovation. That the U.S. military became the trigger was not a given. Had the logistical problems in Vietnam not been so rampant, containers would never have been used, or would have been used later, from a military perspective.
Book recommendation
Marc Levinson; The Box – How The Shipping Container Made the World Smaller and the World Economy Bigger; Princeton University Press, 2016